Half year operating loss expected due to first quarter operating loss of £227 million

Cost reductions forecast to deliver second quarter breakeven at the operating level before provision increases and write-downs

£500 million increase in inventory provisions. £3.0 billion to £3.5 billion write-down of acquisition- related goodwill. £150 million increase in provisions for doubtful debts

Interim Chairman and new Chief Executive appointed

Operational Review completed and actions agreed:
-- sharper focus on core carrier-class network communications business
-- all non-core activities to be managed for value
-- significant cost savings including a further headcount reduction of 2,000
-- priority on cash generation

Net debt at 31 August 2001: £4.4 billion (before £780 million expected proceeds from sale of Medical Systems)

Targeted net debt of £2.7 billion to £3.2 billion by March 2002

No dividend for the current financial yearMarconi (London and NASDAQ: MONI)today provided a trading update and announced a wide-reaching setof actions to sharpen the Company's focus on its core networkcommunications business, to restore operational efficiency andreduce debt, and to develop a sustainable business model forfuture performance improvement. Marconi also announced changes toits Board and Senior Management.

Mike Parton, new Chief Executive, said "Our Operational Review isa decisive response to the dramatic shift in the fortunes of theglobal telecoms industry.

"We have reshaped our core business to concentrate on thoseactivities where we are most competitively positioned. We arefocused on matters within our immediate control with a particularattention to cost reduction and cash generation to reduce debt.



"We continue to work closely with our customers to developinnovative solutions which will enable us to participateeffectively in the longer-term growth of the telecoms market andbegin to restore value for Marconi shareholders."

Trading Update

In the first quarter ended 30 June 2001, Group sales were £1,134million (June 2000: £1,287 million), a decline of 12 per cent..Within the core business, however, sales of Networks products andservices in the first quarter have shown a decline of more than 25per cent. compared with the same period in the prior year. Thesefigures compare with Group fourth quarter sales to March 2001 of£2.1 billion. The speed of sales reduction exceeded the rate atwhich the Company was able to reduce costs. This, combined withadverse mix, has led to a first quarter Group operating loss of£227 million and an operating cash outflow of £553 million.

In the current quarter, we are seeing an increase in sales overthe first quarter, albeit below our earlier expectations. Thecombination of the sales increase we expect to achieve in thesecond quarter and the impact of cost reduction measures alreadyimplemented is forecast to lead to a breakeven operating resultand positive operating cash flow in the second quarter overall.Accordingly, we expect a first half operating loss of around £227million rather than our previous guidance of breakeven.

In light of the continued uncertainty regarding levels and timingof service provider spending, the Company is not in a position togive further sales and operating profit guidance for the fullfinancial year. However, as a result of existing cost reductionprogrammes and the incremental actions implemented as a result ofthe Operational Review, Marconi expects to generate annualisedcost savings of approximately £600 million. This will allow theCompany to reduce the annual operating costs of its core businessto £1 billion by 31 March 2002 (from £1.4 billion on a firstquarter 2001/02 run-rate basis) or by 27 per cent.. This willresult in a quarterly breakeven level of sales of approximately£800 million.

By 31 August 2001, 5,977 employees had left the Company as adirect result of restructuring plans and a further 1,625 employeeshad been transferred to Jabil Circuit Inc. as part of the on-goingmanufacturing outsourcing programme.

Net debt stabilised during August and at 31 August 2001 was £4.4billion, compared with £3.2 billion at 31 March 2001. The primarycomponent of the increase between these dates was the firstquarter operating cash outflow of £553 million. The balance of theincrease was accounted for by a number of items includingtransactions, restructuring costs, interest, dividends and areclassification of share-option related indebtedness.

Marconi is working to secure regulatory approval and completion ofthe sale of its Medical Systems business prior to the end of thecalendar year 2001. The expected cash proceeds from this disposalwill reduce net debt by £780 million. The Company plans and istargeting a reduction in net debt to between £2.7 billion and £3.2billion by March 2002.

In light of the Company's revised sales and profit expectationsand its target to reduce its net debt position by March 2002, theBoard has decided to halt dividend payments for the currentfinancial year. Future dividend policy will be reviewed by theBoard at the appropriate time in the light of trading results.

The Company has reviewed its current level of inventory. As aconsequence of the decision to exit certain product lines and amore uncertain sales outlook, the Company will record an increasein inventory provisions of approximately £500 million at 30September 2001. In addition, the Company will record an increasein provisions for doubtful debts of approximately £150 million.

A goodwill impairment review has been carried out. The moreuncertain sales outlook and more conservative assessment of futuregrowth prospects of acquired businesses has led to the Board'sdecision to write down the value of historical goodwill. Thecharge will be taken at 30 September 2001, and is expected to bein the range of £3.0 billion to £3.5 billion.

Board Changes and Management Appointments

Sir Roger Hurn and Lord Simpson have today resigned from the Boardand the Company. Derek Bonham, senior non-executive Director, hasaccepted the Board's invitation to become interim Chairman until anew Chairman is appointed.

Mike Parton, CEO Networks, has been appointed Chief Executive ofMarconi with immediate effect. Mike Donovan, Executive Director -Operations, has been appointed Chief Operating Officer. SteveHare and Rob Meakin continue in their roles as Chief FinancialOfficer and Human Resources Director, respectively.

Sir Roger Hurn said "I am very pleased that we have been able tobring forward our Operational Review. This enables us toaccelerate the management succession plans that were indicated atthe AGM in July.

"As a result, I as Chairman and George Simpson as Chief Executive,are stepping down from the Board as of today. I am delighted thatDerek Bonham has accepted the Board's invitation to become interimChairman. Derek's long and successful experience in internationalbusiness will be invaluable for Marconi.

"Mike Parton, who brings a wealth of industry experience and closerelationships with Marconi's customers, becomes Chief Executive.Mike Donovan takes on the new role of COO with responsibility forimplementing the Operational Review. With Steve Hare, CFO and RobMeakin HR Director, the new Marconi executive team brings togetheran outstanding combination of skills to lead Marconi through thechallenges ahead.

"I would like to pay a special tribute to George Simpson for hisleadership and energy in reshaping Marconi as a leading networkcommunications business."

Derek Bonham, interim Chairman, said "I am pleased to take overthe role as interim Chairman of Marconi with a strong commitmentfrom the executive team to implement the actions required by theOperational Review.

"This Review focuses on matters within our immediate control, withparticular attention to cost reduction and cash generation toreduce debt. It focuses Marconi on those activities where we arecompetitively positioned, and that offer attractive returns.

"On behalf of the Board, I would like to thank Roger Hurn forcontinuing in the role of Chairman during the difficult periodsince his planned retirement at the AGM."

In addition, Neil Sutcliffe is appointed CEO Marconi Capital andGeoff Doy, CEO Sales & Marketing. Damian Reid and Jeff Gordoncontinue as Chief Strategy Officer and General Counsel,respectively.

Operational Review

The Operational Review announced at the Annual General Meeting isnow complete. The Review covered the Company's markets, itsoperations and scope of business, and focused on adapting Marconito the changed circumstances of the telecommunications marketfollowing the substantial current decline in demand.

The resulting action plan centres on four principal areas: