##### Table of Contents



As filed with the Securities and Exchange
Commission on October 8, 2004




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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




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Form 20-F

|           |  |                                                                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                                                                             
|o          |  | REGISTRATION STATEMENT PURSUANT TO
    SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
    1934
    OR                               
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    For the fiscal year ended March 31, 2004
    OR
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                                

For the transition period
from                     to


Commission File Number 333-12430



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M (2003) plc

Formerly Marconi plc


(Exact name of Registrant as specified in its
charter)




---

ENGLAND AND WALES

(Jurisdiction of incorporation or
organization)


8 Salisbury Square

London EC4Y 8BB


United Kingdom


(Address of principal executive
office)




---

Securities registered or to be registered
pursuant to Section 12(b) of the Act:

None



---

Securities registered or to be registered
pursuant to Section 12(g) of the Act:

American Depositary Shares evidenced by American
Depositary Receipts, each American Depositary Share representing
2 ordinary shares, nominal value 5 pence per share



---

Securities for which there is a reporting
obligation pursuant to Section 15(d) of the Act:

None



---

Indicate the number of outstanding shares of each
of the issuers classes of capital or common stock as of
March 31, 2004:

2,793,011,951 Ordinary Shares of 5p each


Indicate
by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

YES x                  NO o

Indicate
by check mark which financial statement item the registrant has
elected to follow.


ITEM
17 o                  ITEM
18 x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate
by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of
the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.

YES x                  NO o




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TABLE OF CONTENTS

|             |  |                                                                                  |    |      |    | 
|------------ |  | -------------------------------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                                                  |    | Page
|             |  |                                                                                  |    |     
|PART 1       |  |                                                                                  | 2  |     
|Item 1:      |  | Identity of Directors,
    Senior Management and Advisers                        |    |      | 2  | 
|Item 2:      |  | Offer Statistics and
    Expected Timetable                                      |    |      | 2  | 
|Item 3:      |  | Key Information                                                                  |    |      | 2  | 
|Item 4:      |  | Information on the
    Company                                                   |    |      | 5  | 
|Item 5:      |  | Operating and Financial
    Review and Prospects                                 |    |      | 7  | 
|Item 6:      |  | Directors, Senior Management
    and Employees                                   |    |      | 17 | 
|Item 7:      |  | Major Shareholders and
    Related Party Transactions                            |    |      | 19 | 
|Item 8:      |  | Financial Information                                                            |    |      | 25 | 
|Item 9:      |  | The Offer and Listing                                                            |    |      | 27 | 
|Item 10:     |  | Additional Information                                                           |    |      | 28 | 
|Item 11:     |  | Quantitative and Qualitative
    Disclosures about Market Risk                   |    |      | 39 | 
|Item 12:     |  | Description of Securities
    other than Equity Securities                       |    |      | 40 | 
|PART II      |  |                                                                                  | 41 |     
|Item 13:     |  | Defaults, Dividend
    Arrearages and Delinquencies                              |    |      | 41 | 
|Item 14:     |  | Material Modifications to
    the Rights of Security Holders and Use of Proceeds |    |      | 41 | 
|Item 15:     |  | Controls and Procedures                                                          |    |      | 41 | 
|Item 16A:    |  | Audit Committee Financial
    Expert                                             |    |      | 41 | 
|Item 16B:    |  | Code of Ethics                                                                   |    |      | 41 | 
|Item 16C:    |  | Principal Accountant Fees
    and Services                                       |    |      | 41 | 
|PART III     |  |                                                                                  | 43 |     
|Item 17:*    |  | Financial Statements                                                             |    |      | 43 | 
|Item 18:     |  | Financial Statements                                                             |    |      | 43 | 
|Item 19:     |  | Exhibits                                                                         |    |      | 43 | 
|EXHIBIT 12.1
|EXHIBIT 12.2
|EXHIBIT 13.1





| |   |                                                                     
| | - | --------------------------------------------------------------------
| | * | We have responded to Item 18 in lieu of
    responding to this Item.

i



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##### Table of Contents



PRESENTATION OF FINANCIAL AND OTHER
INFORMATION

On May 19, 2003, M (2003) plc
(then known as Marconi plc) and Marconi Corporation plc
concluded the financial restructuring of the Marconi group. The
financial restructuring was effected through separate schemes of
arrangement under the U.K. Companies Act 1985 for each of M
(2003) plc and Marconi Corporation plc. As a result of
the restructuring, the shares that M (2003) plc held
in Marconi Corporation plc were cancelled. Marconi
Corporation plc became the new parent holding company of
the Marconi group and M (2003) plc ceased to be a
member of the Marconi group. On October 21, 2003, Marconi
plc changed its name to M (2003) plc.
M (2003) plc no longer conducts any business and does
not intend to revive any business operations. In this annual
report, the terms we, us,
our, Marconi, the Company
refer to M (2003) plc and, prior to May 19, 2003, its
subsidiaries and joint ventures, as the context requires.

Under the terms of the M (2003) plc
scheme of arrangement, all of our assets, other than those
necessary to fund the administration of the scheme and the
company will be distributed to scheme creditors in accordance
with the scheme of arrangement. We expect to dissolve
M (2003) plc at approximately the same time as the
completion of these distributions to scheme creditors. While M
(2003) plc shares, and ADRs representing M (2003) plc
shares, remain outstanding following the effectiveness of the
financial restructuring, we believe that there will be no
circumstances under which any additional value will be returned
to shareholders of M (2003) plc. As that is the case, we
believe M (2003) plc shares and ADRs are
worthless.

M (2003) plc is incorporated as a public
limited company under the laws of England and Wales. We state
our financial statements in United Kingdom (U.K.) pounds
sterling. In this annual report, references to pounds sterling,
pounds or £ and to pence or p are to the currency of the
United Kingdom, references to euro or
 are to the
common legal currency of the members of the European monetary
union, and references to United States (U.S.) dollars, U.S.$ or
$ are to the currency of the United States of America.

Some of the market share information and other
statements in this annual report regarding our former position
relative to our competitors with respect to the manufacture or
distribution of particular products are not based on published
statistical data or information obtained from independent third
parties. Rather, such information and statements reflect our
managements best estimates based upon information obtained
from our customers and from trade and business organizations and
associations and other contacts within the industries in which
we competed. Unless otherwise specified or the context otherwise
requires, market share and market data are based on fiscal 2003
sales.

Our fiscal year ends on March 31. Unless
otherwise specified, all references in this annual report to our
fiscal year refer to a twelve-month financial period ending
March 31. For example, fiscal 2004 represents the fiscal
year beginning on April 1, 2003 and ending on
March 31, 2004.

The consolidated financial statements contained
in this annual report have been prepared in accordance with
accounting principles generally accepted in the United States,
known as U.S. GAAP.

Various amounts and percentages set forth in this
annual report may have been rounded and, accordingly, may not
total.

The information concerning equity affiliates
contained in this annual report, including financial
information, has been taken from or based on publicly available
documents and, where applicable, records on file with the
U.S. Securities and Exchange Commission (SEC), supplemented
by additional information obtained in our capacity as
shareholders.

Solely for convenience, this annual report
contains translations of certain U.K. pounds sterling
amounts into U.S. dollars at specified rates. These are
simply translations and you should not expect that a
U.K. pounds sterling amount actually represents a stated
U.S. dollar amount or that it could be converted into
U.S. dollars at the rate suggested, or any other rate. In
this annual report, the translations of U.K. pounds
sterling amounts into U.S. dollars, where indicated, have
been made at the rate of U.S.$1.84 per £1.00, the noon
buying rate for cable transfers of U.K. pounds sterling, as
reported by the Federal Reserve Bank of New York (the Noon
Buying Rate) on March 31, 2004. The Noon Buying Rate
on October 7, 2004 was U.S.$1.78 per £1.00.

1



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##### Table of Contents






PART I




Item 1: Identity of Directors,
Senior Management and Advisers

This item is not applicable.




Item 2: Offer Statistics and
Expected Timetable

This item is not applicable.




Item 3: Key
Information

SELECTED CONSOLIDATED FINANCIAL DATA

The selected historical consolidated financial
information presented below as at and for each of the five years
ended March 31, 2000 through 2004, has been derived from
our audited consolidated financial statements prepared in
accordance with U.S. GAAP.

On May 19, 2003, we and Marconi
Corporation plc concluded the financial restructuring of
the Marconi group through two separate schemes of
arrangement under the U.K. Companies Act 1985. As a
result of the restructuring, Marconi Corporation plc became
the new parent holding company of the Marconi group, replacing
us, and we ceased to be a member of the Marconi group.
Additional details on the restructuring are included elsewhere
in this document.

2



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##### Table of Contents



SELECTED CONSOLIDATED FINANCIAL
DATA  (continued)


|                                                                                                                                                  |                        |                                            |       |      |     |      |       |      |     |      |        |       |       |  |        |       |       |  |        |       |       |  |       |       |       | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------------------------------------------ | ----- | ---- | --- | ---- | ----- | ---- | --- | ---- | ------ | ----- | ----- |  | ------ | ----- | ----- |  | ------ | ----- | ----- |  | ----- | ----- | ----- | 
|                                                                                                                                                  |                        |                                           
|                                                                                                                                                  |                        | At and for the fiscal year ended March 31,
|                                                                                                                                                  |                        | 2004                                       |       | 2004 |     | 2003 |       | 2002 |     | 2001 |        | 2000 
|                                                                                                                                                  |                        | $(3)                                       |       | £    |     | £    |       | £    |     | £    |        | £    
|                                                                                                                                                  |                        |                                           
|                                                                                                                                                  |                        |                                           
|                                                                                                                                                  |                        |                                           
|                                                                                                                                                  |                        | (in millions, except share data)          
|STATEMENT OF OPERATIONS DATA:                                                                                                                     |                        |                                            |       |      |     |      |       |      |     |      |        |       |       |  |        |       |       |  |        |       |       |  |       |      
|Revenues                                                                                                                                          |                        |                                            |       |      |     |      |       |      |     |      |        |       |       |  |        |       |       |  |        |       |       |  |       |      
|                                                                                                                                                  | Network Equipment      |                                            |       | 184  |     |      |       | 100  |     |      |        | 1,131 |       |  |        | 1,812 |       |  |        | 3,268 |       |  |       | 2,535 |      
|                                                                                                                                                  | Network Services       |                                            |       | 125  |     |      |       | 68   |     |      |        | 743   |       |  |        | 969   |       |  |        | 1,016 |       |  |       | 543   |      
|                                                                                                                                                  | Other                  |                                            |       |     |     |      |       |     |     |      |        | 22    |       |  |        | 465   |       |  |        | 637   |       |  |       | 824   |      
|                                                                                                                                                  |                        |                                           
|                                                                                                                                                  |                        | Total                                      |       |      | 309 |      |       |      | 168 |      |        |       | 1,896 |  |        |       | 3,246 |  |        |       | 4,921 |  |       |       | 3,902 | 
|                                                                                                                                                  |                        |                                           
|Operating loss(1)                                                                                                                                 |                        |                                            | (107  | )    |     |      | (58   | )    |     |      | (608   | )     |       |  | (6,392 | )     |       |  | (52    | )     |       |  | (380  | )    
|Other income/(expense), net(2)                                                                                                                    |                        |                                            | 4,297 |      |     |      | 2,335 |      |     |      | (295   | )     |       |  | 23     |       |       |  | 310    |       |       |  | (106  | )    
|Income/(loss) from continuing operations before
    income taxes, minority interest and cumulative effect of changes
    in accounting principles |                        |                                            | 4,190 |      |     |      | 2,277 |      |     |      | (903   | )     |       |  | (6,369 | )     |       |  | 258    |       |       |  | (486  | )    
|Income/(loss) from continuing operations before
    cumulative effects of changes in accounting principles                                        |                        |                                            | 4,188 |      |     |      | 2,276 |      |     |      | (756   | )     |       |  | (6,094 | )     |       |  | 101    |       |       |  | (451  | )    
|Cumulative effects of changes in accounting
    principles(5)                                                                                     |                        |                                            |      |      |     |      |      |      |     |      |       |       |       |  | (240   | )     |       |  |       |       |       |  |      |      
|Net income/(loss)                                                                                                                                 |                        |                                            | 4,188 |      |     |      | 2,276 |      |     |      | (807   | )     |       |  | (6,150 | )     |       |  | 180    |       |       |  | 285   |      
|Cash dividends declared per common share
    (4)                                                                                                  |                        |                                            |       |      |     |      |       |      |     |      |        |       |       |  |        |       |       |  |        |       |       |  |       |      
|                                                                                                                                                  | £ per share            |                                            |       |     |     |      |       |     |     |      |        |      |       |  |        |      |       |  |        | £0.05 |       |  |       | £0.11 |      
|                                                                                                                                                  | $ equivalent per share |                                            |       |     |     |      |       |     |     |      |        |      |       |  |        |      |       |  |        | $0.08 |       |  |       | $0.17 |      
|BALANCE SHEET DATA:                                                                                                                               |                        |                                            |       |      |     |      |       |      |     |      |        |       |       |  |        |       |       |  |        |       |       |  |       |      
|Total assets                                                                                                                                      |                        |                                            | 17    |      |     |      | 9     |      |     |      | 3,111  |       |       |  | 4,925  |       |       |  | 11,683 |       |       |  | 9,426 |      
|Net assets/(liabilities)                                                                                                                          |                        |                                            | 17    |      |     |      | 9     |      |     |      | (2,500 | )     |       |  | (1,493 | )     |       |  | 4,805  |       |       |  | 4,468 |      
|Capital stock                                                                                                                                     |                        |                                            | 1,471 |      |     |      | 799   |      |     |      | 1,220  |       |       |  | 1,203  |       |       |  | 946    |       |       |  | 622   |      
|Shares issued and outstanding (millions)                                                                                                          |                        |                                            | 2,793 |      |     |      | 2,793 |      |     |      | 2,793  |       |       |  | 2,793  |       |       |  | 2,785  |       |       |  | 2,724 |      

Notes:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For fiscal 2002, operating loss is reflected
    after business restructuring and asset impairment charges of
    £5,319 million. For further information about this
    income/(charges), see consolidated financial statements
    contained elsewhere herein.                                                                                                                                                                                                                                                                                                                                                                                
|
| | (2) | For fiscal 2004, other income includes a gain on
    financial restructuring of £2,183 million and a gain
    on settlement of equity forward contracts of
    £123 million. For fiscal 2002, other income includes a
    gain on early retirement of debt of £166 million which
    was previously shown as extraordinary income. This
    reclassification has been made on adoption of SFAS 145,
    Recission of FASB Statements No. 4, 44,
    and 64, Amendment of FASB Statement No. 13, and
    Technical Corrections.                                                                                                                  
|
| | (3) | The consolidated financial statements are
    presented in millions of U.K. pounds sterling.
    U.S. dollar amounts are presented solely for the
    convenience of the reader at the rate of £1.00 = $1.84, the
    noon buying rate in the City of New York for cable transfers in
    pounds sterling as certified for customs purposes by the Federal
    Reserve Bank of New York on March 31, 2004. These
    translated amounts should not be construed as representations
    that the U.K. pounds sterling amounts could have been, or could
    in the future, be converted into U.S. dollars at this or any
    other exchange rate.
|
| | (4) | Dividend payments were made out of net income,
    which included income from discontinued operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (5) | We adopted EITF 00-19, Accounting for
    Derivative Instruments Indexed to, and Potentially Settled in,
    the Companys Own Stock, in fiscal 2002. The value of
    such instruments, as of the implementation date, was recorded as
    a cumulative effect of a change in accounting principles of
    £240 million in fiscal 2002.                                                                                                                                                                                                                                                                                                        

3



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##### Table of Contents



EXCHANGE RATE INFORMATION

The Noon Buying Rate for pounds sterling
expressed in U.S. dollars per pounds sterling on
October 7, 2004 was £1.00 = U.S.$1.78.

The following table sets forth the high and low
noon buying rate for pounds sterling expressed in
U.S. dollars per pound sterling for each of the previous
six months:

|          |  |      |        |     |  |  |        | 
|--------- |  | ---- | ------ | --- |  |  | ------ | 
|2004      |  | High |        | Low
|          |  |     
|          |  |     
|April     |  |      | 1.8564 |     |  |  | 1.7674 | 
|May       |  |      | 1.8369 |     |  |  | 1.7544 | 
|June      |  |      | 1.8387 |     |  |  | 1.8090 | 
|July      |  |      | 1.8734 |     |  |  | 1.8160 | 
|August    |  |      | 1.8459 |     |  |  | 1.7921 | 
|September |  |      | 1.8105 |     |  |  | 1.7733 | 

The following table sets forth the average noon
buying rate for pounds sterling expressed in U.S. dollars
per pound sterling for each of the five most recent fiscal
years, based on the noon buying rate on the last business day of
each month.

|                            |  |         |        | 
|--------------------------- |  | ------- | ------ | 
|Fiscal year ended March 31, |  | Average
|                            |  |        
|2000                        |  |         | 1.6085 | 
|2001                        |  |         | 1.4737 | 
|2002                        |  |         | 1.4320 | 
|2003                        |  |         | 1.5541 | 
|2004                        |  |         | 1.8400 | 

RISK FACTORS

As a result of our financial restructuring, we
have ceased business operations and intend to distribute our
remaining assets to our creditors.

On May 19, 2003, we concluded the financial
restructuring of the Marconi group. The financial restructuring
was effected through separate schemes of arrangement under the
U.K. Companies Act 1985 for each of M (2003) plc and
Marconi Corporation plc. As a result of the restructuring,
the shares that M (2003) plc held in Marconi
Corporation plc were cancelled. Marconi
Corporation plc became the new parent holding company of
the Marconi group and we ceased to be a member of the Marconi
group. M (2003) plc no longer conducts any business
and does not intend to revive any business operations.

Under the terms of the M (2003) plc
scheme of arrangement, all of our assets, other than those
necessary to fund the administration of the scheme and the
Company, will be distributed to scheme creditors in accordance
with the scheme of arrangement. We expect to dissolve
M (2003) plc at approximately the same time as the
completion of these distributions to scheme creditors. While
M (2003) plc shares, and ADRs representing
M (2003) plc shares, remain outstanding following the
effectiveness of the financial restructuring, we believe that
there will be no circumstances under which any additional value
will be returned to shareholders of M (2003) plc. As
that is the case, we believe M (2003) plc shares and
ADRs are worthless.

4



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##### Table of Contents






Item 4: Information on the
Company

HISTORY AND DEVELOPMENT OF THE
COMPANY

M (2003) plc, formerly Marconi plc, is a
public limited company incorporated and domiciled in England and
Wales and operating under the U.K. Companies Act 1985. M
(2003) plc was incorporated as a public limited company in
England in 1999. The address and telephone number of its
registered office are 8 Salisbury Square, London
EC4Y 8BB, United Kingdom and
+44 (0)24 7656 5606.

Until the effectiveness on May 19, 2003 of
the schemes of arrangement described below under the caption
Financial Restructuring, M (2003) plc was
the parent company of Marconi Corporation plc and its
subsidiaries, which operated (and continues to operate) the
business of the Marconi group. As a result of the effectiveness
of those schemes of arrangement, we ceased to be a member of the
Marconi group and ceased business operations. Unless the context
otherwise requires, the discussion below relates to the business
and operations of the Marconi group that was, and continues to
be, operated through the former direct and indirect subsidiaries
of M (2003) plc.

On October 21, 2003, Marconi plc changed its
name to M (2003) plc.

Financial Restructuring

On May 19, 2003, the Marconi group concluded
its financial restructuring. The restructuring was effected
through two separate schemes of arrangement under
the U.K. Companies Act 1985. A scheme of arrangement is a
procedure under English law through which a company may enter
into a voluntary compromise or arrangement with one or more
classes of its creditors to effect a restructuring of its
financial obligations. One scheme of arrangement involved all of
the creditors of Marconi Corporation plc, other than
certain excepted categories of creditors but including the
syndicate banks and bondholders to whom our primary financial
indebtedness was owed. The second scheme of arrangement involved
creditors of M (2003) plc. As a result of the
restructuring, the shares that M (2003) plc held in
Marconi Corporation plc were cancelled. Marconi
Corporation plc became the new parent holding company of
the Marconi group, and M (2003) plc ceased to be a
member of the Marconi group.

The financial restructuring covered approximately
£4.8 billion of creditors claims, comprising
£4.0 billion of syndicated bank debt and externally
held U.S. dollar and euro denominated bonds and
£800 million of related party debt. In exchange for
the cancellation of their claims against us and Marconi
Corporation plc, on May 19, 2003 the creditors covered
by these schemes of arrangement received:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash:£340 million in cash;                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Senior Notes:U.S.$717,139,584 (approximately
    £437 million) in aggregate principal amount of new
    guaranteed senior secured notes due April 2008 issued by Marconi
    Corporation plc, with interest payable quarterly in cash at
    a rate of 8% per annum. Since the implementation of the
    schemes, Marconi Corporation plc has fully redeemed for
    U.S. dollars these Notes;                                                                                                          
|
| |  | Junior Notes:U.S.$486,881,472 (approximately
    £297 million) in aggregate principal amount of new
    guaranteed junior secured notes due October 2008 issued by
    Marconi Corporation plc, with interest payable quarterly in
    cash at a rate of 10% per annum or, at our option, in kind, by
    issuing additional junior notes, at a rate of 12% per annum.
    Since the implementation of the schemes, Marconi
    Corporation plc has fully redeemed for U.S. dollars
    these Notes; and
|
| |  | Marconi Corporation plc Shares:995 million ordinary shares,
    representing 99.5% of Marconi Corporation plcs issued
    ordinary share capital on May 19, 2003.                                                                                                                                                                                                                                                                                                                                      

In addition, Marconi Corporation plc issued
5 million ordinary shares, representing 0.5% of its issued
ordinary share capital upon consummation of the financial
restructuring, and warrants to subscribe for up to
50 million additional ordinary shares, equal to 5% of its
issued ordinary share capital upon consummation of the financial
restructuring, to shareholders of M (2003) plc. In
connection with the restructuring Marconi

5



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##### Table of Contents



Corporation plc listed its ordinary shares
on the London Stock Exchange and established an ADR program in
respect of those shares.


In connection with the financial restructuring,
our ordinary shares were delisted from the London Stock
Exchange. Under the terms of the M (2003) plc scheme
of arrangement, all of our assets, other than those necessary to
fund the administration of the scheme and the Company, will be
distributed to scheme creditors in accordance with the scheme of
arrangement. We expect to dissolve M (2003) plc at
approximately the same time as the completion of these
distributions to scheme creditors. While M (2003) plc
shares, and ADRs representing M (2003) plc shares,
remain outstanding following the effectiveness of the financial
restructuring, we believe that there will be no circumstances
under which any additional value will be returned to
shareholders of M (2003) plc. As that is the case, we
believe M (2003) plc shares and ADRs are worthless.

Prior to the financial restructuring, we had
issued options in respect of M (2003) plcs
shares to Marconi group employees under a number of different
option plans. In order to hedge some of the potential cost of
acquiring the shares necessary to satisfy the groups
obligations under these plans, we, through an ESOP trust entity,
entered into contracts, which we refer to as ESOP derivative
transactions, to purchase shares in the future at prices that
were fixed at the dates of the contracts. In connection with the
restructuring process, on March 26, 2003 we and Marconi
Corporation plc entered into a final settlement with the
banks, which we refer to as the ESOP derivative banks, that were
the counterparties under the ESOP derivative transactions. This
settlement agreement definitively settled the claims of the ESOP
derivative banks against M (2003) plc and Marconi
Corporation plc in relation to the ESOP derivative
transactions. Under the settlement, which was conditional on
Marconi Corporation plcs financial restructuring
becoming effective, we paid a total of £35 million to
the ESOP derivative banks and the claims of the ESOP derivative
banks under the ESOP derivative transactions were excluded from
our and Marconi Corporation plcs schemes of
arrangement.

On May 6, 2004, the M (2003) plc scheme
supervisors authorized a further distribution to creditors as a
consequence of the settlement of a Marconi Corporation plc
scheme claim, referred to as the Millionerrors claim. At the
time of this distribution, the prevailing share price and
exchange rate resulted in the distribution of consideration
approximately equivalent to 2 pence per pound of admitted
claims.

BUSINESS OVERVIEW

Until the effectiveness on May 19, 2003 of
the schemes of arrangement of M (2003) plc and Marconi
Corporation plc, M (2003) plc was the parent company
of Marconi Corporation plc and its subsidiaries, which
operated (and continues to operate) the business of the Marconi
group. As a result of the effectiveness of the M (2003) plc
and Marconi Corporation plc schemes of arrangement, we
ceased to be a member of the Marconi group and ceased our
business operations. The business of the Marconi group continues
to be operated by Marconi Corporation plc, the current
parent holding company of the Marconi group, and its
subsidiaries.

As a consequence of the schemes of arrangement,
we no longer conduct any business, and we do not intend to
revive any business operations.

Prior to May 19, 2003, we, through our
former Marconi group subsidiaries, were a global vendor of
telecommunications equipment and services. A description of the
business that we used to conduct is contained in our previous
annual reports on Form 20-F filed with the Securities and
Exchange Commission. Our only remaining, dormant and non
trading, subsidiaries are listed in Note 22 of the Notes to
the Consolidated Financial Statements included in this annual
report.

PROPERTY, PLANT AND EQUIPMENT

Our registered office is located at 8 Salisbury
Square, London EC4Y 8BB, United Kingdom. We currently have no
property, plant or equipment.

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Item 5: Operating and Financial
Review and Prospects

This discussion and analysis should be read in
conjunction with Key Information  Risk
Factors, the Key Information  Selected
Consolidated Financial Data and the consolidated financial
statements and related notes and the descriptions of our
businesses included elsewhere in this document.

Recently issued accounting pronouncements not
yet adopted

The Company does not anticipate that the adoption
of any recently issued accounting pronouncements that have yet
to be adopted will have a material impact on its financial
position, cash flows or results of operations because, after
completion of the financial restructuring, the Company has no
trading activities.

Overview

On May 19, 2003, the Marconi group concluded
its financial restructuring, which was effected through two
separate schemes of arrangement under the U.K. Companies
Act 1985. As a result of the restructuring, we ceased to be a
member of the Marconi group and ceased business operations. See
the additional discussion of our financial restructuring in
History and Development of the Company 
Financial Restructuring and  Liquidity
and Capital Resources below. Unless the context otherwise
requires, the discussion below relates to the business and
operations of the Marconi group that was operated by the former
direct and indirect subsidiaries of M (2003) plc.

Additionally, because the financial restructuring
occurred approximately seven weeks into fiscal 2004, any
comparison of specific financial statement line items between
fiscal 2004 and fiscal 2003 is not meaningful, and therefore a
more detailed year to year comparison has not been included.

Results of operations

Fiscal 2004 compared to fiscal
2003

Prior to the financial restructuring on
May 19, 2003, group companies generated revenue of
£168 million and an operating loss of
£58 million from the groups network equipment
and network services businesses.

Business restructuring charges

Employee
severance

We recorded a charge of £4 million in
fiscal 2004 associated with redundancy payments for our
employees. £2 million of this was paid out in cash
prior to the restructuring, and the remaining balance of
£2 million was transferred to Marconi
Corporation plc at the time of the restructuring. We also
made cash payments of £10 million in connection to
charges incurred in fiscal 2003.

Advisor
fees

We incurred no charges relative to advisor fees
in fiscal 2004. In fiscal 2004 we made cash payments of
£6 million in connection with charges incurred in
fiscal 2003, and the balance of £4 million incurred in
fiscal 2003 was transferred to Marconi Corporation plc at
the time of the restructuring.

Accounting effects of the financial
restructuring

In connection with the financial restructuring of
the Marconi Group, the shares that M (2003) plc held
in Marconi Corporation plc were cancelled, and
M (2003) plc divested fully of its interests in the
Marconi Group for nil proceeds. This resulted in a gain of
£3,281 million on the transfer of ownership of the
Marconi Group being equivalent to its consolidated net
liabilities. On the same date the scheme of arrangement of
Marconi Corporation plc came into effect resulting in an
£804 million receivable from the Marconi Group being
waived by M (2003) plc and its subsidiary undertakings
reducing the net gain to £2,477 million. This has been
accounted for by a gain of £2,183 million recorded in
the consolidated statement of operations within other income and
a credit of £294 million recorded in the consolidated
statement of shareholders

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equity relating principally to the minimum
pension liability. Expenses incurred by the Scheme Supervisors
in the administration of the scheme post May 19, 2003 to
March 31, 2004 are approximately £0.3 million.


Because the financial restructuring was
implemented by way of two separate schemes of arrangement under
section 425 of the U.K. Companies Act 1985, the gain on
financial restructuring described above will not give rise to
any taxable amounts.

Pursuant to the M (2003) plc scheme of
arrangement, the remaining assets of M (2003) plc will be
distributed to scheme creditors, and it is intended that
M (2003) plc will be dissolved. There will be no
circumstances under which any value will be returned to
shareholders under the terms of the scheme.

Fiscal 2003 compared to fiscal
2002

Revenues

The following table sets forth our revenues by
geographical region of destination for the two years ended
March 31, 2003 as reported under U.S. GAAP:

|                                 |                                             |      |     |          |  |   |       |          |  |  |       |       |  |  |       |        | 
|-------------------------------- | ------------------------------------------- | ---- | --- | -------- |  | - | ----- | -------- |  |  | ----- | ----- |  |  | ----- | ------ | 
|                                 |                                             |      |     |         
|                                 |                                             | 2003 |     | 2002    
|                                 |                                             |      |     | % of     |  |   |       | % of    
|                                 |                                             | £    |     | revenues |  | £ |       | revenues
|                                 |                                             |     
|                                 |                                             |     
|United Kingdom                   |                                             |      | 500 |          |  |   | 26.4% |          |  |  | 837   |       |  |  | 25.8% |       
|Italy                            |                                             |      | 156 |          |  |   | 8.2%  |          |  |  | 201   |       |  |  | 6.2%  |       
|Other                            |                                             |      | 512 |          |  |   | 27.0% |          |  |  | 757   |       |  |  | 23.3% |       
|                                 |                                             |     
|                                 | Total Europe, Middle East and Africa (EMEA) |      |     | 1,168    |  |   |       | 61.6%    |  |  |       | 1,795 |  |  |       | 55.3%  | 
|United States                    |                                             |      | 519 |          |  |   | 27.4% |          |  |  | 1,064 |       |  |  | 32.7% |       
|Central and Latin America (CALA) |                                             |      | 62  |          |  |   | 3.3%  |          |  |  | 118   |       |  |  | 3.7%  |       
|Other                            |                                             |      | 15  |          |  |   | 0.8%  |          |  |  | 39    |       |  |  | 1.2%  |       
|                                 |                                             |     
|                                 | Total Americas                              |      |     | 596      |  |   |       | 31.4%    |  |  |       | 1,221 |  |  |       | 37.6%  | 
|Asia-Pacific (APAC)              |                                             |      | 132 |          |  |   | 7.0%  |          |  |  | 230   |       |  |  | 7.1%  |       
|                                 |                                             |     
|                                 | Total revenues                              |      |     | 1,896    |  |   |       | 100.0%   |  |  |       | 3,246 |  |  |       | 100.0% | 
|                                 |                                             |     

Approximately 37%, 24% and 28% of our fiscal 2003
revenues were made in Sterling, Euros and U.S. dollars,
respectively as compared with 33%, 21% and 31%, respectively in
fiscal 2002.

The average currency exchange rates for the Euro
to the Sterling were 1.55 and 1.63 in fiscal 2003 and 2002,
respectively. The average currency exchange rates for the
U.S. dollar to the Sterling were 1.55 and 1.43 in fiscal
2003 and 2002, respectively.

Total revenues of £1,896 million in
fiscal 2003 reflected a decrease of £1,350 million or
42% as compared with £3,246 million in fiscal 2002.
This decrease, observed across all major geographic zones and
product lines, was primarily the result of continued reduced
demand in the global market for telecommunications equipment and
services, resulting in lower sales in our Network Equipment and
Network Services segments. Sales in our Capital segment also
declined substantially since the previous year as a result of
business disposals and, in particular, the disposal of Marconi
Applied Technologies in fiscal 2003 and Marconi Commerce Systems
in fiscal 2002.

Europe, the Middle East, and Africa
(EMEA) and the United States were our primary
markets on a geographic basis. The majority of our revenues in
the EMEA region were generated by our Optical Networks, while
revenues in the U.S. were generated by our access, Outside Plant
and Power (OPP) and Broadband Routing and Switching
(BBRS) businesses. See the detailed segmental
discussion and analysis below.

Revenues in EMEA, of £1,168 million,
fell by £627 million or 35% as compared to
£1,795 million in fiscal 2002. A large proportion of
this decline related to Optical Networks as telecom operators
maximized utilization in their existing networks to the
detriment of new network build. Other types of Network

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Equipment sales also featured significant
declines throughout EMEA, compared to the previous year, in
particular access systems in the German market. Sales of Network
Services in EMEA also fell from the previous year though were
comparatively more robust than Network Equipment sales largely
as a result of the phasing of long-term service contracts,
particularly in the Middle East and the U.K.


Revenues in the U.S., of £519 million,
fell by £545 million or 51% in fiscal 2003 as compared
to £1,064 million in fiscal 2002. A large proportion
of the reduction related to the Outside Plant and Power
business. As in EMEA, the poor general market conditions led to
substantial reductions in capital expenditure by U.S. telecom
operators. U.S. sales of Optical Networks in fiscal 2003
amounted to only £4 million following the Groups
decision to cease development and manufacture of its SONET
product range in April 2002.

Revenues in CALA also witnessed a significant
regional reduction in sales as they fell by
£56 million or 47% in fiscal 2003 to
£62 million as compared to £118 million in
fiscal 2002. Sales were down across all products and service
activities as a result of the deterioration in economic
conditions and currency exchange rates compared to fiscal 2002
and the consequent reductions in capital expenditure by most of
the major telecom operators in the region.

Revenues in APAC, of £132 million, fell
by £98 million or 43% in fiscal 2003 as compared to
£230 million in fiscal 2002. The main area of decline
was Optical Networks, and this was mainly as a result of the
lower levels of sales recorded in China following the completion
of large network build projects in the region in fiscal 2002.
There were also delays to certain major build projects by a
number of the Groups Chinese customers.

Gross margin

Gross margin of £374 million in fiscal
2003 reflected an increase of £425 million as compared to
(£51) million in fiscal 2002. Inventory write-downs and
other charges negatively and significantly affected gross margin
in fiscal 2002, with approximately £647 million
related to inventory write-downs and other charges and an
additional £158 million related to manufacturing
outsourcing agreements recorded in fiscal 2002. The continuing
deterioration in market conditions resulted in an additional
£25 million write-down of inventory in fiscal 2003
relative to slow moving and obsolete inventories.

Excluding these charges of £805 million
in fiscal 2002 and £25 million in fiscal 2003, gross
margin declined £355 million or 47% in fiscal 2003 as
compared to fiscal 2002. This decline resulted primarily from
lower sales volumes, particularly for Network Equipment. This
was compounded by an unfavorable sales mix where the relatively
lower gross margin services business became a higher proportion
of the total sales in fiscal 2003. Additionally price erosion
had an impact on gross margin, particularly in the European and
APAC Network Equipment areas. Partially offsetting these impacts
to gross margin were significant cost savings achieved during
fiscal 2003 in both the Network Equipment and Network Services
segments. These cost savings principally resulted from headcount
reductions and facility closures.

