RNS Number:0141S
Marconi Corporation PLC
13 November 2003
MARCONI CORPORATION PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
6 6
months months Year
to to to
30 30 31
September September March
# million Note 2003 2003 2003
TURNOVER
Continuing operations 3 756 1,019 1,914
Discontinued operations 3 - 87 88
Group 2 756 1,106 2,002
---------- ---------- ----------
OPERATING LOSS
Group operating loss
Excluding goodwill (67) (231) (308)
amortisation and
exceptional items
Goodwill amortisation (49) (54) (104)
Operating exceptional 4a (33) (206) (317)
items
3 (149) (491) (729)
Continuing operations (149) (485) (723)
Discontinued operations - (6) (6)
3 (149) (491) (729)
Share of operating loss of
joint ventures
Excluding goodwill (2) (4) (8)
amortisation and
exceptional items
Operating exceptional 4a - (32) (32)
items
(2) (36) (40)
--------- --------- ---------
(151) (527) (769)
Share of operating loss of
associates
Excluding goodwill (6) (17) (27)
amortisation and
exceptional items
Goodwill amortisation (5) (5) (10)
Goodwill impairment - (27) (27)
Operating exceptional 4b - (18) (25)
items
(11) (67) (89)
--------- --------- ---------
Total operating loss 2 (162) (594) (858)
Non-operating exceptional
items
Gain / loss on disposal of 4c 9 (5) (5)
discontinued operations
Gain on disposal of 4c 76 - -
associates
Gain on disposal of fixed 4c 18 31 26
assets and investments in
continuing operations
Merger/demerger items - - 123
Group share of associates' 4c - (3) (3)
non-operating exceptional
items
103 23 141
Amounts revalued/(written 4d 1 (40) (40)
off) investments
Gain / (loss) on waiver of 4e 25 (186) (315)
balance payable to Marconi
plc group
Net interest payable
Group 5 (20) (120) (242)
Share of joint ventures 5 - 1 -
and associates
5 (20) (119) (242)
Net finance (expenditure) 6 (47) 2 (14)
/ income
LOSS ON ORDINARY
ACTIVITIES BEFORE
TAXATION
Excluding goodwill (142) (369) (599)
amortisation and
exceptional items
Goodwill amortisation and 42 (545) (729)
exceptional items
2 (100) (914) (1,328)
TAX CREDIT/(CHARGE) ON
LOSS ON ORDINARY
ACTIVITIES
Excluding tax on goodwill (6) (10) 107
amortisation and
exceptional items
Exceptional tax credit 20 - 78
7a 14 (10) 185
LOSS ON ORDINARY (86) (924) (1,143)
ACTIVITIES AFTER
TAXATION
Equity minority - (1) (1)
interests
--------- --------- ---------
LOSS ON ORDINARY (86) (925) (1,144)
ACTIVITIES ATTRIBUTABLE TO
THE EQUITY SHAREHOLDERS
AND RETAINED LOSS FOR THE
PERIOD
======= ======= =======
Basic and diluted loss per 8 (28.8p) (161.4p) (199.6p)
share
Basic adjusted loss per 8 (34.2p) (66.4p) (86.0p)
share
======= ======= =======
MARCONI CORPORATION PLC
CONSOLIDATED BALANCE SHEET
30 30 30 31
September September June March
# million Note 2003 2003 2003 2003
FIXED
ASSETS
Goodwill 541 672 566 597
Tangible 192 329 209 243
assets
Investments 23 121 57 63
---------- ---------- ---------- ----------
756 1,122 832 903
CURRENT
ASSETS
Stocks and 10 202 356 215 234
contracts in
progress
Debtors: 11 464 803 519 581
amounts
falling due
within one
year
Debtors: 11 8 59 10 32
amounts
falling due
after more
than one
year
Cash at bank 12 772 1,062 788 1,158
and in hand
---------- ---------- ---------- ----------
1,446 2,280 1,532 2,005
Creditors: 13 (627) (3,611) (666) (5,541)
amounts
falling due
within one
year
---------- ---------- ---------- ----------
NET CURRENT 819 (1,331) 866 (3,536)
ASSETS/
(LIABILITIES)
---------- ----------
Total assets 1,575 (209) 1,698 (2,633)
less current
liabilities
Creditors: 13 (660) (2,107) (770) (46)
Amounts
falling due
after more
than one
year
Provisions 14 (246) (456) (268) (300)
for
liabilities
and charges
---------- ---------- ---------- ----------
NET ASSETS/ 669 (2,772) 660 (2,979)
(LIABILITIES)
BEFORE
RETIREMENT
BENEFIT
DEFICITS
Retirement 1 (346) (439) (357) (353)
benefit
scheme
deficits
---------- ---------- ----------
NET ASSETS/ 323 (3,211) 303 (3,332)
(LIABILITIES)
AFTER
RETIREMENT
BENEFIT
DEFICITS
======== ======= ====== ======
CAPITAL AND
RESERVES
Called-up 15a 50 143 50 143
share
capital
Shares to be 15b 8 - 1 -
issued
Share premium 15b - 700 - 700
account
Capital 15b 9 9 9 9
reserve
Capital 15b 334 - 343 -
reduction
reserve
Profit and 15b (81) (4,072) (102) (4,187)
loss
account
---------- ---------- ---------- ----------
Equity 320 (3,220) 301 (3,335)
shareholders'
interests
Equity 3 9 2 3
minority
interests
---------- ---------- ---------- ----------
323 (3,211) 303 (3,332)
===== ===== ===== =====
MARCONI CORPORATION PLC
CONSOLIDATED CASH FLOW STATEMENT
6 6
months months Year
to to to
30 30 31
September September March
# million Note 2003 2002 2003
Net cash inflow/(outflow) 16a 65 (142) 8
from operating activities
before exceptional items
Exceptional cash outflows 4f (109) (181) (329)
from operating
activities
Net cash outflow from
operating activities after
exceptional items
Continuing operations (44) (282) (282)
Discontinued operations - (41) (39)
(44) (323) (321)
Returns on investments and 16b (19) (158) (164)
servicing of finance
Tax (paid)/repaid 16c (2) (13) 31
Capital expenditure and 16d 41 (25) (30)
financial investment
Acquisitions and 16e 98 387 433
disposals
---------- ---------- ----------
Cash inflow/(outflow) 74 (132) (51)
before use of liquid
resources and financing
Net cash inflow/(outflow) 16f 19 (77) (159)
from management of liquid
resources
Cash element of Scheme 16g (340) - -
consideration
Other net cash outflow 16g (105) (38) (40)
from financing
---------- ---------- ----------
DECREASE IN CASH AND NET (352) (247) (250)
BANK BALANCES REPAYABLE ON
DEMAND
======= ======= =======
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET
MONETARY FUNDS/(DEBT)
6 6
months months Year
to to to
30 30 31
September September March
# million Note 2003 2002 2003
Decrease in cash and net (352) (247) (250)
bank balances repayable on
demand
Net cash (inflow)/outflow (19) 77 159
from management of liquid
resources
Net cash outflow from 105 38 40
decrease in debt and lease
financing
---------- ---------- ----------
Change in net monetary (266) (132) (51)
funds/(debt) resulting
from cash flows
Net debt disposed with - 17 24
subsidiaries
Other non-cash changes 17 3,956 (223) (364)
Effect of foreign exchange 17 26 159 109
rate changes
---------- ---------- ----------
Movement in net monetary 3,716 (179) (282)
funds/(debt) in the
period
Net monetary debt at 1 17 (3,617) (3,335) (3,335)
April
---------- ---------- ----------
Net monetary funds/(debt) 17 99 (3,514) (3,617)
at end of period
====== ====== ======
MARCONI CORPORATION PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
6 6
months months Year
to to to
30 30 31
September September March
# million 2003 2002 2003
Loss on ordinary activities
attributable to the
shareholders
Group (73) (820) (1,049)
Share of joint ventures (2) (35) (40)
Share of associates (11) (70) (55)
(86) (925) (1,144)
Exchange differences on (1) 106 103
translation
Tax charge on exchange - (3) -
differences
Actuarial gain/(loss) recognised 14 (373) (269)
on retirement benefit schemes
---------- ---------- ----------
TOTAL RECOGNISED GAINS AND (73) (1,195) (1,310)
LOSSES
====== ====== ======
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS
6 6
months months Year
to to to
30 30 31
September September March
# million Note 2003 2002 2003
Total recognised gains and (73) (1,195) (1,310)
losses
Shares to be issued 8 - -
New share capital and 15 3,720 - -
share premium
Group share of associates' - 3 3
shares to be issued
---------- ---------- ----------
Total movement in the 3,655 (1,192) (1,307)
period
Equity shareholders' (3,335) (2,028) (2,028)
interests at 1 April
---------- ---------- ----------
Equity shareholders' 320 (3,220) (3,335)
interests at end of
period
====== ====== ======
NOTES TO THE NON-STATUTORY ACCOUNTS
1. *ACCOUNTING POLICIES
Financial information in the non-statutory accounts is presented on the
basis of the UK accounting policies of Marconi Corporation plc as set out in
the Annual Report and Accounts for the year ended 31 March 2003. The
unaudited results for the interim period should therefore be read in
conjunction with the Marconi Corporation plc 2003 Annual Report and
Accounts. The financial information does not comprise statutory accounts for
the purposes of Section 240 of the Companies Act 1985 and has not been
audited. The balance sheet information at 31 March 2003 has been extracted
from the Annual Report and Accounts of Marconi Corporation plc for the year
then ended. The audit report on those accounts, which have been delivered to
the Registrar of Companies, was unqualified and did not contain a statement
under Section 237 (2) or (3) of the Companies Act 1985.
