Troubled telecoms equipment maker Marconi reported a big drop in sales, worsening market conditions and an absence of major orders during the first three months of this year.

Marconi insisted it is making progress in reshaping itself, having reduced its debt and cut its operating losses during the three months to the end of March 2002.

Meanwhile, it is awaiting the verdict of its bankers and bondholders on its business recovery plan and its board has accepted restrictions on the use of capital.

Group sales during the three months - the final ones of Marconi's financial year - declined to �948m from �2.06bn during the same period last year.

But Marconi said the trading outlook had "deteriorated" in the early part of this year because telecom operators were tightening capital expenditure.

The result has been an "absence of major orders" to build new networks "and a lower level of purchase commitments" under existing contracts.

Debt restructuring

"In common with other telecom suppliers, the board believes that these uncertain conditions are likely to persist throughout the financial year to March 2003," said Marconi.

The drop in sales was partly due to the disposal of some businesses as Marconi sought to cut its debt and streamline its operations.

But analysts' eyes are likely to be on the group's progress in restructuring its debt and negotiating fresh credit with its bankers - which could well prove vital for the firm's survival.

Marconi said it had trimmed its net debt by �1.6bn in the January to March period, thanks to the disposal of some businesses.

"Whilst our core market remains depressed we have been taking the necessary actions to drive our costs down.

"We have hit our year-end cost reduction targets and these actions will contribute to future cash generation," the firm said.

New business plan

Marconi said it has developed a revised business plan which it believes would return the firm to profit "in the early stages" of a five year plan.

The proposal is in the hands of its leading creditors. Marconi promised to say more when it reports its full year results, due soon since its financial year ended on 31 March.

Meanwhile, its bankers and bondholders have demanded restrictions from Marconi's board on the use of capital.

Marconi also said it would take an exceptional charge of in the range of �700m to �800m in its full year accounts, in addition to write downs already announced.