The Network Equipment and Network Services
segments contributed approximately £1.1 billion, or
57%, of the decline in gross margins experienced in fiscal 2002,
as compared with fiscal 2001. The lower gross margins were
primarily a result of the deterioration in sales volumes
discussed above and an unfavorable product mix in fiscal 2002 as
compared with 2001. As a strong indication of this mix swing,
the relatively lower gross margins services business represented
35% of the combined Network Equipment and Network Services
revenue in fiscal 2002 as opposed to only 23% in fiscal 2001. In
addition, the speed of this deterioration in revenues was more
rapid than our ability to re-scale the cost base of our
business, which contributed further to reduced gross margins.
Businesses sold in fiscal 2002, including our commerce systems
and optical components businesses, resulted in an additional
£57 million reduction in gross margins in fiscal 2002
as compared with fiscal 2001.

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Operating expenses

Selling,
general and administrative expenses

Selling, general and administrative expenses of
£356 million, or 18.8% of revenues, in fiscal 2003,
declined by £480 million or 57% compared with
£836 million, or 25.8% of revenues, in fiscal 2002. We
achieved significant reductions in annual expenditures through
focused headcount reductions, organization consolidation, site
rationalization (including the relocation of our U.K. corporate
headquarters) and closure of sales offices worldwide. A reduced
level of discretionary marketing spend also contributed to lower
costs in fiscal 2003. We achieved significant savings across
substantially all categories of selling, general and
administrative expense in fiscal 2003 as compared with fiscal
2002.

Research
and development

Research and development expenses of
£290 million, or 15.3% of revenues, in fiscal 2003
decreased £235 million or 44.8% as compared with
£525 million or 16.2% of revenues in fiscal 2002. The
majority of the cost savings were achieved as a result of
headcount reductions and significant site rationalization,
consolidation and closure initiatives, particularly in Europe,
the U.S., Canada and Israel. Other factors contributing to the
overall reduction in R&D expenditure included lower levels
of third party and materials spend, continued reductions in the
level of depreciation as a result of the write-down of
development and test models relating to well-established or
discontinued products and lower levels of capital expenditures.
Optical Networks remained the key focus of our R&D
investment, accounting for 40% of total Network Equipment and
Network Services R&D expenses in fiscal 2003 as compared
with 34% of total Network Equipment and Network Services R&D
expenses in fiscal 2002. European Access, North American Access
and BBRS accounted for 19%, 5% and 23% of Network Equipment and
Network Services R&D spend in fiscal 2003 as compared with
22%, 9%, and 23% of Network Equipment and Network Services
R&D spend in fiscal 2002, respectively, with greater than
50% of these expenditures focused on the further development of
our multi-service core switch-router, the BXR-48000. The
remaining 13% of our R&D expenses incurred in fiscal 2003
related mainly to OPP and wireless software developments within
Network Services.

Amortization
of goodwill

Effective April 1, 2002, we discontinued
amortizing goodwill upon the adoption of Statement of Financial
Accounting Standard No. (SFAS) 142. As a result,
there was no amortization expense in fiscal 2003 as compared
with £393 million or 12.1% of revenues in fiscal 2002.

Amortization
of intangibles

Intangible asset amortization expense of
£44 million or 2.3% of revenues in fiscal 2003
increased by £1 million, or 2.3%, as compared with
intangible assets amortization expense of £43 million
or 1.3% of revenues in fiscal 2002.

Business
restructuring charges

Business restructuring charges of
£230 million or 12.1% of revenues in fiscal 2003
decreased £166 million or 42% as compared to
£396 million or 12.2% of revenues in fiscal 2002. Of
the £230 million amount recorded in fiscal 2003,
£128 million related to employee severance,
£36 million to site rationalization and
£73 million to advisors fees incurred and accrued to
complete our groups financial restructuring. These charges
were partially offset by the favorable settlement of litigation
relating to an information technology systems implementation.

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The following table summarizes the activity
relative to business restructuring charges reflected as charges
to operating expenses in fiscal 2003 and the balances remaining
in other liabilities at March 31, 2003:

|                              |                                                 |            |  |             |     |            |  |          |     |          |  |     |     |  |  |    |    |  |  |    |    | 
|----------------------------- | ----------------------------------------------- | ---------- |  | ----------- | --- | ---------- |  | -------- | --- | -------- |  | --- | --- |  |  | -- | -- |  |  | -- | -- | 
|                              |                                                 |           
|                              |                                                 | Utilized  
|                              |                                                 | Balance at |  |             |     | Balance at
|                              |                                                 | March 31,  |  | Charged in  |     | Net cash   |  | Non cash |     | March 31
|                              |                                                 | 2002       |  | fiscal 2003 |     | payments   |  | movement |     | 2003    
|(in millions)                 |                                                 | £          |  | £           |     | £          |  | £        |     | £       
|                              |                                                 |           
|                              |                                                 |           
|Business restructuring costs: |                                                 |            |  |             |     |            |  |          |     |          |  |     |     |  |  |    |    |  |  |   
|                              | Employee severance                              |            |  | 30          |     |            |  | 128      |     |          |  | 148 |     |  |  |   |    |  |  | 10 |   
|                              | Site rationalization                            |            |  | 40          |     |            |  | 36       |     |          |  | 30  |     |  |  |   |    |  |  | 46 |   
|                              | Contractual commitments and other Restructuring |            |  | 13          |     |            |  |         |     |          |  |    |     |  |  | 10 |    |  |  | 3  |   
|                              | Systems implementation                          |            |  | 24          |     |            |  | (7       | )   |          |  | 17  |     |  |  |   |    |  |  |   |   
|                              | Advisor fees                                    |            |  |            |     |            |  | 73       |     |          |  | 63  |     |  |  |   |    |  |  | 10 |   
|                              |                                                 |           
|                              |                                                 | Total      |  |             | 107 |            |  |          | 230 |          |  |     | 258 |  |  |    | 10 |  |  |    | 69 | 
|                              |                                                 |           

Employee
severance

As a consequence of our objective to further
reduce our annual operating cost base, we recorded a charge of
£128 million during fiscal 2003 associated with
redundancy payments for approximately 7,500 employees.

Site
rationalization

We recorded a charge of £36 million in
fiscal 2003 relative to site rationalization representing
additional costs associated with closing and consolidating
various sites around the world as part of our business
reorganization. In fiscal 2002, we recorded a charge of
£40 million. These site closures and consolidations
were all commenced prior to December 15, 2002.

Contractual
commitments and other restructuring

During fiscal 2002, we recorded a charge of
£46 million in respect of other costs associated with
our business reorganization program. We made cash payments of
£26 million during fiscal 2002 and recorded a non-cash
charge of £7 million, leaving a balance at March 31,
2002 of £13 million. Of this balance, non-cash costs
of £10 million were charged during fiscal 2003 leaving
a balance of £3 million at March 31, 2003.

Systems
implementation

As discussed below, we had planned to implement a
new global information technology system. However, in light of
our revised trading outlook and our continued focus on cost
reduction, we terminated the implementation in fiscal 2002.
During fiscal 2003, we revised our previous estimate of the
overall costs, leading to the release of £7 million
from the amounts accrued in fiscal 2002.

Advisor
fees

The charge of £73 million that we
recorded in fiscal 2003 relative to advisor fees represented
charges from our external advisors with respect to our financial
restructuring and administration of M (2003) plc. We made
cash payments totaling £63 million during fiscal 2003
and a balance of £10 million remained at
March 31, 2003.

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|                              |                                                 |             |  |            |     |          |  |          |     |  |  |   |   |  |  |    |     | 
|----------------------------- | ----------------------------------------------- | ----------- |  | ---------- | --- | -------- |  | -------- | --- |  |  | - | - |  |  | -- | --- | 
|                              |                                                 |            
|                              |                                                 | Utilized   
|                              |                                                 |             |  | Balance at
|                              |                                                 | Charged in  |  | Net cash   |     | Non cash |  | March 31
|                              |                                                 | fiscal 2002 |  | payments   |     | movement |  | 2002    
|(in millions)                 |                                                 | £           |  | £          |     | £        |  | £       
|                              |                                                 |            
|                              |                                                 |            
|Business restructuring costs: |                                                 |             |  |            |     |          |  |          |     |  |  |   |   |  |  |   
|                              | Employee severance                              |             |  | 237        |     |          |  | 207      |     |  |  |  |   |  |  | 30 |    
|                              | Site rationalization                            |             |  | 40         |     |          |  |         |     |  |  |  |   |  |  | 40 |    
|                              | Contractual commitments and other Restructuring |             |  | 46         |     |          |  | 26       |     |  |  | 7 |   |  |  | 13 |    
|                              | Systems implementation                          |             |  | 73         |     |          |  | 49       |     |  |  |  |   |  |  | 24 |    
|                              |                                                 |            
|                              |                                                 | Total       |  |            | 396 |          |  |          | 282 |  |  |   | 7 |  |  |    | 107 | 
|                              |                                                 |            

Employee
severance

In fiscal 2002, we recorded a charge of
£237 million to reflect the cost associated with
voluntary redundancy payments for approximately 10,000
employees. We made cash payments of £207 million in
fiscal 2002.

Site
rationalization

The charge of £40 million in respect of
site rationalization in fiscal 2002 represents costs associated
with closing and consolidating various sites around the world as
part of our business reorganization.

Contractual
commitments and other restructuring

During fiscal 2002, we recorded a charge of
£46 million in respect of other costs associated with
our business reorganization program. We made cash payments of
£26 million during fiscal 2002 and recorded a non-cash
charge of £7 million, leaving a balance at March 31,
2002 of £13 million.

Systems
implementation

During fiscal 2002, we planned to implement a new
global information technology system. In light of our revised
trading outlook and our continued focus on costs reduction, we
terminated the implementation. The £73 million charge
represents £43 million of capitalized external
consultancy costs associated with the implementation,
£24 million of hardware and software costs expensed,
and £6 million of other associated costs of the
project. We made cash payments of £49 million in
fiscal 2002.

Impairment
of long-lived assets

During fiscal 2003, we recorded a charge of
£69 million related to the impairment of property,
plant and equipment as compared with a charge of £154
million in fiscal 2002. There was no impairment of goodwill or
intangibles in fiscal 2003 as compared with a charge of
£3,814 million in fiscal 2002.

(Loss)/gain
on sales of investments

We recorded a loss on the sale of investments of
£5 million or 0.3% of revenues in fiscal 2003 as
compared with a gain of £89 million or 2.7% of
revenues in fiscal 2002. In fiscal 2002, we recognized gains of
£282 million on the disposal of our investments in
Lottomatica S.p.A., General Domestic Appliances, Siemens
Telcommunications Pty Ltd, ipsaris Limited and our remaining
stake in Alstom. These gains were partially offset by charges of
£154 million related to other investments including
NetDecisions Holdings Limited, Easynet Group plc and Atlantic
Telecom Group plc.

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Impairment
of investments

We recorded a charge of £40 million or
2.1% of revenues in fiscal 2003 as compared with £nil in
fiscal 2002. This charge related to declines in the value of
equity securities, primarily our holdings in Arraycom and
Bookham Technology, of £38 million that we judged to
be other than temporary and a charge of £2 million
relating to the carrying value of investments in affiliates.

Other
income

We recorded a gain of £34 million or
1.8% of revenues in fiscal 2003 related to adjustments to
purchase consideration in respect of prior acquisitions. The
gain of £166 million in fiscal 2002 related to the
repurchase of approximately Euro 325 million of euro-bonds
and U.S.$261.1 million of yankee bonds previously issued by
Marconi Corporation plc. The bonds had a fair value (after
unamortized discount) at repurchase of approximately
£375 million. There were no repurchases in fiscal 2003.

Interest
expense, net

Net interest expense of £284 million or
15.0% of revenues in fiscal 2003 increased £52 million
or 22% as compared to £232 million or 7.1% of revenues
in fiscal 2002. The charge in fiscal 2003 related primarily to
interest on our bonds and syndicated bank debt of
£261 million. This amount included £113 million
of accrued but unpaid interest that was subsequently included as
claims in our scheme of arrangement and compromised in our
financial restructuring. The interest charges were partly offset
by net interest received on deposits, insurance and a tax refund.

Income
tax expense

In fiscal 2003, our effective income tax rate was
23.1% compared to the U.K. statutory rate of 30%. This
difference was primarily due to net non-deductible expenses
(£30 million) such as business restructuring charges
and a gain related to adjustments to purchase considerations in
respect of prior acquisitions. This amount was partially offset
by the release of tax provisions in respect of prior years
following progress to resolve historic U.S. and U.K. tax issues
and audits. In addition, the valuation allowance recorded
against losses and other deferred tax assets increased by
£126 million to £841 million.

In comparison, the fiscal 2002 effective income
tax rate was negative 7.2% compared to the U.K. statutory rate
of 30%. This was primarily due to non-deductible goodwill
amortization and goodwill impairment charges of £1,276
million and a valuation allowance recorded against losses and
other deferred tax assets of £715 million. These
amounts were partially offset by the benefit of non-UK tax rate
differences (£177 million), taxes recorded on items no
longer considered permanently reinvested
(£63 million), and other non taxable items
(£242 million) such as book gains versus taxable gains
and a U.S. GAAP difference relating to the treatment of realized
gains and losses on the sale of investments that attracts no
additional tax.

Equity
in loss of affiliates

We recognized a loss on equity in loss of
affiliates of £62 million or 3.3% of revenues in
fiscal 2003 as compared with a loss of £196 million or
6.0% of revenues in fiscal 2002. This loss in fiscal 2003
related primarily to losses in Easynet (£22 million)
and losses in joint ventures of £40 million. The loss
of £196 million or 6.0% of revenues in fiscal 2002 was
primarily a result of our share of the net losses in Easynet. As
at December 31, 2002, Easynet had net liabilities under
U.S. GAAP of which our share was approximately
£40 million. Since we had no commitment to provide
further financing to Easynet, we discontinued recording our
share of Easynets losses once we reduced the carrying
value of our investment to £nil.

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Minority
interest

In fiscal 2003, minority interest was £nil
representing no change from fiscal 2002. In fiscal 2002,
minority interest of £nil decreased by £3 million
from £3 million in fiscal 2001. The decrease resulted
from the recognition of the net losses in businesses in which
there was a minority shareholding.

Cumulative
effect of changes in accounting principles

At March 31, 2001, the Marconi Employee
Trust had entered into various agreements to purchase shares of
M (2003) plcs common stock from various counter
parties in order to satisfy market purchase obligations related
to share option plans. The contracts were recorded in temporary
equity at an amount equivalent to the net cash settlement of the
shares outstanding under the contracts at March 31, 2001.
On June 30, 2001, we adopted Emerging Issues Task Force
(EITF) No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock, which requires such instruments
to be marked to market and the obligations recorded as a
liability. As a result, we recorded a cumulative effect of
change in accounting principle of £240 million related
to the loss on such instrument as of the implementation date in
fiscal 2002 (June 30, 2001), which was previously recorded
within additional paid in capital.

Subsequent to the implementation date, we
recorded additional market losses of £95 million from
the implementation date up to March 31, 2002 in other
expenses in the statement of operations. There were no
additional market losses recognized in fiscal 2003.

Liquidity and capital resources

Sources of liquidity

We have no external sources of liquidity. We have
cash on hand sufficient to meet our anticipated ongoing
administrative costs for the foreseeable future. Under the terms
of the M (2003) plc scheme of arrangement, all of our
assets, other than those necessary to fund the administration of
the scheme and the Company, will be distributed to scheme
creditors in accordance with the scheme of arrangement. We
expect to dissolve M (2003) plc at approximately the
same time as the completion of these distributions to our scheme
creditors. We therefore believe that there will be no future
circumstances under which the Company will have any internal
sources of liquidity other than the cash currently on hand.

Financial restructuring

At March 31, 2004, our cash and cash
equivalents totaled £9 million, as compared to
£1,159 million at March 31, 2003, all of which
was denominated in sterling (at March 31, 2003,
£518 million was denominated in sterling,
£282 million in U.S. dollars,
£306 million in Euro and the balance of
£53 million in other currencies).

Our outstanding borrowings at March 31, 2004
were £nil as compared with £4,031 million at
March 31, 2003.

The financial restructuring of the Marconi group
covered approximately £4.8 billion of creditors
claims, comprising £4.0 billion of syndicated bank
debt and externally held U.S. dollar and euro denominated
bonds and £800 million of related party debt. In exchange
for the cancellation of their claims against us and Marconi
Corporation plc, on May 19, 2003 the creditors covered
by these schemes of arrangement received:



| |   |                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash:£340 million in cash;                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Senior Notes:U.S.$717,139,584 (approximately £437 million) in
    aggregate principal amount of new guaranteed senior secured
    notes due April 2008 issued by Marconi Corporation plc,
    with interest payable quarterly in cash at a rate of 8% per
    annum. Since the implementation of the schemes, Marconi
    Corporation plc has fully redeemed for U.S. dollars
    these Notes;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Junior Notes:U.S.$486,881,472 (approximately £297 million) in
    aggregate principal amount of new guaranteed junior secured
    notes due October 2008 issued by Marconi Corporation plc,
    with interest payable quarterly in cash at a rate of 10% per
    annum or, at our option, in kind, by issuing additional junior
    notes, at a rate of 12% per annum. Since the implementation of
    the schemes, Marconi Corporation plc has fully redeemed for
    U.S. dollars these Notes; and
|
| |  | Marconi Corporation plc
    Shares:995 million ordinary
    shares, representing 99.5% of Marconi
    Corporation plcs issued ordinary share capital on
    May 19, 2003.                                                                                                                                                                                                                                                                                                                          

In addition, on May 19, 2003, Marconi
Corporation plc issued 5 million ordinary shares,
representing 0.5% of its issued ordinary share capital upon
consummation of the financial restructuring, and warrants to
subscribe for up to 50 million additional ordinary shares,
equal to 5% of its issued ordinary share capital upon
consummation of the financial restructuring, to shareholders of
M (2003) plc. In connection with the restructuring Marconi
Corporation plc listed its ordinary shares on the London
Stock Exchange and established an ADR program in respect of
those shares.

As a result of the financial restructuring, the
shares that M (2003) plc held in Marconi
Corporation plc were cancelled, Marconi
Corporation plc became the new parent holding company of
the Marconi group and M (2003) plc ceased to be a
member of the Marconi group. The overall effect on the Company
of the financial restructuring was the elimination of all net
liabilities, (except for cash of £9 million to cover
the future costs of administering the scheme) for nil proceeds.
This resulted in a gain on the financial restructuring of
£2,477 million, accounted for as a gain of
£2,183 million recorded in the consolidated statements
of operations and a credit of £294 million recorded in
the consolidated statements of shareholders equity.

Following the financial restructuring, pursuant
to the scheme of arrangement, our remaining assets, other than
those necessary to fund the administration of the scheme and the
Company, will be distributed to scheme creditors.

Operating activities

Net cash used in operating activities of
continuing operations was £584 million in fiscal 2003. This
resulted primarily from the loss from continuing activities of
£756 million, a change of £177 million in
current and deferred taxes and a gain of £34 million
related to adjustments to purchase consideration of prior
acquisitions, partially offset by depreciation and amortization
of £169 million, impairment of long-lived assets of
£69 million, impairment of investments of
£40 million and changes in operating activities, net
of acquisitions of £15 million. The reduction in
working capital was primarily a result of the significant
decrease in sales volumes in fiscal 2003 as compared with fiscal
2002. This sales decline led to decreases in accounts
receivables of £284 million or 38% as compared with
fiscal 2002, and inventories of £296 million or 56% as
compared with fiscal 2002. The decrease in inventories was also
due to our continued focus on reducing costs in all areas of
production and overhead. In particular, we continued efforts to
restructure our supply chain to remove excess capacity and
reduce break-even points. In addition, fiscal 2003 reflected
£258 million in payments relative to business
restructuring charges.

Net cash used in operating activities of
continuing operations was £603 million in fiscal 2002.
This resulted primarily from the loss from continuing activities
of £6,260 million and a change in current and deferred
taxes of £468 million, partially offset by asset
impairments of £3,968 million, a provision for slow
moving and obsolete inventory of £805 million,
depreciation and amortization of £653 million, a
provision for doubtful accounts of £175 million,
changes in operating activities, net of acquisitions, of
£203 million, equity in net loss of affiliates of
£196 million and loss on sale of businesses and
properties of £149 million.

Investing activities

The net cash provided by investing activities of
£411 million in fiscal 2003 was primarily due to net
cash received from the disposal of businesses of
£436 million and net proceeds received from the sale
of property, plant and equipment of £30 million,
partially offset by purchases of marketable securities of

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£20 million, and the purchases of
property, plant and equipment of £35 million. The net
cash proceeds received from the disposal of businesses relates
primarily to the sale of the Strategic Communications business,
which represented net proceeds of £373 million in
fiscal 2003. During fiscal 2003, the majority of the capital
expenditures were in the Optical Networks and BBRS businesses.
The purchases of marketable securities of £20 million
related to payments made in fiscal 2003 relative to our
Ultramast put option, which was in litigation. The issue with
Ultramast was resolved through a settlement in which our
investment in Ultramast was terminated through a capital
reduction in exchange for proceeds of £41 million,
which was recorded as a gain on sale of investment in affiliates
in fiscal 2003.


The net cash provided by investing activities of
£1,118 million for fiscal 2002 was primarily due to
cash received from the disposal of businesses of
£1,001 million, net proceeds received from the sale
and purchases of investment securities of £206 million
and net proceeds received from the sale of property, plant and
equipment of £171 million, partially offset by
purchases of property, plant and equipment of
£327 million. The net cash proceeds received from the
disposal of businesses related primarily to
£729 million, £283 million and
£225 million received for our medical, data and
commerce systems businesses, respectively. The net proceeds
received from the purchases and sales of securities in fiscal
2002 came principally from the sale of securities held in Alstom
and Lagardere. The purchases of property, plant and equipment
included equipment for participation in technology trials with
key customers, test equipment that supports on-going research
and development activity, software licenses purchased as part of
the implementation of a new information technology system and
expenditures related to site and facility developments. We
subsequently wrote off the software licenses as we terminated
the implementation of the information technology project in
light of our revised financial outlook.

Capital expenditures in the Network Equipment and
Network Services segments were £ nil, £35 million
and £168 million in fiscal 2004, 2003 and 2002,
respectively. It is not practicable to identify the capital
expenditures of the Network Equipment and Network Services
segments separately as the same assets were generally used to
generate sales in each of these segments.

The Capital segment capital expenditures were
£nil, £nil and £159 million in fiscal 2004,
2003 and 2002, respectively.

Financing activities

Net cash used in financing activities of
£767 million in fiscal 2003 was primarily due to cash
transferred to secured accounts of £692 million and
payments on short-term debt and term loan repayments totaling
£30 million and £45 million, respectively.

Net cash provided by financing activities of
£496 million in fiscal 2002 was primarily due to
proceeds from borrowings under term loans of
£981 million, partially offset by net repayments under
short-term borrowings of £206 million, restricted cash
transferred to secured accounts of £191 million and
dividends paid of £95 million.

Research and Development

In fiscal 2004, prior to the financial
restructuring, group companies spent £30 million on
research and development, or R&D. The majority of the
R&D investment continued to be focused on the three main
product areas: Optical Networks, Access Networks and BBRS.

We expended approximately £284 million,
or approximately 18% of revenues, on R&D, in our Network
Equipment and Network Services segments in fiscal 2003 and
£487 million, or approximately 15% of revenues in
fiscal 2002. We funded the entire amount.

Optical networks accounted for our largest
product portfolio and generated the largest revenue base.
Optical networks R&D expenditure accounted for almost 40% of
our total R&D expenditure during fiscal 2003 as opposed to
approximately 34% for fiscal 2002. R&D projects had been
selected on the basis that they are expected to yield a higher
overall return.

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The BBRS business accounted for approximately 23%
of our total R&D expenditure in both fiscal 2003 and 2002.
Over half of this expenditure was focused on the development of
our new multi-service core switch, the BXR-48000. In November
2002, we demonstrated our ability to support the transport of
encrypted high-speed data and high definition videos streams
over the BXR-48000 using our newly developed 10 Gbps
OC-192c ATM interface card.

R&D expenditure across our European Access
and North American Access businesses combined, accounted for
approximately 24% of our total R&D expenditure in fiscal
2003 as opposed to approximately 31% in fiscal 2002. During the
first calendar quarter of 2002, we carried out an in-depth
review of our complete portfolio of access solutions. This
review was based on an evaluation of the forecast levels and
timing of returns on investment and the cash generation
potential of each product line. Following the review, we
streamlined our portfolio of access technologies and refocused
our R&D expenditure.

The remaining R&D investment in fiscal 2002
related mainly to OPP products and wireless software.

OFF-BALANCE SHEET ARRANGEMENTS

As at March 31, 2004, we had no off-balance
sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, revenues,
expenses, results of operations, liquidity, capital expenditures
or capital resources.

TABULAR DISCLOSURE OF CONTRACTUAL
OBLIGATIONS

We have no contractual obligations of the type
requiring tabular disclosure under Item 5.F.




Item 6: Directors, Senior
Management and Employees

DIRECTORS AND SENIOR MANAGEMENT

Directors

The current members of our board of directors are:

|                         |  |     |    |       |  |         
|------------------------ |  | --- | -- | ----- |  | --------
|Name                     |  | Age |    | Title
|                         |  |     |    |      
|John Jameson White       |  |     | 66 |       |  | Chairman
|Christopher James Shaw   |  |     | 51 |       |  | Director
|Richard Anthony Robinson |  |     | 56 |       |  | Director

The business address of John White, Christopher
Shaw and Richard Robinson is 8 Salisbury Square, London
EC4Y 8BB, United Kingdom.

John Jameson
Whitewas appointed Chairman of
our board of directors in August 2003. Mr. White, who is a
solicitor, became a partner with the law firm CMS Cameron
McKenna in 1964 having joined the firm in 1957. During his
period with the firm, he became the first Chairman of the CMS
European Banking Group.

Christopher James
Shawwas appointed to our board of
directors in August 2003. Mr. Shaw became a licensed
insolvency practitioner in 1987. He has worked for KPMG LLP
since May 1989 as a senior manager in their corporate recovery
department, primarily on members voluntary liquidations.

Richard Anthony
Robinsonwas appointed to our
board of directors in September 2003. He is a Chartered
Accountant and is currently working as a consultant. Previously
he held various finance appointments within Marconi
Corporation plc (previously The General Electric Company,
p.l.c.) between 1987 to 1991 and from 1993 to 2003, latterly as
VP  Corporate Finance. He spent 2 years working
for Guinness PLC between 1991 and 1993. He is also a Director of
Plessey Holdings Ltd, Osram AS and Torro Advisors Ltd.

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Executive Officers

Kevin David
Smithwas appointed company
secretary in August 2003. Mr. Smith is a chartered
secretary and was previously company secretary at Kalamazoo
Computer Group plc.

Board and Management Changes

On May 19, 2003, David Clive Beck, Geoffrey
William Doy, Damian Hugh Reid and Neil David Sutcliffe resigned
from their positions with the Company. Mary Skelly resigned from
her position as company secretary in August 2003.

Mr. M K Atkinson, Mr. D C Bonham,
Mr. J F Devaney and Mr. W K Koepf resigned as
directors of the Company on May 19, 2003. Mr. M W J
Parton and Mr. M J Donovan resigned as directors of the Company
on August 4, 2003. Mr. C C Holden resigned as a
director of the Company on September 25, 2003.

COMPENSATION

The names of our current directors appear in the
table at the beginning of this section. The following table
shows emoluments paid or payable to all directors of the company
as a group for the period to March 31, 2004.

|                                                                    |  |       |     |       |  |  |       | 
|------------------------------------------------------------------- |  | ----- | --- | ----- |  |  | ----- | 
|                                                                    |  | 2004  |     | 2003 
|                                                                    |  | £000 |     | £000
|                                                                    |  |      
|                                                                    |  |      
|Directors emoluments                                               |  |       | 338 |       |  |  | 4,751 | 
|Amounts receivable under long-term incentive
    schemes            |  |       |    |       |  |  |      | 
|Company contributions to money purchase pension
    schemes         |  |       | 61  |       |  |  | 110   | 
|Amounts paid to third parties in respect of
    directors services |  |       | 7   |       |  |  |      | 

The aggregate of emoluments and amounts
receivable under long-term incentive schemes of the highest paid
director was £113,000 (March 31, 2003:
£1,323,000), and company pension contributions of
£61,000 (March 31, 2003: £nil) were made to a
money purchase scheme on his behalf. He is also a member of a
defined benefit scheme, under which his accrued pension at the
year end was £29,000 (March 31, 2003: £7,000),
and his accrued lump sum was £266,000 (March 31, 2003:
£57,000).

During the year two directors received benefits
under a defined benefit scheme. In addition one director
received benefits under a money purchase scheme. There are no
pension arrangements in place for any of the current directors.

The emoluments for all our directors and
executive officers are in respect of full years or, where
appropriate, from their dates of appointment until their date of
resignation.

BOARD PRACTICES

General

Our board currently comprises a chairman and two
directors, one of whom acts as the companys Chief
Financial Officer. The board also acts as the companys
audit committee. There are no other board committees.

The board meets as and when circumstances
require. Prior to the financial restructuring of the Marconi
Group in May 2003, the board met on a regular basis principally
to consider matters relating to the financial restructuring.
Since that time, the board has met on four occasions to
discharge its statutory and regulatory obligations and to
consider matters relating to the companys scheme of
arrangement.

The periods during which the current directors
have served are given above, in  Directors and
Senior Management. Each director has been appointed for an
initial term of two years, with the possibility that the

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appointment may be renewed for a further year if
the rest of the board agrees. The directors service
contracts provide that upon termination, the directors are not
entitled to any fee, compensation or other payment in respect of
the period after the termination date.


EMPLOYEES

In fiscal 2003, we had an average of
21,000 employees. All of our employees were transferred to
Marconi Corporation plc as a result of our restructuring on
May 19, 2003. The company currently has no employees.

SHARE OWNERSHIP

The following table shows the interests of
directors in ordinary shares of 5 pence each in M
(2003) plc:

|             |  |             |        |          |  |          |     |              |  |  |     |  |  |  |        | 
|------------ |  | ----------- | ------ | -------- |  | -------- | --- | ------------ |  |  | --- |  |  |  | ------ | 
|             |  | On          |        |          |  |          |     | At March 31,
|             |  | Appointment |        | Acquired |  | Disposed |     | 2004        
|             |  |            
|             |  |            
|R A Robinson |  |             | 11,442 |          |  |          | nil |              |  |  | nil |  |  |  | 11,442 | 
|C J Shaw     |  |             | nil    |          |  |          | nil |              |  |  | nil |  |  |  | nil    | 
|J J White    |  |             | nil    |          |  |          | nil |              |  |  | nil |  |  |  | nil    | 
|             |  |            

R A Robinson had the following interests in share
options as a result of his previous employment within the
Marconi Group. There are no circumstances under which any value
will be attributable to these share options:

|                                     |  |             |        |         |  |           |     |        |  |              |     |  |  |  |     |  |  |  |        | 
|------------------------------------ |  | ----------- | ------ | ------- |  | --------- | --- | ------ |  | ------------ | --- |  |  |  | --- |  |  |  | ------ | 
|                                     |  | On          |        |         |  |           |     |        |  | At March 31,
|Plan                                 |  | Appointment |        | Granted |  | Exercised |     | Lapsed |  | 2004        
|                                     |  |            
|                                     |  |            
|The Marconi Launch Plan              |  |             | 1,000  |         |  |           | nil |        |  |              | nil |  |  |  | nil |  |  |  | 1,000  | 
|The Marconi Long Term Incentive Plan |  |             | 15,164 |         |  |           | nil |        |  |              | nil |  |  |  | nil |  |  |  | 15,164 | 
|Total                                |  |             | 16,164 |         |  |           | nil |        |  |              | nil |  |  |  | nil |  |  |  | 16,164 | 
|                                     |  |            




Item 7:Major Shareholders and
Related Party Transactions

MAJOR SHAREHOLDERS

Trading in our shares on the London Stock
Exchange ceased on May 16, 2003, and our shares were
subsequently delisted.

As at October 6, 2004, there were
704 registered holders of our American depositary receipts.
Each ADR issued represents two ordinary shares. Of these
registered ADR holders, 681 have addresses in the United States.
One of the registered ADR holders is The Depository Trust
Company, which represents the total number of ADRs held in
book-entry form. The ADR holders collectively held
98,775,470 ADRs, or approximately 7.1% of our total issued
share capital as at October 6, 2004.

To our knowledge, there are no holders of 5% or
more of the ordinary shares in M (2003) plc as at
October 6, 2004.

To our knowledge, we are not owned or controlled,
directly or indirectly, by another corporation, by any foreign
government or by any other natural or legal person or persons,
severally or jointly.

To our knowledge, other than our recent
restructuring described herein, there are no arrangements the
operation of which may at a subsequent date result in us
undergoing a change in control.

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RELATED PARTY TRANSACTIONS

The following is a summary of certain
transactions with related parties, which have been entered into
or which have been in effect in the period since April 1,
2003.

Financial Restructuring Arrangements

Until the completion of our financial
restructuring on May 19, 2003, M (2003) plc was
the parent company of the Marconi group.

In connection with and to facilitate our
financial restructuring, we entered into a number of intra-group
restructuring arrangements with Marconi Corporation plc and
other former group companies. The two primary agreements were
the scheme implementation deed and the statement and waiver of
intercompany balances agreement.

Scheme Implementation Deed

Marconi Corporation plc, M (2003) plc,
E-A Continental Limited, Ancrane (formerly Ancrane Limited),
Marconi Nominees Limited, British Sealed Beams Limited and
various other former group companies entered into the scheme
implementation deed on March 27, 2003. The primary purpose
of the scheme implementation deed was to ensure that legally
binding arrangements were in place to govern the rights and
obligations between Marconi Corporation plc and M
(2003) plc in implementing our restructuring.

Non-voting undertakings

Ancrane, a subsidiary of M (2003) plc, had
various claims against Marconi Corporation plc and
M (2003) plc. Ancrane undertook not to attend or vote
or to use any other rights or powers available to it as a
creditor at any of the scheme of arrangement meetings at which
it was entitled to attend and vote. Ancrane also undertook not
to take any steps to canvass, solicit or entice any other
person, firm or company to attend and/or vote on its behalf at
any of those meetings. These arrangements did not however
prevent Ancrane from submitting a claim under either or both of
the Marconi Corporation plc scheme of arrangement and the
M (2003) plc scheme of arrangement.

Marconi Corporation plc had a claim against
M (2003) plc and undertook not to attend or vote at the
M (2003) plc scheme of arrangement meeting nor submit
a form of proxy with respect to its claim. This did not,
however, prevent Marconi Corporation plc from submitting a
claim under the M (2003) plc scheme of arrangement.

Certain other former group companies and British
Sealed Beams Limited had various claims against Marconi
Corporation plc and M (2003) plc and therefore also
undertook not to attend or vote at the scheme of arrangement
meetings or use any other rights or powers available to them as
a scheme of arrangement creditor to attend or vote at any of the
scheme of arrangement meetings at which they were entitled to
attend and vote.