Associates
Associates consist of long-term investments in which the Group holds a
participating interest and over which it exercises significant influence.
Other than Easynet Group plc, investments in associates are stated at the
amount of the Group's share of net assets including goodwill derived from
audited or management accounts made up to that date. In the three months to
30 June 2003 the results for Easynet Group plc for the six months ended 30
June 2003 were not publicly available at the date of issue of Marconi
Corporation plc's first quarter report. Consequently, the Group included an
estimate of Easynet Group plc's operating losses based on 50 per cent of
their results before exceptional items for the six months ended 31 December
2002, being the last available reported financial information. The three
months ended 30 June 2002 included 50 per cent of Easynet Group plc's
operating loss and incurred operating exceptional items for the six months
ended 31 December 2001. Exceptional items are assumed to be one off events
and recognised when reported.
In the three months ended 30 September 2003, Easynet plc published their
results to 30 June 2003 and we sold our investment in Easynet plc in two
tranches. We have estimated the results of Easynet plc to the dates of
disposal based on the most recently published information.
Pensions and other retirement benefits
At 30 September 2003, an actuarial assessment of our pension schemes was
undertaken and the following actuarial assumptions were changed for the
Group's largest pension scheme, the UK plan.
At At
30 31
September March
2003 2003
per cent per cent
Rate of general increase in salaries 4.75 4.50
Rate of increase in pension payments 2.75 2.50
Rate of increase in deferred pensioners 2.75 2.50
Inflation assumption 2.75 2.50
All other assumptions remained unchanged from 31 March 2003. The impact of
these changes and disclosure of settlement losses in the period are
discussed on page 36.
Currency Translation
Transactions denominated in foreign currencies are translated into the
functional currency at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated at the rates ruling at that date. These
translation differences are dealt with in the profit and loss account with
the exception of certain gains and losses arising under hedging transactions
in prior periods.
Profits and losses of overseas subsidiaries, joint ventures and associates
and cash flows of overseas subsidiaries are translated at the average rates
of exchange during the period. Non-sterling net assets are translated at
year-end rates of exchange. Key rates used are as follows :
Average rates Period-end rates
6 6
months months Year
to to to
30 30 31 30 30 31
September September March September September March
2003 2002 2003 2003 2002 2003
US 1.6227 1.5204 1.5538 1.6614 1.5726 1.5807
dollar
Euro 1.4262 1.5813 1.5499 1.4267 1.5913 1.4486
The differences arising from the restatement of profits and losses and the
retranslation of the opening net liabilities to period end rates are taken
to reserves.
2. *SEGMENTAL ANALYSIS
Analysis of results and net assets/(liabilities) by class of business
(Loss)/profit
before Net assets/
# million tax Turnover (liabilities)
6 6
months months
to to
30 30 30 31
Sept Sept Sept March
2003 2002 2003 2002 2003 2003
Network (51) (179) 480 600 )181 205
equipment
Network 17 5 276 392
services
Central (28) (31) - -
costs
Other (5) (24) - 27 (16) (30)
---------- ---------- ---------- ---------- ---------- ----------
Continuing (67) (229) 756 1,019 165 175
operations
Discontinued - (2) - 87 - -
operations
====== ======
(67) (231) 756 1,106 165 175
Goodwill (49) (54) 541 597
amortisation
Operating (33) (238)
exceptional
items
(note 4a)
---------- ----------
Group (149) (523)
operating
loss
Joint (2) (4) 2 3
ventures
Associates (11) (67) 16 44
Total (162) (594)
operating
loss
Non-operating 103 23
exceptional
items (note
4c)
Amounts 1 (40)
revalued/
(written off)
investments
(note 4d)
Gain on waiver 25 (186)
of balance
payable to
Marconi plc
group (note
4e)
Net interest (20) (119) 104 (3,198)
payable and
interest
bearing assets
and
liabilities
Net finance (47) 2
expenditure
Unallocated (505) (550)
net
liabilities
Non-interest (403)
bearing
amounts owing
to Marconi plc
companies not
in Marconi
Corporation
plc group
---------- ---------- ---------- ---------- ---------- ----------
(100) (914) 323 (3,332)
===== ===== ===== =====
Goodwill arising on acquisitions is amortised over a period not
exceeding 20 years. Separate components of goodwill are identified and
amortised over the appropriate useful economic life. The remaining
goodwill on the balance sheet will be amortised over an average period
of approximately 6 years. It is not practical to disclose goodwill
amortisation on a segmental basis as any allocation would be arbitrary.
The net assets of Network Equipment and Network Services cannot be
separately identified as the same assets are generally used to generate
sales in each of these segments. The results of these segments are
separately reportable. Central costs include #9 million of share options
(2002: #nil). Other consists of previous non-core businesses, the
largest of which UMTS, was sold in the period.
Sales by Group companies to joint ventures and associates amounted to
#11 million (2002: #16 million). Purchase from joint ventures and
associates amounted to #nil (2002: #nil).
Certain assets and liabilities cannot be allocated by class of business
or territory. These principally consist of taxation, retirement benefits
and central provisions.
The Group has historically divided its business into three segments:
Network Equipment, Network Services and Other but is now adopting a new
reporting structure along geographic lines. The profit/(loss) before
taxation, turnover and total assets for the NARF and Non-NARF segments
are disclosed for the first and second quarter. Further information to
comply with our loan note covenants is disclosed in Notes 20.
(Loss)/profit
before Net
# million tax Turnover Assets
30 30 30 30 30 30
September June September June September June
2003 2003 2003 2003 2003 2003
NARF 15 4 139 121 93 73
Non-NARF (7) (106) 250 246 124 120
Consolidation (3) (3) - - 106 110
adjustment
for
goodwill
---------- ---------- ---------- ---------- ---------- ----------
Continuing 5 (105) 389 367 323 303
operations
===== ===== ===== ===== ===== =====
Analysis of turnover by class of business
To
customers
in
the To
United customers
# million Kingdom overseas
6 months to 30 2003 2002 2003 2002
September
Network equipment 79 128 401 472
Network services 121 126 155 266
Other - 8 - 19
---------- ---------- ---------- ----------
Continuing 200 262 556 757
operations
Discontinued - 11 - 76
operations
---------- ---------- ---------- ----------
200 273 556 833
====== ====== ====== ======
NARF 1 259
Non-NARF 199 297
---------- ----------
Continuing 200 556
operations
====== ======
Analysis of turnover by territory of destination
# million
6 months to 30 September 2003 2002
United Kingdom 200 273
Other EMEA 243 387
North America 242 304
CALA 21 43
APAC 50 99
---------- ----------
756 1,106
====== ======
Analysis of operating loss before goodwill amortisation and exceptional
items, turnover and net assets/(liabilities) be territory of origin
Operating Net assets/)
(loss)/profit Turnover (liabilities)
6 6
months months
to to
30 30 30 31
# September September September March
million
2003 2002 2003 2002 2003 2003
UK (incl. (25) (64) 234 371 181 233
central
costs)
Other (49) (89) 228 378 (57) (130)
EMEA
North 14 (58) 249 310 36 83
America
CALA 1 1 21 34 10 8
APAC (8) (21) 24 13 (5) (19)
---------- ---------- ---------- ---------- ---------- ----------
(67) (231) 756 1,106 165 175
===== ===== ===== ===== ===== =====
North America includes some small operations which are excluded from the
NARF, in particular the Group's wireless software and services
activities.
3. *GROUP OPERATING LOSS (EXCLUDING JOINT VENTURES)
Exceptional
# million Continuing items Total
6 months to 30 September
2003
Turnover 756 - 756
Cost of sales (571) 6 (565)
---------- ---------- ----------
Gross profit 185 6 191
Selling and distribution (104) - (104)
expenses
Administrative expenses - (48) (39) (87)
other
Research and development (105) - (105)
Goodwill amortisation (49) - (49)
---------- ---------- ----------
Administrative expenses - (202) (39) (241)
total
Other operating income 5 - 5
---------- ---------- ----------
Operating loss (116) (33) (149)
====== ====== ======
Share option costs of #9 million are included within selling and
distribution expenses, administrative expenses and research and development.
