The market has reacted well to Marconi's latest Trading Update issued today - with the share price reaching over 28.3p by the close from a low of 13.5p just a couple of weeks ago.

The key plus points of the Trading Update for the three and six months ended 30 September 2001 included:

• Second quarter results in line with previous guidance

• Second quarter breakeven at operating level pre goodwill amortisation and exceptional items; first half operating loss £222 million

• Second quarter positive operating cash flow: £83 million

• Net debt at 30 September 2001: below £4.3 billion

• Exceptional write-down of goodwill, provisions for inventory and doubtful debts and total exceptional restructuring costs in line with previous guidance

• Second quarter sales in Core business: £893 million

• Good progress towards cost reduction targets

• Net debt target of £2.7 billion - £3.2 billion at 31 March 2002 reaffirmed

Mike Parton, Chief Executive, said:

"Whilst trading conditions continue to be tough, Group operating profit and cash flow in the second quarter were in line with our previous guidance. There is much to do and the new management team remain focused on delivering the cost and debt reduction targets arising from our Operational Review."

Generally the Trading Update was more positive than some analysts expected. The primary need for Marconi was to restore confidence in the company and convince the markets that it is not about to go bust.

There are however still areas for concern. Group sales during the second quarter amounted to £1,444 million compared to £1,899 million during the same period last year, a reduction of 24%. Second quarter sales in core areas of business were £893 million, a decline of 33% from a 2001 equivalent figure of £1,339 million.

Marconi managed to make a small profit in the second quarter of £5m against a breakeven forecast. This was a big improvement on the previous quarter's operating loss of £227 million and was a result of both increase in sales and benefits starting to show from the company's major cost reduction programme.

Operating costs in the core area were down 12% in the second quarter but that was not enough to restore profitability. Small profits were made in the Medical and Capital divisions of the company.

During September a further 630 employees left Marconi as part of the Company's cost reduction programme. This brings the total number of employees who have left the Company as part of these plans during the period 1 April - 30 September 2001 to 6,600. At 30 September, the number of employees in the Core had reduced to 32,600 - compared with 39,000 in March 2001.

The big area of concern for the company is the debt burdern. Net debt at 30 September 2001 was down slightly to £4.28 billion from £4.44 billion at 31 August 2001. The debt stood at £3.17 billion at 31 March 2001.

It is the debt that worries most market analysts. The company is only kept afloat from a solid credit from the supporting banks. But the company will have to work hard with much bigger profits than £5 million, more sell-offs and continued cost reductions to make any significant inroad into the debt mountain.

Marconi's next financial marker will the publication of its interim financial statements on 13 November 2001.

As part of Marconi's retrenchment to its core activities it has been selling off a number of non-core companies.

On 26 September Marconi announced its agreement to sell its entire shareholding in French company, Lagardere, for Euro 68.8 million (approximately £43.3 million). These proceeds were received on 1 October 2001 after the half-year end and, therefore, are not reflected in the second quarter results.

On 10 October Marconi received US regulatory approval for the disposal of its Medical Systems business to Philips. This transaction remains subject to European Union regulatory approval.

Marconi has managed to stave off some potentially very damaging PR over pay-offs to the former chairman and chief executive.

It had been previously reported that the two former top men who resigned last month would receive substantial lump sums as part of their termination packages.

It was revealed last week however that former chairman Sir Roger Hurn, who had been tipped to get £300,000 has not sought, or been offered, any compensation.

Former chief executive Lord Simpson, who it had been rumoured was in line for a £1 million pay-off, will receive just £300,000. Lord Simpson has agreed to waive all further entitlements under his contract, which would have extended until July 2002.

The company says its former deputy chief executive John Mayo, who was in line to succeed Lord Simpson, will receive £600,000.

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