Ancrane/ E-A Continental
arrangements

E-A Continental Limited, a subsidiary of Marconi
Corporation plc, owed M (2003) plc approximately
£219 million and had a receivable of approximately
£363 million due from Marconi Corporation plc.
Pursuant to a deed of assignment entered into on March 27,
2003 between Marconi Corporation plc,
M (2003) plc and E-A Continental Limited, Marconi
Corporation plc agreed to the assignment by E-A Continental
Limited to M (2003) plc of its £363 million
receivable. The assignment of the £363 million
receivable was in consideration for the release by M
(2003) plc of the £219 million owed to M
(2003) plc by E-A Continental Limited and the transfer by
E-A Continental Limited to M (2003) plc of the balance of
approximately £2,000,000 held on account with HSBC. On
March 27, 2003, a deed of assignment was entered into
between Marconi Corporation plc, M (2003) plc and
Ancrane under which M (2003) plc agreed to the assignment
of the £363 million receivable to Ancrane in
consideration for the issue to M (2003) plc by Ancrane of a
share at a premium equal to the market value of the
£363 million receivable.

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Ancrane re-registered as an unlimited company
pursuant to section 49 of the U.K. Companies Act 1985 on
March 25, 2003. Ancrane reduced its share capital,
including for this purpose its share premium account, to
£100 to enable it to make a repayment of capital in specie
to M (2003) plc of its interest in all of its assets, save
for £100 and the benefit of a specific covenant by Marconi
Corporation plc, and made a repayment of such capital in
specie to M (2003) plc.

Approvals

Marconi Corporation plcs shareholders,
M (2003) plc and Marconi Nominees Limited, agreed to vote
in favor of all shareholder resolutions which were in the
reasonable opinion of the Marconi Corporation plc Board,
necessary or desirable to give effect to the Marconi
Corporation plc scheme of arrangement, and to consent in
writing to each and every variation of the rights attached to
their respective shareholdings in Marconi Corporation plc
as may be involved in the passing and implementation of such
shareholder resolutions and to take such actions as necessary to
implement the restructuring and so as not to frustrate, delay or
interfere with the performance, approval or implementation of
the restructuring.

BAE Systems Plc (BAE) Deed of
Novation

In 1999, Marconi Corporation plc, which was,
at the time, named The General Electric Company, p.l.c.,
separated its international aerospace, naval shipbuilding,
defence electronics and defence systems business and sold it to
BAE. The original transaction agreement and payment deed were
entered into between Marconi Corporation plc and BAE and
subsequently novated from Marconi Corporation plc to M
(2003) plc. All other transaction documentation in relation
to the sale was entered into by M (2003) plc.

Marconi Corporation plc and M
(2003) plc agreed to novate the transaction agreement,
payment deed and various other agreements from M (2003) plc
back to Marconi Corporation plc with effect from the date
of the effectiveness of Marconi Corporation plcs
scheme of arrangement. Both Marconi Corporation plc and M
(2003) plc agreed to use all reasonable endeavours to
procure that BAE entered into the novation.

In addition, M (2003) plc, Marconi
Corporation plc and BAE agreed that no amount should be
paid by M (2003) plc or Marconi Corporation plc
to BAE in relation to certain claims made by the parties under
the BAE merger agreements and that Marconi Corporation plc
would reduce any amounts which may be payable to it in the
future by BAE under the BAE merger agreements by U.S.$18,600,000.

Finmeccanica Guarantee

Under a share purchase agreement dated
August 2, 2002, Marconi (Bruton Street) Limited sold all of
the shares in Marconi Mobile Holdings SpA, the Italian holding
company for the strategic communications business, to
Finmeccanica SpA. A parent company guarantee in favour of
Finmeccanica SpA was required to be given as part of the share
sale, the Finmeccanica guarantee. M (2003) plc was
therefore party to the share purchase agreement, as guarantor,
pursuant to which, among other things, it guaranteed the
performance by Marconi (Bruton Street) Limited of its
obligations under the share purchase agreement and the related
transaction documents, including a tax covenant, a transitional
services agreement, a custody deed and a disclosure letter.

Finmeccanica SpA, Marconi Corporation plc
and M (2003) plc entered into a deed of novation and
amendment, the Finmeccanica guarantee deed of novation, under
which, with effect from May 19, 2003, the Finmeccanica
guarantee and all other remaining obligations of M
(2003) plc under the share purchase agreement would be
novated from M (2003) plc to Marconi Corporation plc.
As a result of that novation, Marconi Corporation plc
became the guarantor of Marconi (Bruton Street) Limiteds
obligations under the share purchase agreement and related
transaction documentation, and assumed all other obligations of
M (2003) plc under the share purchase agreement, and M
(2003) plc was released from all of its obligations under
the Finmeccanica guarantee and the share purchase agreement.
Marconi Corporation plcs obligations under the share
purchase agreement, including the Finmeccanica guarantee, were
excluded obligations for the purposes of the Marconi
Corporation plc scheme of arrangement.

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Lemelson Licence

Under an agreement between M (2003) plc and
Lemelson Medical, Education and Research Foundation, Limited
Partnership, the Lemelson Foundation Partnership, dated
December 1, 1999, Lemelson Foundation Partnership granted
to M (2003) plc for itself and the benefit of its
subsidiaries a non-exclusive licence for certain licensed
patents relating principally to bar coding, the Lemelson
agreement.

Marconi Corporation plc and
M (2003) plc agreed to novate the existing Lemelson
agreement to Marconi Corporation plc and agreed to use all
reasonable endeavours to procure that Lemelson Foundation
Partnership entered into the novation.

Litigation

In the event that either Marconi
Corporation plc or M (2003) plc becomes aware of
anything which is likely to give rise to a claim or threat of
litigation to it or the other entity, it shall inform the other
of the relevant information as soon as possible and shall
assist, so far as reasonably practicable, in investigating and
defending the claim. In addition, Marconi Corporation plc
is entitled to require M (2003) plc to take such steps and
proceedings as Marconi Corporation plc believes is
necessary to defend such proceedings and M (2003) plc
shall not admit any liability or agree any compromise of such
actions without Marconi Corporation plcs prior
written consent.

Marconi Name

Marconi Corporation plc agreed with effect
from May 19, 2003 to license the Marconi name to
M (2003) plc for an initial period of twelve months.
The licence is non-exclusive, non-transferable and royalty free.
M (2003) plc has covenanted to use the Marconi name solely
as its corporate name and not for any other purpose

On October 21, 2003, Marconi plc changed its
name to M (2003) plc.

Tax

Marconi Corporation plc agreed to surrender
up to a maximum of £200 million of relief to Ancrane
and M (2003) plc.

M (2003) plc also undertook to enter into an
election with Marconi Corporation plc and companies in the
former group, the effect of which was the surrender of capital
losses of approximately £15 billion to companies in
the former group. Marconi Corporation plc agreed to make
payments to M (2003) plc as and when it or a former
subsidiary chooses to use these losses or one of the transferees
of the losses is sold out of the Marconi group with unutilised
capital losses.

Marconi Corporation plc agreed to pay
corporation tax on behalf of M (2003) plc and Ancrane to
the extent that it arises in their accounting periods commencing
April 1, 2003 in respect of foreign exchange movements in
relation to Marconi Corporation plcs notes and an
inter-company loan to Highrose Limited.

Highrose Debt

Ancrane and M (2003) plc have agreed,
with effect from May 19, 2003, to release Highrose Limited,
a subsidiary of Marconi Corporation plc, from its
obligation to repay an inter-company loan of approximately
£24 million to Ancrane.

Intercompany Trade Balances

At the date of the scheme implementation deed,
M (2003) plc was owed intra-group trade receivables
from five Marconi Corporation plc subsidiaries in an
aggregate amount of £5,540,623. M (2003) plc assigned
the benefit of these intra-group trade receivables to Marconi
Corporation plc in consideration for Marconi
Corporation plc reducing the balance of £165,748,102
due to it from M (2003) plc by an amount of
£19,160,663.

22



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##### Table of Contents



Counter Indemnities and Waivers

Marconi Corporation plc agreed to indemnify
M (2003) plc for any claims, including related costs,
against M (2003) plc from Marconi Communications
Limited arising as a result of any payment made by Marconi
Communications Limited in settling M (2003) plcs
obligations under the contracts and termination of employment of
Robert Meakin and Stephen Hare.

Marconi Corporation plc also agreed to meet
certain costs and expenses of various professional advisers in
relation to their restructuring, and irrevocably and
unconditionally waived any right of counter indemnity or right
of reimbursement or other claim against M (2003) plc
in relation thereto, whether arising under contract, operation
of law or otherwise.

ESOP Escrow Agreement Release

Following payment by Marconi Corporation plc
of all payments pursuant to the ESOP settlement agreement,
M (2003) plc agreed to unconditionally and irrevocably
release all of its claims against its former subsidiaries to the
extent that they relate to the ESOP derivative transactions.
Upon such release by M (2003) plc, Marconi
Corporation plc unconditionally and irrevocably released
any claims that it had against M (2003) plc arising
from Marconi Corporation plcs funding of Bedell
Cristin Trustees in respect of cash collateral calls from the
ESOP derivatives banks.

M (2003) plc Waivers

M (2003) plc irrevocably and
unconditionally agreed to waive and release Marconi
Corporation plc and each other company within the Marconi
group from any claim it may have against those former group
companies which arises out of any matter or circumstance
existing on or before May 19, 2003 other than any claim set
out in the statement and waiver agreement that is expressed to
continue, notwithstanding the terms of that agreement, and any
other claim intended to be excluded by the terms of either
scheme of arrangement or contemplated by the scheme
implementation deed or the transactions contemplated by the
scheme implementation deed.

M (2003) plc agreed that the
distribution of consideration to its creditors in respect of any
guarantee or indemnity given by M (2003) plc of any
other former group company in connection with the schemes of
arrangement, including M (2003) plcs guarantee
of Marconi Corporation plc Bonds that were outstanding
prior to being compromised pursuant to the restructuring, will
not give rise to any counter indemnity or right of reimbursement
or other claim by M (2003) plc against the relevant
former group company.

Statement and Waiver

Each of M (2003) plc and Marconi
Corporation plc and certain other former group companies
agreed to enter into the statement and waiver of inter-company
balances agreement disclosed below.

M (2003) plc Scheme
Expenses

Marconi Corporation plc agreed to procure
the issue of a letter of credit, under its performance bonding
facility, in an amount of £2 million in favor of the
supervisors of the M (2003) plc scheme of arrangement
from time to time for them to draw on in relation to any ongoing
costs. Marconi Corporation plc agreed to waive any right to
reimbursement against M (2003) plc arising as a result
of any payment made by Marconi Corporation plc as a result
of any drawings by the supervisors under such letter of credit.
In the event that Marconi Corporation plc was unable to
procure the issue of the letter of credit, it undertook to
provide the sum of £2 million for the supervisors for
drawing in relation to any ongoing costs on similar terms to
those set out in the scheme implementation deed and the
performance bonding facility agreement in relation to the letter
of credit.

After entering into this agreement, Marconi
Corporation plc procured the issue of the letter of credit
referred to above. The letter of credit was subsequently
released because the supervisors of the scheme of arrangement
were satisfied that it was no longer required.

23



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##### Table of Contents



Statement and Waiver
Agreement

To effect a clean up of existing inter-company
claims owed to or by Marconi Corporation plc and
M (2003) plc, Marconi Corporation plc and
M (2003) plc entered into a statement and waiver of
intercompany balances agreement with some other former Marconi
group companies.

The effect of the statement and waiver agreement
was to preserve all known and stated claims existing between
(a) Marconi Corporation plc or M (2003) plc
and (b) the participating group companies, and to waive all
other claims which arose by reference to circumstances existing
prior to our restructuring.

Under the statement and waiver agreement the
following intra-group claims were preserved as between
(a) Marconi Corporation plc and M (2003) plc
and (b) the participating group companies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | disclosed intra-group loan balances in existence
    as at December 31, 2002 plus interest accrued at such
    applicable commercial rate of interest as agreed between the
    parties to the respective loan;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | any intra-group loan made on or after
    January 1, 2003 in the ordinary and usual course of
    business or with certain previously agreed creditor consent,
    including interest accrued at such applicable commercial rate of
    interest as agreed between the parties to the respective loan;                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | any trading and current account liabilities in
    existence as at March 31, 2002, in the case of any participating
    group company which is a trading or an active non-trading
    company, or September 30, 2002, in the case of any dormant
    participating group company. These liabilities are determined by
    reference to the management accounts upon which the audited
    consolidated financial accounts of M (2003) plc, as at
    March 31, 2002 or September 30, 2002, as applicable,
    were prepared;                                                                                                                                                                                                                  
|
| |  | any trading and current account liabilities
    incurred in the ordinary and usual course of business after
    March 31, 2002 between (a) Marconi
    Corporation plc and/or M (2003) plc and (b) any
    participating group company which is a trading or an active
    non-trading company;                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any financial guarantee or
    indemnity, which is written or is implied by law, and is:
    (a) in favor of any third party which is not a member of
    the Marconi group, including the issuer of any performance bond,
    bank guarantee or similar instrument, and (b) in respect of
    any contractual obligations of the provider of the counter
    indemnity or equivalent; provided that where any payment has
    been made under such a guarantee or indemnity on or before
    March 31, 2002, the resultant counter indemnity shall not
    be preserved;            
|
| |  | any counter indemnity or equivalent reimbursement
    obligation, which is written or is implied by law and whether or
    not contingent, arising under any written non-financial
    guarantee or indemnity, which is written or implied by law, and
    is: (a) in favor of any person which is not a member of the
    Marconi group, and (b) in respect of any contractual or
    implied by law obligations of the provider of the counter
    indemnity or equivalent and (c) disclosed in a schedule to
    the statement and waiver agreement; provided that where any
    payment has been made under such a guarantee or indemnity on or
    before March 31, 2002, the resultant counter indemnity
    shall not be preserved; and
|
| |  | any other claims specified in the agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

All other claims of Marconi Corporation plc
or M (2003) plc against each participating group company
and all other claims of each participating group companies
against Marconi Corporation plc or M (2003) plc were
released after our restructuring. The statement and waiver
agreement does not affect claims which arise out of or in
relation to any matter or circumstance arising after the
financial restructuring. However, M (2003) plc has not
entered into any related party transactions since the
restructuring.

24



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##### Table of Contents






Item 8: Financial
Information

LEGAL PROCEEDINGS

Under the M (2003) plc scheme of
arrangement, any and all legal claims against M (2003) plc
as at March 27, 2003, whether liquidated or unliquidated,
or actual or contingent, were compromised. Therefore, there are
no circumstances under which any of these claims will result in
liability for M (2003) plc. Certain of these claims,
however, may result in payments by the M (2003) plc scheme
of arrangement. Where such a claim is pending or threatened and
may have or has had in the recent past, including at least the
12 months immediately preceding the date of this annual
report, a significant effect on the financial position of the
scheme as a whole, this is set out below. Where a liquidated sum
is claimed, a de minimisfigure of £5 million
has been applied in determining which claims may have a
significant effect. The figures given are the full amounts
claimed by the claimants in each case, which may be much greater
than the amounts the claimants realistically believe they can
recover. We and our other former group companies intend to
defend claims vigorously. While we believe that we have
meritorious defenses, the duration and outcome of the litigation
are not predictable at this point.

The following represents the largest recent or
outstanding claims made against us:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Systems Management Specialists, Inc., or SMS, is
    a defendant in a demand for arbitration brought by Esprit de
    Corp, or Esprit, in April 2002. This action relates to two
    outsourcing agreements entered into by Esprit and SMS in 1995
    and 1999; Esprit alleges that SMS breached its obligations under
    the agreements and is seeking damages in range of
    U.S.$8.8-U.S.$18.2 million. M (2003) plc was
    originally a party to the arbitration demand under a legal
    theory alleging that SMS and M (2003) plc are alter
    egos of one another. In April 2002, M (2003) plc
    filed a complaint for declaratory and injunctive relief in the
    U.S. District Court for the Central District of California, to
    enjoin Esprits attempt to proceed in arbitration against
    M (2003) plc. In June, 2002, Esprit and
    M (2003) plc filed a joint stipulation to stay and
    enjoin the arbitration preceding as to M (2003) plc.
    In July 2002, M (2003) plc filed a motion to dismiss
    Esprits claims and a motion to stay the federal court
    proceeding until after the arbitration between SMS and Esprit
    concluded. The Court denied M (2003) plcs motion
    to dismiss, but granted M (2003) plcs motion to
    stay, and, therefore, Esprit will be permitted to proceed on its
    claims against M (2003) plc only after the arbitration
    between SMS and Esprit is completed, and only to the extent
    Esprit prevails on any of its claims in the arbitration against
    SMS. The parties had agreed to conduct the arbitration hearing
    between October 13-24, 2003, and significant discovery had
    taken place. Beginning in September 2003, the parties reached a
    settlement in principle in the U.S.$710,000-U.S.$725,000 range,
    payable to Esprit in exchange for a full release and settlement
    of the actions. On September 28, 2004 the company and
    Scheme Supervisors finally reached agreement with Esprit.
|
| |  | Marconi Corporation plc and Marconi Commerce
    Systems Inc., or MCSI, are defendants in an action brought by a
    former employee, Larry Anthony Gillus, or Gillus. The complaint
    alleges that Gillus suffered racial discrimination and
    subsequent retaliatory action whilst employed by Gilbarco,
    subsequently known as MCSI, which has now been sold to
    subsidiaries of Danaher Corporation plc. A second claim has been
    brought against M (2003) plc and MCSI for retaliation
    and intentional infliction of emotional distress alleged to have
    occurred after he brought the original action. Additionally, on
    September 10, 2003, the Court granted plaintiffs
    motion to add a breach of employment contract claim and
    injunctive relief. Gillus counsel has in the past stated
    that he is seeking a total of U.S.$19 million in respect of
    both claims. Potential liabilities in respect of the claim
    against Marconi Corporation plc and M (2003) plc
    were compromised pursuant to its restructuring. As a result, on
    November 5, 2003, Gillus voluntarily dismissed without
    prejudice Marconi Corporation plc and
    M (2003) plc from the cases, thereby retaining his
    right to bring the same claim against the defendants in the
    future. Discovery has been completed with respect to the
    remaining defendant. On August 5, 2004, the Court issued an
    order that trial shall not be scheduled prior to
    February 1, 2005. On August 16, 2004, MCSI filed
    Motions for Summary Judgment in both                                                                                                                                                                                                                                                                                                                                                                                                                

25



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | actions. On September 13, 2004, Gillus filed
    a Brief in Opposition to MCSIs Motions for Summary
    Judgment in both actions. MCSIs Reply Briefs are due on
    October 4, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Marconi Corporation plc,
    M (2003) plc, Marconi Inc. and Marconi Data Systems
    Inc. are defendants in an action brought by a former employee,
    Thomas Edeus, or Edeus. The complaint asserts three causes of
    action; firstly that Edeus was unlawfully deprived of benefits
    to which he was entitled under Marconi Data Systems Incs
    United States severance plan; secondly for failure to provide
    Edeus with a summary plan description relating to the severance
    plan; and thirdly for age discrimination in employment. The
    plaintiff has purported to have made out claims in various
    specified amounts totaling over U.S.$901,000, some of which may
    be in the alternative, and also unspecified punitive damages,
    liquidated damages and front and back pay, making the impact of
    this claim on us and the former group difficult to assess. An
    answer and affirmative defenses have been filed on behalf of all
    defendants. On June 5, 2003, the court entered an order
    providing as follows: Plaintiff having advised the court
    that one or more defendants [sic] are in Bankruptcy, this
    action is placed on the courts [suspense] calendar pending
    disposition of the bankruptcy case. Plaintiff is directed to
    file a notice for hearing a motion to reinstate upon disposition
    of the bankruptcy proceedings. Potential liabilities in
    respect of the claim against Marconi Corporation plc and
    M (2003) plc were compromised pursuant to our
    restructuring.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | M (2003) plc and four of its former
    officers were defendants in a consolidated class action lawsuit
    pending in the United States District Court for the Western
    District of Pennsylvania brought on behalf of a putative class
    of all persons, other than defendants and their respective
    affiliates, who purchased American depository receipts or were
    United States residents and purchased common stock of
    M (2003) plc between April 10, 2001 and
    July 5, 2001, inclusive. Plaintiffs alleged that, during
    this period, M (2003) plc and the individual
    defendants falsely reassured investors that Marconis
    revenues would rise during the year and that its geographic and
    business mix left it relatively immune to the economic downturn
    affecting its competitors. Plaintiffs further alleged that on
    July 4, 2001 defendants belatedly disclosed that tougher
    trading conditions in the quarter ended June 30, 2001
    indicated that M (2003) plcs sales and operating
    profits for fiscal 2002 would fall significantly from the levels
    previously estimated. Defendants alleged
    misrepresentations were said to violate the anti-fraud
    provisions of Section 10(b) of the U.S. Securities Exchange
    Act of 1934 and, as to the individual defendants,
    Section 20(a) of the U.S. Securities Exchange Act of 1934.
    Plaintiffs sought class certification, an award of unspecified
    damages, counsel and expert fees and other costs of suit and
    other unspecified relief. All defendants filed a motion to
    dismiss the lawsuit, which by opinion and order dated
    September 18, 2002, was granted in part and denied in part.
    The Court ruled that it had no jurisdiction over claims of
    holders of Marconi ordinary shares not residents of the United
    States, but had jurisdiction over claims of American resident
    owners of ordinary shares and owners of ADRs. The parties agreed
    to a settlement, which resulted in M (2003) plc and
    the Marconi group not making a payment to the claimants. The
    court approved the settlement and entered the final order and
    judgment on January 16, 2004. No appeals were filed and the
    settlement is now final. The lawsuit has been dismissed.
|
| |  | In April 2002, 11 former employees of Ten Square
    Inc. brought a claim against directors of their company for
    fraud in reducing their compensation package before liquidating
    the company and restarting it under a different name. The claim
    was for a total of $2,160,050.91. The plaintiffs alleged that
    M (2003) plc was a director of Ten Square Inc.
    although in fact M (2003) plc only had a right to
    appoint a director, a right M (2003) plc had not
    recently exercised. Marconi Ventures was also named as a
    plaintiff on September 9, 2002. The plaintiffs did not
    serve proceedings upon M (2003) plc and on
    October 24, 2002 an order for the dismissal of the claim
    against M (2003) plc and Marconi Ventures was entered.
    However, M (2003) plc was named in the second amended
    complaint which was filed on December 24, 2002.
    M (2003) plc is aware of the action but has not been
    served and is not yet a party to it. Potential liabilities in
    respect of the claim against M (2003) plc have been
    compromised pursuant to the M (2003) plc scheme of
    arrangement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

26



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##### Table of Contents



Since March 27, 2003, we are not and have
not been engaged in, nor, so far as we are aware, do we have
pending or threatened by or against us, any additional legal or
arbitration proceedings which may have or have had a significant
effect on our financial position as a whole.

DIVIDEND POLICY

As a result of its scheme of arrangement, M
(2003) plc does not anticipate making any dividends or
distributions to its shareholders. See Key
Information  Risk Factors  As a result of
our restructuring, we have ceased business operations and intend
to dispose of our remaining assets for the benefit of our
creditors.

SIGNIFICANT CHANGES

There has been no significant change in our
financial position since March 31, 2004.





|        |                      
|------- | ---------------------
|Item 9: | The Offer and Listing

STOCK PRICE HISTORY/MARKETS

From November 30, 1999, the ordinary shares
of M (2003) plc were listed on the London Stock
Exchange. On May 16, 2003, trading in the ordinary shares
of M (2003) plc on the London Stock Exchange ceased
and delisting followed. On October 17, 2000, the ADRs of
M (2003) plc were added to quotation on the NASDAQ
National Market, and on July 3, 2002, they were removed
from quotation on the NASDAQ National Market and began trading
on the over-the-counter bulletin board in the United States. The
following table summarizes information regarding prices and
trading of the M (2003) plc ordinary shares on the
London Stock Exchange and the ADRs on the NASDAQ National Market
and the over-the-counter bulletin board for the periods
indicated:

|                                     |  |                  |         |              |  |      |        |     |  |  |       |  |  |  |      | 
|------------------------------------ |  | ---------------- | ------- | ------------ |  | ---- | ------ | --- |  |  | ----- |  |  |  | ---- | 
|                                     |  |                  |         |              |  |     
|                                     |  | London Stock     |         |             
|                                     |  | Exchange         |         | ADRs        
|                                     |  | (Sterling pence) |         | (US dollars)
|                                     |  | High             |         | Low          |  | High |        | Low
|                                     |  |                 
|                                     |  |                 
|Fiscal Year                          |  |                  |         |              |  |      |        |     |  |  |       |  |  |  |      | 
|April 1, 2000 to March 31, 2001      |  |                  | 1250.00 |              |  |      | 340.00 |     |  |  |      |  |  |  |     | 
|April 1, 2001 to March 31, 2002      |  |                  | 424.00  |              |  |      | 6.25   |     |  |  | 12.85 |  |  |  | 0.18 | 
|April 1, 2002 to March 31, 2003      |  |                  | 12.55   |              |  |      | 1.27   |     |  |  | 0.44  |  |  |  | 0.04 | 
|April 1, 2003 to March 31, 2004      |  |                  | 1.80    | (*)          |  |      | 0.60   | (*) |  |  | 0.18  |  |  |  | 0.03 | 
|Fiscal Quarter                       |  |                  |         |              |  |      |        |     |  |  |       |  |  |  |      | 
|April 1, 2002 to June 30, 2002       |  |                  | 12.55   |              |  |      | 3.95   |     |  |  | 0.44  |  |  |  | 0.12 | 
|July 1, 2002 to September 30, 2002   |  |                  | 4.10    |              |  |      | 1.27   |     |  |  | 0.14  |  |  |  | 0.05 | 
|October 1, 2002 to December 31, 2002 |  |                  | 2.54    |              |  |      | 1.43   |     |  |  | 0.09  |  |  |  | 0.04 | 
|January 1, 2003 to March 31, 2003    |  |                  | 2.44    |              |  |      | 1.56   |     |  |  | 0.09  |  |  |  | 0.05 | 
|April 1, 2003 to June 30, 2003       |  |                  | 1.80    | (*)          |  |      | 0.60   | (*) |  |  | 0.09  |  |  |  | 0.03 | 
|July 1, 2003 to September 30, 2003   |  |                  |        |              |  |      |       |     |  |  | 0.18  |  |  |  | 0.07 | 
|October 1, 2003 to December 31, 2003 |  |                  |        |              |  |      |       |     |  |  | 0.12  |  |  |  | 0.04 | 
|January 1, 2004 to March 31, 2004    |  |                  |        |              |  |      |       |     |  |  | 0.08  |  |  |  | 0.03 | 
|Month                                |  |                  |         |              |  |      |        |     |  |  |       |  |  |  |      | 
|April 2004                           |  |                  |        |              |  |      |       |     |  |  | 0.08  |  |  |  | 0.03 | 
|May 2004                             |  |                  |        |              |  |      |       |     |  |  | 0.03  |  |  |  | 0.03 | 
|June 2004                            |  |                  |        |              |  |      |       |     |  |  | 0.03  |  |  |  | 0.01 | 
|July 2004                            |  |                  |        |              |  |      |       |     |  |  | 0.02  |  |  |  | 0.01 | 
|August 2004                          |  |                  |        |              |  |      |       |     |  |  | 0.02  |  |  |  | 0.01 | 
|September 2004                       |  |                  |        |              |  |      |       |     |  |  | 0.01  |  |  |  | 0.01 | 



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| | * | To May 16, 2003, which was the last day of
    dealings in M (2003) plc shares

27



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##### Table of Contents



On April 11, 2003, the U.K. Financial
Services Authority released a public statement concerning a
contravention of the U.K. Listing Rules by
M (2003) plc in July 2001. That public statement
concluded that M (2003) plc had breached
paragraph 9.2(c) of the U.K. Listing Rules when it failed
to notify the Company Announcement Office without
delay of a change in its expected performance for the half
year ending September 2001 and full year ending March 2002.






|         |                       
|-------- | ----------------------
|Item 10: | Additional Information

MEMORANDUM AND ARTICLES OF
ASSOCIATION

Please see our annual report on Form 20-F
for the period to March 31, 2003 for a description of our
memorandum and articles of association.

MATERIAL CONTRACTS

The following is a summary of material contracts
to which we or any member of our former group is or was a party
and which were entered into in the past two years. The exhibit
list in Item 19.  Exhibits indicates
which of these contracts are filed with this annual report and
which of these contracts have already been filed with the SEC.
Directions on how to obtain copies of these contracts are
provided under  Documents on Display.

General

Settlement Deed dated December 19,
2002 between RT Group Telecom Services Limited (RTSL),
RT Group plc, Marconi Corporation plc, Ultramast
Limited, James Smith and
Nicholas Dargan.

The shares in Ultramast Limited held by Marconi
Corporation plc have been cancelled through a capital
reduction and a repayment of capital has been made to Marconi
Corporation plc. The Settlement Deed contains several
indemnities: (1) Marconi Corporation plc agreed to
indemnify Ultramast Limited in respect of two employees seconded
from our former group; this indemnity is capped at
£300,000; (2) Marconi Corporation plc agreed to
indemnify RT Group Telecom Services Limited in relation to a
contract between Ente Sardo e Fognature and Ultramast Limited;
this indemnity is capped at £1.68 million; and
(3) Marconi Corporation plc agreed to indemnify
RT Group Telecom Services Limited and Ultramast Limited in
respect of a side letter between M (2003) plc and
British Waterways Board (BWB), now known as British Waterways;
this indemnity is capped at £10 million.

Agreement dated November 4, 2002
between UBS AG (UBS) and Marconi Corporation plc
related to the payment of interest on certain interest rate swap
transactions.

Pursuant to this agreement Marconi
Corporation plc paid an amount of U.S.$4,388,542 to UBS, a
true-up payment, being a pro-rata portion, by reference to the
period from May 3, 2002 to October 15, 2002, of the
contractual payment due from Marconi Corporation plc to UBS
under an interest rate swap in respect of the period from
May 3, 2002 to November 4, 2002. This pro-rata payment
was consistent with the heads of terms.

Following the making of the true-up payment, UBS
unilaterally terminated the interest rate swap, as a result of
which a termination sum of U.S.$30,950,000 became payable by
Marconi Corporation plc to UBS. With effect from
March 25, 2003 until Marconis restructuring, each of
the unpaid portion of the contractual payment (U.S.$531,944.11),
the unpaid portion, and the termination sum was payable on
demand. The termination sum had accrued interest from
November 4, 2002 at a rate of 2.6525% per annum. The
liabilities of Marconi Corporation plc in respect of the
unpaid portion and the termination sum were compromised pursuant
to its financial restructuring.

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Financial Restructuring Related
Agreements

Scheme Implementation Deed dated
March 27, 2003, (SID) between M (2003) plc,
Marconi Corporation plc, Ancrane, E-A Continental
Limited, Marconi Nominees Limited, British Sealed Beams Limited
and various other group companies.

The purpose of the SID was to put in place the
legally binding arrangements which govern the rights and
obligations between, inter alia,
M (2003) plc and Marconi Corporation plc in
implementing the restructuring. Pursuant to the SID, Marconi
Corporation plc, M (2003) plc,
E-A Continental Limited, Ancrane, Marconi Nominees Limited,
British Sealed Beams Limited and various other group companies
agreed to perform certain obligations and undertook not to do
certain acts including, but not limited to, approving all
shareholder resolutions necessary or desirable to give effect to
our restructuring, assigning or novating certain guarantee
obligations and/or license agreements, providing all reasonable
assistance and information and undertaking all reasonable acts
and deeds to give effect to the assignment of certain
intellectual property, making certain intra-group tax loss and
group relief surrenders and providing certain tax indemnities.
Ancrane also agreed to make a repayment of capital in specie to
M (2003) plc of its assets, other than £100. Marconi
Corporation plc also agreed to procure the issue of a
letter of credit, under our performance bonding facility, in an
amount of £2 million in favor of the M (2003) plc
scheme supervisors from time to time for them to draw on in
relation to M (2003) plcs ongoing costs. In the event
that Marconi Corporation plc was unable to procure the
issue of such letter of credit, it undertook to provide the sum
of £2 million for the M (2003) plc scheme
supervisors to draw on in relation to M (2003) plcs
ongoing costs on similar terms to those set out in the scheme
implementation deed and the performance bonding facility
agreement in relation to the letter of credit. After entering
into this agreement, Marconi Corporation plc procured the
issue of the letter of credit. The letter of credit was
subsequently released because the supervisors of the scheme of
arrangement were satisfied that it was no longer required. Under
the terms of the restructuring, the liabilities of Marconi
Corporation plc were compromised. Please see
Item 7: Major Shareholders and Related Party
Transactions  Related Party Transactions 
Restructuring Arrangements  Scheme Implementation
Deed for further information.

Escrow and Distribution Agreement dated
March 27, 2003 between M (2003) plc, Marconi
Corporation plc, Regent Escrow Limited, The Bank of New
York, The Law Debenture Trust Corporation plc, Ancrane,
Bondholder Communications Group and the
Supervisors.

The purpose of the Escrow and Distribution
Agreement was to put in place the legally binding arrangements
which govern the holding of the financial restructuring proceeds
by the escrow trustee after it is issued or delivered on the
effective date of each restructuring and the distribution of the
restructuring proceeds to scheme creditors and designated
recipients by the distribution agent. The scheme consideration
was held by the escrow trustee on bare trust and distributed at
the direction of the supervisors and, in the case of designated
recipients, the trustees for the respective bond issues.

Statement and waiver of intercompany
balances agreement dated on or about March 27, 2003 between
M (2003) plc, Marconi Corporation plc and certain
other group companies.

In order to facilitate the effective
implementation of the financial restructuring, and in particular
to effect a clean up of existing inter-company claims owed to or
by Marconi Corporation plc and M (2003) plc and
certain other Marconi group companies, Marconi
Corporation plc and M (2003) plc entered into a
statement and waiver of intercompany balances agreement with
certain other Marconi group companies, listed below.