Exceptional
# million Continuing Discontinued items Total
6 months to 30
September
2002
Turnover 1,019 87 - 1,106
Cost of (842) (63) (24) (929)
sales
---------- ---------- ---------- ----------
Gross profit/ 177 24 (24) 177
(loss)
Selling and (152) (11) - (163)
distribution
expenses
Administrative (65) (6) (182) (253)
expenses -
other
Research and (182) (11) - (193)
development
Goodwill (51) (3) - (54)
amortisation
---------- ---------- ---------- ----------
Administrative (298) (20) (182) (500)
expenses -
total
Other (7) 2 - (5)
operating
expense
---------- ---------- ---------- ----------
Operating (280) (5) (206) (491)
loss
===== ====== ====== ======
Exceptional
# million Continuing Discontinued items Total
Year to 31
March 2003
Turnover 1,914 88 - 2,002
Cost of (1,530) (64) (21) (1,615)
sales
---------- ---------- ---------- ----------
Gross profit 384 24 (21) 387
Selling and (266) (11) - (277)
distribution
expenses
Administrative (107) (6) (296) (409)
expenses -
other
Research and (316) (11) - (327)
development
Goodwill (102) (2) - (104)
amortisation
---------- ---------- ---------- ----------
Administrative (525) (19) (296) (840)
expenses -
total
Other (1) 2 - 1
operating
expense
---------- ---------- ----------
Operating (408) (4) (317) (729)
loss
===== ===== ===== =====
All exceptional items, except for #1 million in the six months ended 30
September 2002 and #2 million in the year ended 31 March 2003 charged to
operating expenses, relate to continuing operations.
Exceptional items are shown in further detail in note 4.
The Group disposed of its Strategic Communications business during the year
ended 31 March 2003. This activity is shown as discontinued in the note
above.
4. *EXCEPTIONAL ITEMS
These charges have been analysed as follows:
a. *Operating exceptional items
# million
6 months to 30 September 2003 2002
Restructuring costs - included in (i) 6 (24)
cost of sales
---------- ----------
Impairment of goodwill and (ii) - (31)
tangible fixed assets
Restructuring and reorganisation (iii) (43) (166)
costs
System implementation costs (iv) - 7
Releases in respect of doubtful (v) 4 8
debts
---------- ----------
Included in administrative (39) (182)
expenses
Group operating exceptional (33) (206)
items
Share of joint ventures' operating (vi) - (32)
exceptional items
---------- ----------
Total operating exceptional items (33) (238)
(excluding associates)
===== =====
i) In the six months ended 30 September 2003, #6 million was credited to
restructuring costs within costs of sale. #5 million of this relates to the
release of liability provisions held against the outsourcing of certain
manufacturing operations to Jabil Circuit Inc and #1 million received on
account for stock, previously fully provided for through an exceptional
charge, and subsequently utilised by Jabil. In the six months ended 30
September 2002, #24 million was charged in relation to the Jabil outsourcing
arrangement.
ii) In the six months ended 30 September 2002, in light of declining
industry and economic trends on its current and expected future operations,
the Group reassessed the carrying values of goodwill and tangible fixed
assets. As a consequence tangible fixed assets were impaired by #31 million.
iii) As part of the Group's cost reduction actions, a charge of #43 million
(2002: #166 million) was recorded during the six months ended 30 September
2003. This includes #13 million for the costs of the financial
restructuring, #19 million for employee severance and the balance is for
site rationalisation and other restructuring costs. The site rationalisation
costs reflect charges associated with the closure and consolidation of
various sites around the world as part of the business restructuring.
iv) During the year ended 31 March 2002, the Group planned to implement a
new global IT system. In light of the subsequent revised trading outlook and
the continued focus on cost reduction, the implementation was terminated.
During the six months ended 30 September 2002, the Group was able to revise
its previous estimate of the overall costs leading to the release of #7
million from the amounts accrued in the year to 31 March 2002.
v) In light of the declining market and economic trends the Group was
experiencing, during the previous financial year an exceptional provision
against bad and doubtful debts was charged during the year to 31 March 2002.
Of this amount, #4 million was reassessed and released to the profit and
loss account in the six months to 30 September 2003. In the six months to 30
September 2002, #8 million previously provided for was paid by the Group's
debtors.
vi) During the period ended 30 September 2002, the Group also recorded its
#32 million share of the operating exceptional charges of its joint
ventures. Of this, #31 million related to the impairment of intangible fixed
assets in Ultramast Ltd.
Analysis by segment
# million
6 months to 30 September 2003 2002
Network Equipment and Network Services (33) (187)
Other - (18)
---------- ----------
Continuing operations (33) (205)
Discontinued operations - (1)
---------- ----------
(33) (206)
====== ======
United Kingdom (34) (91)
Other EMEA 9 (16)
US (7) (96)
CALA - (1)
APAC (1) (2)
---------- ----------
(33) (206)
====== ======
b. *Associates' operating exceptional items
As disclosed in note 1 the Group has recorded #nil (2002: #18 million) of
operating exceptional charges of its associates, in respect of Easynet Group
Plc. These charges related to impairment of goodwill and tangible fixed
assets, and restructuring and reorganisation costs.
c. *Non-operating exceptional items
# million
6 months to 30 September 2003 2002
Gain/(loss) on disposal of discontinued 9 (5)
operations
Gain on disposal of associates 76 -
Gain on disposal of fixed assets and 18 31
investments in continuing operations
Group share of associates' non-operating - (3)
exceptional items
---------- ----------
Included in non-operating exceptional 103 23
items
====== ======
Non-operating exceptional profits in the six months ended 30 September 2003
amounted to #103 million and consisted of a #9 million gain on the disposal
of discontinued operations, profits on the disposal of Easynet (#76
million), Marconi Mobile Access S.p.A. (#9 million) and other fixed asset
investments (#15 million), partially offset by a pension settlement loss on
a previous disposal of #6 million.
The gain on disposal of discontinued operations related to the recognition
of deferred consideration on the disposal of Strategic Communications sold
in the year ended 31 March 2003. Following agreement with Finmeccanica on
17 July 2003, this cash has now been received. The loss on disposal of
discontinued operations in 2002 resulted from the sale of Strategic
Communications (#41 million) offset by the release of provisions relating to
the disposal of the Group's Systems businesses (Medical, Commerce and Data
Systems).
On 4 July 2003, Marconi announced that it had successfully completed the
sale of 36,135,948 ordinary shares in Easynet Group plc at a price of 112
pence per share. This transaction raised #40.5 million before expenses and
reduced the Group's economic stake in Easynet to 40 per cent. The net profit
on disposal was approximately #30 million. On 4 September 2003, Marconi
announced that it had successfully completed the sale of its remaining
44,682,364 ordinary shares in Easynet at a price of 127 pence per share.
This transaction raised #56.7 million before expenses and reduced the
Group's economic stake in Easynet to zero. The net profit on disposal was
approximately #46 million.
On 17 July 2003, we completed the sale of our remaining non-core mobile
communications subsidiary, Marconi Mobile Access S.p.A. (also known as UMTS)
to Finmeccanica S.p.A.. We agreed to capitalise the business with
approximately Euro 6 million (approximately #4 million) prior to disposal.
The net profit on disposal is approximately #9 million.
During the six months ended 30 September 2003, Marconi also disposed of a
number of fixed asset investments. On 20 August 2003, we sold our entire
stake of 2,249,000 shares in Gamma Telecom Holdings Limited for
approximately #5.6 million giving rise to a net profit of approximately #4
million. On 24 September 2003, we sold our shares in Bookham Technology for
approximately #16 million giving rise to a profit of #6 million and on 9
September 2003 we sold our shares in Oxus Plc for approximately #1 million.
Further consideration was also received on the previous disposals of Tetra,
Marconi Applied Technologies and SMS giving rise to a net profit of
approximately #4 million.
A settlement loss of #6 million has been recognised, as the Group is now
demonstrably committed to transferring deferred pensioners out of the UK
plan following the sale of the Group's 50 per cent share in General Domestic
Appliances.
In 2002, a curtailment gain of #28 million in respect of pension liabilities
was recognised principally following the sale of the Group's 50 per cent
share of General Domestic Appliances in March 2002. The balance mainly
relates to gains on property disposals.
d. *Amounts revalued/(written off) investments
The revaluation of some of the Group's investments is in line with its
accounting policy whereby listed investments are marked to their market
value at the end of each reporting period and unlisted investments are held
at the lower of cost and recoverable value.
e. *Gain on waiver of balance payable to Marconi plc
As part of the restructuring, Marconi Corporation plc and its subsidiaries
entered into an agreement with Marconi plc and its direct subsidiaries to
reassign and waive balances between the Marconi plc group and the Marconi
Corporation plc group. At 31 March 2003, Marconi Corporation plc provided
for amounts due to it from Marconi plc and its direct subsidiaries which are
no longer considered to be recoverable. The gain of #25 million arose from a
direct subsidiary of Marconi plc waiving payment of the balance on 19 May
2003.
Amounts written off in 2002 of #186 million were in respect of a funding
receivable from Marconi plc in the six months ended 30 September 2002
related to amounts which the Company no longer considered to be recoverable.
f. *Exceptional cash flows
# million
6 months to 30 September 2003 2002
Operating
ESOP settlement (35) -
Restructuring costs (55) (169)
Systems implementation costs - (12)
Other (19) -
---------- ----------
(109) (181)
====== ======
Non-operating and financing
Scheme consideration (340) -
Disposal of tangible fixed assets 26 20
Net proceeds on disposal of interests in 98 387
subsidiary companies, joint ventures and
associates
---------- ----------
(216) 407
====== ======
5. *NET INTEREST PAYABLE
# million
6 months to 30 September 2003 2002
Interest receivable
Loans and deposits 9 20
Other - 13
---------- ----------
Interest receivable total 9 33
Interest payable
Bank loans, loan notes and overdrafts (29) (153)
(2003: less interest accrual release of #3
million)
---------- ----------
Net interest payable - Group (20) (120)
===== =====
Share of net income receivable from joint - 1
ventures and associates
---------- ----------
Net interest payable (20) (119)
===== =====
6. *NET FINANCE (EXPENDITURE) / income
# million
6 months to 30 September 2003 2002
Finance costs
Exceptional write off of capitalised (46) -
losses on swaps
Interest on pension scheme (74) (83)
liabilities
Other (including premium on redemption (11) (2)
of Junior notes)
---------- ----------
Finance costs total (131) (85)
====== ======
Finance income
Expected return on pension scheme 71 80
assets
Net gain on cash and unhedged foreign 13 7
exchange borrowings
Finance income total 84 87
====== ======
Net finance expenditure (47) 2
====== ======
7. *TAX
a. *Tax (credit)/charge on loss on ordinary activities
# million
6 months to 30 September 2003 2002
Current taxation
Corporation tax 30 per cent (2002: 30 per - (1)
cent)
UK overprovision in respect of prior (20) -
years
Overseas tax 6 11
---------- ----------
Total (14) 10
====== ======
A non-operating exceptional tax credit of #20 million (2002: #nil) arose as
a result of the scheme of arrangement becoming effective.
b. *Factors that may affect future tax charges
Deferred tax assets have not been recognised in respect of operating losses,
pension scheme deficits, and exceptional expenditure as the Group is not
sufficiently certain that it will be able to recover those assets within a
relatively short period of time.
8. *LOSS PER SHARE
Basic and diluted loss per share is calculated by reference to a weighted
average of 297.9 million ordinary shares (2002: 573.3 million ordinary
shares) in issue during the period.
The effect of share options is anti-dilutive for each period presented and
has therefore been excluded from the calculation of diluted weighted average
number of shares.
An adjusted basic loss per share has been presented in order to highlight
the underlying performance of the Group, and is calculated as set out in the
table below.
Reconciliation of loss per share excluding goodwill amortisation and
exceptional items:
6 months to 30 2003 2002
September
Loss Loss
Loss per Loss per
# share # share
million Pence million pence
Loss and basic loss (86) (28.8) (925) (161.4)
per share
Exceptional items
(note 4)
Operating 33 11.1 238 41.6
exceptional items
Group share of - - 18 3.1
associate's
operating
exceptional items
Non-operating (103) (34.6) (23) (4.0)
exceptional items
Amounts revalued/ (1) (0.3) 40 7.0
(written off)
investments
Gain on waiver of (25) (8.4) 186 32.4
balance payable to
Marconi plc group
Goodwill 54 18.1 86 15.0
amortisation and
impairment
Write off of 46 15.4 - -
capitalised losses
on swaps
Exceptional tax (20) (6.7) - -
credit
---------- ---------- ----------
(102) (34.2) (380) (66.4)
====== ====== ====== ======
Using the number of shares in issue at 30 September 2003 (200 million), the
pro forma basic and diluted loss per share was 42.9 pence and the adjusted
basic loss per share was 51.0 pence.
9. *SHARE OPTIONS
As previously announced at the time of the financial restructuring, in
the six months to 30 September 2003, the Company granted nil cost share
options to its executive directors and senior managers. In total, using
numbers and prices following the 1 for 5 share consolidation, which took
effect on 9 September 2003, options over 15.23 million ordinary shares
were granted on 24 June 2003 with options over a further 1 million
shares granted on 1 September 2003. The adjusted mid market closing
price of a Marconi Corporation plc share on the dates of grant were
293.75 pence on 24 June 2003 and 455 pence on 1 September 2003. Under UK
GAAP, the cost of these options will be spread over the five performance
periods defined in the nil cost share option plan set out in the Group's
prospectus dated 31 March 2003. The overall impact on the Group's Profit
and Loss Account over the life of the Plan through to the financial year
ending 31 March 2007, assuming all performance triggers are met by the
earliest vesting date, will be approximately #49 million before payroll
tax. The #49 million charge is a non-cash item. The operating loss for
the three months ended 30 September 2003 has been charged with #8
million (2002: #nil) and shares to be issued in the balance sheet have
been credited with #8 million.
On 30 June 2003, the Company granted market value share options to
employees. In total, options over 6.3 million ordinary shares have been
or are expected to be granted. Under UK GAAP, the only cost of these
options will be employer national insurance contributions incurred when
the share options vest. The performance conditions are the same as the
nil cost share option plan.
10. *stocks and contracts in progress
30 30 31
September June March
# million 2003 2003 2003
Raw materials and bought in 71 84 89
components
Work in progress 52 53 60
Payments on account (2) (2) (2)
Long term contract work in 7 5 11
progress
Finished goods 74 75 76
---------- ---------- ----------
202 215 234
====== ====== ======
11. *DEBTORS
30 30 31
September June March
# million 2003 2003 2003
Amounts falling due within
one year:
Trade debtors 339 375 464
Amounts owed by joint 25 28 30
ventures and associates
Other debtors 71 75 57
Prepayments and accrued 29 41 30
income
---------- ---------- ----------
464 519 581
Amounts falling due after
more than one year:
Trade debtors 6 8 2
Other debtors 1 1 29
Prepayments and accrued 1 1 1
income
---------- ---------- ----------
8 10 32
---------- ---------- ----------
472 529 613
===== ===== =====
12. *Cash at bank and in hand
30 30 31
September June March
# million 2003 2003 2003
Cash and bank deposits 562 571 934
repayable on demand
Other cash deposits 210 217 224
---------- ---------- ----------
Cash at bank and in hand 772 788 1,158
====== ====== ======
Included in the amounts above
are restricted cash of:
Secured 13 15 812
Collateral against bonding 176 184 135
facilities
Held by captive insurance 19 18 17
company
Mandatory redemption escrow 2 - -
account
---------- ---------- ----------
Restricted cash 210 217 964
Other 562 571 194
---------- ---------- ----------
Cash at bank and in hand 772 788 1,158
====== ====== ======
In note 17, liquid resources amounting to #201 million is restricted cash
excluding secured amounts (shown above) but also includes cash held on
deposit (not available within 24 hours).
Cash at bank of #17 million was transferred to the mandatory redemption
escrow account on 2 October 2003 and #17 million of this balance was used to
redeem Junior notes on 17 October 2003.
13. *CREDITORS
30 30 31
September June March
# million 2003 2003 2003
Amounts falling due within
one year
Bonds - - 2,147
Bank loans and overdrafts
Repayable on demand 17 17 2,194
Other 2 3 1
Obligations under finance 1 1 -
leases
---------- ---------- ----------
20 21 4,342
Payments received in 52 47 76
advance
Trade creditors 158 167 174
Amounts owed to fellow - 403
subsidiaries of Marconi plc
Amounts owed to joint 9 9 9
ventures and associates
Current taxation 111 109 137
Other taxation and social 14 13 22
security
Other creditors 94 130 193
Accruals and deferred 169 170 185
income
---------- ---------- ----------
627 666 5,541
====== ====== ======
Amounts falling due after
more than one year
Loan notes 623 730 -
Bank loans and overdrafts 28 30 30
Obligations under finance 2 2 -
leases
---------- ---------- ----------
653 762 30
Trade creditors - 2 -
Other creditors 7 6 16
---------- ---------- ----------
660 770 46
===== ===== =====
Amounts owed to joint ventures and associates includes #8 million owed to
Oyster Lane Properties Limited, a joint venture, carried at #8 million in
investments.
14. *PROVISIONS FOR LIABILITIES AND CHARGES
Warranties
Share Deferred and
# million Restructuring options tax contracts Other Total
At 1 April 64 35 6 89 106 300
2003
Exchange (1) - - - (1) (2)
rate
adjustment
Disposals - - - - (3) (3)
Transferred 8 - - - 9 17
from
creditors
Charged 15 - - 17 7 39
Released (3) - - (1) (6) (10)
Utilised (26) (35) - (17) (17) (95)
---------- ---------- ---------- ---------- ---------- ----------
At 30 57 - 6 88 95 246
September
2003
====== ====== ====== ====== ===== ======
At 30 June 69 - 6 93 100 268
2003
====== ======= ====== ====== ===== ======
Restructuring provisions mainly comprise expected costs for termination of
employee contracts, costs for properties no longer occupied and onerous
lease contracts. The associated outflows are generally expected to occur
over the next year with vacant property costs being incurred over the next
five years.