The following Marconi group companies agreed to
participate in the statement and waiver agreement:

|                                                  |  |                                               |  |                                                            |  |                                         
|------------------------------------------------- |  | --------------------------------------------- |  | ---------------------------------------------------------- |  | ----------------------------------------
|A.B. Dick Holdings Ltd                            |  | AEI Furnaces Pty Ltd                          |  | Albany Partnership Limited                                 |  | Ancrane                                 
|APT Nederlands BV                                 |  | APT Telecommuniciones SL                      |  | Arrow Ltd                                                  |  | Associated Automation Ltd               
|Associated Electrical Industries (Manchester) Ltd |  | Associated Electrical Industries Holdings Ltd |  | Associated Electrical Industries International
    Limited |  | Associated Electrical Industries Limited

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|                                                                                                |  |                                                  |  |                                                               |  |                                                          
|----------------------------------------------------------------------------------------------- |  | ------------------------------------------------ |  | ------------------------------------------------------------- |  | ---------------------------------------------------------
|Associated Electrical Industries Ltd (Now known
    as Marconi Australia Holdings Pty. Limited) |  | Beijing Marconi Communications Technology Co Ltd |  | Bruton Street Investments Limited                             |  | Bruton Street Overseas Investments Limited               
|Bruton Street Partnership                                                                       |  | Clanville Limited                                |  | Combined Electrical Manufacturers Ltd                         |  | Coppenhall Nominees Limited                              
|Daymo Ltd                                                                                       |  | EA Continental Limited                           |  | Elliot Automation Continental SA                              |  | Elliott-Automation Holdings Limited                      
|FF Chrestian & Co Ltd                                                                           |  | Fore Systems Limitada                            |  | Fore Systems Limited                                          |  | FS Finance Corp                                          
|FS Holding Corp                                                                                 |  | GEC (Hong Kong) Limited                          |  | GEC of Pakistan Limited                                       |  | GEC Zambia Limited                                       
|GPT (Nederland) BV                                                                              |  | GPT Consumer Products Ltd                        |  | GPT Middle East Limited                                       |  | GPT Payphone Systems Ltd                                 
|GPT Reliance Ltd                                                                                |  | GPT Special Project Management Limited           |  | Harman Information Technology Pty Ltd                         |  | Highrose Limited                                         
|Krayford Ltd                                                                                    |  | Larnerway Ltd                                    |  | Layana Limited                                                |  | Marconi (Bruton Street) Limited                          
|Marconi (DGP1) Limited                                                                          |  | Marconi (DGP2) Limited                           |  | Marconi (Elliott Automation) Limited                          |  | Marconi (Fifteen) Limited                                
|Marconi (Fifty-Nine) Ltd                                                                        |  | Marconi (Fifty-Three) Ltd                        |  | Marconi (Forty-Five) Limited                                  |  | Marconi (Forty-Four) Ltd                                 
|Marconi (Forty-Three) Limited                                                                   |  | Marconi (Holdings) Limited                       |  | Marconi (NCP) Limited                                         |  | Marconi (Nine) Limited                                   
|Marconi (Sixteen) Limited                                                                       |  | Marconi (Sixty-Nine) Limited                     |  | Marconi (Sixty-Two) Ltd                                       |  | Marconi (Thirteen) Limited                               
|Marconi (Thirty-One) Limited                                                                    |  | Marconi (Thirty-Two) Limited                     |  | Marconi (TLC) Ltd                                             |  | Marconi (Twenty-Seven) Limited                           
|Marconi (WCGL) Unlimited                                                                        |  | Marconi Acquisition Corp                         |  | Marconi Aerospace Unlimited                                   |  | Marconi Ansty Limited                                    
|Marconi Applied Tecnologies SA                                                                  |  | Marconi Australia Pty Limited                    |  | Marconi Bonding Limited                                       |  | Marconi Capital Limited                                  
|Marconi Caswell Developments Limited                                                            |  | Marconi Channel Markets GmbH                     |  | Marconi Columbia SA                                           |  | Marconi Communications (CIS) Limited                     
|Marconi Communications AB                                                                       |  | Marconi Communications Africa (Pty) Limited      |  | Marconi Communications Argentina SA                           |  | Marconi Communications Asia Limited                      
|Marconi Communications B.V. (Netherlands)                                                       |  | Marconi Communications BVBA                      |  | Marconi Communications Canada Holdings Inc.                   |  | Marconi Communications Canada Inc                        
|Marconi Communications China Limited                                                            |  | Marconi de Mexico SA de CV                       |  | Marconi Communications do Brasil Ltda                         |  | Federal Inc Marconi Communications                       
|Marconi Communications
    Global Networks Limited                                              |  | Marconi Communications
    GmbH (Germany)        |  | Marconi Communications
    GmbH (Switzerland)                 |  | Marconi Communications
    Holdings GmbH (Germany)       
|Marconi Communications Holdings Inc.                                                            |  | Marconi Communications Holdings Limited          |  | Marconi Communications Inc                                    |  | Marconi Communications International Holdings
    Limited
|Marconi Communications International Investments
    Limited                                    |  | Marconi Communications International Limited     |  | Marconi Communications Investments Limited                    |  | Marconi International Limited                            
|Marconi Communications Limited (Canada)                                                         |  | Marconi Communications Limited (Ireland)         |  | Marconi Communications Limited (U.K.)                         |  | Marconi Communications North America Inc.                
|Marconi Communications Optical Fibres Limited                                                   |  | Marconi Communications Optical Networks Corp     |  | Marconi Communications Optical Networks Limited
    (Ireland) |  | Marconi Communications Overseas Services Limited         
|Marconi Communications Real Estate GmbH                                                         |  | Marconi Communications SA (France)               |  | Marconi Communications SARL                                   |  | Marconi Communications Software Systems GmbH
    & Co KG 

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|                                                         |  |                                                         |  |                                                                                                        |  |                                                        
|-------------------------------------------------------- |  | ------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------
|Marconi Communications Software Systems Ver. GmbH        |  | Marconi Communications South Africa Pty Limited         |  | Marconi Communications South East Asia Pte Ltd                                                         |  | Marconi Communications Technology Inc                  
|Marconi Communications Telemulti Limitada                |  | Marconi Communications SpA                              |  | Marconi Corporation plc                                                                                |  | Marconi Defense Overseas Limited                       
|Marconi Finance Inc.                                     |  | Marconi Finance plc                                     |  | Marconi Fleet Management Limited                                                                       |  | Marconi G.M. Limited                                   
|Marconi Holdings SpA                                     |  | Marconi Iberia SA                                       |  | Marconi Inc                                                                                            |  | Marconi India Limited                                  
|Marconi Information Systems Limited                      |  | Marconi Insurance Limited                               |  | Marconi International SpA                                                                              |  | Marconi Middle East (Saudi Arabia)                     
|Marconi Middle East LLC (Dubai)                          |  | Marconi Mobile Access SpA                               |  | Marconi Mobile Systems Limited                                                                         |  | Marconi New Zealand Limited                            
|Marconi Nominees Limited                                 |  | Marconi Optical Components Limited                      |  | Marconi Photonica Limited                                                                              |  | M (2003) plc                                           
|Marconi Projects Hong Kong Ltd                           |  | Marconi Property Ltd                                    |  | Marconi Software International Inc                                                                     |  | Marconi Software Solutions Limited                     
|Marconi Sud SpA                                          |  | Marconi Telecommunications India Private Ltd            |  | Marconi Venezuela CA                                                                                   |  | MarconiCom Limited                                     
|McMichael Limited                                        |  | Metapath Software International (Australia) Pty
    Ltd |  | Metapath Software International (France) SA                                                            |  | Metapath Software International (Hong Kong)
    Limited
|Metapath Software International (India)                  |  | Metapath Software International (U.S) Inc               |  | Metapath Software International AB                                                                     |  | Metapath Software International Brasil Ltda            
|Private Limited Metapath Software International
    Inc. |  | Metapath Software International Limited                 |  | Metapath Software International Nominees Limited                                                       |  | Metropolitan-Vickers Electrical Co Ltd                 
|Micro Scope Limited                                      |  | MNI Tecnologiase e Sistemas de Communicacao SA          |  | Mobile Systems (Holdings) Ltd                                                                          |  | Mobile Systems (U.K.) Ltd                              
|Mobile Systems Group Ltd                                 |  | Mobile Systems International Holdings Limited           |  | Mobile Systems Services Ltd                                                                            |  | MSI Cellular Investments (One) Ltd                     
|Netscient Limited                                        |  | Northwood Technologies Inc.                             |  | Northwood Technologies Limited                                                                         |  | Palmaz Ltd                                             
|Photonica Limited                                        |  | Photoniqa Limited                                       |  | Pyford Limited                                                                                         |  | Rainford Group Trustees Ltd                            
|Rainford Racks Ltd                                       |  | RELTEC (Coventry) Ltd                                   |  | RELTEC Mexico SA de CV (now known as Marconi
    Communications, S.A. de C.V.)                         |  | RELTEC Services (U.K.) Limited                         
|Robert Stephenson & Hawthorns Ltd                        |  | Ronaldi Ltd                                             |  | Salplex Ltd                                                                                            |  | SNC Composants & Cie                                   
|Styles & Mealing Limited                                 |  | Systems Management Specialists Inc                      |  | TCL Projects Limited                                                                                   |  | Telephone Cables Limited                               
|Tetrel Limited                                           |  | The English Electric Company, Limited                   |  | The General Electric Company of Singapore Private
    Limited (Now known as Marconi Singapore Pte Ltd) |  | The Kingsway Housing Association Ltd                   
|The M-O Valve Co Ltd                                     |  | The Rotary Engineering Company Limited                  |  | The Vulcan Foundry Ltd                                                                                 |  | Woods of Colchester Housing Society Limited            
|Yeslink Unlimited                                        |  | Zipbond Ltd                                             |  |                                                                                                        |  |                                                        

Please see Item 7: Major Shareholders
and Related Party Transactions  Related Party
Transactions  Restructuring Arrangement 
Statement and Waiver Agreement for further information.

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Deed of Novation dated March 26, 2003
between Marconi Corporation plc, M (2003) plc and BAE
SYSTEMS plc (BAE).

Under this deed, all obligations under the MES
transaction were novated from M (2003) plc to Marconi
Corporation plc with effect from May 19, 2003. In
addition, M (2003) plc, Marconi Corporation plc
and BAE have agreed that no amount should be paid by
M (2003) plc or Marconi Corporation plc to BAE in
relation to certain claims made by the parties under the MES
transaction and that Marconi Corporation plc will reduce
any amounts which may be payable to it in the future by BAE
under the MES transaction by U.S.$18,600,000.

Assumption Agreement and Consent dated
March 26, 2003 between Marconi Corporation plc,
M (2003) plc and Lemelson Medical Education and
Research Foundation, Limited Partnership (the Lemelson
agreement).

Under this agreement, the Lemelson agreement was
novated from M (2003) plc to Marconi
Corporation plc.

Deed of Novation and Amendment dated
March 26, 2003 between Marconi Corporation plc,
M (2003) plc and Finmeccanica SpA
(Finmeccanica).

Pursuant to this deed, all obligations of
M (2003) plc under the share purchase agreement dated
August 2, 2002 between M (2003) plc, as
guarantor, Marconi (Bruton Street) Limited, as vendor, and
Finmeccanica, as purchaser, were novated to Marconi
Corporation plc with effect from May 19, 2003.

Sponsors Agreement dated
March 31, 2003 between the Marconi Corporation plc,
M (2003) plc, Lazard Brothers & Co. and Morgan
Stanley & Co. Limited.

Under the sponsors agreement, Lazard and
Morgan Stanley agreed to act as joint sponsors for Marconi
Corporation plc in connection with admission of its
ordinary shares to the London Stock Exchange. Marconi
Corporation plc and M (2003) plc have given Lazard and
Morgan Stanley certain representations and warranties regarding,
inter alia, the accuracy of information contained in the
restructuring disclosure documentation. Marconi
Corporation plc and M (2003) plc also gave
certain indemnities in relation to the financial restructuring
and other indemnities on customary terms against certain
liabilities in connection with the accuracy of information
contained in the restructuring documentation and certain other
documents in connection with admission.

ESOP Escrow Agreement dated
December 13, 2002 between Marconi Corporation plc,
M (2003) plc, HSBC Bank plc and Barclays Bank PLC
(Barclays).

The ESOP Escrow Agreement implements the
substantive provisions of the ESOP term sheet concluded on
August 28, 2002 and provided the basis on which two escrow
accounts could be funded and held pending agreement or
determination of Barclays claims, if any, against certain
former operating subsidiaries of M (2003) plc in
relation to certain potential liabilities. Which escrow account
was established depended on whether the restructuring was
successful or not. The ESOP Escrow Agreement:



| |   |                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | sets out the terms on which approximately
    £145 million will be held in escrow and creates a
    framework for resolving Barclays entitlement, if any, to
    the balance of such cash;                                                                                                                  
|
| |  | provides for a number of detailed assumptions to
    assist a court with that determination;                                                                                                                                                                                                                 
|
| |  | sets out the terms, if our restructuring had not
    become effective, on which a certain amount of cash would be
    paid into escrow in accordance with the interim security
    arrangements and created a framework for resolving
    Barclays entitlement, if any, to the balance of such cash;
    and
|
| |  | provides for the release of any claims that
    M (2003) plc or Barclays may have against each of the
    former operating subsidiaries under certain funding letters
    entered into by the operating subsidiaries.                                                                                        

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The terms of the ESOP Escrow Agreement dealing
with the money to be held in escrow have been superseded by the
ESOP settlement agreement referred to below. In other respects
the ESOP Escrow Agreement continues to apply.

ESOP Settlement Agreement dated
March 26, 2003 between M (2003) plc, Marconi
Corporation plc, HSBC Bank plc (HSBC), Barclays,
Salomon Brothers International Limited (SBIL),
UBS AG (UBS) and Bedell Cristin Trustees Limited
(BCT).

On March 26, 2003, Marconi
Corporation plc and M (2003) plc reached
agreement with the ESOP derivative banks for a settlement of
their ESOP derivative related claims against the Marconi group.
Under the terms of the settlement, Marconi Corporation plc
paid a total of £35 million to the ESOP derivative
banks in full and final settlement of their respective ESOP
related claims against the Marconi group.

Memorandum of Understanding dated
March 25, 2003 between the Marconi Corporation plc,
M (2003) plc and the United States Pension
Benefit Guaranty Corporation (PBGC).

Marconi Corporation plc and
M (2003) plc entered into a legally binding Memorandum
of Understanding with the PBGC under which the PBGC agreed
(a) that it would not take any action in connection with
the financial restructurings of Marconi Corporation plc and
M (2003) plc to involuntarily terminate either of the
two tax-qualified defined benefit pension plans sponsored by
Greensboro Associates, Inc., an indirect wholly owned subsidiary
of Marconi Corporation plc, or the U.S. pension plans, and
(b) that it would withdraw any contingent claims filed by
the PBGC under the M (2003) plc restructuring as of
May 19, 2003. Under the Memorandum of Understanding with
the PBGC, (a) Marconi Corporation plc or the
contributing employers to the U.S. pension plans will make
annual contributions to the U.S. pension plans in an amount
equal to each U.S. pension plans respective minimum
funding requirements under the applicable, United States
statutes, including ERISA, and the U.S. Internal Revenue Code,
or, if greater, the respective U.S. pension plans normal
cost, plus an additional U.S.$9 million per annum payable
in quarterly installments of U.S.$2.25 million commencing
as of June 30, 2003, but only to the extent deductible,
(b) Marconi Corporation plc will provide a guarantee
to the PBGC of the obligations of its subsidiaries in the United
States with respect to (x) such subsidiaries
respective obligations to make contributions to the
U.S. pension plans as provided in clause (a) of this
sentence and, (y) any liability owing to the
U.S. pension plans or to the PBGC if either or both of the
U.S. pension plans should terminate while such guarantee is
in effect. To the extent that any required annual contributions
in excess of annual normal cost would result in a credit balance
under either of the U.S. pension plans which could otherwise be
used to satisfy minimum funding requirements, the Memorandum of
Understanding with the PBGC significantly limits such usage.

The Memorandum of Understanding with the PBGC
provides that if Marconi Corporation plc intends to sell
any of its business units in the United States to a third-party
purchaser whose debt immediately following the consummation of
such transaction is not then rated investment grade, no proposed
transfer of assets and liabilities of the U.S. pension plans to
a pension plan of the third-party purchaser may be made without
the consent of the PBGC. To the extent that any sale of a
business unit will not include the transfer of the assets and
liabilities of the applicable U.S. pension plan to a pension
plan of the purchaser of such business unit, Marconi
Corporation plc will cause a portion of the proceeds of
such business unit sale equal to the net shortfall, if any,
under the applicable U.S. pension plan which is attributable to
such business unit to be contributed to the applicable U.S.
pension plan upon completion of such business unit sale, with
the amount to be contributed based on the then applicable PBGC
safe harbor assumptions used for plan termination purposes,
subject to any applicable limitations under ERISA or the U.S.
Internal Revenue Code with respect to deductibility of such
contributions or otherwise. The Memorandum of Understanding with
the PBGC also requires that one of the U.S. pension plans be
fully funded or transferred to a purchaser of a business unit
upon the occurrence of certain business unit sales.

The Memorandum of Understanding with the PBGC
further provides that Marconi Corporation plc will consent
to jurisdiction in the United States federal district courts and
will agree as a contractual matter to be jointly and severally
liable with its U.S. subsidiaries which are participating
employers in the U.S. pension plans with respect to its
obligations under the PBGC Memorandum of Understanding.

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As part of its obligations under the Memorandum
of Understanding with the PBGC, Marconi Corporation plc
will provide, or cause its U.S. subsidiaries to provide, certain
specific information relevant to the U.S. pension plans to the
PBGC on a regular basis during the term of the Memorandum of
Understanding.

Marconi Corporation plcs obligation
under this Memorandum of Understanding with the PBGC with
respect to any U.S. pension plan will cease on the earliest to
occur of (a) the date that a U.S. pension plan is
terminated in a standard termination under ERISA, or (b) on
May 20, 2008 when either (x) such U.S. pension plan
has been fully funded on a termination basis for two consecutive
years ending on or after the expiration of such five-year period
or (y) Marconi Corporation plcs debt is rated
investment grade. If Marconi Corporation plc is acquired at
any time while the Memorandum of Understanding with the PBGC
remains in effect and the acquirors debt is rated
investment grade immediately following such sale, the PBGC will
agree to review the acquisition of Marconi Corporation plc
in good faith to determine whether the need for its Memorandum
of Understanding with Marconi Corporation plc and
M (2003) plc still exists and whether such Memorandum
of Understanding may then be terminated.

EXCHANGE CONTROLS

There are currently no decrees or regulations
under the laws of the United Kingdom restricting the import or
export of capital or affecting the remittance of dividends or
other payments to holders of M (2003) plc ordinary
shares or American depositary shares who are non-residents of
the United Kingdom.

TAXATION

United States Federal Income
Taxation

The following summary describes material U.S.
federal income tax consequences that may be relevant to the
acquisition, ownership and disposition of our ordinary shares
and/or ADRs. This summary addresses only U.S. federal income tax
considerations for holders that hold our ordinary shares and/or
ADRs as capital assets. This summary does not purport to be a
comprehensive description of all the tax considerations that may
be relevant to a decision to acquire our ordinary shares and/or
ADRs. In particular, this summary does not address tax
considerations applicable to holders that may be subject to
special tax rules including, without limitation, the following:
(a) financial institutions; (b) insurance companies;
(c) dealers or traders in securities, currencies or
notional principal contracts; (d) tax-exempt entities; (e)
persons that will hold our ordinary shares and/or ADRs as part
of a hedging or conversion transaction
or as a position in a straddle or as part of a
synthetic security or other integrated transaction
for U.S. federal income tax purposes; (f) persons that have
a functional currency other than the U.S. dollar;
(g) persons that own (or are deemed to own) 10% or more (by
voting power) of our share capital; (h) regulated
investment companies; (i) persons who hold our ordinary
shares and/or ADRs through partnerships or other pass-through
entities; (j) real estate investment trusts; and (k) S
corporations. Further, this summary does not address alternative
minimum tax consequences.

This summary is based on the Internal Revenue
Code of 1986, as amended, U.S. Treasury regulations and judicial
and administrative interpretations thereof, in each case as in
effect and available on the date of this document. All of the
foregoing is subject to change, which change could apply
retroactively and could affect the tax consequences described
below.

Prospective holders should consult their own
tax advisor with respect to the U.S. federal, estate, state,
local, gift and other tax consequences of acquiring, owning and
disposing of our ordinary shares and/or ADRs.

U.S. Holders should also review the discussion
below under  United Kingdom Taxation for
the U.K. tax consequences to a U.S. holder of our ordinary
shares and/or ADRs.

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For purposes of this summary a U.S.
holder is a beneficial owner of our ordinary shares and/or
ADRs that is, for U.S. federal income tax purposes: (a) a
citizen or resident of the United States; (b) a corporation
created or organized in or under the laws of the United States
or any state thereof, including the District of Columbia;
(c) an estate, the income of which is subject to U.S.
federal income taxation regardless of its source; or (d) a
trust if (i) a court within the United States is able to
exercise primary supervision over its administration and
(ii) one or more U.S. persons have the authority to control
all of the substantial decisions of such trust. If a partnership
holds our ordinary shares or ADRs, the consequences to a partner
will generally depend upon the status of the partner and upon
the activities of the partnership. A partner of a partnership
holding our ordinary shares or ADRs should consult its tax
advisor. A Non-US holder is a beneficial owner of
our ordinary shares or ADRs that is not a U.S. holder.

Distributions

Subject to the discussion  Passive
Foreign Investment Company Considerations, the gross
amount of any distribution that is actually or constructively
received by a U.S. holder with respect to our ordinary shares
and/or ADRs will be a dividend includible in gross income of a
U.S. holder as ordinary income. Dividends paid on our ordinary
shares and/or ADRs generally will constitute income from sources
outside the United States and will not be eligible for the
dividends received deduction to United States
corporate shareholders. The amount of any distribution of
property other than cash will be the fair market value of the
property on the date of the distribution.

The gross amount of any distribution paid in
foreign currency will be included in the gross income of a U.S.
holder in an amount equal to the U.S. dollar value of the
foreign currency calculated by reference to the exchange rate in
effect on the date received by the U.S. holder, regardless of
whether the foreign currency is converted into U.S. dollars. If
the foreign currency is converted into U.S. dollars on the date
of receipt, a U.S. holder generally should not be required to
recognize foreign currency gain or loss in respect of the
dividend. If the foreign currency received as a dividend is not
converted into U.S. dollars on the date of receipt, a U.S.
holder will have a basis in the foreign currency equal to its
U.S. dollar value on the date of receipt. Any gain or loss on a
subsequent conversion or other disposition of the foreign
currency will be treated as ordinary income or loss, and will
generally be income or loss from sources within the United
States for foreign tax credit limitation purposes.

Subject to the discussion under
 Backup Withholding and Information
Reporting, a Non-U.S. holder generally will not be subject
to U.S. federal income or withholding tax on dividends received
on our ordinary shares and/or ADRs unless that income is
effectively connected with the conduct by that Non-U.S. holder
of a trade or business within the United States.

However, we do not expect to pay a dividend in
the foreseeable future.

Sale or Other Disposition of Marconi plc
Shares and/or ADRs

Subject to the discussion  Passive
Foreign Investment Company Considerations, a U.S. holder
will generally recognize a gain or loss for U.S. federal income
tax purposes upon the sale or exchange of our ordinary shares
and/or ADRs in an amount equal to the difference between the
U.S. dollar value of the amount realized from such sale or
exchange and the U.S. holders tax basis in those ordinary
shares or ADRs, as the case may be. That gain or loss will be a
capital gain or loss and will be long-term capital gain (taxable
at a reduced rate for individuals, trusts or estates) if our
ordinary shares or ADRs, as appropriate, were held for more than
one year. Any such gain or loss would generally be treated as
from sources within the United States. The deductibility of
capital losses is subject to significant limitations.

A U.S. holder that receives foreign currency on
the sale or other disposition of our ordinary shares and/or ADRs
will realize an amount equal to the U.S. dollar value of the
foreign currency on the date of sale (or in the case of cash
basis and electing accrual basis taxpayers, the U.S. dollar
value of the foreign currency on settlement date). If a U.S.
holder receives foreign currency upon a sale or exchange of our
ordinary shares and/or ADRs, gain or loss, if any, recognized on
the subsequent sale, conversion or disposition of that foreign
currency will be ordinary income or loss, and will generally be
income or loss

35



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from sources within the United States for foreign
tax credit limitation purposes. However, if such foreign
currency is converted into U.S. dollars on the date received by
the U.S. holder, a cash basis or electing accrual U.S. holder
should not recognize any gain or loss on such conversion.


Subject to the discussion under 
Backup Withholding and Information Reporting, a Non-U.S.
holder generally will not be subject to U.S. federal income or
withholding tax on any gain realized on the sale or exchange of
our ordinary shares and/or ADRs unless: (a) that gain is
effectively connected with the conduct by that Non-U.S. holder
of a trade or business in the United States, or (b) in the
case of any gain realized by an individual Non-U.S. holder, that
holder is present in the United States for 183 days or more
in the taxable year of the sale or exchange and certain other
conditions are met.

Passive Foreign Investment Company
Considerations

A corporation organized outside the United States
generally will be classified as passive foreign investment
company, or a PFIC, for U.S. federal income tax purposes in any
taxable year in which either: (a) at least 75% of its gross
income is passive income, or (b) on average at
least 50% of the gross value of its assets is attributable to
assets that produce passive income or are held for
the production of passive income. Passive income for this
purpose generally includes dividends, interest, royalties, rents
and gains from commodities and securities transactions. In
determining whether it is a PFIC a foreign corporation is
required to take into account a pro rata portion of the income
and assets of each corporation in which it owns, directly or
indirectly, at least a 25% interest.

Based on our current assets it is likely that
were characterized as a PFIC for U.S. federal income tax
purposes for the taxable year ended 31 March, 2004. Because
this is a factual determination made annually at the end of the
taxable year, there can be no assurance that we will not be
considered a PFIC for any future taxable year. If we were a PFIC
in any year, special, possibly materially adverse, consequences
would, as discussed below, result for U.S. holders.

If we are a PFIC in any year during which a U.S.
holder owns our ordinary shares and/or ADRs the U.S. holder will
be subject to additional taxes on any excess distributions
received from us and any gain realized from the sale or other
disposition of our ordinary shares and/or ADRs (whether or not
we continue to be a PFIC). A U.S. holder has an excess
distribution to the extent that distributions on our ordinary
shares and/or ADRs during a taxable year exceed 125% of the
average amount received during the three preceding taxable years
(or, if shorter, the U.S. holders holding period). To
compute the tax on the excess distributions or any gain,
(a) the excess distribution or the gain is allocated
ratably over the U.S. holders holding period, (b) the
amount allocated to the current taxable year and any year before
we became a PFIC is taxed as ordinary income in the current
year, and (c) the amount allocated to other taxable years
is taxed at the highest applicable marginal rate in effect for
each year and an interest charge is imposed to recover the
deemed benefit from the deferred payment of the tax attributable
to each year.

Some of the rules with respect to distributions
and dispositions described above may be avoided if a U.S. holder
makes a valid mark-to-market election (in which
case, subject to certain limitations, the U.S. holder would
essentially be required to take into account the difference, if
any, between the fair market value and the adjusted tax basis of
our ordinary shares or ADRs, as the case may be, at the end of a
taxable year as ordinary income (or, subject to certain
limitations, ordinary loss), in calculating its income for such
year). In addition, gains from an actual sale or other
disposition of our ordinary shares or ADRs will be treated as
ordinary income, and any losses will be treated as ordinary
losses to the extent of any mark-to-market gains for
prior years. A mark-to-market election is only
available to U.S. holders in any tax year that the PFIC stock is
considered regularly traded on a qualified
exchange within the meaning of applicable U.S. Treasury
regulations. PFIC stock is regularly traded if,
among other requirements, it is traded on at least 15 days
during each calendar quarter. Prospective holders should
consult their own tax advisers as to whether our ordinary shares
and/or ADRs would qualify for the mark-to-market election and
whether such election is advisable.

The foregoing rules with respect to distributions
and dispositions may be avoided if a U.S. holder is eligible for
and timely makes a valid QEF election (in which case
the U.S. holder would be required to

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include in income on a current basis its pro rata
share of our ordinary income and net capital gains). In order to
be able to make the QEF election, we would be required to
provide a U.S. holder with certain information. We may decide
not to provide the required information.


Each U.S. holder of our ordinary shares and/or
ADRs must make an annual return on IRS Form 8621, reporting
distributions received and gains realized with respect to each
PFIC in which it holds a direct or indirect interest.

Holders are urged to consult their own tax
advisors regarding whether an investment in our ordinary shares
or ADRs will be treated as an investment in PFIC stock and the
consequences of an investment in a PFIC.

Backup Withholding and Information
Reporting

Backup withholding and information reporting
requirements may apply to certain payments to U.S. holders of
dividends on our ordinary shares and/or ADRs and to the proceeds
of a sale or redemption of our ordinary shares or ADRs. We, our
agent, a broker, or any paying agent, as the case may be, may be
required to withhold tax from any payment that is subject to
backup withholding at a maximum rate of 28% of such payment if
the U.S. holder fails (a) to furnish the U.S. holders
taxpayer identification number, (b) to certify that the
U.S. holder is not subject to backup withholding or (c) to
otherwise comply with the applicable requirements of the backup
withholding rules. The backup withholding rate may be subject to
change each year. Certain U.S. holders, including, among others,
corporations, are not subject to the backup withholding and
information reporting requirements. Non-U.S. holders who hold
our ordinary shares or ADRs through a U.S. broker or agent or
through the U.S. office of a non-U.S. broker or agent may be
required to comply with applicable certification procedures to
establish that they are not U.S. holders in order to avoid the
application of such information reporting requirements and
backup withholding. Backup withholding is not an additional tax.
Any amounts withheld under the backup withholding rules from a
payment to a holder generally may be claimed as a credit against
such holders U.S. federal income tax liability provided
that the required information is furnished timely to the IRS.

Prospective holders should consult their
own tax advisers as to their qualification for exemption from
backup withholding and the procedure for obtaining this
exemption.

United Kingdom Taxation

The following summary describes certain U.K. tax
consequences for certain holders of our ordinary shares and/or
ADRs. It is intended to apply only to U.S. holders (as defined
in the section above under United States Federal Income
Taxation) who are not also residents of the U.K. for U.K.
tax purposes or carrying on a business in the U.K. through a
branch, agency or permanent establishment and who hold the our
ordinary shares and/or ADRs as investments. It may not apply to
certain classes of holders, such as dealers in securities.

This summary is based on current U.K. law and
U.K. Inland Revenue practice at the date hereof.

This summary is not intended to be comprehensive,
and prospective holders of our ordinary shares and ADRs are
recommended to consult their professional advisers to determine
their tax position.

Taxation of dividends

Under current U.K. taxation legislation, no tax
is required to be withheld at source from cash dividends paid on
our ordinary shares and/or ADRs. However, we do not expect to
pay a dividend in the foreseeable future.

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Taxation of capital gains

A U.S. shareholder who is not resident, and in
the case of an individual also not ordinarily resident, in the
U.K. for U.K. tax purposes will not be liable for U.K. taxation
on capital gains realized on the disposal of his or her shares
or ADRs unless at the time of the disposal:



| |   |                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the U.S. shareholder carries on a trade,
    profession or vocation in the U.K. through a branch, agency or
    permanent establishment; and                      
|
| |  | the shares or ADRs are or have been used, held or
    acquired for the purposes of the trade, profession, vocation,
    branch, agency or permanent establishment.

A U.S. shareholder who is an individual and who
has ceased to be resident or ordinarily resident for tax
purposes in the U.K. on or after March 17, 1998 and
continues not to be resident or ordinarily resident in the U.K.
for a period of less than five years of assessment and who
disposes of his shares or ADRs during that period will also be
liable on his return to the U.K. to U.K. tax on capital gains,
subject to any available exemption or relief, even though he or
she is not resident or ordinarily resident in the U.K. at the
time of the disposal. There are special rules for individuals
who leave the U.K. part way through a year of assessment.

U.K. stamp duty and stamp duty reserve tax
(SDRT)

U.K. stamp duty or SDRT is payable upon the
transfer or issue of shares to, or to a nominee or agent of, a
person whose business is or includes issuing depositary receipts
or providing clearance services. For this purpose, the current
rate of stamp duty and SDRT is 1.5%, rounded up, in the case of
stamp duty, to the nearest £5. The rate is applied, in each
case, to the amount or value of the consideration or, in some
circumstances, to the value of the shares.

Provided that the instrument of transfer is not
executed in the U.K. and remains at all subsequent times outside
the U.K., no U.K. stamp duty will be payable on the transfer of
ADRs. An agreement to transfer ADRs will not give rise to a
liability to SDRT.

The purchase of shares, as opposed to ADRs, may
give rise to a charge to U.K. stamp duty or SDRT at the rate of
0.5%, rounded up, in the case of stamp duty, to the nearest
£5. The rate is applied to the price payable for the shares
at the time of the transfer or agreement to transfer. SDRT is
generally the liability of the purchaser who usually pays U.K.
stamp duty.

DOCUMENTS ON DISPLAY

We are subject to the informational requirements
of the Securities Exchange Act of 1934 and file reports and
other information with the Securities and Exchange Commission.
You may read and copy all or any portion of the reports and
their exhibits at the public reference facilities maintained by
the Securities and Exchange Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may also be obtained at prescribed rates
by writing to the Public Reference Section of the Securities and
Exchange Commission at 450 Fifth Street, N.W., Washington,
D.C., 20549. You may obtain more information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The Securities and Exchange Commission also maintains a web site
that contains reports and information about issuers, like us,
who file electronically with the SEC. The address of that web
site is www.sec.gov.

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Item 11: Quantitative and
Qualitative Disclosures about Market Risk

The discussion below covers our exposure to
market risk, related to changes in interest rates, foreign
exchange rates and share prices for the fiscal year ending
March 31, 2003 and the weeks in fiscal 2004 immediately
preceding our financial restructuring. As at March 31,
2004, we no longer had any material risks in these areas.

Financial instruments

In connection with the financial restructuring
process described above, we were required to manage immediate
liquidity, which included the cancellation of all outstanding
derivatives positions. Consequently, during fiscal 2003,
out-of-the-money interest rate swap arrangements with fair value
£83 million were converted to new loan agreements and
cash proceeds of £8 million were received from
unwinding in-the-money interest rate swap arrangements. At
March 31, 2003, 45% of our interest-bearing borrowings were
at fixed rates after taking account of interest rate swaps. Of
this total, 24% were at fixed dollar rates of interest and 21%
were at fixed euro rates of interest. These borrowings were
later cancelled as part of our financial restructuring.

Our interest expense was exposed to interest rate
movements in our floating rate debt, cash and investments. Prior
to the effectiveness of our financial restructuring we were
principally exposed to changes in short-term interest rates in
pounds sterling and U.S. dollars. A one percentage point
increase in market interest rates would have increased interest
income by £8 million and increased interest expense by
£22 million which, combined, would have increased loss
from continuing operations before income taxes in fiscal 2003 by
approximately £14 million.

Foreign exchange risk

We were a global communications company, and as
such we conducted a significant portion of our business
activities outside the United Kingdom in currencies other than
sterling. Our principle exchange rate exposures related to
U.S. dollar/pounds sterling and euro/pounds sterling
exchange rates for both transactional and translation related
exposures. Our foreign currency management policy sought to
minimize the impact of fluctuations in exchange rates on future
cash flows and required subsidiaries to hedge firm transaction
exposures against their local currency at the time the exposure
was identified. These exposures were hedged by the use of spot
and forward exchange contracts. Due to the financial
restructuring, we did not enter into any such contracts in
fiscal 2003.

We also had overseas subsidiaries that earned
profits and whose net assets were denominated in foreign
currencies. It was our policy not to use derivatives to hedge
exposures arising from the translation of these overseas profits
and net assets into pounds sterling. However, approximately 83%
of gross borrowings were denominated in foreign currencies in
order to form a hedge for our investments in currencies other
than sterling. Of these, 61%, denominated in U.S. dollars,
formed a hedge for our investments in the U.S., and 21%,
denominated in euro, formed a hedge for our investment in the
Euro-zone.

If the pound sterling had strengthened such that
the average exchange rates used in the translation of our
overseas earnings changed by 10%, our reported income from
continuing operations would have been increased by 2.7%, in
fiscal 2003.

Share price risk

The Marconi group had, in the past, issued share
options to our employees under a number of different option
plans, collectively known as the Employee Share Option Plans
(ESOP). Under these plans, options could be
satisfied by way of a transfer of existing M (2003) plc
ordinary shares acquired in the market by an

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employee trust or other vehicle, or, under some
of the plans only, by an issue of new M (2003) plc shares.
From January 2000, in order to hedge part of the potential cost
of the plans estimated at that time, we entered into the ESOP
derivative transactions with the ESOP derivative banks to
purchase a total of 40 million shares in the future at
prices which were fixed at the date of contract. At
March 31, 2003, the purchase of 38.5 million shares
under these contracts was outstanding. Our maximum exposure
under the contracts was £337 million, plus accrued
finance charges. At March 31, 2003, we had paid
£214 million of collateral, the maximum amount of
collateral payable under these ESOP derivative transactions. The
remaining principal amount of £123 million under these
contracts had been the subject of claims brought against the
Group by the ESOP derivative banks. In connection with the
financial restructuring process, we entered into a final
settlement with the ESOP derivative banks that definitively
settled the claims of the ESOP derivative banks against us in
relation to the ESOP derivative transactions. Under the
settlement, which was conditional on our financial restructuring
becoming effective, we paid a total of £35 million to
the ESOP derivative banks and we excluded the claims of the ESOP
derivative banks under the ESOP derivative transactions from our
schemes of arrangement.





Item 12: Description of
Securities other than Equity Securities

This item is not applicable.

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PART II




Item 13: Defaults, Dividend
Arrearages and Delinquencies

In connection with the financial restructuring of
M (2003) plc and Marconi Corporation plc, Marconi
Corporation plc did not repay amounts that became due under
its banking facility on March 25, 2003 and
M (2003) plc did not pay on its guarantee of such
facility. On March 23, 2003, Marconi Corporation plc
also failed to make interest payments due on its 7 3/4%
Bonds due 2010 and its 8 3/8% Bonds due 2030, and on
March 31, 2003, Marconi Corporation plc failed to make
interest payments due on its 5.625% Bonds due 2005 and its
6.375% Bonds due 2030. M (2003) plc also did not pay on its
guarantees of those bonds. These defaults were not cured but the
debts, including accrued but unpaid interest, were retired
pursuant to the M (2003) plc and Marconi
Corporation plc schemes of arrangement, which became
effective on May 19, 2003. Accordingly, no amounts remained
in arrears.




Item 14: Material Modifications
to the Rights of Security Holders and Use of
Proceeds

Pursuant to the M (2003) plc and Marconi
Corporation plc schemes of arrangement, our creditors,
including the holder of Marconi Corporation plcs
7 3/4% Bonds due 2010 and our 8 3/8% Bonds due 2030
that were guaranteed by M (2003) plc, received a mixture of
cash, new senior guaranteed notes and new junior guaranteed
notes issued by Marconi Corporation plc and new ordinary
shares in Marconi Corporation plc. Please see
Item 4: Information on the Company 
History and Developments of the Company 
History  Restructuring for additional
information with respect to our financial restructuring. Further
detail with respect to these schemes of arrangement can be found
in the scheme document that Marconi Corporation plc
furnished under cover of Form 6-K on March 31, 2003,
which is incorporated herein by reference.




Item 15: Controls and
Procedures

Under the supervision and with the participation
of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness and
design and operation of our disclosure controls and procedures
as of March 31, 2004. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of that
date. Since the date of the evaluation, there have been no
significant changes in our internal controls or in other factors
that could significantly affect the controls. Therefore, no
corrective actions were taken.




Item 16A: Audit Committee
Financial Expert

We consider Richard Anthony Robinson to be the
financial expert serving on our audit committee as defined by
Item 16A(b). Mr. Robinson is an independent
non-executive director.




Item 16B: Code of
Ethics

We have not adopted a code of ethics as defined
by Item 16B(b). Since we no longer conduct any business and
do not intend to revive any business operations, we do not
believe that a code of ethics is necessary.




Item 16C: Principal Accountant
Fees and Services

The following table provides information on the
aggregate fees paid for fiscal years ended March 31, 2004
and 2003 to our principal accounting firm, Deloitte & Touche
LLP, the member firms of Deloitte Touche Tohmatsu, and their
respective affiliates (collectively Deloitte &
Touche) and to Arthur Andersen for internal audit fees in
fiscal year 2003:

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|                        |  |                   |   |      |  |  |    | 
|----------------------- |  | ----------------- | - | ---- |  |  | -- | 
|                        |  |                  
|                        |  | Fiscal year ended
|                        |  | March 31,        
|(£ millions)            |  | 2004              |   | 2003
|                        |  |                  
|                        |  |                  
|Deloitte & Touche       |  |                   |   |      |  |  |    | 
|Audit                   |  |                   |  |      |  |  | 1  | 
|Audit-related           |  |                   |  |      |  |  | 13 | 
|Tax                     |  |                   |  |      |  |  | 2  | 
|Other                   |  |                   |  |      |  |  | 1  | 
|                        |  |                  
|Total Deloitte & Touche |  |                   |  |      |  |  | 17 | 
|Arthur Andersen         |  |                   |   |      |  |  |    | 
|Internal Audit          |  |                   |  |      |  |  | 2  | 
|                        |  |                  
|TOTAL FEES              |  |                   |  |      |  |  | 19 | 
|                        |  |                  

Audit and audit-related fees

Audit and audit-related fees consist of
professional services rendered for the audits of the
consolidated financial statements of the Company, statutory
audits, income tax provision procedures and other work in
connection with documents filed with the SEC. Our audit and
audit related fees have decreased to £0.1 million
(2003: £14 million) due to the cessation of trading
and the completion of the Companys financial
restructuring. Audit-related fees in fiscal 2003 principally
relate to fees incurred in connection with our financial
restructuring, including various documents filed with the London
Stock Exchange and the UK courts.

Tax fees

Tax fees were £nil for fiscal 2004. For
fiscal 2003 they consist primarily of dealing with tax
computations, submissions, restructuring and expatriate
services. Expatriate services are being transitioned to another
professional services firm.

Other

Other services in fiscal 2003 include operational
internal audit fees and project work and technical advice.

Pre approval procedures for Services

All audit and non-audit services performed by the
auditors are pre-approved by the Companys audit committee,
following a competitive tender where appropriate, in accordance
with the committees auditors independence policy.

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PART III




Item 17: Financial
Statements

Financial statements are being furnished pursuant
to the instructions of Item 18 of Form 20-F.




Item 18: Financial
Statements

M (2003) plc is furnishing consolidated
financial statements beginning at page F-1.




Item 19: Exhibits

| |        |  |  |                                                                                                                                                                                                                                                                         
| | ------ |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.1*** |  |  | Memorandum and Articles of Association of
    M (2003) plc                                                                                                                                                                                                              
| | 2.1   |  |  | Specimen ordinary share certificate of
    M (2003) plc                                                                                                                                                                                                                 
| | 2.2   |  |  | Deposit Agreement dated as of September 6,
    2000 Between M (2003) plc and The Bank of New York, as
    depositary, and Owners and beneficial holders of American
    Depositary Receipts                                                                             
| | 2.3   |  |  | American Depositary Receipt of
    M (2003) plc (included in Exhibit 2.2)                                                                                                                                                                                               
| | 2.4  |  |  | Marconi Corporation plc and
    M (2003) plcs Proposals in Relation to Schemes
    of Arrangement under Section 425 of the UK Companies Act
    1985, dated March 31, 2003 between Marconi
    Corporation plc, M (2003) plc and their
    respective scheme creditors.
| | 4.01** |  |  | Settlement Deed dated December 19, 2002
    between RT Group Telecom Services Limited, RT Group plc,
    Marconi Corporation plc, Ultramast Limited, James Smith and
    Nicholas Dargan                                                                                
| | 4.02** |  |  | Agreement dated November 4, 2002 between UBS
    AG and Marconi Corporation plc related to the payment of
    interest on certain interest rate swap transactions                                                                                                       
| | 4.03** |  |  | Scheme Implementation Deed dated March 27,
    2003, between M (2003) plc, Marconi
    Corporation plc, Ancrane, E A Continental Limited, Marconi
    Nominees Limited, British Sealed Beams Limited and various other
    group companies                              
| | 4.04** |  |  | Escrow and Distribution Agreement dated
    March 27, 2003 between M (2003) plc, Marconi
    Corporation plc, Regent Escrow Limited, The Bank of New
    York, The Law Debenture Trust Corporation plc, Ancrane,
    Bondholder Communications Group and the Supervisors
| | 4.05** |  |  | Statement and waiver of intercompany balances
    agreement Dated on or about March 27, 2003 between
    M (2003) plc, Marconi Corporation plc and certain
    other group companies                                                                                    
| | 4.06** |  |  | Deed of Novation dated March 26, 2003
    between Marconi Corporation plc, M (2003) plc and
    BAE SYSTEMS plc                                                                                                                                                         
| | 4.07** |  |  | Assumption Agreement and Consent dated
    March 26, 2003 between Marconi Corporation plc,
    M (2003) plc and Lemelson Medical Education and Research
    Foundation, Limited Partnership                                                                             
| | 4.08** |  |  | Deed of Novation and Amendment dated
    March 26, 2003 between Marconi Corporation plc,
    M (2003) plc and Finmeccanica SpA                                                                                                                                          
| | 4.09** |  |  | Sponsors Agreement dated March 31,
    2003 between Marconi Corporation plc,
    M (2003) plc, Lazard Brothers & Co. and Morgan
    Stanley & Co. Limited                                                                                                              
| | 4.10** |  |  | ESOP Escrow Agreement dated December 13,
    2002 between Marconi Corporation plc,
    M (2003) plc, HSBC Bank plc and Barclays Bank PLC                                                                                                                                
| | 4.11** |  |  | ESOP Settlement Agreement dated March 26,
    2003 between M (2003) plc, Marconi
    Corporation plc, HSBC Bank plc, Barclays, Salomon Brothers
    International Limited, UBS AG and Bedell Cristin Trustees Limited                                                   
| | 4.12** |  |  | Memorandum of Understanding dated March 25,
    2003 between the Marconi Corporation plc, M (2003) plc
    and the United States Pension Benefit Guaranty Corporation                                                                                                   
| | 8.1*   |  |  | List of principal subsidiaries and other
    associated Companies of M (2003) plc (incorporated by
    Reference to Note 22 of the Notes to the Consolidated Financial
    Statements included in this Annual Report)                                                   

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| |       |  |  |                                                                                                                                          
| | ----- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------
| | 12.1* |  |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a), as adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.
| | 12.2* |  |  | Certification required by Rule 13a-14(a) or
    Rule 15d-14(a), as adopted Pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002.
| | 13.1* |  |  | Certification pursuant to 18 U.S.C.
    Section 1350, as adopted Pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.          



| |     |                                                                                                                                         
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------
| | *   | Filed with this annual report.                                                                                                          
|
| | **  | Incorporated by reference to the Annual Report on
    Form 20-F (File No. 0-30294) filed with the SEC on
    September 25, 2003.        
|
| | *** | Incorporated by reference to the Annual Report on
    Form 20-F (File No. 0-30294) filed with the SEC on
    September 28, 2001.        
|
| |    | Incorporated by reference to the Registration
    Statement on Form 20-F (File No. 0-30924) filed with
    the SEC on September 5, 2000.
|
| |   | Incorporated by reference to the Report under
    cover of Form 6-K (File No. 0-30924) furnished to the
    SEC on March 31, 2003.      

44



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##### Table of Contents



SIGNATURES

The registrant hereby certifies that it meets all
the requirements for filing on Form 20-F and that it has
duly caused and authorized the undersigned to sign this annual
report on its behalf.



| |             
| | ------------
| | M (2003) PLC



| |     |              
| | --- | -------------
| | By: | /s/ K D SMITH

| |                          
| | -------------------------
| |                          
| | Name: Kevin David Smith  
| | Title:  Company Secretary
| | Date:  October 8, 2004   

45



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

M (2003) plc and subsidiaries

Consolidated financial statements as of
March 31, 2004 and 2003 and

for the three years ended March 31,
2004


|                                                                 |  |      |     | 
|---------------------------------------------------------------- |  | ---- | --- | 
|                                                                 |  | Page
|                                                                 |  |     
|Report of independent
    registered public accounting firm      |  |      | F-2 | 
|Consolidated balance
    sheets                                  |  |      | F-3 | 
|Consolidated statements of
    operations                        |  |      | F-4 | 
|Consolidated statements of
    cash flows                        |  |      | F-5 | 
|Consolidated statements of
    other comprehensive income/(loss) |  |      | F-7 | 
|Consolidated statements of
    shareholders equity/(deficit)    |  |      | F-8 | 
|Notes to consolidated
    financial statements                   |  |      | F-9 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

To the board of directors and shareholders of M
(2003) plc:

We have audited the accompanying consolidated
balance sheets of M (2003) plc and its subsidiaries and
joint ventures (together the Company) as of
March 31, 2004 and 2003 and the related consolidated
statements of operations, cash flows, other comprehensive
income/(loss), and shareholders equity/(deficit) for each
of the three fiscal years in the period ended March 31,
2004 (expressed in pounds sterling). These consolidated
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.

In our opinion, such consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of the Company as of
March 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three fiscal
years in the period ended March 31, 2004 in conformity with
accounting principles generally accepted in the United States of
America.

Our audits also comprehended the translation of
certain pounds sterling amounts into U.S. Dollars and, in
our opinion, such translation has been made in conformity with
the basis described in note 2. Such U.S. Dollar
amounts are presented solely for the convenience of readers in
the United States of America.

Deloitte & Touche LLP

Birmingham, England


October 8, 2004


F-2



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##### Table of Contents






M (2003) plc and subsidiaries

CONSOLIDATED BALANCE SHEETS

|                                                         |                                                                   |           |    |        |   |      |   |      |   |  |        |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------- | --------- | -- | ------ | - | ---- | - | ---- | - |  | ------ | ------ | -
|                                                         |                                                                   |          
|                                                         |                                                                   | March 31,
|                                                         |                                                                   | 2004      |    | 2004   |   | 2003
|(in millions, except share data)                         |                                                                   | U.S.$     |    | £      |   | £   
|                                                         |                                                                   |          
|                                                         |                                                                   |          
|ASSETS                                                   |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|Current assets                                           |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|                                                         | Cash and cash equivalents                                         |           |    | 17     |   |      |   | 9    |   |  |        | 195    |  
|                                                         | Restricted cash                                                   |           |    |       |   |      |   |     |   |  |        | 964    |  
|                                                         | Investment in securities                                          |           |    |       |   |      |   |     |   |  |        | 16     |  
|                                                         | Accounts receivable, net                                          |           |    |       |   |      |   |     |   |  |        | 462    |  
|                                                         | Inventories, net                                                  |           |    |       |   |      |   |     |   |  |        | 234    |  
|                                                         | Prepaid expenses and other current assets                         |           |    |       |   |      |   |     |   |  |        | 126    |  
|                                                         |                                                                   |          
|Total current assets                                     |                                                                   |           | 17 |        |   |      | 9 |      |   |  | 1,997  |       
|Property, plant and equipment, net                       |                                                                   |           |   |        |   |      |  |      |   |  | 263    |       
|Investments in affiliates                                |                                                                   |           |   |        |   |      |  |      |   |  | 18     |       
|Goodwill                                                 |                                                                   |           |   |        |   |      |  |      |   |  | 657    |       
|Intangibles, net                                         |                                                                   |           |   |        |   |      |  |      |   |  | 101    |       
|Other non-current assets                                 |                                                                   |           |   |        |   |      |  |      |   |  | 75     |       
|                                                         |                                                                   |          
|TOTAL ASSETS                                             |                                                                   |           | 17 |        |   |      | 9 |      |   |  | 3,111  |       
|                                                         |                                                                   |          
|LIABILITIES AND SHAREHOLDERS
    EQUITY/(DEFICIT)       |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|Current liabilities                                      |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|                                                         | Short-term debt                                                   |           |    |       |   |      |   |     |   |  |        | 2,195  |  
|                                                         | Current maturities of long-term debt                              |           |    |       |   |      |   |     |   |  |        | 1,806  |  
|                                                         | Accounts payable                                                  |           |    |       |   |      |   |     |   |  |        | 163    |  
|                                                         | Accrued expenses and other current liabilities                    |           |    |       |   |      |   |     |   |  |        | 1,048  |  
|                                                         | Net liabilities of discontinued operations                        |           |    |       |   |      |   |     |   |  |        | 12     |  
|                                                         |                                                                   |          
|Total current liabilities                                |                                                                   |           |   |        |   |      |  |      |   |  | 5,224  |       
|Long-term debt                                           |                                                                   |           |   |        |   |      |  |      |   |  | 30     |       
|Deferred income taxes                                    |                                                                   |           |   |        |   |      |  |      |   |  | 5      |       
|Other liabilities                                        |                                                                   |           |   |        |   |      |  |      |   |  | 352    |       
|                                                         |                                                                   |          
|Total liabilities                                        |                                                                   |           |   |        |   |      |  |      |   |  | 5,611  |       
|Commitments and contingencies (Note 11)                  |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|Minority interests                                       |                                                                   |           |   |        |   |      |  |      |   |  | 3      |       
|Shareholders equity/(deficit)                           |                                                                   |           |    |        |   |      |   |      |   |  |        |       
|                                                         | Ordinary shares, £0.05 par value;                                 |           |    |        |   |      |   |      |   |  |        |        |  
|                                                         | Authorized: 6,000,000,000 shares in 2004 and 2003;                |           |    |        |   |      |   |      |   |  |        |        |  
|                                                         | Issued and outstanding: 2,793,011,951 shares in
    2004 and 2003 |           |    | 258    |   |      |   | 140  |   |  |        | 140    |  
|                                                         | Additional paid-in capital                                        |           |    | 1,213  |   |      |   | 659  |   |  |        | 1,080  |  
|                                                         | Accumulated deficit                                               |           |    | (1,454 | ) |      |   | (790 | ) |  |        | (3,441 | )
|                                                         | Accumulated other comprehensive loss                              |           |    |       |   |      |   |     |   |  |        | (282   | )
|                                                         |                                                                   |          
|Total shareholders equity/(deficit)                     |                                                                   |           | 17 |        |   |      | 9 |      |   |  | (2,503 | )     
|                                                         |                                                                   |          
|TOTAL LIABILITIES AND SHAREHOLDERS
    EQUITY/(DEFICIT) |                                                                   |           | 17 |        |   |      | 9 |      |   |  | 3,111  |       
|                                                         |                                                                   |          

See notes to consolidated financial statements.

F-3



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##### Table of Contents






M (2003) plc and subsidiaries

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                                    |                                                                                     |                             |       |       |   |      |       |       |   |  |       |       |   |  |        |       |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------- | ----- | ----- | - | ---- | ----- | ----- | - |  | ----- | ----- | - |  | ------ | ----- | -
|                                                                                                                                                    |                                                                                     |                            
|                                                                                                                                                    |                                                                                     | Fiscal year ended March 31,
|                                                                                                                                                    |                                                                                     | 2004                        |       | 2004  |   | 2003 |       | 2002 
|(in millions)                                                                                                                                       |                                                                                     | U.S.$                       |       | £     |   | £    |       | £    
|                                                                                                                                                    |                                                                                     |                            
|                                                                                                                                                    |                                                                                     |                            
|Revenue:                                                                                                                                            |                                                                                     |                             |       |       |   |      |       |       |   |  |       |       |   |  |        |      
|                                                                                                                                                    | Network equipment                                                                   |                             |       | 184   |   |      |       | 100   |   |  |       | 1,131 |   |  |        | 1,812 |  
|                                                                                                                                                    | Network services                                                                    |                             |       | 125   |   |      |       | 68    |   |  |       | 743   |   |  |        | 969   |  
|                                                                                                                                                    | Other                                                                               |                             |       |      |   |      |       |      |   |  |       | 22    |   |  |        | 465   |  
|                                                                                                                                                    |                                                                                     |                            
|                                                                                                                                                    |                                                                                     |                             | 309   |       |   |      | 168   |       |   |  | 1,896 |       |   |  | 3,246  |      
|Direct costs                                                                                                                                        |                                                                                     |                             | 254   |       |   |      | 138   |       |   |  | 1,522 |       |   |  | 3,297  |      
|                                                                                                                                                    |                                                                                     |                            
|                                                                                                                                                    | Gross margin                                                                        |                             |       | 55    |   |      |       | 30    |   |  |       | 374   |   |  |        | (51   | )
|Operating expenses:                                                                                                                                 |                                                                                     |                             |       |       |   |      |       |       |   |  |       |       |   |  |        |      
|                                                                                                                                                    | Selling, general and administrative                                                 |                             |       | 90    |   |      |       | 49    |   |  |       | 356   |   |  |        | 836   |  
|                                                                                                                                                    | Research and development                                                            |                             |       | 57    |   |      |       | 31    |   |  |       | 290   |   |  |        | 525   |  
|                                                                                                                                                    | Amortization of goodwill and intangibles                                            |                             |       | 11    |   |      |       | 6     |   |  |       | 44    |   |  |        | 436   |  
|                                                                                                                                                    | Business restructuring charges                                                      |                             |       | 4     |   |      |       | 2     |   |  |       | 230   |   |  |        | 396   |  
|                                                                                                                                                    | Impairment of long-lived assets                                                     |                             |       |      |   |      |       |      |   |  |       | 69    |   |  |        | 3,968 |  
|                                                                                                                                                    | (Gain)/loss on sale of businesses, net                                              |                             |       |      |   |      |       |      |   |  |       | (5    | ) |  |        | 64    |  
|                                                                                                                                                    | Other (income)/expenses                                                             |                             |       |      |   |      |       |      |   |  |       | (2    | ) |  |        | 116   |  
|                                                                                                                                                    |                                                                                     |                            
|Total operating expenses                                                                                                                            |                                                                                     |                             | 162   |       |   |      | 88    |       |   |  | 982   |       |   |  | 6,341  |      
|                                                                                                                                                    |                                                                                     |                            
|Operating loss                                                                                                                                      |                                                                                     |                             | (107  | )     |   |      | (58   | )     |   |  | (608  | )     |   |  | (6,392 | )    
|Other income/(expense):                                                                                                                             |                                                                                     |                             |       |       |   |      |       |       |   |  |       |       |   |  |        |      
|                                                                                                                                                    | (Loss)/gain on sale of investments, net                                             |                             |       |      |   |      |       |      |   |  |       | (5    | ) |  |        | 89    |  
|                                                                                                                                                    | Impairment of investments                                                           |                             |       |      |   |      |       |      |   |  |       | (40   | ) |  |        |      |  
|                                                                                                                                                    | Gain on financial restructuring                                                     |                             |       | 4,018 |   |      |       | 2,183 |   |  |       |      |   |  |        |      |  
|                                                                                                                                                    | Gain on settlement of equity forward contracts                                      |                             |       | 226   |   |      |       | 123   |   |  |       |      |   |  |        |      |  
|                                                                                                                                                    | Other income                                                                        |                             |       |      |   |      |       |      |   |  |       | 34    |   |  |        | 166   |  
|                                                                                                                                                    | Interest income                                                                     |                             |       | 53    |   |      |       | 29    |   |  |       | 45    |   |  |        | 40    |  
|                                                                                                                                                    | Interest expense                                                                    |                             |       |      |   |      |       |      |   |  |       | (329  | ) |  |        | (272  | )
|                                                                                                                                                    |                                                                                     |                            
|Income/(loss) from continuing operations before
    income taxes, minority interests and cumulative effects of
    changes in accounting principles |                                                                                     |                             | 4,190 |       |   |      | 2,277 |       |   |  | (903  | )     |   |  | (6,369 | )    
|                                                                                                                                                    | Income tax (charge)/benefit                                                         |                             |       | (2    | ) |      |       | (1    | ) |  |       | 209   |   |  |        | 471   |  
|                                                                                                                                                    | Equity in net loss of affiliates                                                    |                             |       |      |   |      |       |      |   |  |       | (62   | ) |  |        | (196  | )
|                                                                                                                                                    |                                                                                     |                            
|Income/(loss) from continuing operations, before
    cumulative effects of changes in accounting principles                                         |                                                                                     |                             | 4,188 |       |   |      | 2,276 |       |   |  | (756  | )     |   |  | (6,094 | )    
|Discontinued operations:                                                                                                                            |                                                                                     |                             |       |       |   |      |       |       |   |  |       |       |   |  |        |      
|                                                                                                                                                    | Loss from discontinued operations, net of tax of
    £nil (2003, £2, and 2002, £36) |                             |       |      |   |      |       |      |   |  |       | (74   | ) |  |        | (64   | )
|                                                                                                                                                    | Gain on sale of discontinued operations, net of
    tax of £nil                     |                             |       |      |   |      |       |      |   |  |       | 23    |   |  |        | 248   |  
|Cumulative effect of changes in accounting
    principles, net of tax of £nil                                                                       |                                                                                     |                             |      |       |   |      |      |       |   |  |      |       |   |  | (240   | )    
|                                                                                                                                                    |                                                                                     |                            
|Net income/(loss)                                                                                                                                   |                                                                                     |                             | 4,188 |       |   |      | 2,276 |       |   |  | (807  | )     |   |  | (6,150 | )    
|                                                                                                                                                    |                                                                                     |                            

See notes to consolidated financial statements

F-4



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##### Table of Contents






M (2003) plc and subsidiaries

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                  |                                        |                             |        |      |   |      |        |      |   |  |      |      |   |  |        |      |  
|----------------------------------------------------------------------------------------------------------------- | -------------------------------------- | --------------------------- | ------ | ---- | - | ---- | ------ | ---- | - |  | ---- | ---- | - |  | ------ | ---- | -
|                                                                                                                  |                                        |                            
|                                                                                                                  |                                        | Fiscal year ended March 31,
|                                                                                                                  |                                        | 2004                        |        | 2004 |   | 2003 |        | 2002
|(in millions)                                                                                                     |                                        | U.S.$                       |        | £    |   | £    |        | £   
|                                                                                                                  |                                        |                            
|                                                                                                                  |                                        |                            
|Cash flows from operating
    activities:                                                                         |                                        |                             |        |      |   |      |        |      |   |  |      |      |   |  |        |     
|Net income/(loss)                                                                                                 |                                        |                             | 4,188  |      |   |      | 2,276  |      |   |  | (807 | )    |   |  | (6,150 | )   
|Adjustments to reconcile net income/(loss) to net
    cash used in operating activities of continuing operations: |                                        |                             |        |      |   |      |        |      |   |  |      |      |   |  |        |     
|Loss from discontinued operations                                                                                 |                                        |                             |       |      |   |      |       |      |   |  | 74   |      |   |  | 64     |     
|Gain on sale of discontinued operations                                                                           |                                        |                             |       |      |   |      |       |      |   |  | (23  | )    |   |  | (248   | )   
|Gain on early retirement of debt                                                                                  |                                        |                             |       |      |   |      |       |      |   |  |     |      |   |  | (166   | )   
|Cumulative effect of changes in accounting
    principles                                                         |                                        |                             |       |      |   |      |       |      |   |  |     |      |   |  | 240    |     
|Loss on equity forward contracts                                                                                  |                                        |                             |       |      |   |      |       |      |   |  |     |      |   |  | 95     |     
|Cash paid on settlement of equity forward
    contracts                                                           |                                        |                             | (64    | )    |   |      | (35    | )    |   |  |     |      |   |  |       |     
|Loss on disposal of businesses and properties                                                                     |                                        |                             |       |      |   |      |       |      |   |  | 3    |      |   |  | 149    |     
|Gain on financial restructuring                                                                                   |                                        |                             | (4,018 | )    |   |      | (2,183 | )    |   |  |     |      |   |  |       |     
|Gain on settlement of equity forward contracts                                                                    |                                        |                             | (226   | )    |   |      | (123   | )    |   |  |     |      |   |  |       |     
|Gain on sale of debt and marketable equity
    securities                                                         |                                        |                             |       |      |   |      |       |      |   |  |     |      |   |  | (26    | )   
|Loss/(gain) on sale of investments in affiliates                                                                  |                                        |                             |       |      |   |      |       |      |   |  | 5    |      |   |  | (63    | )   
|Stock compensation                                                                                                |                                        |                             | 17     |      |   |      | 9      |      |   |  | 14   |      |   |  | 26     |     
|Impairment of long-lived assets                                                                                   |                                        |                             |       |      |   |      |       |      |   |  | 69   |      |   |  | 3,968  |     
|Impairment of investments                                                                                         |                                        |                             |       |      |   |      |       |      |   |  | 40   |      |   |  |       |     
|Depreciation and amortization                                                                                     |                                        |                             | 29     |      |   |      | 16     |      |   |  | 169  |      |   |  | 653    |     
|Provision for doubtful accounts                                                                                   |                                        |                             |       |      |   |      |       |      |   |  | (10  | )    |   |  | 175    |     
|Provision for allowance for inventory write off                                                                   |                                        |                             |       |      |   |      |       |      |   |  | 25   |      |   |  | 805    |     
|Other income                                                                                                      |                                        |                             |       |      |   |      |       |      |   |  | (34  | )    |   |  |       |     
|Profit on disposal of property, plant and
    equipment                                                           |                                        |                             |       |      |   |      |       |      |   |  | (9   | )    |   |  | (85    | )   
|Change in current and deferred taxes                                                                              |                                        |                             |       |      |   |      |       |      |   |  | (177 | )    |   |  | (468   | )   
|Equity in net loss of affiliates                                                                                  |                                        |                             |       |      |   |      |       |      |   |  | 62   |      |   |  | 196    |     
|Dividends received from affiliates                                                                                |                                        |                             |       |      |   |      |       |      |   |  |     |      |   |  | 29     |     
|Cash paid for restructuring                                                                                       |                                        |                             | (36    | )    |   |      | (20    | )    |   |  |     |      |   |  |       |     
|Changes in operating assets and liabilities, net
    of the effect of acquisitions:                               |                                        |                             |        |      |   |      |        |      |   |  |      |      |   |  |        |     
|                                                                                                                  | Accounts receivable                    |                             |        | 184  |   |      |        | 100  |   |  |      | 137  |   |  |        | 479  |  
|                                                                                                                  | Inventories                            |                             |        | 2    |   |      |        | 1    |   |  |      | 228  |   |  |        | 151  |  
|                                                                                                                  | Prepaid expenses and other assets      |                             |        |     |   |      |        |     |   |  |      | (21  | ) |  |        | (36  | )
|                                                                                                                  | Accounts payable                       |                             |        | (48  | ) |      |        | (26  | ) |  |      | (175 | ) |  |        | (231 | )
|                                                                                                                  | Accrued expenses and other liabilities |                             |        | (53  | ) |      |        | (29  | ) |  |      | (154 | ) |  |        | (160 | )
|                                                                                                                  |                                        |                            
|Net cash used in operating activities                                                                             |                                        |                             | (25    | )    |   |      | (14    | )    |   |  | (584 | )    |   |  | (603   | )   
|                                                                                                                  |                                        |                            

See notes to consolidated financial statements.

F-5



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##### Table of Contents



|                                                                  |                             |                             |        |      |  |      |        |      |  |  |        |   |  |  |       |     |  
|----------------------------------------------------------------- | --------------------------- | --------------------------- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ | - |  |  | ----- | --- | -
|                                                                  |                             |                            
|                                                                  |                             | Fiscal year ended March 31,
|                                                                  |                             | 2004                        |        | 2004 |  | 2003 |        | 2002
|(in millions)                                                     |                             | U.S.$                       |        | £    |  | £    |        | £   
|                                                                  |                             |                            
|                                                                  |                             |                            
|Cash flows from investing
    activities:                         |                             |                             |        |      |  |      |        |      |  |  |        |   |  |  |       |    
|Maturities and sales of debt and marketable
    equity securities |                             |                             | (384   | )    |  |      | (209   | )    |  |  |       |   |  |  | 317   |    
|Purchases of debt and marketable equity securities                |                             |                             |       |      |  |      |       |      |  |  | (20    | ) |  |  | (111  | )  
|Proceeds from the sale of investments in
    affiliates           |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | 150   |    
|Purchases of property, plant and equipment                        |                             |                             | (9     | )    |  |      | (5     | )    |  |  | (35    | ) |  |  | (327  | )  
|Proceeds from the sale of property, plant and
    equipment       |                             |                             |       |      |  |      |       |      |  |  | 30     |   |  |  | 171   |    
|Net cash paid for investments in affiliates                       |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | (65   | )  
|Cash (outflow)/received from disposals                            |                             |                             | (1,045 | )    |  |      | (568   | )    |  |  | 436    |   |  |  | 1,001 |    
|Cash element of scheme consideration                              |                             |                             | (613   | )    |  |      | (333   | )    |  |  |       |   |  |  |      |    
|Net cash paid for acquisitions                                    |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | (18   | )  
|                                                                  |                             |                            
|Net cash (used in)/provided by investing
    activities           |                             |                             | (2,051 | )    |  |      | (1,115 | )    |  |  | 411    |   |  |  | 1,118 |    
|                                                                  |                             |                            
|Cash flows from financing
    activities:                         |                             |                             |        |      |  |      |        |      |  |  |        |   |  |  |       |    
|Short-term debt repayments, net                                   |                             |                             | (40    | )    |  |      | (22    | )    |  |  | (30    | ) |  |  | (206  | )  
|Term loan (repayments)/borrowings, net                            |                             |                             | (2     | )    |  |      | (1     | )    |  |  | (45    | ) |  |  | 981   |    
|Dividends paid                                                    |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | (95   | )  
|Issuance of ordinary shares                                       |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | 7     |    
|Restricted cash transferred to secured accounts                   |                             |                             | 1,773  |      |  |      | 964    |      |  |  | (692   | ) |  |  | (191  | )  
|                                                                  |                             |                            
|Net cash provided by/(used in) financing
    activities           |                             |                             | 1,731  |      |  |      | 941    |      |  |  | (767   | ) |  |  | 496   |    
|                                                                  |                             |                            
|Net cash provided by/(used in) discontinued
    operations        |                             |                             | 3      |      |  |      | 2      |      |  |  | (80    | ) |  |  | 40    |    
|Effects of exchange rate changes on cash and cash
    equivalents |                             |                             |       |      |  |      |       |      |  |  | (28    | ) |  |  | (9    | )  
|Net (decrease)/increase in cash and cash
    equivalents          |                             |                             | (342   | )    |  |      | (186   | )    |  |  | (1,048 | ) |  |  | 1,042 |    
|Cash and cash equivalents, beginning of year                      |                             |                             | 359    |      |  |      | 195    |      |  |  | 1,243  |   |  |  | 201   |    
|                                                                  |                             |                            
|Cash and cash equivalents, end of year                            |                             |                             | 17     |      |  |      | 9      |      |  |  | 195    |   |  |  | 1,243 |    
|                                                                  |                             |                            
|Supplemental disclosure of cash flow
    activity:                |                             |                             |        |      |  |      |        |      |  |  |        |   |  |  |       |    
|Cash payments for interest                                        |                             |                             | (2     | )    |  |      | (1     | )    |  |  | 134    |   |  |  | 275   |    
|Cash (repayment)/payment for income taxes                         |                             |                             | (2     | )    |  |      | (1     | )    |  |  | (31    | ) |  |  |      |    
|Acquisitions:                                                     |                             |                             |        |      |  |      |        |      |  |  |        |   |  |  |       |    
|                                                                  | Tangible assets acquired    |                             |        |     |  |      |        |     |  |  |        |  |  |  |       | 1   |  
|                                                                  | Liabilities assumed         |                             |        |     |  |      |        |     |  |  |        |  |  |  |       | (2  | )
|                                                                  | Intangible assets generated |                             |        |     |  |      |        |     |  |  |        |  |  |  |       | (22 | )
|                                                                  | Deferred consideration      |                             |        |     |  |      |        |     |  |  |        |  |  |  |       | 41  |  
|                                                                  |                             |                            
|Total cash paid for acquisitions                                  |                             |                             |       |      |  |      |       |      |  |  |       |   |  |  | 18    |    
|                                                                  |                             |                            

During the fiscal year ended March 31, 2002,
the Company received shares in various businesses as
consideration for the disposal of ipsaris, Marconi Optical
Components, and Marconi Communications South Africa. Such
consideration was fair valued at £245 million.