Share option provisions at 1 April 2003 related to amounts paid to the ESOP
derivative banks on 19 May 2003 in settlement of the potential ESOP
derivative dispute.
Warranties and contracts mainly comprise expected cost of maintenance under
guarantees, other work in respect of products delivered and losses on
contract work in progress in excess of related accumulated costs. The
associated outflows are generally expected to occur over the lives of the
products and contracts which are long term in nature.
Other provisions mainly comprise expected employee related claims,
environmental liabilities, other litigation, insurance balances, merger and
acquisition claims and future scheme administration costs.
15. *EQUITY SHAREHOLDERS' INTERESTS
a. *Share capital
Number
of
shares #
Fully paid ordinary shares of 5p
each
Shares allotted at 1 April 2,866,250,735 143,312,537
2003
Converted to non-voting deferred (2,866,250,735) (143,312,537)
shares and cancelled
New ordinary shares issued 1,000,000,000 50,000,000
Shares issued in the period 9,840 492
Share consolidation (1 for 5) (800,007,872) -
----------------- -----------------
Shares allotted at 30 September 200,001,968 50,000,492
2003 (25p each)
Unissued ordinary shares at 1 3,133,749,265 156,687,463
April 2003
Converted to non-voting deferred (3,133,749,265) (156,687,463)
shares and cancelled
New unissued ordinary shares 2,133,749,265 106,687,463
Shares issued in the period (9,840) (492)
Share consolidation (1 for 5) (1,706,991,540) -
----------------- -----------------
Unissued ordinary shares at 30 426,747,885 106,686,971
September 2003 (25p each)
----------------- -----------------
Authorised (25p each) 626,749,853 156,687,463
======= =======
As a consequence of the share consolidation, which took effect on 9
September following shareholder approval, the number of Marconi
Corporation plc shares outstanding was reduced from around 1 billion
shares with nominal value of 5 pence each to approximately 200 million
shares with nominal value of 25 pence each. Every five shares of 5p each
were consolidated into one new share of 25p with entitlements to
fractions of new shares aggregated and sold in the market for the
benefit of the related shareholders.
15. *EQUITY SHAREHOLDERS' INTERESTS
b. *Reserves
Shares Profit
to Share Capital and
be premium Capital reduction loss
# million issued account Capital reserve account Total
At 1 April - 700 9 - (4,187) (3,478)
2003
Cancellation - - - - 143 143
of old share
capital
Arising on - 3,670 - - - 3,670
new shares
issued
Loss retained - - - - (86) (86)
for the
period
Exchange - - - - (1) (1)
differences
Added in the 8 - - - - 8
period
Actuarial - - - - 14 14
gain on
retirement
benefit
schemes
Transfer on - (4,370) - 343 4,027 -
capital
reduction
Losses - - - (9) 9 -
transferred
------ ------ ------ ------ ------ ------
At 30 8 - 9 334 (81) 270
September
2003
===== ===== ===== ===== ===== =====
At 30 June 1 - 9 343 (102) 251
2003
===== ===== ===== ===== ===== =====
On 21 May 2003, the High Court approved a reduction of share capital of
#143 million and reduction of share premium of #4,370 million. The
balances have been credited to the Company profit and loss reserve which
stood at #4,170 million at 31 March 2003. The High Court determined that
any surplus over the deficit at 31 March 2003 was to be held as a
non-distributable reserve which would be transferred to the profit and
loss reserve as losses are incurred or when all creditors as at 21 May
2003 have been satisfied. Company losses of #9 million have been
transferred in the period.
16. *CASH FLOW
a. *Net cash inflow/(outflow) from operating activities before exceptional items
# million
6 months to 30 September Continuing
2003
Group operating loss after (149)
exceptional items
Operating exceptional items 33
(note 4(a))
------
Group operating loss before (116)
exceptional items
Depreciation charge 42
Goodwill amortisation 49
Shares to be issued 8
Decrease in stock 33
Decrease in debtors 123
Decrease in creditors (70)
Decrease in provisions (4)
------
65
====
6 months to 30 September Continuing Discontinued Total
2002
Group operating loss after (485) (6) (491)
exceptional items
Operating exceptional items 205 1 206
(note 4(a))
------ ------ ------
Group operating loss before (280) (5) (285)
exceptional items
Depreciation charge 75 4 79
Goodwill amortisation 54 - 54
Decrease/(increase) in 143 (16) 127
stock
Decrease/(increase) in 102 (1) 101
debtors
Decrease in creditors (201) (23) (224)
Increase/(decrease) in 7 (1) 6
provisions
------ ------ ------
(100) (42) (142)
==== ==== ====
b. *Returns on investments and servicing of finance
# million 2003 2002
6 months to 30 September
Income from loans, deposits and investments 10 31
Interest paid (19) (189)
Premium on redemption of Junior notes (10) -
------ ------
(19) (158)
------ ------
Of the above amount, continuing operations account for an outflow of #19
million (2002: #156 million) and discontinued operations an outflow of
#nil (2002: #2 million).
c.. *Tax (paid)/repaid
# million 2003 2002
6 months to 30 September
UK corporation tax repaid - 3
Overseas tax paid (2) (16)
------ ------
(2) (13)
==== ====
All the above amounts relate to continuing operations.
d. *Capital expenditure and financial investment
# million 2003 2002
6 months to 30 September
Purchases of tangible fixed assets (12) (27)
Purchases of fixed asset investments - (21)
Sales of tangible fixed assets 30 20
Sales of fixed asset investments 23 3
------ ------
41 (25)
==== ====
Sales of tangible fixed assets shown above include an amount of #26 million
relating to information technology assets, (2002: #20 million of property
disposals).
Of the above amount, continuing operations account for an inflow of #41
million (2002: #21 million outflow) and discontinued operations an outflow
of #nil (2002: #4 million)
e. *Acquisitions and disposals
# million 2003 2002
6 months to 30 September
Investments in subsidiary companies (6) (3)
Sales of interests in subsidiary companies 16 375
Sales of interests in associates and joint 94 -
ventures
Net overdraft disposed with subsidiary companies (6) 15
------ ------
98 387
==== ====
f. *Net cash inflow/(outflow) from management of liquid resources
Comprising term deposits generally of less than one year and other
readily disposable current asset investments:
# million 2003 2002
6 months to 30 September
Deposits made with banks and similar financial (104) (83)
institutions
Deposits withdrawn from banks and similar financial 123 6
institutions
------ ------
19 (77)
==== ====
g. *Net cash (outflow)/inflow from financing
# million 2003 2002
6 months to 30 September
Decrease in bank loans (3) (62)
Increase in bank loans 4 -
Decrease in loan notes (106) -
Increase in loans from Marconi plc and subsidiaries of - 24
Marconi plc
Scheme consideration (340) -
------ ------
(445) (38)
==== ====
17. *ANALYSIS OF NET MONETARY FUNDS / (DEBT)
At Non-cash At At
1 changes Other Exchange 30 30
April Cash on non-cash rate Sept June
# million 2003 flow restructuring changes adjustment 2003 2003
Cash at bank 934 (356) - - (7) 571 581
and in
hand
Overdrafts (22) 4 - - 1 (17) (17)
(352)
Liquid 224 (19) - - (4) 201 207
resources
Amounts
falling due
within one
year
Bank loans (2,173) 3 2,147 (7) 28 (2) (3)
Bonds (2,147) - 2,165 - (18) - -
Finance - - - (1) - (1) (1)
leases
Loans from (403) - 403 - - - -
Marconi plc
and fellow
subsidiaries
of Marconi
plc
Amounts
falling due
after more
than one
year
Bank loans (30) (4) - 7 (1) (28) (30)
Loan notes - 106 (756) - 27 (623) (730)
Finance - - - (2) - (2) (2)
leases
105
------ ------ ------ ------ ------ ----- ------
(3,617) (266) 3,959 (3) 26 99 5
==== ==== ==== ==== ==== ==== ====
Of the cash flow, #340 million relates to amounts paid out as scheme
consideration and #35 million in respect of the ESOP derivative banks. Non-cash
adjustments relate mainly to the Group's restructuring of bond and bank debt
which was schemed on 19 May 2003 when new debt was issued.
18. *CONTINGENT LIABILITIES
30 30 31
September June March
# million 2003 2003 2003
Contingent liabilities at period end 20 20 20
===== ===== =====
Litigation
Contingent liabilities relate mainly to the cost of legal proceedings, which
in the opinion of the Directors, are not expected to have a materially
adverse effect on the Group.
The Group is engaged in a number of legal proceedings relating to class
shareholder actions, patent and other claims under contracts.
In Part X, section 15.4 of our listing particulars we made disclosure of the
lawsuit file by Bell Communications Research. Inc, now known as Telcordia
Technologies Inc., or Telcordia, on 14 October 1998. On 29 September 2003,
the district court held a hearing in relation to that lawsuit to clarify its
previous claim construction ruling. Subsequent to the hearing the district
court issued an opinion clarifying its original claim construction in a
manner that will permit Telcordia to maintain its claim for infringement of
the remaining patent.