See notes to consolidated financial statements.

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M (2003) plc and subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME/(LOSS)

|                                                                                                      |                                                                                                                    |                             |       |      |   |      |       |      |   |  |        |      |   |  |        |      |  
|----------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | --------------------------- | ----- | ---- | - | ---- | ----- | ---- | - |  | ------ | ---- | - |  | ------ | ---- | -
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      |                                                                                                                    | Fiscal year ended March 31,
|                                                                                                      |                                                                                                                    | 2004                        |       | 2004 |   | 2003 |       | 2002
|(in millions)                                                                                         |                                                                                                                    | U.S.$                       |       | £    |   | £    |       | £   
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      |                                                                                                                    |                            
|Net income/(loss)                                                                                     |                                                                                                                    |                             | 4,188 |      |   |      | 2,276 |      |   |  | (807   | )    |   |  | (6,150 | )   
|Other comprehensive income/(loss):                                                                    |                                                                                                                    |                             |       |      |   |      |       |      |   |  |        |      |   |  |        |     
|                                                                                                      | Unrealized gains/(losses) on derivative
    instruments                                                            |                             |       |     |   |      |       |     |   |  |        | 22   |   |  |        | (23  | )
|                                                                                                      | Accumulated translation adjustments, (net of
    income tax and reclassification adjustments)                      |                             |       |     |   |      |       |     |   |  |        | 62   |   |  |        | (66  | )
|                                                                                                      | Minimum pension liability, (net of income tax of
    £nil)                                                         |                             |       | 543  |   |      |       | 295  |   |  |        | (295 | ) |  |        |     |  
|                                                                                                      |                                                                                                                    |                            
|Other comprehensive income/(loss)                                                                     |                                                                                                                    |                             | 4,731 |      |   |      | 2,571 |      |   |  | (1,018 | )    |   |  | (6,239 | )   
|                                                                                                      |                                                                                                                    |                            
|Disclosure of tax and reclassification
    amounts:                                                   |                                                                                                                    |                             |       |      |   |      |       |      |   |  |        |      |   |  |        |     
|Unrealized gains/(losses) on derivative
    instruments, net of tax of £nil (2003 £1 and 2002
    £1) |                                                                                                                    |                             | 2     |      |   |      | 1     |      |   |  | 22     |      |   |  | (18    | )   
|                                                                                                      | Cumulative effect of accounting change, net of
    tax of £1                                                       |                             |       |     |   |      |       |     |   |  |        |     |   |  |        | (2   | )
|                                                                                                      | Less: reclassification adjustment for loss
    included in net income/(loss), net of tax of £1                     |                             |       | (2   | ) |      |       | (1   | ) |  |        |     |   |  |        | (3   | )
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      | Unrealized gains/(losses) on derivative
    instruments                                                            |                             |       |     |   |      |       |     |   |  |        | 22   |   |  |        | (23  | )
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      | Accumulated translation adjustments, net of tax
    of £nil                                                        |                             |       | (26  | ) |      |       | (14  | ) |  |        | 62   |   |  |        | (111 | )
|                                                                                                      | Less: reclassification adjustment for gains
    included in net income/(loss), net of tax of £nil (2002,
    £nil) |                             |       | 26   |   |      |       | 14   |   |  |        |     |   |  |        | 45   |  
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      | Net translation adjustments                                                                                        |                             |       |     |   |      |       |     |   |  |        | 62   |   |  |        | (66  | )
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      | Unrealized (gains)/losses on investments, net of
    tax of £nil (2003, £nil and 2002, £77)                        |                             |       |     |   |      |       |     |   |  |        |     |   |  |        | (217 | )
|                                                                                                      | Less: reclassification adjustment for gains
    included in net (loss)/income, net of tax of £nil (2002,
    £77)  |                             |       |     |   |      |       |     |   |  |        |     |   |  |        | 217  |  
|                                                                                                      |                                                                                                                    |                            
|                                                                                                      |                                                                                                                    |                             |       |     |   |      |       |     |   |  |        |     |   |  |        |     |  
|                                                                                                      |                                                                                                                    |                            

See notes to consolidated financial statements.

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M (2003) plc and subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY/(DEFICIT)

|                                   |                                                          |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        |        |  
|---------------------------------- | -------------------------------------------------------- | --------------- | ------------- | ---------- | - | --------- | --- | ------------- |  | ------------- | ----- | ------ | - | ----- | ------ | ------ | - |  | ---- | ---- | - |  | -- | - |  |  | ------ | ------ | -
|                                   |                                                          |                 |               |            |   |           |     |               |  | Accumulated   |       |        |   |      
|                                   |                                                          |                 |               | Additional |   | Retained  |     | other         |  |               |       |       
|                                   |                                                          | Ordinary shares |               | paid-in    |   | earnings/ |     | comprehensive |  | Treasury      |       |       
|(in £ millions, except share data) |                                                          | Shares          |               | Amount     |   | capital   |     | (deficit)     |  | income/(loss) |       | Shares |   | Total
|                                   |                                                          |                
|                                   |                                                          |                
|As of March 31, 2001               |                                                          |                 | 2,785,189,896 |            |   |           | 139 |               |  |               | 815   |        |   |       | 3,611  |        |   |  | 235  |      |   |  | (8 | ) |  |  | 4,792  |       
|                                   | Net loss                                                 |                 |               |            |   |           |     |               |  |               |       |        |   |       |        | (6,150 | ) |  |      |      |   |  |    |   |  |  |        | (6,150 | )
|                                   | Dividends paid (£ 0.05 per share)                        |                 |               |            |   |           |     |               |  |               |       |        |   |       |        | (95    | ) |  |      |      |   |  |    |   |  |  |        | (95    | )
|                                   | Equity forward contracts                                 |                 |               |            |   |           |     |               |  |               |       | (25    | ) |       |        |        |   |  |      |      |   |  |    |   |  |  |        | (25    | )
|                                   | Issuance of ordinary shares under share option
    plans |                 |               | 7,218,035  |   |           |     | 1             |  |               |       | 7      |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        | 8      |  
|                                   | Issuance of ordinary shares for acquisitions             |                 |               | 230,889    |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        |        |  
|                                   | Sale of treasury shares                                  |                 |               |            |   |           |     |               |  |               |       | (8     | ) |       |        |        |   |  |      |      |   |  |    | 8 |  |  |        |       |  
|                                   | Deferred compensation                                    |                 |               |            |   |           |     |               |  |               |       | 34     |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        | 34     |  
|                                   | Fair value movements on derivative instruments           |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (21  | ) |  |    |   |  |  |        | (21    | )
|                                   | Unrealized holding gains on investments, net of
    tax  |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (217 | ) |  |    |   |  |  |        | (217   | )
|                                   | Translation adjustments                                  |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (66  | ) |  |    |   |  |  |        | (66    | )
|                                   | Cumulative effect of accounting
    change  EITF 00-19  |                 |               |            |   |           |     |               |  |               |       | 240    |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        | 240    |  
|                                   | Cumulative effect of accounting
    change  SFAS 133    |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (2   | ) |  |    |   |  |  |        | (2     | )
|                                   |                                                          |                
|As of March 31, 2002               |                                                          |                 | 2,792,638,820 |            |   |           | 140 |               |  |               | 1,063 |        |   |       | (2,634 | )      |   |  | (71  | )    |   |  |   |   |  |  | (1,502 | )     
|                                   | Net loss                                                 |                 |               |            |   |           |     |               |  |               |       |        |   |       |        | (807   | ) |  |      |      |   |  |    |   |  |  |        | (807   | )
|                                   | Issuance of ordinary shares under share option
    plan  |                 |               | 461,777    |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        |        |  
|                                   | Acquisition and retirement of ordinary shares            |                 |               | (88,646    | ) |           |     |               |  |               |       |        |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        |        |  
|                                   | Fair value movements on derivative instruments           |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | 22   |   |  |    |   |  |  |        | 22     |  
|                                   | Stock-based compensation                                 |                 |               |            |   |           |     |               |  |               |       | 14     |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        | 14     |  
|                                   | Shares issued by equity method investee                  |                 |               |            |   |           |     |               |  |               |       | 3      |   |       |        |        |   |  |      |      |   |  |    |   |  |  |        | 3      |  
|                                   | Translation adjustments                                  |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | 62   |   |  |    |   |  |  |        | 62     |  
|                                   | Minimum pension liability                                |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (295 | ) |  |    |   |  |  |        | (295   | )
|                                   |                                                          |                
|As of March 31, 2003               |                                                          |                 | 2,793,011,951 |            |   |           | 140 |               |  |               | 1,080 |        |   |       | (3,441 | )      |   |  | (282 | )    |   |  |   |   |  |  | (2,503 | )     
|                                   | Net income                                               |                 |               |            |   |           |     |               |  |               |       |        |   |       |        | 2,276  |   |  |      |      |   |  |    |   |  |  |        | 2,276  |  
|                                   | Stock-based compensation                                 |                 |               |            |   |           |     |               |  |               |       | (46    | ) |       |        |        |   |  |      |      |   |  |    |   |  |  |        | (46    | )
|                                   | Transfers                                                |                 |               |            |   |           |     |               |  |               |       | (375   | ) |       |        | 375    |   |  |      |      |   |  |    |   |  |  |        |       |  
|                                   | Translation adjustments                                  |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | (12  | ) |  |    |   |  |  |        | (12    | )
|                                   | Eliminated upon financial restructuring                  |                 |               |            |   |           |     |               |  |               |       |        |   |       |        |        |   |  |      | 294  |   |  |    |   |  |  |        | 294    |  
|                                   |                                                          |                
|As of March 31, 2004               |                                                          |                 | 2,793,011,951 |            |   |           | 140 |               |  |               | 659   |        |   |       | (790   | )      |   |  |     |      |   |  |   |   |  |  | 9      |       
|                                   |                                                          |                

See notes to consolidated financial statements.

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M (2003) plc and subsidiaries

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.   Nature of Business and
basis of preparation:

Nature of business

Until May 19, 2003 M (2003) plc
(the Company) was the ultimate holding company for
the Marconi Group. Through its subsidiaries the Marconi Group
was a multi-regional vendor of telecommunications equipment and
services and was organized into two main divisions: Core and
Capital. The Core business included the provision of optical
networks, broadband routing and switching, broadband access,
outside plant and power, other network equipment and associated
installation, maintenance and other value-added services. The
Marconi Groups customers included telecommunications
companies and providers of internet services for their public
networks and some large corporations, government departments and
agencies, utilities and educational institutions for their
private networks. The Capital business comprised certain
non-core businesses that were managed for value and ultimately
for disposal. These included an investment in Easynet Group plc
as well as a number of other minor activities, investments and
assets with whom the Company had a base of installed equipment.

On May 19, 2003, the Company and its former
subsidiary Marconi Corporation plc concluded a financial
restructuring (the financial restructuring), which
was effected through two separate schemes of arrangement under
the U.K. Companies Act 1985 as described in note 3.
Since the financial restructuring the Group consists of the
Company and its non-trading and dormant subsidiaries listed in
note 22. Therefore the Company and Group have no trading or
business activities.

As explained in note 3, the remaining assets
of the Company will be distributed over time to scheme
creditors, following which it is intended that the Company will
be dissolved.

The name of the Company was changed from Marconi
plc to M (2003) plc on October 21, 2003.

Basis of preparation

The accompanying consolidated financial
statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As explained in
note 3, following the financial restructuring of May 19,
2003 and pursuant to the Companys Scheme of Arrangement,
the remaining assets of the Company will be distributed over
time to its creditors in order to settle liabilities as they are
incurred. Following this it is intended that the Company will be
liquidated or dissolved; however, this is not expected to occur
within the next twelve months.



|   |                                               
|-- | ----------------------------------------------
|2. | Summary of significant accounting
    policies

Basis of consolidation

The accompanying consolidated financial
statements include the accounts of M (2003) plc and
its subsidiaries that are more than 50% owned and controlled.
Investments in affiliates in which the Company exercises
significant influence but not control (generally those with a
20-50% ownership interest) are accounted for under the equity
method of accounting. Investments in non-listed entities in
which the Company has less than a 20% ownership interest are
accounted for under the cost method. All intercompany balances
and transactions have been eliminated upon consolidation.

Use of estimates

The preparation of the consolidated financial
statements and related disclosures in conformity with accounting
principles generally accepted in the United States of America
(U.S. GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Estimates
are used for, but not limited to, the accounting for

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doubtful accounts, inventory reserves,
depreciation and amortization, sales returns, warranty costs,
taxes, certain accruals, payables, long-term contract profit
estimates, employee benefits, long-lived asset impairment
calculations and contingencies. Actual results could differ from
these estimates.


Income taxes

The Company recognizes deferred tax assets and
liabilities using enacted tax rates to calculate temporary
differences between the tax basis of assets and liabilities and
the financial statement carrying amounts. The Company recognizes
a valuation allowance against such deferred tax assets when it
is more likely than not that such assets will not be
recovered. During fiscal years 2003 and 2002 all deferred tax
assets, without offsetting liabilities in the same jurisdiction,
were fully reserved. There are no deferred tax assets or
liabilities at March 31, 2004.

Foreign currency

The consolidated financial statements are
presented in U.K. pounds sterling. The functional currency of
each of M (2003) plcs subsidiaries is the local
currency in which each subsidiary is located. Transactions in
currencies other than the functional currency are translated at
the exchange rate in effect at the date of each transaction.
Differences in exchange rates during the period between the date
a transaction denominated in a foreign currency is consummated
and the date on which it is either settled or translated are
recognized in the statement of operations.

Net income and cash flows of non-U.K. pounds
sterling subsidiaries and equity investments are translated at
the average rates of exchange during the year. The assets and
liabilities of such entities are translated at year-end rates of
exchange. Translation adjustments are included in other
comprehensive income/(loss), as a separate component of
shareholders equity/(deficit). Key exchange rates relative
to U.K. pounds sterling used are as follows:

|            |  |                             |      |                 |  |      |      |      |  |      |      |  |  |  |      |  |  |  |      | 
|----------- |  | --------------------------- | ---- | --------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  |  | ---- | 
|            |  |                             |      |                
|            |  | Average rates               |      | Year-end rates 
|            |  | Fiscal year ended March 31, |      | As of March 31,
|            |  | 2004                        |      | 2003            |  | 2002 |      | 2004 |  | 2003
|            |  |                            
|            |  |                            
|U.S. Dollar |  |                             | 1.70 |                 |  |      | 1.55 |      |  |      | 1.43 |  |  |  | 1.84 |  |  |  | 1.58 | 
|Euro        |  |                             | 1.44 |                 |  |      | 1.55 |      |  |      | 1.63 |  |  |  | 1.50 |  |  |  | 1.45 | 

Convenience translation

The consolidated financial statements are
presented in millions of U.K. pounds sterling. In addition, the
consolidated financial statements as of and for the fiscal year
ended March 31, 2004 are also presented in U.S. dollars.
These U.S. dollar amounts are presented solely for the
convenience of the reader at the rate of £1.00 =
$1.840, the noon buying rate of the U.S. Federal Reserve Bank as
of March 31, 2004. This rate may differ from the rates used
in the preparation of our consolidated financial statements.
These translated amounts should not be construed as
representations that the U.K. pounds sterling amounts could have
been, or could in the future be converted into U.S. dollars at
this or any other exchange rate.

Revenue

The Company recognizes revenue under Statement of
Position (SOP) 81-1, Accounting for Performance of
Construction-Type and certain Production-Type Contracts,
SOP 97-2, Software Revenue Recognitionand SEC Staff
Accounting Bulletin No. 104, Revenue Recognitiondepending upon the terms of the contract.

Revenue from product sales of hardware and
software is recognized when: persuasive evidence of an
arrangement exists; delivery has occurred or services have been
rendered; customer acceptance has occurred; the price to the
buyer is fixed or determinable; and collectability is reasonably
assured.

Revenue from services is recognized at time of
performance and acceptance by the customer.

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Revenue from multiple element contracts is
allocated based on the relative fair value of each individual
element.

Revenues and estimated profits on long-term
contracts are recognized under the percentage-of-completion
method of accounting using a cost-to-cost methodology. Profit
estimates are revised periodically based on the latest available
information. When estimates of total contract revenues and costs
indicate a loss, a provision for the entire amount of the
contract loss is recognised in the period in which the loss
becomes evident.

Revenue is reported net of sales returns and
allowances, early settlement discounts, sales rebates settled by
credit notes, volume discounts and commissions earned by
distributors.

Research and development
costs

Research and development costs are expensed as
incurred unless specifically billable to and recoverable from
customers under agreed contract terms of underlying agreements.

Cash and cash equivalents

All highly liquid investments with original
maturities of three months or less are considered to be cash
equivalents.

Restricted cash

Cash balances pledged or advanced as collateral
are considered to be restricted cash. At March 31, 2004 and
2003, the total restricted cash was £nil and
£964 million respectively. The total restricted cash
balance consists of: £nil (2003, £771 million)
held in secured accounts, £nil (2003,
£135 million) of cash collateral placed against
bonding facilities; £nil (2003, £27 million) of
cash held in Employee Share Option Plan (ESOP) escrow
accounts; £nil (2003, £17 million) of cash in
insurance reserves and £nil (2003, £14 million)
of cash deposited against secured loans in Italy.

Marketable equity securities

Investments in securities are classified as
available-for-sale and recorded at fair value. Net unrealized
holding gains and losses, net of tax, are reported as a separate
component of shareholders equity/(deficit), except where
holding losses are determined to be
other-than-temporary, whereby the losses are
reported in gains and losses on sales of investments in the
consolidated statement of operations. Gains and losses on
disposals of marketable equity securities are determined using
the specific identification method.

Inventories and contracts in
progress

Inventories are stated at the lower of cost,
including appropriate overheads, determined on a
weighted-average basis or estimated net realizable value.
Reserves are made for any losses incurred or expected to be
incurred on uncompleted contracts. Profit on long-term contracts
in progress is taken when a sale is recorded on part-delivery of
products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable
certainty. Advance payments received from customers are shown as
creditors unless there is a right of set-off against the value
of work undertaken. Progress payments received are deducted from
the value of the work carried out, any excess being included
with payments received in advance.

Property, plant and equipment

Property, plant and equipment is stated at cost.
Cost of significant assets includes capitalized interest
incurred during the construction and development period.
Depreciation expense is computed using the straight-line method
over the estimated useful lives of the depreciable assets. The
estimated useful lives for buildings and improvements are
between 25 and 50 years and the estimated useful lives for
machinery and equipment are between 3 and 10 years.
Significant improvements which substantially extend the useful
lives of assets are capitalized. Maintenance and repairs are
charged to expense as incurred. Upon disposal of an

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asset, its accumulated depreciation is deducted
from the original cost and any gain or loss is reflected in
operating income/(loss).


Impairment or disposal of long-lived
assets

The Company evaluates the carrying value of
long-lived assets whenever events or changes in circumstances
indicate that the carrying value of the asset may be impaired.
An impairment loss is recognized when estimated future cash
flows, on an undiscounted basis, expected to result from the use
of the asset, including its disposition, is less than the
carrying value of the asset. The impairment loss is calculated
by comparing the carrying value of the asset with its fair
value, which is usually estimated using discounted cash flows
expected to be generated from the assets.

During fiscal 2004 tangible fixed assets were
impaired by £nil (2003, £69 million and 2002,
£154 million).

Long-lived assets are classified as held-for-sale
when certain criteria are met, which include: management
commitment to a plan to sell the assets; the availability of the
assets for immediate sale in their present condition; whether an
active program to locate buyers and other actions to sell the
assets has been initiated; whether the sale of the assets is
probable and their transfer is expected to qualify for
recognition as a completed sale within one year; whether the
assets are being marketed at reasonable prices in relation to
their fair value; and how unlikely it is that significant
changes will be made to the plan to sell the assets. The Company
measures long-lived assets to be disposed of by sale at the
lower of carrying amount and fair value less cost to sell. Fair
value is determined using quoted market prices or the
anticipated cash flows discounted at a rate commensurate with
the risk involved.

The Company classifies an asset or asset group
that will be disposed of other than by sale as held and used
until the disposal transaction occurs. The asset or asset group
continues to be depreciated based on revisions to its estimated
useful life until the date of disposal or abandonment.

Goodwill and other intangible
assets

Beginning in fiscal 2003 with the adoption of
Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible
Assets, the Company no longer amortizes goodwill, but
instead tests for impairment on an annual basis and at any other
time if events occur or circumstances change that would more
likely than not reduce the fair value of the reporting unit
below its carrying amount.

If the carrying amount of the reporting unit
exceeds its estimated fair value, its associated goodwill is
written down to its implied fair value using a hypothetical
purchase price allocation. Any impairment loss is recorded in
the consolidated statement of operations. Measurement of the
fair value of a reporting unit is based on one or more of the
following fair value measures including: amounts at which the
unit as a whole could be bought or sold in a current transaction
between willing parties; using present value techniques of
estimated future cash flows; or using valuation techniques based
on multiples of earnings or revenue, or a similar performance
measure.

Upon adoption of SFAS 142, the Company completed
a transitional goodwill impairment test. As a result, a net book
value of £1 million of previously recognized
intangible assets related to the assembled workforce was
reclassified to goodwill. The Company has not identified any
intangible assets for which it will adopt an indefinite useful
life, nor has it revised the amortization periods for any
intangible assets.

Intangible assets are carried at cost and are
amortized using the straight-line method over the estimated
periods to be benefited, ranging from 4 to 15 years.

No impairment charge was recorded in respect of
goodwill and other intangible assets in fiscal 2004 or 2003.

Prior to fiscal 2003, goodwill was amortized
using the straight-line method over its estimated useful life.

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The Company periodically evaluated the
recoverability of goodwill and other intangible assets by
comparing the net book value of such assets to expected future
cash flows, on an undiscounted basis, over the remaining
amortization period of the asset. The Company measured
impairment for enterprise level goodwill and identifiable
intangible assets and goodwill associated with long-lived assets
based on a discounted cash flow analysis. Based on these
evaluations, an impairment charge of £3,814 million
was recorded in respect of goodwill and other intangible assets
in fiscal 2002. This is discussed further in notes 7 and 8.

Concentrations of credit risk

Credit risk relates to the risk of loss that the
Company would incur as a result of non-performance by
counterparties. Prior to the financial restructuring the Company
maintained credit policies with regard to its counterparties
that enabled management to manage overall credit risk. The
Company generally did not obtain collateral to support the
agreements but established credit limits, monitored the
financial viability of counterparties and sought guarantees
where appropriate. At March 31, 2004 the Company had no
receivable balances.

Derivative instruments, excluding equity
forward contracts

Prior to the financial restructuring the Company
was exposed to interest rate risk on its borrowings, cash and
investments. Its general policy was to maintain at least 50% of
debt at fixed rates of interest. This was achieved by entering
into receive-variable pay-fixed interest rate swaps to reduce
variability of cash flows on floating-rate debt, and entering
into receive fixed, pay-variable interest rate swaps to reduce
the fair value risk on its fixed rate bonds. As a result of the
discussions relative to the financial restructuring, these
contracts were all terminated during fiscal 2003.

Prior to the financial restructuring the Company
conducted a significant proportion of its business activities
outside the United Kingdom in currencies other than sterling.
Its principal exchange rate exposures related to U.S.
dollar/pounds sterling and euro/pounds sterling exchange rates
for both transactional and translation related exposures. The
Company used foreign currency exchange contracts to manage
currency rate fluctuations by generating cash flows, which
offset the foreign currency cash flows of certain contractual
and forecast payments and receipts incurred in the ordinary
course of business.

The Companys derivative financial
instruments were for purposes other than trading and were not
entered into for speculative purposes. The Companys
non-derivative financial instruments included letters of credit,
commitments to extend credit and guarantees of debt.

Equity forward contracts

The Company has, in the past, issued share
options to employees under a number of different option plans,
collectively known as the ESOP. Under these plans,
options may be satisfied by way of a transfer of existing
Company ordinary shares acquired in the market by an employee
trust or other vehicle, or, under some of the plans only, by an
issue of new Company shares.

From January 2000, in order to hedge part of the
potential cost of the plans estimated at that time, the
independent trustee of the Marconi Employee Trust (MET), Bedell
Cristin Trustees Limited (BCTL), entered into swap
contracts with three financial institutions (the ESOP Derivative
Banks) to purchase a total of 40 million shares in the
future at prices which were fixed at the date of contract.

On June 30, 2001, the Company adopted
Emerging Issues Task Force (EITF) No. 00-19, Accounting
for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock, which requires such
instruments to be marked to market, and the obligations to be
recorded as a liability. As a result, the Company recorded a
cumulative effect of changes in accounting principles of
£240 million related to the loss on such instrument as
of the implementation date, which was previously recorded within
equity. Subsequent to the implementation date, additional market
losses of £95 million have been recorded in other
expenses in the statement of operations.

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At March 31, 2003, the purchase of
38.5 million shares under these contracts was outstanding.
The maximum exposure under the contracts was
£337 million, plus accrued finance charges. Certain
contracts require BCTL to deposit cash collateral with the
relevant ESOP Derivative Banks if the share price falls to
certain levels stipulated in those contracts. Prior to the
financial restructuring the Company funded the provision of this
collateral. The carrying value of the contracts at
March 31, 2003 was £158 million.

An agreement was reached to settle these
contracts and they were closed out on May 19, 2003. The
agreed settlement amount was £35 million which
resulted in a gain of £123 million recorded in the
consolidated statement of operations as part of other income.

At March 31, 2004 £nil (2003
£27 million) of cash balances was held in escrow with
respect to these equity forward contracts. See Restricted
cash within this section.

Fair value hedges

Prior to the financial restructuring, as part of
its overall risk management strategy, the Company used
derivatives to convert its fixed-rate debt into variable-rate
debt, and to hedge its foreign currency firm commitments. These
derivatives were typically designated as fair value hedges, to
manage the interest rate risk or foreign currency risk of the
hedged item accordingly. The carrying amount of the hedged item
is adjusted for gains or losses attributable to the hedged risk.
This unrealised gain or loss is offset by changes in the fair
value of the derivative. All hedging ineffectiveness is included
in earnings in the current period.

Hedge accounting is discontinued prospectively
when the derivative no longer qualifies as an effective hedge,
the derivative is terminated or sold, or on the sale or early
termination of the hedged item.

For fiscal 2004 and 2003, the ineffective portion
of all the Companys fair value hedges was immaterial as
the terms of the hedging instruments match the terms of the
underlying hedged items. The Company does not exclude any
components of the derivative gains and losses from the
assessment of hedge effectiveness. The amount recognized in
earnings for hedged firm commitments that no longer qualified
for fair value hedges was immaterial.

Net investment hedges

The Companys policy has been to finance its
activities in the same currencies as those used for its foreign
investments in order to hedge foreign currency exposure of net
investments in foreign operations. This policy has been
implemented either by financing in the related currency or using
derivatives, such as currency swaps, which provide a synthetic
effect of a foreign currency loan, thereby reducing the exchange
risk. As a result of the financial restructuring, which became
effective May 19, 2003, the Company does not have any
borrowings. For further information on the Companys
financial restructuring, refer to note 3.

For fiscal 2004, £nil (2003,
£169 million and 2002, £17 million) of net
gains related to non-derivative instruments used as net
investment hedges were included as a cumulative translation
adjustment in the statement of comprehensive income/(loss).
These net gains principally offset the net losses recorded on
the respective net investments in foreign currencies being
hedged. The hedge instruments used by the Company did not result
in any material ineffectiveness. Their notional amounts were
similar to the net investments being hedged as of the beginning
of each quarter, and the currencies of the hedging instrument
and hedged item were the same.

The recorded amounts of the hedging instruments
are as follows:

|              |  |              |   |              |  |  |       | 
|------------- |  | ------------ | - | ------------ |  |  | ----- | 
|              |  | At March 31, |   | At March 31,
|              |  | 2004         |   | 2003        
|(in millions) |  | £            |   | £           
|              |  |             
|              |  |             
|Loans         |  |              |  |              |  |  | 2,330 | 
|              |  |             

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Cash flow hedges

The Company has used interest rate swaps to hedge
the uncertainty of future cash flows due to its floating rate
debt, and foreign currency forward exchange contracts that
expire in less than twelve months to hedge against the effect
that fluctuation in exchange rates may have on cash flow
associated with forecasted purchases.

Hedge accounting is discontinued prospectively
when the derivative no longer qualifies as an effective hedge or
the derivative is terminated or sold. On the sale or early
termination of the hedged item, gains and losses are immediately
reclassified to other (income)/expense.

For fiscal 2004 and 2003, the total
ineffectiveness of all cash flow hedges was immaterial since
most of the terms of the hedging instruments match the terms of
the underlying hedged items. The reclassification of gains and
losses into earnings from accumulated other comprehensive income
as a result of the discontinuance of cash flow hedges because
management estimated that it was still probable that original
forecasted transactions would occur by the end of the originally
specified time period or within an additional two months
thereafter was also immaterial.

For those hedging relationships that are
designated as cash flow hedges the respective effective portion
of the gain or loss recorded in other comprehensive income until
it is necessary to be adjusted against net income in order to
offset the respective change in expected future cash flows on
the hedged transaction.

For fiscal 2003 the total amount of losses in
accumulated other comprehensive income of £23 million
(£1 million related to tax) was reclassified into
earnings during the year because, as a consequence of the
financial restructuring which occurred on May 19, 2003 it
was no longer probable at March 31, 2003 that the
forecasted transactions would occur.

Embedded derivatives

The Company has entered into various contracts
that may contain embedded derivative instruments,
implicit or explicit terms that affect some or all of the cash
flows or the value of other exchanges required by the contract
in a manner similar to a derivative instrument. According to the
requirements of SFAS 133, Accounting for Derivative
Instruments and Hedging Activities, they would need to be
bifurcated from the host contract and accounted for as a
derivative instrument. The Company has assessed the existence of
potential embedded derivatives contained in its contracts. No
material embedded derivatives in contracts were identified.

All derivatives not designated as certain hedges
are recorded on the balance sheet at fair value with all changes
in fair value being recorded as a component of income from
continuing operations during the period that such contracts
remain outstanding.

At March 31, 2004 and 2003, other current
assets included £nil million and £14.9 million
respectively, representing the fair value of derivative
instruments. In addition, £nil million and
£67.5 million were included in accrued expenses and
other current payables for derivative liabilities at
March 31, 2004 and 2003, respectively.

Pension and other post-retirement
benefits

The Company accounts for its defined benefit
pension plans and its non-pension post-retirement benefit plans
using actuarial models required by SFAS 87,
Employers Accounting for Pensions, and
SFAS 106, Employers Accounting for Post-retirement
Benefits Other Than Pensions, respectively. These models use
an attribution approach that generally spreads individual events
over the service lives of the employees in the plan. Examples of
events are plan amendments and changes in actuarial
assumptions such as discount rate, rate of compensation
increases and mortality. The principle underlying the required
attribution approach is that employees render service over their
service lives on a relatively smooth basis and, therefore, the
income statement effects of pensions or non-pension
post-retirement benefit plans are earned in, and should follow,
the same pattern.

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One of the main components of the net periodic
pension calculation is the expected long-term rate of return on
plan assets. The required use of expected long-term rate of
return on plan assets may result in recognized pension income
that is greater or less than the actual returns of those plan
assets in any given year. Over time, however, the expected
long-term returns are designed to approximate the actual
long-term returns and, therefore, result in a pattern of income
and expense recognition that more closely matches the pattern of
the services provided by the employees. Differences between
actual and expected returns (to the extent that they exceed 10%
of the market value of assets at the start of the period) are
recognized in the net periodic pension calculation over the
remaining average service lifetimes of active members.

The Company uses long-term historical actual
return information, the mix of investments that comprise plan
assets, and future estimates of long-term investment returns by
reference to external sources to develop its expected return on
plan assets.

The discount rate assumptions used for pension
and non-pension post-retirement benefit plan accounting reflect
the rates available on high-quality fixed-income debt
instruments on March 31 of each year. The rate of
compensation increase is another significant assumption used in
the actuarial model for pension accounting and is determined by
the Company based upon its long-term plans for such increases.
For retiree medical plan accounting, the Company reviews
external data and its own historical trends for health care
costs to determine the health care cost trend rates.

If the unfunded accumulated benefit obligation
exceeds the fair value of the plan assets, the Company
recognizes an additional minimum liability that is at least
equal to the unfunded accumulated benefit obligation. Where an
additional minimum liability is recognized an intangible asset
is recognized up to the amount of any unrecognized prior service
cost and the balance is recognized through other comprehensive
income.

Product warranty

Provisions for estimated expenses related to
product warranties are made at the time products are sold. These
estimates are established using historical information on the
nature, frequency, and average cost of warranty claims.
Management actively studies trends of warranty claims and takes
action to improve equipment quality and minimize warranty
claims. Management believes that the warranty reserve is
appropriate; however, actual claims incurred could differ from
the original estimates, requiring adjustments to the reserve.

Stock based compensation

Prior to the financial restructuring on
May 19, 2003, the Company had nine plans under which it
granted options. The Company accounted for employee share plans
under Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees. No
compensation cost was recognized for ordinary shares and share
options issued under fixed plans with a price equal to fair
market value. For fixed plans, the measurement date was the
grant date. The Company recognized compensation cost for all
ordinary shares and stock options issued with an exercise price
below fair market value at the grant date and for plans subject
to variable accounting. For variable plans, the compensation
cost was re-measured on the basis of the current market value of
M (2003) plc stock at the end of each reporting
period. For ordinary options, such expense was recognized over
the vesting period of the options. The Company recognized
compensation expense for plans with performance conditions if
achievement of these conditions became probable.

At the date of the financial restructuring,
options outstanding under certain plans have been forfeited
because the employees are no longer employed by a group company.
For the remaining share options issued under variable plans, the
compensation cost has been re-measured on the basis of a
£nil value of M (2003) plc stock at March 31,
2004 because the directors believe that the shares are
worthless. The full expense has been recognized in the current
year because there is no future service period and there are no
circumstances under which it is expected that any value will be
attributable to these share options.

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The Company recorded a stock compensation credit
in fiscal 2004 of approximately £37 million. This
credit comprises a charge of £9 million (2003,
£14 million and 2002, £26 million), related
to stock options issued below fair market value and those plans,
which are variable and a credit of £46 million
relating to stock options that were forfeit as a result of the
financial restructuring. This credit has been reported as part
of the gain on financial restructuring. Had compensation cost
for the employee share plans been determined consistent with the
fair value methodology of SFAS 123, Accounting for
Stock-Based Compensation, the Companys net
(loss)/income would have been as follows:

|                                                                                                                             |                         |                   |     |       |  |      |    |      |   |  |     |        |  
|---------------------------------------------------------------------------------------------------------------------------- | ----------------------- | ----------------- | --- | ----- |  | ---- | -- | ---- | - |  | --- | ------ | -
|                                                                                                                             |                         |                  
|                                                                                                                             |                         | Fiscal year ended
|                                                                                                                             |                         |                  
|                                                                                                                             |                         | March 31,        
|                                                                                                                             |                         | 2004              |     | 2003  |  | 2002
|(in millions)                                                                                                                |                         | £                 |     | £     |  | £   
|                                                                                                                             |                         |                  
|                                                                                                                             |                         |                  
|Net income/(loss):                                                                                                           |                         |                   |     |       |  |      |    |      |   |  |     |       
|                                                                                                                             | As reported             |                   |     | 2,276 |  |      |    | (807 | ) |  |     | (6,150 | )
|Deduct: Total stock-based employee compensation
    determined under fair value based method, net of related tax
    effects |                         |                   |    |       |  |      |   |      |   |  | (20 | )     
|(Deduct)/add back: Total stock-based employee
    compensation determined under APB 25                                       |                         |                   | (37 | )     |  |      | 14 |      |   |  | 26  |       
|                                                                                                                             |                         |                  
|                                                                                                                             | Pro forma (loss)/income |                   |     | 2,239 |  |      |    | (793 | ) |  |     | (6,144 | )
|                                                                                                                             |                         |                  

Under SFAS 123, the fair value of each
option is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average
assumptions:

|                        |  |      |     |      |  |      |     |  |  |  |      |  
|----------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | ---- | -
|                        |  | 2004 |     | 2003 |  | 2002
|                        |  |     
|                        |  |     
|Risk-free interest rate |  |      | n/a |      |  |      | n/a |  |  |  | 4.41 | %
|Expected life (years)   |  |      | n/a |      |  |      | n/a |  |  |  | 4.9  |  
|Assumed volatility      |  |      | n/a |      |  |      | n/a |  |  |  | 60.0 | %
|Expected dividends      |  |      |    |      |  |      |    |  |  |  |     |  

No stock options were granted during fiscal 2004
or 2003.

Other comprehensive
income/(loss)

Comprehensive income/(loss) represents the net
income/(loss) for the period plus the results of certain
shareholders equity/(deficit) changes that are not
reflected in the consolidated statements of operations.

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The accumulated balances of other comprehensive
income/(loss) are as follows:

|                                                         |  |                |      |             |  |                |     |            |  |               |     |   |  |  |      |   |  |  |      |  
|-------------------------------------------------------- |  | -------------- | ---- | ----------- |  | -------------- | --- | ---------- |  | ------------- | --- | - |  |  | ---- | - |  |  | ---- | -
|                                                         |  |                |      |             |  | Net unrealized |     | Minimum    |  | Accumulated  
|                                                         |  | Net unrealized |      | Accumulated |  | gains/(losses) |     | pension    |  | other        
|                                                         |  | gains/(losses) |      | translation |  | on derivative  |     | liability  |  | comprehensive
|                                                         |  | on investments |      | adjustments |  | instruments    |     | adjustment |  | income/(loss)
|                                                         |  | £              |      | £           |  | £              |     | £          |  | £            
|                                                         |  |               
|                                                         |  |               
|As of March 31, 2001                                     |  |                | 217  |             |  |                | 18  |            |  |               |    |   |  |  |     |   |  |  | 235  |  
|Cumulative effect of change in accounting
    principles |  |                |     |             |  |                |    |            |  |               | (2  | ) |  |  |     |   |  |  | (2   | )
|Movement for the year                                    |  |                | (217 | )           |  |                | (66 | )          |  |               | (21 | ) |  |  |     |   |  |  | (304 | )
|                                                         |  |               
|As of March 31, 2002                                     |  |                |     |             |  |                | (48 | )          |  |               | (23 | ) |  |  |     |   |  |  | (71  | )
|Movement for the year                                    |  |                |     |             |  |                | 62  |            |  |               | 22  |   |  |  | (295 | ) |  |  | (211 | )
|                                                         |  |               
|As of March 31, 2003                                     |  |                |     |             |  |                | 14  |            |  |               | (1  | ) |  |  | (295 | ) |  |  | (282 | )
|Movement for the year                                    |  |                |     |             |  |                | (12 | )          |  |               |    |   |  |  |     |   |  |  | (12  | )
|Transfer on financial restructuring                      |  |                |     |             |  |                | (2  | )          |  |               | 1   |   |  |  | 295  |   |  |  | 294  |  
|                                                         |  |               
|As of March 31, 2004                                     |  |                |     |             |  |                |    |            |  |               |    |   |  |  |     |   |  |  |     |  
|                                                         |  |               

Recently issued accounting pronouncements
not yet adopted

The Company does not anticipate that the adoption
of any recently issued accounting pronouncements that have yet
to be adopted will have a material impact on its financial
position, cash flows or results of operations because, after
completion of the financial restructuring, the Company has no
trading activities.

Financial statement
reclassifications

Certain reclassifications have been made to 2002
balances as well as segment information, in order to conform to
the 2003 and 2004 presentation.

Non-statutory accounts

The accompanying financial statements do not
comprise statutory accounts within the meaning of
Section 240 of the Companies Act 1985. The Companys
statutory accounts for fiscal 2004 prepared in accordance with
generally accepted accounting principles in the United Kingdom
(U.K. GAAP) have been delivered to the Registrar of Companies
for England and Wales.

The auditors report on those accounts was
unqualified and did not contain a statement under
Section 237(2) or 237(3) of the Companies Act 1985.

3.   Financial
restructuring

Until May 19, 2003, the Company was the
parent company for the Marconi Group.

On May 19, 2003, the Company and its then
subsidiary Marconi Corporation plc concluded a financial
restructuring (the financial restructuring), which
was effected through two separate schemes of arrangement under
the U.K. Companies Act 1985. Under the schemes of arrangement:



| |   |                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Marconi Corporation plc issued new share
    capital, loan notes and cash to the creditors of Marconi
    Corporation plc and M (2003) plc in exchange for
    the cancellation of claims against the Companies;
|
| |  | The shares in Marconi Corporation plc
    previously held by M (2003) plc were cancelled; and                                                                                                                   
|
| |  | The great majority of inter-group receivables
    held by M (2003) plc were waived except as specified
    in the scheme.                                                                                       

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The following amounts were issued by Marconi
Corporation plc in connection with the cancellation of the
claims against the Companies:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash: £340 million in cash;                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Senior notes: U.S.$717,139,584 (approximately
    £437 million) in aggregate principal amount of new
    guaranteed senior secured notes due April 2008 with interest
    payable quarterly in cash at a rate of 8% per annum;                                                                                                                                                                                                               
|
| |  | Junior notes: U.S.$486,881,472 (approximately
    £297 million) in aggregate principal amount of new
    guaranteed junior secured notes due October 2008 with interest
    payable quarterly in cash at a rate of 10% per annum or, at the
    option of Marconi Corporation plc, in kind, by issuing
    additional junior notes, at a rate of 12% per annum; and                                                                          
|
| |  | Shares: 995 million ordinary shares,
    representing 99.5% of Marconi Corporation plcs issued
    ordinary share capital on May 19, 2003, were issued to
    creditors and 5 million ordinary shares, representing 0.5%
    of Marconi Corporation plcs issued ordinary share
    capital on May 19, 2003, were issued to shareholders of
    M (2003) plc with warrants to subscribe for up to
    50 million additional ordinary shares.

These new securities were then eliminated from
the group when the shares in Marconi Corporation plc
previously held by M (2003) plc were cancelled.
Therefore the Company ceased to be the parent company of the
Marconi Group on May 19, 2003 and from that date ceased to
operate any trading activities. Consequently, the entities
included in the consolidated financial statements presented in
this document for the period after May 19, 2003 are the
Company and its subsidiaries (which are all dormant and
non-trading) listed in note 22. Trading in the Companys
shares on the London Stock Exchange ceased on May 16, 2003
and the Companys shares were subsequently delisted.

The name of the Company changed from
Marconi plc to M (2003) plc on October 21,
2003.

Since the three steps in the schemes of
arrangement were all contingent upon each other, the overall
effect on the Company of the financial restructuring was the
elimination of all net liabilities, (except for cash of
£9 million to cover the future costs of administering
the scheme) for nil proceeds. This resulted in a gain on the
financial restructuring as set out in the table below.

F-19



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##### Table of Contents



The gain was calculated as follows:

Gain on financial restructuring

|                                                                        |                                                             |           |        |     |  
|----------------------------------------------------------------------- | ----------------------------------------------------------- | --------- | ------ | --- | -
|                                                                        |                                                             | £ million
|                                                                        |                                                             |          
|Net (liabilities)/assets eliminated                                     |                                                             |           |        |    
|Property, plant and equipment, net                                      |                                                             |           | 251    |    
|Investments in joint ventures, affiliates and
    other investments     |                                                             |           | 35     |    
|Goodwill                                                                |                                                             |           | 654    |    
|Intangibles, net                                                        |                                                             |           | 95     |    
|Inventories, net                                                        |                                                             |           | 237    |    
|Accounts receivable, net                                                |                                                             |           | 526    |    
|Net cash/(overdrafts)                                                   |                                                             |           | 1,117  |    
|Borrowings (excluding overdrafts)*                                      |                                                             |           | (4,770 | )  
|Accounts payable and other liabilities                                  |                                                             |           | (1,081 | )  
|Deferred income tax liability, net                                      |                                                             |           | (5     | )  
|Capital lease obligations                                               |                                                             |           | (3     | )  
|Minority interests                                                      |                                                             |           | (3     | )  
|Retirement benefit deficit                                              |                                                             |           | (334   | )  
|                                                                        |                                                             |           |        |    
|                                                                        |                                                             |           | (3,281 | )  
|Amounts waived on Scheme of Arrangement                                 |                                                             |           | 804    |    
|Elimination of amounts included in
    shareholders equity:            |                                                             |           |        |    
|                                                                        | Minimum pension liability                                   |           |        | 295 |  
|                                                                        | Accumulated translation adjustments                         |           |        | (2  | )
|                                                                        | Net unrealised gains/(losses) on derivative
    instruments |           |        | 1   |  
|                                                                        |                                                             |           |        |    
|Gain on financial restructuring recorded in
    statement of operations |                                                             |           | (2,183 | )  
|                                                                        |                                                             |           |        |    



| |   |                                                                                    
| | - | -----------------------------------------------------------------------------------
| | * | This represents the borrowings of the Group
    before the financial restructuring.

The financial restructuring was implemented by
way of two separate schemes of arrangement under section 425 of
the U.K. Companies Act 1985. As a result, the gain on financial
restructuring described above will not give rise to any taxable
amounts.

Pursuant to the Companys Scheme, the
remaining assets of the Company will be distributed over time to
scheme creditors, following which it is intended that the
Company and its remaining subsidiaries will be dissolved. There
will be no circumstances under which any value will be returned
to shareholders under the terms of the Companys Scheme.

On the date of the financial restructuring, a
further gain of £123 million was realised on the
settlement of equity forward contracts outstanding and was
recorded in the consolidated statement of operations within
other income. See note 2 and note 18 for further
discussion of these equity forward contracts.

Expenses incurred by the Scheme Supervisors in
the administration of the Scheme post May 19, 2003 to
March 31, 2004 are approximately £0.3 million.

F-20



---



##### Table of Contents



4.   Balance sheet
information

|                                                    |                                      |           |   |      |   |  |     |      |       | 
|--------------------------------------------------- | ------------------------------------ | --------- | - | ---- | - |  | --- | ---- | ----- | 
|                                                    |                                      |          
|                                                    |                                      | March 31,
|                                                    |                                      | 2004      |   | 2003
|(in millions)                                       |                                      | £         |   | £   
|                                                    |                                      |          
|                                                    |                                      |          
|Accounts receivable, net:                           |                                      |           |   |      |   |  |     |     
|                                                    | Accounts receivable                  |           |   |     |   |  |     | 540  |      
|                                                    | Allowance for doubtful accounts      |           |   |     |   |  |     | (78  | )    
|                                                    |                                      |          
|                                                    |                                      | Total     |   |      |  |  |     |      | 462   | 
|                                                    |                                      |          
|Inventories:                                        |                                      |           |   |      |   |  |     |     
|                                                    | Finished goods                       |           |   |     |   |  |     | 76   |      
|                                                    | Work-in-process                      |           |   |     |   |  |     | 69   |      
|                                                    | Raw materials                        |           |   |     |   |  |     | 89   |      
|                                                    |                                      |          
|                                                    |                                      | Total     |   |      |  |  |     |      | 234   | 
|                                                    |                                      |          
|Accrued expenses and other current
    liabilities: |                                      |           |   |      |   |  |     |     
|                                                    | Accrued income and other taxes       |           |   |     |   |  |     | 160  |      
|                                                    | Accrued expenses and deferred income |           |   |     |   |  |     | 182  |      
|                                                    | Other                                |           |   |     |   |  |     | 706  |      
|                                                    |                                      |          
|                                                    |                                      | Total     |   |      |  |  |     |      | 1,048 | 
|                                                    |                                      |          
|Property, plant and equipment, net:                 |                                      |           |   |      |   |  |     |     
|                                                    | Land                                 |           |   |     |   |  |     | 139  |      
|                                                    | Building and improvements            |           |   |     |   |  |     | 10   |      
|                                                    | Machinery and equipment              |           |   |     |   |  |     | 785  |      
|                                                    |                                      |          
|                                                    |                                      |           |  |      |   |  | 934 |     
|                                                    | Less: accumulated depreciation       |           |   |     |   |  |     | (671 | )    
|                                                    |                                      |          
|                                                    |                                      | Total     |   |      |  |  |     |      | 263   | 
|                                                    |                                      |          

Depreciation expense for fiscal 2004 was
£10 million (2003, £125 million and 2002,
£217 million). During fiscal 2004 the Company
capitalized £nil (2003, £0.4 million and 2002,
£4 million) in interest expense related to
construction in progress.

During fiscal 2003 the Company disposed of land
and buildings with a net book value of £6 million for
sales proceeds of £17 million. The Company
subsequently leased back 40% of these land and buildings under a
10-year sale and leaseback agreement. The Company accounted for
the 40% leased back as a financing transaction.

During fiscal 2003 in conjunction with the
business restructuring and site rationalizations described in
note 6, Business restructuring charges, the Company impaired
property, plant and equipment by £69 million.

On May 19, 2003 the company underwent the
financial restructuring described in note 3. At the same
date the Company divested fully of its interests in the Marconi
Group. At March 31, 2004 the company had no assets or
liabilities other than cash of £9 million, to be used
for the payment of creditors prior to liquidation.

5.   Debt and credit
facilities

Short-term debt

Prior to the financial restructuring the
Companys short-term borrowings consisted primarily of bank
loans and overdrafts and were unsecured.

F-21



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##### Table of Contents



Under the Companys 1998 syndicated credit
agreement, a group of banks committed a maximum of
4.5 billion
(approximately £2.8 billion) at March 31, 2001 on
an unsecured, revolving basis until March 25, 2003.
Effective March 22, 2002, the undrawn portion of this
facility was cancelled and the facility was placed on demand.
Under the terms of this agreement, borrowings bore interest of
0.175% per annum over London inter-bank offered rate (LIBOR). As
of March 31, 2003, the average interest rate was 6.36%.

No undrawn amounts were available to the Company
under outstanding credit facilities at March 31, 2004 or
March 31, 2003.

Long-term debt

|                                     |                      |           |   |      |  |  |        |    | 
|------------------------------------ | -------------------- | --------- | - | ---- |  |  | ------ | -- | 
|                                     |                      |          
|                                     |                      | March 31,
|                                     |                      | 2004      |   | 2003
|(in millions)                        |                      | £         |   | £   
|                                     |                      |          
|                                     |                      |          
|Term loans                           |                      |           |  |      |  |  | 1,836  |   
|Current maturities of long-term debt |                      |           |  |      |  |  | (1,806 | ) 
|                                     |                      |          
|                                     | Total long-term debt |           |   |     |  |  |        | 30 | 
|                                     |                      |          

On September 19, 2000, the Company issued
for cash consideration, two unsecured yankee bonds having an
aggregate principal amount of $1.8 billion (approximately
£1.3 billion). One bond was for $900 million
(approximately £630 million) with a coupon rate of
7.75% per annum, maturing on September 15, 2010. The other
bond was for $900 million (approximately
£630 million) with a coupon rate of 8.375% per annum,
maturing on September 15, 2030. On March 17, 2003 the
Company failed to meet a scheduled interest payment on these
bonds. As a result, as at March 31, 2003, these bonds were
repayable on demand.

On March 30, 2000, the Company issued for
cash consideration two unsecured euro bonds having an aggregate
principal amount of
1.5 billion
(approximately £927 million). One bond was for
500 million
(approximately £309 million) with a coupon rate of
5.625% per annum, maturing on March 30, 2005. The other
bond was for
1,000 million
(approximately £618 million) with a coupon rate of
6.375% per annum, maturing on March 30, 2010.

Both the yankee bonds and the euro bonds were
issued by Marconi Corporation plc and were fully and
unconditionally guaranteed by the Company up to the date of the
financial restructuring of May 19, 2003 described in note 3.

During fiscal 2002, the Company repurchased
67.9 million
(£41.7 million) of euro bonds with a coupon rate of
5.625% per annum maturing on March 30, 2005,
256.7 million
(£157.5 million) of euro bonds with a coupon rate of
6.375% per annum maturing on March 31, 2010,
$131.0 million (£92.3 million) of the 7.75%
yankee bonds with a coupon rate of 7.75% per annum maturing
September 15, 2010 and $130.1 million
(£91.6 million) of yankee bonds with a coupon rate of
8.75% maturing September 15, 2030. The gain on these
repurchases of £166 million was recognized as other
income.

As of March 31, 2004, the Company had other
obligations of £nil (2003, £20 million) related
to secured debenture loans.

Key covenants

Under the terms of the financial restructuring,
the covenants and mandatory reductions in principal under the
terms of all long term debt agreements have changed
significantly and are no longer applicable to the Company. For
further details on the impact of the recently announced
financial restructuring on the long-term debt, refer to
note 3.

F-22



---



##### Table of Contents





|   |                               
|-- | ------------------------------
|6. | Business restructuring charges

In September 2001, following the sudden and
significant downturn in trading in the global telecommunications
markets, the results of an operational review that had three
main objectives were announced. The original objectives were to
reorganize the group into two main reporting divisions: Core and
Capital, to reduce group indebtedness from
£4.4 billion at August 31, 2001 to between
£2.7 billion and £3.2 billion by
March 31, 2002 and to reduce the annual operating cost
base. These objectives were later revised to reflect further
operating cost base reductions during fiscal 2004.

When management reviews the operating income
performance of the segments described in note 10, Segment
and related information disclosures, management uses
U.K. GAAP operating profit/(loss) before goodwill and
intangible asset amortization, in process research and
development write-offs, U.K. GAAP operating exceptional
items, gains and losses on business disposal and the impact of
less than 50% owned affiliates. This measure allocated to those
segments does not include business restructuring charges, which
relate to the reorganization of the business as a whole. A
segmental allocation of restructuring charges is impracticable.
Consequently, a segmental analysis has not been provided.

The following tables show the activity by
statement of operations heading and the balances remaining in
other liabilities at March 31, 2004 and 2003 following the
implementation of actions required to achieve these objectives.

|                                                |  |            |    |         |  |                 |    |            |  |           |     |   |  |  |     |   |  |  |   | 
|----------------------------------------------- |  | ---------- | -- | ------- |  | --------------- | -- | ---------- |  | --------- | --- | - |  |  | --- | - |  |  | - | 
|                                                |  |            |    |         |  |                 |    |           
|                                                |  |            |    | Charged |  | Utilized during |    |           
|                                                |  | Balance at |    | during  |  | fiscal 2004     |    | Balance at
|                                                |  | March 31,  |    | fiscal  |  | Net cash        |    | Non cash   |  | March 31,
|                                                |  | 2003       |    | 2004    |  | payments        |    | movement   |  | 2004     
|(in millions)                                   |  | £          |    | £       |  | £               |    | £          |  | £        
|                                                |  |           
|                                                |  |           
|Direct costs:                                   |  |            |    |         |  |                 |    |            |  |           |     |   |  |  |     |   |  |  |   | 
|Manufacturing outsourcing                       |  |            | 8  |         |  |                 | (1 | )          |  |           |    |   |  |  | (7  | ) |  |  |  | 
|Onerous contracts                               |  |            | 6  |         |  |                 | (2 | )          |  |           |    |   |  |  | (4  | ) |  |  |  | 
|                                                |  |           
|                                                |  |            | 14 |         |  |                 | (3 | )          |  |           |    |   |  |  | (11 | ) |  |  |  | 
|                                                |  |           
|Business restructuring costs:                   |  |            |    |         |  |                 |    |            |  |           |     |   |  |  |     |   |  |  |   | 
|Employee severance                              |  |            | 10 |         |  |                 | 4  |            |  |           | (12 | ) |  |  | (2  | ) |  |  |  | 
|Site rationalization                            |  |            | 46 |         |  |                 | 1  |            |  |           | (2  | ) |  |  | (45 | ) |  |  |  | 
|Contractual commitments and other restructuring |  |            | 3  |         |  |                 |   |            |  |           |    |   |  |  | (3  | ) |  |  |  | 
|Advisor fees                                    |  |            | 10 |         |  |                 |   |            |  |           | (6  | ) |  |  | (4  | ) |  |  |  | 
|                                                |  |           
|                                                |  |            | 69 |         |  |                 | 5  |            |  |           | (20 | ) |  |  | (54 | ) |  |  |  | 
|                                                |  |           
|Total                                           |  |            | 83 |         |  |                 | 2  |            |  |           | (20 | ) |  |  | (65 | ) |  |  |  | 
|                                                |  |           

F-23



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##### Table of Contents



|                                                |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|----------------------------------------------- |  | ---------- | --- | ------- |  | --------------- | --- | ---------- |  | --------- | --- |  |  |  | -- |  |  |  | -- | 
|                                                |  |            |     |         |  |                 |     |           
|                                                |  |            |     | Charged |  | Utilized during |     |           
|                                                |  | Balance at |     | during  |  | fiscal 2003     |     | Balance at
|                                                |  | March 31,  |     | fiscal  |  | Net cash        |     | Non cash   |  | March 31,
|                                                |  | 2002       |     | 2003    |  | payments        |     | movement   |  | 2003     
|(in millions)                                   |  | £          |     | £       |  | £               |     | £          |  | £        
|                                                |  |           
|                                                |  |           
|Direct costs:                                   |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|Inventory write-downs and related costs         |  |            | 40  |         |  |                 |    |            |  |           | 20  |  |  |  | 20 |  |  |  |   | 
|Manufacturing outsourcing                       |  |            | 31  |         |  |                 | 21  |            |  |           | 21  |  |  |  | 23 |  |  |  | 8  | 
|Onerous contracts                               |  |            | 31  |         |  |                 | 5   |            |  |           | 30  |  |  |  |   |  |  |  | 6  | 
|                                                |  |           
|                                                |  |            | 102 |         |  |                 | 26  |            |  |           | 71  |  |  |  | 43 |  |  |  | 14 | 
|                                                |  |           
|Business restructuring costs:                   |  |            |     |         |  |                 |     |            |  |           |     |  |  |  |    |  |  |  |    | 
|Employee severance                              |  |            | 30  |         |  |                 | 128 |            |  |           | 148 |  |  |  |   |  |  |  | 10 | 
|Site rationalization                            |  |            | 40  |         |  |                 | 36  |            |  |           | 30  |  |  |  |   |  |  |  | 46 | 
|Contractual commitments and other restructuring |  |            | 13  |         |  |                 |    |            |  |           |    |  |  |  | 10 |  |  |  | 3  | 
|Systems implementation                          |  |            | 24  |         |  |                 | (7  | )          |  |           | 17  |  |  |  |   |  |  |  |   | 
|Advisor fees                                    |  |            |    |         |  |                 | 73  |            |  |           | 63  |  |  |  |   |  |  |  | 10 | 
|                                                |  |           
|                                                |  |            | 107 |         |  |                 | 230 |            |  |           | 258 |  |  |  | 10 |  |  |  | 69 | 
|                                                |  |           
|Total                                           |  |            | 209 |         |  |                 | 256 |            |  |           | 329 |  |  |  | 53 |  |  |  | 83 | 
|                                                |  |           

|                                                |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|----------------------------------------------- |  | ------- | ----- | --------------- |  | ---------- | --- | --------- |  |  | --- |  |  |  | --- | 
|                                                |  |         |       |                 |  |           
|                                                |  | Charged |       | Utilized during |  |           
|                                                |  | during  |       | fiscal 2002     |  | Balance at
|                                                |  | fiscal  |       | Net cash        |  | Non cash   |     | March 31,
|                                                |  | 2002    |       | payments        |  | movement   |     | 2002     
|(in millions)                                   |  | £       |       | £               |  | £          |     | £        
|                                                |  |        
|                                                |  |        
|Direct costs:                                   |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|Inventory write-downs and related costs         |  |         | 647   |                 |  |            | 51  |           |  |  | 556 |  |  |  | 40  | 
|Manufacturing outsourcing                       |  |         | 127   |                 |  |            | 77  |           |  |  | 19  |  |  |  | 31  | 
|Onerous contracts                               |  |         | 31    |                 |  |            |    |           |  |  |    |  |  |  | 31  | 
|                                                |  |        
|                                                |  |         | 805   |                 |  |            | 128 |           |  |  | 575 |  |  |  | 102 | 
|                                                |  |        
|Business restructuring costs:                   |  |         |       |                 |  |            |     |           |  |  |     |  |  |  |     | 
|Employee severance                              |  |         | 237   |                 |  |            | 207 |           |  |  |    |  |  |  | 30  | 
|Site rationalization                            |  |         | 40    |                 |  |            |    |           |  |  |    |  |  |  | 40  | 
|Contractual commitments and other restructuring |  |         | 46    |                 |  |            | 26  |           |  |  | 7   |  |  |  | 13  | 
|Systems implementation                          |  |         | 73    |                 |  |            | 49  |           |  |  |    |  |  |  | 24  | 
|                                                |  |        
|                                                |  |         | 396   |                 |  |            | 282 |           |  |  | 7   |  |  |  | 107 | 
|                                                |  |        
|Total                                           |  |         | 1,201 |                 |  |            | 410 |           |  |  | 582 |  |  |  | 209 | 
|                                                |  |        

Inventory write-downs and related
costs

In fiscal 2002 the inventory write-downs and
related costs charged to cost of sales in the year included
£556 million for obsolescence and slow-moving
provisions against a number of product lines, predominantly
optical networking products, and £91 million in
respect of supplier commitments. Of the £91 million for
supplier commitments, £51 million was paid out during
fiscal 2002. The remaining balance of £40 million was
utilized during fiscal 2003.

Manufacturing outsourcing

In fiscal 2002 restructuring costs classified in
cost of sales includes a charge of £127 million
representing additional costs incurred as a consequence of the
decision to outsource certain manufacturing

F-24



---



##### Table of Contents



operations to Jabil Circuit Inc. Under the terms
of that agreement, the Company made payments of
£77 million during fiscal 2002. In fiscal 2003, the
charge of £21 million represents additional net costs
to Jabil Circuit Inc. arising in the year. In fiscal 2004,
£1 million was credited to restructuring costs
relating to the outsourcing of certain manufacturing operations.
The remaining balance was transferred out of the group as part
of the financial restructuring at May 19, 2003.


Onerous contracts

The charge of £5 million in respect of
onerous contracts in fiscal 2003 (2002, £31 million)
represents certain liabilities to which the Company was
committed as a result of the operational restructuring. This
includes liabilities relating to equipment leasing contracts and
supply contracts under which we had agreed to purchase minimum
volumes of goods and services offering no economic value to our
business as a result of its reduced size. In fiscal 2004
£2 million was released to the statement of operations
in relation to onerous contracts. The remaining balance was
transferred out of the group as part of the financial
restructuring at May 19, 2003.

Employee severance

As a consequence of the objective to reduce the
annual operating cost base, the Company recorded a charge of
£128 million during fiscal 2003 associated with
redundancy payments for approximately 7,500 employees. In fiscal
2002, the Company recorded a charge of £237 million to
reflect the charges associated with voluntary redundancy
payments for approximately 10,000 employees. The Company made
cash payments of £148 million in fiscal 2003 (2002,
£207 million). In fiscal 2004, a charge of
£4 million was recorded as part of the groups
cost reduction actions and payments of approximately
£12 million were made. The remaining balance was
transferred out of the group as part of the financial
restructuring at May 19, 2003.

Site rationalization

The charge of £36 million in respect of
site rationalization in fiscal 2003 (2002,
£40 million) represents additional costs associated
with closing and consolidating various sites around the world as
part of the business restructuring. These site closures and
consolidations were all commenced prior to December 15,
2002. In fiscal 2004, a charge of £1 million was
recorded as part of the groups cost reduction actions and
payments of approximately £2 million were made. The
remaining balance was transferred out of the group as part of
the financial restructuring at May 19, 2003.

Contractual commitments and other
restructuring

During fiscal 2002 a charge of
£46 million was recorded in respect of other costs
associated with the restructuring program. Payments of
£26 million were made during fiscal 2002 and an
additional non-cash charge of £7 million recorded,
leaving a balance at March 31, 2002 of
£13 million. Of this balance, costs of
£10 million have been charged during fiscal 2003 and a
balance of £3 million remains at March 31, 2003.
In fiscal 2004, the remaining balance was transferred out of the
group as part of the financial restructuring at May 19,
2003.

Systems implementation

During fiscal 2002 the Group planned to implement
a new global information technology system. In light of the
revised trading outlook and the continued focus on cost
reduction, the implementation was terminated. The
£73 million charge in fiscal 2002 represents
£43 million of capitalised external consultancy costs
associated with the implementation, £24 million of
hardware and software costs expensed, and £6 million
of other associated costs of the project. Payments of
£49 million were made in fiscal 2002. During fiscal
2003, the Company revised its previous estimate of the overall
costs leading to the release of £7 million from the
amounts accrued in fiscal 2002. Payments of £17 million
were made in fiscal 2003.

F-25



---



##### Table of Contents



Advisor fees

The charge of £73 million in fiscal
2003 in respect of advisor fees represents charges from the
Companys external advisors with respect to services
rendered in fiscal 2003 related to the financial restructuring.
Payments of £63 million were made during fiscal 2003
and a balance of £10 million remained at
March 31, 2003. In fiscal 2004, payments of approximately
£6 million were made and the remaining balance was
transferred out of the group as part of the financial
restructuring at May 19, 2003.



|   |         
|-- | --------
|7. | Goodwill

When management reviews the operating income
performance of the segments described in note 10, Segment and
related information disclosures, management uses the U.K. GAAP
operating profit/(loss) before goodwill and intangible asset
amortization, in process research and development write-offs,
U.K. GAAP operating exceptional items, gains and losses on
business disposal and the impact of less than 50% owned
affiliates. This measure allocated to those segments does not
include goodwill amortization charges. A segmental allocation of
goodwill is impracticable. Consequently, a segmental analysis
has not been provided.

The changes in the carrying amount of goodwill
for the year ended March 31, 2004, are as follows:

|                          |                        |      |       |              |   |       |        |       |  |  |     |      |  
|------------------------- | ---------------------- | ---- | ----- | ------------ | - | ----- | ------ | ----- |  |  | --- | ---- | -
|                          |                        |      |       | Accumulated  |   |      
|                          |                        | Cost |       | amortization |   | Total
|(in millions)             |                        | £    |       | £            |   | £    
|                          |                        |     
|                          |                        |     
|Balance at April 1, 2002  |                        |      | 1,903 |              |   |       | (1,224 | )     |  |  | 679 |     
|                          | Goodwill disposed of   |      |       | (3           | ) |       |        | 1     |  |  |     | (2   | )
|                          | Translation adjustment |      |       | (20          | ) |       |        |      |  |  |     | (20  | )
|                          |                        |     
|Balance at March 31, 2003 |                        |      | 1,880 |              |   |       | (1,223 | )     |  |  | 657 |     
|                          | Goodwill disposed of   |      |       | (1,877       | ) |       |        | 1,223 |  |  |     | (654 | )
|                          | Translation adjustment |      |       | (3           | ) |       |        |      |  |  |     | (3   | )
|                          |                        |     
|Balance at March 31, 2004 |                        |      |      |              |   |       |       |       |  |  |    |     
|                          |                        |     

In accordance with SFAS 142, goodwill is no
longer subject to amortization, rather, it is subject to at
least an annual assessment of impairment, applying a fair-value
based test. The Company completed the SFAS 142 transitional
impairment test during the second quarter of fiscal 2003 and
concluded that there was no impairment of recorded goodwill. The
assessment measured the amount by which the carrying amounts of
the goodwill and intangible assets exceeded the present value of
expected future cash flows from operations. Following a similar
review in fiscal 2002 goodwill was impaired by
£2,622 million. This amount is included in the caption
Impairment of long-lived assets in the consolidated
statement of operations and explained further in note 2,
Summary of significant accounting policies. Amortization expense
for fiscal 2002 was £393 million.

The total goodwill balance at May 19, 2003
was disposed of as part of the financial restructuring described
in Note 3.