The Group is vigorously defending these cases, the estimated cost of which
is disclosed above, and the Directors currently believe that the claims are
unlikely to be settled for amounts resulting in material cash or other asset
outflows.
Guarantees
At 30 September 2003, the Group had provided third parties with guarantees,
performance bonds and indemnities, the exercise of which is considered to be
remote.
19. *POST BALANCE SHEET EVENTS
On 10 October 2003, the Group announced that it has agreed to outsource
the manufacture of its Fixed Wireless Access products and associated
operations in Offenburg, Germany, to Elcoteq Network Corporation for
approximately #7 million. Approximately 340 current employees at the
site will transfer employment under this agreement which was completed
in November 2003.
On 17 October 2003, the Group redeemed $29 million (approximately #17
million) of the Junior Notes reducing the principal to $289 million
(approximately #174 million).
On 12 November 2003, we announced the disposal of our 50 per cent
interest in Confirmant Limited to Oxford GlycoSciences, a wholly owned
subsidiary of Celltech Group plc. The cash proceeds of over #4 million
will be transferred into the Mandatory Redemption Escrow Account and
used in due course to fund a partial redemption of our Junior Notes. In
the six months ended 30 September 2003, we recorded a #2 million charge
to the profit and loss account in respect of our share of Confirmant's
operating loss.
20. *SUPPLEMENTARY INFORMATION FOR NARF & NON-NARF SEGMENTS
a. *BASIS OF PRESENTATION
This supplementary information is a requirement of our covenants on our loan
notes which requires that for as long as the Junior Notes are outstanding, we
disclose a profit and loss account, net asset statement and cash flow statement,
together with commentary, for our two segments, the Issuer (Marconi Corporation
plc) and its non-US subsidiaries and the US parent (Marconi Communications,
Inc.) and its subsidiaries. We call these segments the North American Ring Fence
(NARF) and Non-NARF.
A ring-fence around Marconi Communications, Inc and its subsidiaries was created
in connection with the Scheme of Arrangement for Marconi Corporation plc
effective on the 19th May 2003. NARF is comprised of the US operating businesses
the equipment and service activities of the Broadband Routing and Switching
(BBRS), Outside Plant & Power (OPP) and North American Access (NAA)
(irrespective of the country of destination of these sales). In addition certain
sales for products from Marconi Corporation plc and Non-NARF businesses are
transacted through NARF regions in where economies of scale permit the NARF to
conduct the business more efficiently (see page 6).
Non-NARF mainly comprises Marconi Corporation plc and our European and the Rest
of the World businesses: Optical Networks, Access Networks, Other Network
Equipment and Network Services and includes central costs.
Non-NARF holds the investment in Marconi Communications, Inc which eliminates on
consolidation and gives rise to goodwill. The Group has previously impaired all
the goodwill relating to the acquisition of FORE Systems and is carrying #106
million of goodwill as at 30 September 2003 relating to the acquisition of
Reltec Corporation. As the purposes of this disclosure is to separately present
NARF and Non-NARF businesses, we have removed the investment in NARF from the
Non-NARF net asset statement and have not consolidated any of the NARF profits
in the Non-NARF profit and loss account.
NARF and Non-NARF are the only two segments of the Group and can be reconciled
to the Group as follows.
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
Turnover
NARF 121 139 260
Non-NARF 246 250 496
-------- -------- --------
Group 367 389 756
===== ===== =====
Profit/(loss) for the period
NARF 3 15 18
Non-NARF (88) (10) (98)
-------- -------- --------
(85) 5 (80)
Goodwill amortisation on NARF (3) (3) (6)
-------- -------- --------
Group (88) 2 (86)
===== ===== =====
Net cash inflow from operating
activities before exceptional items
NARF 17 - 17
Non-NARF 15 33 48
-------- -------- --------
Group 32 33 65
===== ===== =====
31 30 30
March June September
2003 2003 2003
Net assets/(liabilities) after
retirement benefit deficits
NARF (496) 73 93
Non-NARF (2,954) 120 124
---------- ---------- ----------
(3,450) 193 217
Goodwill related to the 118 110 106
acquisition of Reltec (NARF)
---------- ---------- ----------
Group (3,332) 303 323
====== ====== ======
Goodwill reduces due to amortisation through the profit and loss account and
foreign exchange movements recognised through reserves.
B) OPERATING AND FINANCIAL REVIEW
The following discussion of the financial statements of NARF and Non-NARF should
be read in conjunction with the Group discussion above. We highlight below any
matters related to trends in NARF or Non-NARF, require additional explanation or
commentary in addition to from the overall results for the Marconi Corporation
plc Group as discussed in Results of Operations, Financial Condition and
Liquidity and Capital Resources above.
Results of Operations
Sales
Second quarter sales for the NARF of #139m were #18m or 15% greater than first
quarter sales, with all main businesses contributing to this positive trend.
BBRS recorded 36 per cent growth in equipment sales, up #10 million to #38
million compared to the first quarter. This strong performance was driven by
increased sales to the US Federal Government at the end of this customer's
fiscal year and included sales of Marconi's BXR-48000 multi-service switch
router under the #6 million agreement announced at the end of the quarter. BBRS
service sales were stable quarter on quarter at #15 million with increased
levels of professional services to the US Federal Government offset by a further
decline, as expected, of support sales to the Group's North American enterprise
customer base.
North American Access sales improved by #5 million or 20 per cent to #30 million
during the second quarter, largely as a result of the acceleration of ADSL
roll-outs (particularly at BellSouth).
OPP total sales increased by 6 per cent from #51 million in the first quarter to
#54 million, with equipment sales up 11 percent to #39 million and services
relatively flat at #15 million compared to #16 million in the previous quarter.
Marconi has been successful in securing a number of new wins of outside plant
and power systems, primarily fuelled by increased demand from North American
wireless operators.
Total sales recorded in the NARF during the first half of the financial year of
#260 million included #4 million of products and services from Non-NARF
businesses, which were sold through NARF entities (#2 million in the first
quarter, #2 million in the second quarter).
Non-NARF sales increased by #4 million or 2 per cent from #246 million in the
first quarter to #250 million in the second quarter, with stable sales of
Network Services partially offset by modest growth in Network Equipment.
Optical Network sales were #80 million, down #5 million or 6 per cent on the
first quarter as operators continued to spend only to maintain the smooth
running of existing infrastructure as opposed to new build projects.
In EMEA, which accounted for approximately 75 per cent of Optical Network sales
in the period, the reduced level of sales to BT discussed above were partially
offset by increased sales to Vodafone and Wind in Italy. From a product line
perspective, sales of DWDM fell further during the quarter in the face of
decreased demand for this technology across the industry. Sales of SDH
equipment, however, which accounted for over 80 per cent of Optical Network
sales in the period, were up slightly quarter on quarter with further progress
made in migrating existing customers to Marconi's recently launched next
generation optical products with shipments to the Italian market and orders
received in China and the UK.
Marconi recorded a 9 per cent sequential increase in sales of Access Networks,
from #44 million in the first quarter to #48 million. This was driven by the
increased demand for fixed wireless access products from German wireless
operators described above, with Fixed Wireless Access accounting for
approximately 38 per cent of Access Network sales in the quarter. Marconi
maintained the level of shipments of its multi-service access node, the Access
Hub, which accounted for approximately 20 per cent of Access Network sales with
shipments to Telecom Italia, Wind and Telkom South Africa. The balance of Access
Network sales related to Voice Systems (25 per cent) and other legacy narrowband
access products (17 per cent).
Sales of Other Network Equipment increased by 33 per cent to #16 million (Q1
FY04: #12 million) mainly as a result of shipments of multi-media terminals to
Telefonica (Spain) and payphones into the APAC market.
Overall Network Services in Non-NARF were stable quarter on quarter with an
increased level of IC&M activity particularly in Italy and the UK (up #4 million
or 9 per cent to #47 million), offsetting slightly lower sales of Value-Added
Services (down #3 million or 5 per cent to #61 million). The aftermath of the
recent conflict in the Middle East and tough market conditions in Wireless
Software and Services continue to affect the VAS business. Reduced sales in
these areas were, however, partially offset during the quarter by an improvement
in cable installation services due to increased volumes from frame agreements
and by initial sales to a new customer in the German transportation market
within the Group's Integrated Systems activity.
The above Non-NARF product sales amount to #500 million in the six months ended
30 September 2003, which includes #4 million sold through NARF. These are
reported as NARF sales and are eliminated from Non-NARF sales which total #496
million in the six months ended 30 September 2003.
Operating Profit/(Loss)
A discussion of the different operating profiles of NARF and Non-NARF is
provided on page 29 above.
Gross Margins in the NARF increased by #12 million or 29 per cent compared to
the first quarter to reach #53 million or 38 per cent of sales. The improvement
was largely due to higher sales in the second quarter and the greater percentage
of BBRS sales as compared to total NARF sales and favourable business mix within
BBRS with a higher proportion of sales of Marconi's newly launched BXR-48000.
BBRS sales represented 38.4% of total NARF sales in the second quarter versus
34.8% of total NARF sales in the first quarter.
Non-NARF Gross Margin was #50 million or 20 per cent in the second quarter and
increased by #3 million compared to #47 million or 19 per cent in the first
quarter. The increase arose from the improved profitability on long-term
contracts and cost reductions that more than offset the depreciation on
development and test models discussed on page 26.
Operating expenses in NARF increased by #5m to #37 million, or 27 per cent of
sales, in the three months ended 30 September 2003 from #32 million, or 26 per
cent of sales, in the three months ended 30 June 2003. This increase mainly due
to #2 million of exceptional items relating to site rationalisation and employee
severance costs charged in the second quarter.
Operating expenses in Non-NARF decreased from #140 million for the three months
ended 30 June 2003 to #125 million in the three months ended 30 September 2003.
Goodwill amortisation is included in these balances and which decreased from #22
million in the first quarter to #21 million in the second quarter. Operating
exceptional items described in Notes to the Non Statutory Accounts: Note 4, page
54, are also included and decreased from #19 million to #12 million. Operating
expenses before exceptional items and goodwill decreased from #99 million to #92
million. The benefit of cost savings achieved through restructuring, discussed
in the Outlook on page 4, was partially offset by share options charges that
amounted to #1 million in the first quarter and #8 million in the second
quarter.
NET ASSET STATEMENTS
The net assets in NARF are #93 million at 30 September 2003, an increase of #20
million from 30 June 2003 and #589 million from 31 March 2003. The improvement
since 31 March 2003 was due to the recapitalisation of Marconi Communications,
Inc as a condition of the financial restructuring of the Group. This was mainly
achieved by a loan to Marconi Communications, Inc from a subsidiary of Marconi
Corporation plc being capitalised leading to a reduction in creditors payable
within and after more than one year of #527 million. In addition, Non-NARF
invested #42 million of cash in Marconi Communications, Inc prior to the
financial restructuring to ensure that it has sufficient cash to meet its
obligations as they fall due. This cash has not been used by NARF in the period.
The improvement of #20 million from 30 June 2003 to 30 September 2003 is due to
the profit made in the quarter of #15 million, exchange differences of #3
million and actuarial gains recorded on retirement benefit schemes of #2
million.
The Non-NARF net assets (excluding the investment in NARF) of #124 million have
improved by #4 million from 30 June 2003 and by #3,078 million from net
liabilities of #2,954 million at 31 March 2003. The improvement since 31 March
2003 is a result of the financial restructuring of the Group explained on page
7.
Goodwill arising on the acquisition of Reltec is not carried by NARF or Non-NARF
and only arises on the consolidation of the two segments. Goodwill in the
Non-NARF net asset statement principally relates to GPT, Bosch and Nokia and is
being amortised as discussed on page 34.
Tangible fixed assets are reducing in NARF and Non-NARF, as depreciation
continued to exceed capital expenditure and IT assets have been disposed as
discussed on page 34.
All investments are held by Non-NARF entities and are explained on page 35.
The NARF businesses have continued to focus on facility site rationalisation and
streamlining the use of contract manufacturers as a means of enhancing inventory
and supplier management. Consequently, inventory in NARF is low compared with
the Non-NARF. Non-NARF inventory continues to fall as discussed on page 35.
Debtors and creditors include amounts due to and from Non-NARF companies. These
balances net to #13 million payable to NARF from Non-NARF at 30 September 2003.
The reductions in provisions are explained on page 36.
Retirement benefit scheme deficits relate to former Reltec plans for NAA and OPP
employees. The Marconi USA Employees' plan, which has a deficit of #10 million
at 30 September 2003, includes assets and liabilities in respect of NARF and
Non-NARF employees and deferred pensioners. As the sponsoring company lies
within Non-NARF, all of the deficit is allocated to Non-NARF. An actuarial
valuation has been undertaken for all plans at 30 September 2003 and the
reduction in NARF is due to our return on pension assets exceeding expectation.
In Non-NARF, the deficit has decreased mainly as a result of factors as
discussed on page 36.
Cash Flow
Of our total cash inflow from operating activities before exceptional items of
#65 million, NARF contributed an inflow of #17 million and Non-NARF an inflow of
#48 million. In Non-NARF this was mainly a result of cash collections from
debtors. In our NARF business this was largely generated through operating
profit. Our Non-NARF businesses benefited in particular from our successful
renegotiation of payment terms with a number of key European customers.
NARF net cash inflow from operating activities before exceptional items of #17
million was all generated in the first quarter. In the second quarter, the
increase in operating profit before exceptional items from #9 million to #18
million was offset by working capital movements due to the timing of creditor
payments and reductions in advanced billings on legacy enterprise customer
service contracts.
Non-NARF generated a net cash inflow of #15 million in the first quarter and #33
million in the second quarter. This was driven by improvements in debtor
collection as discussed on page 35. Of our total operating exceptional cash
outflow of #109 million, #13 million was incurred in NARF and #96 million in
Non-NARF. Two main factors contribute to the higher level of exceptional cash
costs in Non-NARF compared to NARF: i) 100 per cent of the advisor fees and
expenses relating to our financial restructuring were incurred directly by
Marconi Corporation plc (#33 million) which forms part of Non-NARF; ii) a higher
proportion of our current operational restructuring initiatives are focused in
Non-NARF and in particular in Continental Europe, where costs associated with
severance payments and plant rationalisation are typically higher than in the
United States. Of the #13 million incurred in NARF, approximately #10 million
related to payments made as a result of onerous leases on vacant properties and
other assets no longer required to support the restructured business.
Of our total returns on investments and servicing of finance of #19 million, #18
million was incurred in Non-NARF and related mainly to interest paid on the
Junior and Senior Notes issued by Marconi Corporation plc and the 10 per cent
premium paid to redeem Junior Notes during the second quarter (see Returns on
Investments and Servicing of Finance on page 39 above).
All disposal proceeds received in the first half of the financial year was
generated in Non-NARF (see Cash Flows from Acquisitions and Disposals on page 40
above).
The cash inflow from financing of #46 million mainly relates to the investment
by Non-NARF of #42 million in NARF discussed above. Non-NARF has included this
under acquisitions and disposals.
NARF has a $22.5 million credit facility available for financial liquidity. The
credit facility is secured by certain buildings and property located in the US.
As of the end of the first quarter and second quarter the NARF has not drawn any
amounts under the credit facility. The NARF reconciliation of the net cash flow
to movements in net monetary funds in the six months ended 30 September 2003
included #527 million of loan capitalisation as discussed above.
C) FINANCIAL INFORMATION
CONSOLIDATED NARF PROFIT AND LOSS ACCOUNT
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
TURNOVER
Continuing operations 121 139 260
---------- ---------- ----------
OPERATING PROFIT
Group operating profit
Excluding goodwill amortisation 9 18 27
and exceptional items
Goodwill amortisation - - -
Operating exceptional items - (2) (2)
Total operating profit - 9 16 25
continuing operations
Net interest payable (5) (1) (6)
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION
Excluding goodwill amortisation 4 17 21
and exceptional items
Goodwill amortisation and - (2) (2)
exceptional items
4 15 19
TAX CHARGE ON PROFIT ON ORDINARY (1) - (1)
ACTIVITIES
LOSS ON ORDINARY ACTIVITIES 3 15 18
Equity minority interests - - -
---------- ---------- ----------
PROFIT ON ORDINARY ACTIVITIES 3 15 18
ATTRIBUTABLE TO THE EQUITY
SHAREHOLDERS AND RETAINED PROFIT
FOR THE PERIOD
====== ====== ======
NARF CONSOLIDATED NET ASSET STATEMENT
30 30 31
Sept June March
# million 2003 2003 2003
FIXED ASSETS
Tangible assets 94 101 115
------ ------ ------
CURRENT ASSETS
Stocks and contracts in progress 41 40 42
Debtors: amounts falling due within one 229 206 259
year
Debtors: amounts falling due after more than 186 187 83
one year
Cash at bank and in hand 75 77 24
------ ------ ------
531 510 408
Creditors: amounts falling due within one (292) (290) (350)
year
------ ------ ------
NET CURRENT ASSETS 239 220 58
Total assets less current liabilities 333 321 173
Creditors: Amounts falling due after more (164) (164) (585)
than one year
Provisions for liabilities and charges (60) (66) (66)
------ ------ ------
NET ASSETS/(LIABILITIES) BEFORE RETIREMENT 109 91 (478)
BENEFIT DEFICITS
Retirement benefit scheme deficits (16) (18) (18)
NET ASSETS/(LIABILITIES) AFTER RETIREMENT 93 73 (496)
BENEFIT DEFICITS
====== ====== ======
NARF CONSOLIDATED CASH FLOW STATEMENT
3 6
months months
to to
30 30
September September
# million 2003 2003
Net cash inflow from operating activities before - 17
exceptional items
Exceptional cash outflows from operating (9) (13)
activities
Net cash (outflow)/inflow from operating (9) 4
activities after exceptional items - Continuing
operations
------- -------
Returns on investments and servicing of (1) (1)
finance
Tax paid - -
Capital expenditure and financial investment (1) 5
Acquisitions and disposals - (1)
------- -------
Cash outflow before use of liquid resources and (11) 7
financing
Net cash inflow from management of liquid - 3
resources
Capital contribution by Non-NARF group - 42
Other net cash inflow from financing 8 5
------- -------
DECREASE IN CASH AND NET BANK BALANCES REPAYABLE (3) 57
ON DEMAND
===== =====
NARF RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET
MONETARY FUNDS/(DEBT)
3 6
months months
to to
30 30
# million September September
2003 2003
Decrease in cash and net bank balances repayable (3) 57
on demand
Net cash inflow from management of liquid - (3)
resources
Net cash inflow from increase in debt and lease (8) (5)
financing
Change in net monetary funds/(debt) resulting (11) 49
from cash flows
Other non-cash changes 8 527
Effect of foreign exchange rate changes 1 (1)
Movement in net monetary funds/(debt) in the (2) 575
period
Net monetary funds/(debt) at beginning of 99 (478)
period
Net monetary funds at end of period 97 97
NARF CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
Loss on ordinary activities
attributable to the shareholders
Group 3 18 15
Share of joint ventures - - -
Share of associates - - -
3 18 15
Exchange differences on translation (3) - 3
Actuarial gain recognised on retirement - 2 2
benefit schemes
------ ------ ------
TOTAL RECOGNISED GAINS AND LOSSES - 20 20
===== ===== =====
NARF RECONCILIATION OF MOVEMENTS IN NET ASSETS
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
Total recognised gains and losses - 20 20
Additional paid in capital (share 569 - 569
premium)
----- ---- -----
Total movement in the period 569 20 589
Equity shareholders' interests at (496) 73 (496)
beginning of period
------ ----- -----
Equity shareholders' interests at end 73 93 93
of period
==== ==== ====
CONSOLIDATED NON-NARF PROFIT AND LOSS ACCOUNT
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
TURNOVER
Continuing operations 246 250 496
---------- ---------- ----------
OPERATING LOSS
Group operating loss
Excluding goodwill amortisation (52) (42) (94)
and exceptional items
Goodwill amortisation (22) (21) (43)
Operating exceptional items (19) (12) (31)
Continuing operations (93) (75) (168)
Share of operating loss of joint - (2) (2)
ventures
---------- ---------- ----------
(93) (77) (170)
Share of operating loss of
associates
Excluding goodwill amortisation (5) (1) (6)
and exceptional items
Goodwill amortisation (3) (2) (5)
(8) (3) (11)
---------- ---------- ----------
Total operating loss (101) (80) (181)
Non-operating exceptional items
Gain on disposal of discontinued 9 - 9
operations
Gain on disposal of associates - 76 76
(Loss)/gain on disposal of fixed (6) 24 18
assets and investments in
continuing operations
3 100 103
Amounts revalued/(written off) 1 - 1
investments
Gain on waiver of balance payable 25 - 25
to Marconi plc group
Net interest receivable / 1 (15) (14)
(payable)
Net finance expenditure (35) (12) (47)
LOSS ON ORDINARY ACTIVITIES
BEFORE TAXATION
Excluding goodwill amortisation (91) (72) (163)
and exceptional items
Goodwill amortisation and (15) 65 50
exceptional items
(106) (7) (113)
TAX CREDIT/(CHARGE) ON LOSS ON
ORDINARY ACTIVITIES
Excluding tax on goodwill (2) (3) (5)
amortisation and exceptional
items
Exceptional tax credit 20 - 20
18 (3) 15
LOSS ON ORDINARY ACTIVITIES (88) (10) (98)
Equity minority interests - - -
---------- ---------- ----------
LOSS ON ORDINARY ACTIVITIES (88) (10) (98)
ATTRIBUTABLE TO THE EQUITY
SHAREHOLDERS AND RETAINED LOSS
FOR THE PERIOD
===== ===== =====
NON-NARF CONSOLIDATED NET ASSET STATEMENT
30 30 31
Sept June March
# million 2003 2003 2003
FIXED ASSETS
Goodwill 435 456 479
Tangible assets 98 108 128
Investments 23 57 63
---------- ---------- ----------
556 621 670
CURRENT ASSETS
Stocks and contracts in 161 175 192
progress
Debtors: amounts falling due 519 565 658
within one year
Debtors: amounts falling due 167 168 611
after more than one year
Cash at bank and in hand 697 711 1,134
---------- ---------- ----------
1,544 1,619 2,595
Creditors: amounts falling due (619) (628) (5,527)
within one year
---------- ---------- ----------
NET CURRENT ASSETS/(LIABILITIES) 925 991 (2,932)
Total assets less current 1,481 1,612 (2,262)
liabilities
Creditors: Amounts falling due (841) (951) (123)
after more than one year
Provisions for liabilities and (186) (202) (234)
charges
---------- ---------- ----------
NET ASSETS/(LIABILITIES) BEFORE 454 459 (2,619)
RETIREMENT BENEFIT DEFICITS
Retirement benefit scheme (330) (339) (335)
deficits
---------- ---------- ----------
NET ASSETS/(LIABILITIES) AFTER 124 120 (2,954)
RETIREMENT BENEFIT DEFICITS
===== ===== =====
NON-NARF CONSOLIDATED CASH FLOW STATEMENT
3 6
months months
to to
30 30
September September
# million 2003 2003
Net cash inflow from operating activities 33 48
before exceptional items
Exceptional cash outflows from operating (29) (96)
activities
---------- ----------
Net cash inflow/(outflow) from operating 4 (48)
activities after exceptional items -
Continuing operations
Returns on investments and servicing of (22) (18)
finance
Tax paid - (2)
Capital expenditure and financial investment 20 36
Acquisitions and disposals 103 57
---------- ----------
Cash outflow before use of liquid resources 105 25
and financing
Net cash inflow from management of liquid 5 16
resources
Cash element of Scheme consideration - (340)
Other net cash outflow from financing (112) (110)
---------- ----------
DECREASE IN CASH AND NET BANK BALANCES (2) (409)
REPAYABLE ON DEMAND
====== ======
NON-NARF RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET
MONETARY FUNDS/(DEBT)
3 6
months months
to to
30 30
September September
# million 2003 2003
Decrease in cash and net bank balances (2) (409)
repayable on demand
Net cash inflow from management of liquid (5) (16)
resources
Net cash outflow from decrease in debt and 112 110
lease financing
---------- ----------
Change in net monetary funds/(debt) resulting 105 (315)
from cash flows
Other non-cash changes (8) 3,429
Effect of foreign exchange rate changes (1) 27
---------- ----------
Movement in net monetary funds/(debt) in the 96 3,141
period
Net monetary debt at beginning of period (94) (3,139)
---------- ----------
Net monetary funds at end of period 2 2
===== =====
NON-NARF CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
Loss on ordinary activities
attributable to the
shareholders
Group (80) (5) (85)
Share of joint ventures - (2) (2)
Share of associates (8) (3) (11)
(88) (10) (98)
Exchange differences on 10 (5) 5
translation
Actuarial gain recognised on - 12 12
retirement benefit schemes
---------- ---------- ----------
TOTAL RECOGNISED GAINS AND (78) (3) (81)
LOSSES
===== ===== =====
NON-NARF RECONCILIATION OF MOVEMENTS IN NET ASSETS
3 3 6
months months months
to to to
30 30 30
June September September
# million 2003 2003 2003
Total recognised gains and (78) (3) (81)
losses
Shares to be issued 1 7 8
New share capital and share 3,720 - 3,720
premium
Additional investment in NARF (569) - (569)
excluded from supplementary net
asset statement
---------- ---------- ----------
Total movement in the period 3,074 4 3,078
Equity shareholders' interests at (2,954) 120 (2,954)
beginning of period
---------- ---------- ----------
Equity shareholders' interests at 120 124 124
end of period
===== ===== =====
INDEPENDENT REVIEW REPORT TO MARCONI CORPORATION PLC
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 September 2003 which comprises the profit and loss
account, the balance sheet, the statement of total recognised gains and losses,
the cash flow statement and the related notes 1 to 19, 20A and 20C together with
the reconciliation of net cash flow to movements in net monetary funds / (debt)
and the reconciliation of movements in equity shareholders' funds. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than
the company, for our review work, for this report, or for the conclusions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
polices and presentation applied to the interim figures are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the accounting policies and presentation
have been consistently applied unless otherwise disclosed. A review excludes
audit procedures such as tests of controls and verification of assets,
liabilities and transactions. It is substantially less in scope than an audit
performed in accordance with United Kingdom auditing standards and therefore
provides a lower level of assurance than an audit. Accordingly, we do not
express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 2003.
Deloitte & Touche LLP
Chartered Accountants
Birmingham
12 November 2003
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR FFEEDESDSESF