A reconciliation of net income and earnings per
common share for fiscal 2003 and 2002, as if SFAS 142 had been
adopted at the beginning of that year, follows:

|                                  |  |           |       |      |  |      |      |   |  |  |        |  
|--------------------------------- |  | --------- | ----- | ---- |  | ---- | ---- | - |  |  | ------ | -
|                                  |  |          
|                                  |  | March 31,
|                                  |  | 2004      |       | 2003 |  | 2002
|(in millions)                     |  | £         |       | £    |  | £   
|                                  |  |          
|                                  |  |          
|Reported net income/(loss)        |  |           | 2,276 |      |  |      | (807 | ) |  |  | (6,150 | )
|Add back amortization of goodwill |  |           |      |      |  |      |     |   |  |  | 393    |  
|                                  |  |          
|Adjusted net income/(loss)        |  |           | 2,276 |      |  |      | (807 | ) |  |  | (5,757 | )
|                                  |  |          

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|   |                  
|-- | -----------------
|8. | Intangible assets

Intangible assets subject to amortization, net of
impairment of £nil (2003, £nil and 2002,
£1,192 million) consist of the following:

|                              |  |           |   |              |  |      |   |              |  |  |     |  |  |  |      |  
|----------------------------- |  | --------- | - | ------------ |  | ---- | - | ------------ |  |  | --- |  |  |  | ---- | -
|                              |  |          
|                              |  | March 31,
|                              |  |           |   |             
|                              |  | 2004      |   | 2003        
|                              |  |           |   | Accumulated  |  |      |   | Accumulated 
|                              |  | Cost      |   | amortization |  | Cost |   | amortization
|(in millions)                 |  | £         |   | £            |  | £    |   | £           
|                              |  |          
|                              |  |          
|Core developed technology     |  |           |  |              |  |      |  |              |  |  | 360 |  |  |  | (267 | )
|Internally generated software |  |           |  |              |  |      |  |              |  |  | 5   |  |  |  | (3   | )
|Trademarks                    |  |           |  |              |  |      |  |              |  |  | 1   |  |  |  |     |  
|Customer lists                |  |           |  |              |  |      |  |              |  |  | 6   |  |  |  | (1   | )
|                              |  |          
|                              |  |           |  |              |  |      |  |              |  |  | 372 |  |  |  | (271 | )
|                              |  |          

Amortization of intangibles for fiscal 2004 was
£6 million (2003, £44 million and 2002,
£43 million). All intangible assets were disposed of
as part of the financial restructuring described in Note 3.



|   |                                                  
|-- | -------------------------------------------------
|9. | Pension plans and other post-retirement
    plans

Pension plans

On May 19, 2003 the Company and its then
subsidiary, Marconi Corporation plc, entered into schemes
of arrangement as described in note 3. As a result of this,
the pension schemes are not part of the M (2003) plc
Group as at March 31, 2004. The pension schemes are now
liabilities of the group now headed by Marconi Corporation plc.

Prior to May 19, 2003, the Marconi
businesses previously held by the Group operated defined benefit
pension plans in the UK, US and Europe, and post retirement
benefit plans in the US. The most significant pension plan was
the GEC 1972 Plan (the UK Plan) in the UK, a
defined benefit plan.

The assets of the Plan were held separately from
the assets of the Group, were administered by trustees and were
managed professionally.

The benefits offered to specific employees vary
based upon the location of and past business decisions made by a
specific business unit, as well as local statutory requirements.
Defined benefit pension plans, that generally provide benefits
to eligible individuals, after minimum service requirements are
met, are based on years of credit service and average earnings
of the employee. Defined contribution plans, that provide
benefits to eligible employees, are based on the value of
contributions paid into the applicable plan adjusted for
investment returns.

The Company funded its defined benefit pension
obligations at a level, which met or exceeded local legal
requirements. Funded pension plan assets were primarily invested
in equity and debt securities.

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Data with respect to benefit obligations,
excluding those related to discontinued operations, is as
follows:

|                                                                     |                                                |                  |   |                  |   |      |       |       |   |  |   |      |   |  |     |      |  
|-------------------------------------------------------------------- | ---------------------------------------------- | ---------------- | - | ---------------- | - | ---- | ----- | ----- | - |  | - | ---- | - |  | --- | ---- | -
|                                                                     |                                                |                  |   |                 
|                                                                     |                                                | Pension benefits |   | Pension benefits
|                                                                     |                                                | U.K. plans       |   | Overseas plans  
|                                                                     |                                                | 2004             |   | 2003             |   | 2004 |       | 2003 
|(in millions)                                                        |                                                | £                |   | £                |   | £    |       | £    
|                                                                     |                                                |                 
|                                                                     |                                                |                 
|Change in benefit obligations:                                       |                                                |                  |   |                  |   |      |       |       |   |  |   |      |   |  |     |     
|                                                                     | Benefit obligation at beginning of year        |                  |   | 2,444            |   |      |       | 2,393 |   |  |   | 245  |   |  |     | 215  |  
|                                                                     | Service cost                                   |                  |   | 5                |   |      |       | 26    |   |  |   |     |   |  |     | 7    |  
|                                                                     | Interest cost/(income)                         |                  |   | (1               | ) |      |       | 138   |   |  |   |     |   |  |     | 14   |  
|                                                                     | Plan participants contributions               |                  |   |                 |   |      |       | 6     |   |  |   |     |   |  |     |     |  
|                                                                     | Actuarial loss/(gain)                          |                  |   |                 |   |      |       | 64    |   |  |   |     |   |  |     | 24   |  
|                                                                     | Benefits paid                                  |                  |   | (1               | ) |      |       | (183  | ) |  |   | (1   | ) |  |     | (10  | )
|                                                                     | Curtailment loss                               |                  |   |                 |   |      |       |      |   |  |   |     |   |  |     | 3    |  
|                                                                     | Settlement gain                                |                  |   |                 |   |      |       |      |   |  |   |     |   |  |     | (2   | )
|                                                                     | Divestitures                                   |                  |   | (2,447           | ) |      |       |      |   |  |   | (244 | ) |  |     |     |  
|                                                                     | Foreign currency exchange rate changes         |                  |   |                 |   |      |       |      |   |  |   |     |   |  |     | (6   | )
|                                                                     |                                                |                 
|Benefit obligations at end of year                                   |                                                |                  |  |                  |   |      | 2,444 |       |   |  |  |      |   |  | 245 |     
|                                                                     |                                                |                 
|                                                                     | Change in plan assets:                         |                  |   |                  |   |      |       |       |   |  |   |      |   |  |     |      |  
|                                                                     | Fair value of plan assets at beginning of year |                  |   | 2,237            |   |      |       | 2,372 |   |  |   | 134  |   |  |     | 178  |  
|                                                                     | Actual return on plan assets                   |                  |   |                 |   |      |       | 19    |   |  |   |     |   |  |     | (17  | )
|                                                                     | Employer contributions                         |                  |   |                 |   |      |       | 23    |   |  |   |     |   |  |     |     |  
|                                                                     | Plan participants contributions               |                  |   |                 |   |      |       | 6     |   |  |   |     |   |  |     |     |  
|                                                                     | Benefits paid                                  |                  |   | (1               | ) |      |       | (183  | ) |  |   | (1   | ) |  |     | (10  | )
|                                                                     | Divestitures                                   |                  |   | (2,236           | ) |      |       |      |   |  |   | (133 | ) |  |     |     |  
|                                                                     | Foreign currency exchange rate changes         |                  |   |                 |   |      |       |      |   |  |   |     |   |  |     | (17  | )
|                                                                     |                                                |                 
|Fair value of plan assets at end of year                             |                                                |                  |  |                  |   |      | 2,237 |       |   |  |  |      |   |  | 134 |     
|                                                                     |                                                |                 
|                                                                     | Under funded status                            |                  |   |                 |   |      |       | (207  | ) |  |   |     |   |  |     | (111 | )
|                                                                     | Unrecognized net actuarial loss                |                  |   |                 |   |      |       | 301   |   |  |   |     |   |  |     | 62   |  
|                                                                     | Unrecognized net transition obligation         |                  |   |                 |   |      |       | 3     |   |  |   |     |   |  |     |     |  
|                                                                     |                                                |                 
|Net amount recognized                                                |                                                |                  |  |                  |   |      | 97    |       |   |  |  |      |   |  | (49 | )   
|                                                                     |                                                |                 
|Amounts recognized in the consolidated balance
    sheet consist of: |                                                |                  |   |                  |   |      |       |       |   |  |   |      |   |  |     |     
|                                                                     | Prepaid benefit cost                           |                  |   |                 |   |      |       |      |   |  |   |     |   |  |     |     |  
|                                                                     | Accrued benefit liability                      |                  |   |                 |   |      |       | (139  | ) |  |   |     |   |  |     | (108 | )
|                                                                     | Accumulated other comprehensive income         |                  |   |                 |   |      |       | 236   |   |  |   |     |   |  |     | 59   |  
|                                                                     |                                                |                 
|Net amount recognized                                                |                                                |                  |  |                  |   |      | 97    |       |   |  |  |      |   |  | (49 | )   
|                                                                     |                                                |                 

The actuarial assumptions used to develop the
periodic benefit cost and funded status were as follows:

|                              |                                       |                  |  |                  |  |      |  |      |  |      |  |      |  |  |  |     |  |  |  |     |  |  |  |     | 
|----------------------------- | ------------------------------------- | ---------------- |  | ---------------- |  | ---- |  | ---- |  | ---- |  | ---- |  |  |  | --- |  |  |  | --- |  |  |  | --- | 
|                              |                                       |                  |  |                 
|                              |                                       | Pension benefits |  | Pension benefits
|                              |                                       | U.K. plans       |  | Overseas plans  
|                              |                                       | 2004             |  | 2003             |  | 2002 |  | 2004 |  | 2003 |  | 2002
|(in millions)                 |                                       | %                |  | %                |  | %    |  | %    |  | %    |  | %   
|                              |                                       |                 
|                              |                                       |                 
|Weighted average assumptions: |                                       |                  |  |                  |  |      |  |      |  |      |  |      |  |  |  |     |  |  |  |     |  |  |  |    
|                              | Discount rate for pension Expense     |                  |  | 5.3              |  |      |  | 5.3  |  |      |  | 6.0  |  |  |  | 6.7 |  |  |  | 6.7 |  |  |  | 7.5 | 
|                              | Discount rate for year end disclosure |                  |  | 5.3              |  |      |  | 5.3  |  |      |  | 6.0  |  |  |  | 6.0 |  |  |  | 6.0 |  |  |  | 6.9 | 
|                              | Expected return on plan Assets        |                  |  | 5.7              |  |      |  | 5.7  |  |      |  | 6.0  |  |  |  | 8.5 |  |  |  | 8.5 |  |  |  | 8.5 | 
|                              | Rate of compensation increases        |                  |  | 4.5              |  |      |  | 4.5  |  |      |  | 4.8  |  |  |  | 4.4 |  |  |  | 4.4 |  |  |  | 4.2 | 
|                              | Rate of pension increases             |                  |  | 2.5              |  |      |  | 2.5  |  |      |  | 2.8  |  |  |  | 0.5 |  |  |  | 0.5 |  |  |  | 1.5 | 

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The table below presents data with respect to net
periodic benefit expense/(income) excluding those related to
discontinued operations:

|                                                                   |                                                               |                  |   |                  |   |      |    |      |   |      |    |      |   |  |   |   |  |  |    |     |   |  |    |     |  
|------------------------------------------------------------------ | ------------------------------------------------------------- | ---------------- | - | ---------------- | - | ---- | -- | ---- | - | ---- | -- | ---- | - |  | - | - |  |  | -- | --- | - |  | -- | --- | -
|                                                                   |                                                               |                  |   |                 
|                                                                   |                                                               | Pension benefits |   | Pension benefits
|                                                                   |                                                               | U.K. plans       |   | Overseas plans  
|                                                                   |                                                               | 2004             |   | 2003             |   | 2002 |    | 2004 |   | 2003 |    | 2002
|(in millions)                                                      |                                                               | £                |   | £                |   | £    |    | £    |   | £    |    | £   
|                                                                   |                                                               |                 
|                                                                   |                                                               |                 
|Components of net periodic Benefit
    Expense/(income):           |                                                               |                  |   |                  |   |      |    |      |   |      |    |      |   |  |   |   |  |  |    |     |   |  |    |    
|                                                                   | Service cost                                                  |                  |   | 5                |   |      |    | 26   |   |      |    | 34   |   |  |   |  |  |  |    | 7   |   |  |    | 4   |  
|                                                                   | Interest cost/(income)                                        |                  |   | (1               | ) |      |    | 138  |   |      |    | 143  |   |  |   |  |  |  |    | 14  |   |  |    | 18  |  
|                                                                   | Expected return on plan Assets                                |                  |   |                 |   |      |    | (138 | ) |      |    | (181 | ) |  |   |  |  |  |    | (13 | ) |  |    | (25 | )
|                                                                   | Amortization of unrecognized transition
    liability/(asset) |                  |   |                 |   |      |    | 3    |   |      |    | 3    |   |  |   |  |  |  |    |    |   |  |    |    |  
|                                                                   | Amortization of prior service Cost                            |                  |   |                 |   |      |    |     |   |      |    |     |   |  |   |  |  |  |    |    |   |  |    | 1   |  
|                                                                   | Amortization of actuarial Gains                               |                  |   |                 |   |      |    |     |   |      |    |     |   |  |   |  |  |  |    |    |   |  |    | (1  | )
|                                                                   |                                                               |                 
|Net periodic benefit expense/(income) of defined
    benefit plans |                                                               |                  | 4 |                  |   |      | 29 |      |   |      | (1 | )    |   |  |  |   |  |  | 8  |     |   |  | (3 | )  
|Amounts recognized in respect of discontinued
    operations       |                                                               |                  |  |                  |   |      |   |      |   |      |   |      |   |  |  |   |  |  |   |     |   |  | 9  |    
|Net curtailment loss                                               |                                                               |                  |  |                  |   |      |   |      |   |      |   |      |   |  |  |   |  |  | 3  |     |   |  |   |    
|                                                                   |                                                               |                 
|Net periodic benefit expense/(income)                              |                                                               |                  | 4 |                  |   |      | 29 |      |   |      | (1 | )    |   |  |  |   |  |  | 11 |     |   |  | 6  |    
|                                                                   |                                                               |                 

At March 31, 2004 the projected benefit
obligation, accumulated benefit obligation, and fair value of
plan assets for pension plans which have an accumulated benefit
obligation in excess of plan assets were £nil million
(2003, £2,689 million, £2,618 million, and
£2,371 million respectively).

Other post-retirement
benefits

At March 31, 2004 no active employees and no
retired employees (2003, no active employees and
1,730 retired employees) of companies in the United States
of America and Canada were entitled to health care benefits
after retirement.

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All of the other post retirement plans are
unfunded. The benefit cost charges and provisions for the
liability are as follows:

|                                   |                                          |                 |   |      |   |  |     |    |  
|---------------------------------- | ---------------------------------------- | --------------- | - | ---- | - |  | --- | -- | -
|                                   |                                          |                
|                                   |                                          | Post retirement
|                                   |                                          | Benefits       
|                                   |                                          |                
|                                   |                                          | March 31,      
|                                   |                                          | 2004            |   | 2003
|(in millions)                      |                                          | £               |   | £   
|                                   |                                          |                
|                                   |                                          |                
|Change in benefit obligations:     |                                          |                 |   |      |   |  |     |   
|                                   | Benefit obligations at beginning of year |                 |   | 29   |   |  |     | 38 |  
|                                   | Service cost                             |                 |   |     |   |  |     |   |  
|                                   | Interest cost                            |                 |   |     |   |  |     | 2  |  
|                                   | Plan amendments                          |                 |   |     |   |  |     | (1 | )
|                                   | Actuarial loss                           |                 |   |     |   |  |     | 3  |  
|                                   | Businesses disposed                      |                 |   | (28  | ) |  |     |   |  
|                                   | Curtailment gain                         |                 |   |     |   |  |     | (5 | )
|                                   | Benefits paid                            |                 |   |     |   |  |     | (4 | )
|                                   | Foreign currency exchange rate changes   |                 |   | (1   | ) |  |     | (4 | )
|                                   |                                          |                
|Benefit obligations at end of year |                                          |                 |  |      |   |  | 29  |   
|Funded status                      |                                          |                 |  |      |   |  | (29 | ) 
|Unrecognized net actuarial gain    |                                          |                 |  |      |   |  | (9  | ) 
|Unrecognized prior service cost    |                                          |                 |  |      |   |  | (3  | ) 
|                                   |                                          |                
|Net accrued benefit cost           |                                          |                 |  |      |   |  | (41 | ) 
|                                   |                                          |                

Data with respect to net periodic benefit cost is
as follows:

|                                                                         |                          |                 |   |      |  |      |    |    |   |  |   |    |  
|------------------------------------------------------------------------ | ------------------------ | --------------- | - | ---- |  | ---- | -- | -- | - |  | - | -- | -
|                                                                         |                          |                
|                                                                         |                          | Post retirement
|                                                                         |                          | benefits       
|                                                                         |                          |                
|                                                                         |                          | March 31,      
|                                                                         |                          | 2004            |   | 2003 |  | 2002
|(in millions)                                                            |                          | £               |   | £    |  | £   
|                                                                         |                          |                
|                                                                         |                          |                
|Components of net periodic benefit
    (income)/expense:                 |                          |                 |   |      |  |      |    |    |   |  |   |   
|                                                                         | Service cost             |                 |   |     |  |      |    |   |   |  |   | 1  |  
|                                                                         | Interest cost            |                 |   |     |  |      |    | 2  |   |  |   | 3  |  
|                                                                         | Amortization of net gain |                 |   |     |  |      |    | (1 | ) |  |   | (1 | )
|                                                                         | Net curtailment gain     |                 |   |     |  |      |    | (5 | ) |  |   |   |  
|                                                                         |                          |                
|Net periodic benefit (income)/expense of other
    post-retirement plans |                          |                 |  |      |  |      | (4 | )  |   |  | 3 |   
|                                                                         |                          |                

Different assumptions were made in relation to
the cost of retiree health care benefits. For the majority of
plans, the assumptions were as follows:

In fiscal 2003, an annual rate of increase per
capita in the cost of retiree health care benefits of 12% for
2003 (decreasing gradually over the following years to 6% in
2012) was assumed for all employees and retirees. The annual
rate of increase in the cost of prescription drugs of 15% in
2003 (decreasing gradually over the following years to 6% in
2012) was assumed for all employees and retirees. In fiscal
2002, the annual rate of increase per capita in the cost of
retiree healthcare benefits (including prescription drugs) for
employees under age 65 was assumed to be 6% and for
retirees over 65 was assumed to be 7.5% for 2002
(decreasing over the following years to 5% in 2005).

An increase or decrease of one percentage point
in such assumed rates would have resulted in no change to the
benefit obligation at March 31, 2004 and the service and
interest cost components of the net periodic benefit cost for
the year then ended.

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##### Table of Contents



Defined contribution plans

The former U.S. subsidiaries of the Company
operate 401(k) plans for eligible employees who contribute
a percentage of their pre-tax compensation with the Company
matching these contributions up to prescribed limits. For fiscal
2004, the matching contributions were £1 million
(2003, £7 million and 2002, £14 million).

10. Segment and related information
disclosures

The Companys reportable segments for
trading activities prior to the financial restructuring on
May 19, 2003 have been determined based upon the nature of
the products and services that were offered to its customers,
which were managed separately and were comprised of the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Network Equipment segment developed,
    manufactured, sold and supported optical networks, transmission
    systems and network management software for customers in the
    carrier network market. It also provided to customers in the
    carrier network market a broad range of access products. In
    addition, it supplied customers in both the carrier and the
    enterprise network markets a broad range of high-performance,
    high-capacity broadband switches, which select paths for sending
    large amounts of voice and data traffic through a network
|
| |  | The Network Services segment provided a broad
    range of support services to the communications industry
    worldwide tailored to suit customers needs. It supported
    both the Companys products and those of other network
    equipment manufacturers.                                                                                                                                                                                                                                                                                                                   
|
| |  | The Other segment contains the Companys
    other investments and businesses not included in other segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Management referred to Network Equipment and
Network Services in aggregate as the Core division and Other as
the Capital division.

Discontinued segments

During fiscal 2002, the Company disposed of both
its Data Systems and Medical Systems businesses, and on
August 2, 2002, the Company announced the disposal of its
strategic communications business, a significant portion of the
Mobile segment. Effective March 31, 2002, these segments
were classified as discontinued operations as described further
in note 13, Discontinued operations.



| |   |                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Mobile Communications segment designed,
    developed, and integrated communications and information
    technologies into wireless communications systems for
    professional and military uses.
|
| |  | The Data Systems segment provided a broad range
    of marking and imaging equipment used in the identification,
    distribution, and tracking of food products, goods and printed
    matter.       
|
| |  | The Medical Systems segment manufactured and
    designed medical imaging equipment for both diagnostic and
    therapeutic uses.                                                                     

Segmental performance

Revenues and operating profits are measured on a
segmental basis in accordance with U.K. GAAP for 2003 and
2002. In 2004 all revenues and operating profits were analyzed
as discontinued operations in the UK GAAP accounts but have
been analyzed consistently with prior years below. The principal
measurement differences between U.K. GAAP and
U.S. GAAP as related to the information reported on a
segmental basis are the result of differences in the accounting
for pensions and post-retirement benefits, reorganization costs,
goodwill and employee share options.

Capital employed is also as reported under
U.K. GAAP. It is not practicable to identify the total
capital employed of network equipment and network services
separately as the same assets are, generally, used to generate
sales in each of these segments. The operating results of these
segments are separately reportable.

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Management uses the U.K. GAAP operating
(loss)/profit before goodwill and intangible asset amortization,
in-process research and development write-offs, U.K. GAAP
exceptional items, gains and losses on business disposals and
the impact of 50% or less owned affiliates as its measure of
segment profitability. In the tables below, this measure is
referred to as segment operating (loss)/profit.

The following tables present the Companys
revenues, operating (loss)/income before exceptional items,
goodwill amortization and other items, and other financial data
from the Companys reportable segments presented in
accordance with U.K. GAAP and then reconciled to
U.S. GAAP financial information consolidated totals:

Analysis of reportable segments (U.K.
GAAP)

|                                       |  |          |     |               |  |             |     |   |  |  |   | 
|-------------------------------------- |  | -------- | --- | ------------- |  | ----------- | --- | - |  |  | - | 
|As of and for the year ended           |  |          |     | Segment       |  |            
|March 31, 2004                         |  |          |     | operating     |  | Capital    
|(in millions)                          |  | Revenues |     | (loss)/profit |  | employed(2)
|                                       |  | £        |     | £             |  | £          
|                                       |  |         
|                                       |  |         
|Network equipment                      |  |          | 100 |               |  |             | (28 | ) |  |  |  | 
|Network services                       |  |          | 68  |               |  |             | 4   |   |  |  |  | 
|Other (including intra activity sales) |  |          |    |               |  |             | (14 | ) |  |  |  | 
|                                       |  |         
|Segment total  U.K. GAAP              |  |          | 168 |               |  |             | (38 | ) |  |  |  | 
|                                       |  |         

|                                             |  |          |       |               |  |             |      |   |  |  |     |  
|-------------------------------------------- |  | -------- | ----- | ------------- |  | ----------- | ---- | - |  |  | --- | -
|                                             |  |          |       | Segment       |  |            
|As of and for the year ended                 |  |          |       | operating     |  | Capital    
|March 31, 2003                               |  | Revenues |       | (loss)/profit |  | employed(2)
|(in millions)                                |  | £        |       | £             |  | £          
|                                             |  |         
|                                             |  |         
|Network equipment                            |  |          | 1,131 |               |  |             | (259 | ) |  |  |     |  
|                                             |  |          |       |               |  |             |      |   |  |  | 220 |  
|Network services                             |  |          | 743   |               |  |             | 52   |   |  |  |     |  
|Capital (net of intra segment revenue of £7) |  |          | 40    |               |  |             | (107 | ) |  |  | (27 | )
|Discontinued(1)                              |  |          | 88    |               |  |             | (2   | ) |  |  |    |  
|                                             |  |         
|Segment total  U.K. GAAP                    |  |          | 2,002 |               |  |             | (316 | ) |  |  | 193 |  
|                                             |  |         

|                                              |  |          |       |               |  |             |      |   |  |  |     | 
|--------------------------------------------- |  | -------- | ----- | ------------- |  | ----------- | ---- | - |  |  | --- | 
|                                              |  |          |       | Segment       |  |            
|As of and for the year ended                  |  |          |       | operating     |  | Capital    
|March 31, 2002                                |  | Revenues |       | (loss)/profit |  | employed(2)
|(in millions)                                 |  | £        |       | £             |  | £          
|                                              |  |         
|                                              |  |         
|Network equipment                             |  |          | 1,804 |               |  |             | (464 | ) |  |  |     | 
|                                              |  |          |       |               |  |             |      |   |  |  | 607 | 
|Network services                              |  |          | 969   |               |  |             | 35   |   |  |  |     | 
|Capital (net of intra segment revenue of £32) |  |          | 390   |               |  |             | (138 | ) |  |  | 122 | 
|Discontinued(1)                               |  |          | 1,404 |               |  |             | 104  |   |  |  | 196 | 
|                                              |  |         
|Segment total  U.K. GAAP                     |  |          | 4,567 |               |  |             | (463 | ) |  |  | 925 | 
|                                              |  |         



| |     |                                                                                                                                                                                                                                                                                          
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | For fiscal 2003 discontinued operations relate to
    mobile and for fiscal 2002 discontinued operations are related
    to data systems, medical systems and mobile.                                                                                                                    
|
| | (2) | Included in capital employed are the following:
    property, plant and equipment, inventory, accounts receivable,
    prepaid expense and other current assets, other non-current
    assets, accounts payable, accrued liabilities, non-current
    liabilities, and other liabilities.

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Analysis of revenue by product (U.K.
GAAP)

|                        |       |                                                           |     |      |     |      |       |       |       |  |       |       |       | 
|----------------------- | ----- | --------------------------------------------------------- | --- | ---- | --- | ---- | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|                        |       | 2004                                                      |     | 2003 |     | 2002
|                        |       | £                                                         |     | £    |     | £   
|                        |       |                                                          
|                        |       |                                                          
|Network Equipment:      |       |                                                           |     |      |     |      |       |       |       |  |       |      
|Optical Networks        |       |                                                           | 35  |      |     |      | 439   |       |       |  | 737   |      
|BBRS                    |       |                                                           | 9   |      |     |      | 142   |       |       |  | 209   |      
|European Access         |       |                                                           | 19  |      |     |      | 258   |       |       |  | 361   |      
|North American Access   |       |                                                           | 13  |      |     |      | 95    |       |       |  | 121   |      
|Outside Plant & Power   |       |                                                           | 18  |      |     |      | 140   |       |       |  | 247   |      
|Other Network Equipment |       |                                                           | 6   |      |     |      | 57    |       |       |  | 129   |      
|                        |       |                                                          
|                        | Total |                                                           |     | 100  |     |      |       | 1,131 |       |  |       | 1,804 |      
|Network Services:       |       |                                                           |     |      |     |      |       |       |       |  |       |      
|IC&M                    |       |                                                           | 35  |      |     |      | 370   |       |       |  | 528   |      
|VAS                     |       |                                                           | 33  |      |     |      | 373   |       |       |  | 441   |      
|                        |       |                                                          
|                        | Total |                                                           |     | 68   |     |      |       | 743   |       |  |       | 969   |      
|                        |       |                                                          
|                        |       | Total Network Equipment and Network Services
    revenues |     |      | 168 |      |       |       | 1,874 |  |       |       | 2,773 | 
|Total capital revenue   |       |                                                           |    |      |     |      | 40    |       |       |  | 390   |      
|Total discontinued      |       |                                                           |    |      |     |      | 88    |       |       |  | 1,404 |      
|                        |       |                                                          
|Total revenues          |       |                                                           | 168 |      |     |      | 2,002 |       |       |  | 4,567 |      
|                        |       |                                                          

Reconciliation of U.K. GAAP segmental
information to U.S. GAAP

Revenue

|                                     |              |      |     |      |  |      |       |      |   |  |       |      |  
|------------------------------------ | ------------ | ---- | --- | ---- |  | ---- | ----- | ---- | - |  | ----- | ---- | -
|                                     |              | 2004 |     | 2003 |  | 2002
|(in millions)                        |              | £    |     | £    |  | £   
|                                     |              |     
|                                     |              |     
|Revenue in accordance with U.K. GAAP |              |      | 168 |      |  |      | 2,002 |      |   |  | 4,567 |     
|Discontinued operations:             |              |      |     |      |  |      |       |      |   |  |       |     
|                                     | data systems |      |     |     |  |      |       |     |   |  |       | (175 | )
|                                     | Medical      |      |     |     |  |      |       |     |   |  |       | (584 | )
|                                     | Mobile       |      |     |     |  |      |       | (106 | ) |  |       | (355 | )
|Joint ventures                       |              |      |    |      |  |      |      |      |   |  | (257  | )   
|Long-term contract adjustment        |              |      |    |      |  |      |      |      |   |  | 50    |     
|                                     |              |     
|Revenue in accordance with U.S. GAAP |              |      | 168 |      |  |      | 1,896 |      |   |  | 3,246 |     
|                                     |              |     

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Operating (loss)/income

|                                                                                                                                                              |                                                                                      |      |       |       |   |      |      |      |   |  |        |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ---- | ----- | ----- | - | ---- | ---- | ---- | - |  | ------ | ------ | -
|                                                                                                                                                              |                                                                                      | 2004 |       | 2003  |   | 2002
|(in millions)                                                                                                                                                 |                                                                                      | £    |       | £     |   | £   
|                                                                                                                                                              |                                                                                      |     
|                                                                                                                                                              |                                                                                      |     
|Segmental operating loss per U.K. GAAP                                                                                                                        |                                                                                      |      | (38   | )     |   |      | (316 | )    |   |  | (463   | )     
|                                                                                                                                                              | Amortization expense                                                                 |      |       | (13   | ) |      |      | (104 | ) |  |        | (433   | )
|                                                                                                                                                              | Share of associates operating loss                                                   |      |       |      |   |      |      | (89  | ) |  |        | (181   | )
|                                                                                                                                                              | Operating exceptional items                                                          |      |       | (2    | ) |      |      | (358 | ) |  |        | (5,216 | )
|                                                                                                                                                              |                                                                                      |     
|U.K. GAAP operating loss                                                                                                                                      |                                                                                      |      | (53   | )     |   |      | (867 | )    |   |  | (6,293 | )     
|                                                                                                                                                              | Joint ventures and associates operating
    loss/(profit)                            |      |       |      |   |      |      | 129  |   |  |        | 178    |  
|                                                                                                                                                              | U.K. GAAP non-operating exceptional items
    included in U.S. GAAP operating income |      |       |      |   |      |      |     |   |  |        | 36     |  
|                                                                                                                                                              | U.K. GAAP operating loss/(income) of discontinued
    operations                     |      |       |      |   |      |      | 70   |   |  |        | 35     |  
|U.S. GAAP adjustments:                                                                                                                                        |                                                                                      |      |       |       |   |      |      |      |   |  |        |       
|                                                                                                                                                              | Share option plans                                                                   |      |       | (9    | ) |      |      | (14  | ) |  |        | (31    | )
|                                                                                                                                                              | Long-term contract adjustment                                                        |      |       |      |   |      |      |     |   |  |        | 30     |  
|                                                                                                                                                              | Pension and other post-retirement benefits                                           |      |       | (3    | ) |      |      | 11   |   |  |        | 30     |  
|                                                                                                                                                              | Goodwill and intangible asset amortization and
    impairment Charges                |      |       | 7     |   |      |      | 37   |   |  |        | (298   | )
|                                                                                                                                                              | Gain/(loss) on disposal of businesses                                                |      |       |      |   |      |      | 5    |   |  |        | (68    | )
|                                                                                                                                                              | Restructuring costs                                                                  |      |       |      |   |      |      | 18   |   |  |        | (10    | )
|                                                                                                                                                              | Other                                                                                |      |       |      |   |      |      | 3    |   |  |        | (1     | )
|                                                                                                                                                              |                                                                                      |     
|U.S. GAAP operating loss                                                                                                                                      |                                                                                      |      | (58   | )     |   |      | (608 | )    |   |  | (6,392 | )     
|                                                                                                                                                              | (Loss)/gain on investments, net                                                      |      |       |      |   |      |      | (45  | ) |  |        | 89     |  
|                                                                                                                                                              | Gain on financial restructuring                                                      |      |       | 2,183 |   |      |      |     |   |  |        |       |  
|                                                                                                                                                              | Gain on settlement of equity forward contracts                                       |      |       | 123   |   |      |      |     |   |  |        |       |  
|                                                                                                                                                              | Other income                                                                         |      |       |      |   |      |      | 34   |   |  |        | 166    |  
|                                                                                                                                                              | Interest income                                                                      |      |       | 29    |   |      |      | 45   |   |  |        | 40     |  
|                                                                                                                                                              | Interest expense                                                                     |      |       |      |   |      |      | (329 | ) |  |        | (272   | )
|                                                                                                                                                              |                                                                                      |     
|U.S. GAAP income/(loss) from continuing
    operations before income taxes, minority interests and
    cumulative effects of changes in accounting principles |                                                                                      |      | 2,277 |       |   |      | (903 | )    |   |  | (6,369 | )     
|                                                                                                                                                              |                                                                                      |     

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Capital employed/total assets

|                                                           |                                                                             |      |   |      |  |  |        |        |  
|---------------------------------------------------------- | --------------------------------------------------------------------------- | ---- | - | ---- |  |  | ------ | ------ | -
|                                                           |                                                                             | 2004 |   | 2003
|(in millions)                                              |                                                                             | £    |   | £   
|                                                           |                                                                             |     
|                                                           |                                                                             |     
|Total U.K. GAAP segment capital
    employed               |                                                                             |      |  |      |  |  | 193    |       
|Capital employed of fixed asset investments                |                                                                             |      |  |      |  |  | 47     |       
|Corporate capital employed not allocated to
    segments:  |                                                                             |      |   |      |  |  |        |       
|                                                           | Goodwill                                                                    |      |   |     |  |  |        | 597    |  
|                                                           | Net amount due from related parties                                         |      |   |     |  |  |        | 21     |  
|                                                           | Tax                                                                         |      |   |     |  |  |        | (137   | )
|                                                           | Net interest bearing assets and liabilities                                 |      |   |     |  |  |        | (2,780 | )
|                                                           | Net assets of non trading entities                                          |      |   |     |  |  |        | 227    |  
|                                                           |                                                                             |     
|U.K. GAAP capital employed                                 |                                                                             |      |  |      |  |  | (1,832 | )     
|U.S. GAAP adjustments:                                     |                                                                             |      |   |      |  |  |        |       
|                                                           | Provisions for restructuring not included in U.K.
    GAAP capital employed |      |   |     |  |  |        | (355   | )
|                                                           | Provisions for restructuring not included in U.S.
    GAAP capital employed |      |   | 9    |  |  |        |       |  
|                                                           | Goodwill and intangible asset amortization and
    impairment charges       |      |   |     |  |  |        | 161    |  
|                                                           | Derivatives                                                                 |      |   |     |  |  |        | (68    | )
|                                                           | Pensions and other post-retirement benefits                                 |      |   |     |  |  |        | (9     | )
|                                                           | Other                                                                       |      |   |     |  |  |        | (10    | )
|                                                           |                                                                             |     
|                                                           |                                                                             |      | 9 |      |  |  | (2,113 | )     
|Add back credit balances included in capital
    employed: |                                                                             |      |   |      |  |  |        |       
|                                                           | Accounts payable                                                            |      |   |     |  |  |        | 163    |  
|                                                           | Accrued expenses and other current liabilities                              |      |   |     |  |  |        | 1,048  |  
|                                                           | Net liabilities of discontinued operations                                  |      |   |     |  |  |        | 12     |  
|                                                           | Current portion of long term debt                                           |      |   |     |  |  |        | 1,806  |  
|                                                           | Short-term debt                                                             |      |   |     |  |  |        | 2,195  |  
|                                                           |                                                                             |     
|Total U.S. GAAP assets                                     |                                                                             |      | 9 |      |  |  | 3,111  |       
|                                                           |                                                                             |     

U.K.  U.S. GAAP
adjustments

The following describes the significant U.K. GAAP
to U.S. GAAP adjustments as they relate to segment information.



| |   |                       
| | - | ----------------------
| |  | Joint venture revenues

As required under U.K. GAAP, the segment revenue
total includes the Companys share of revenues earned by
joint ventures. Accordingly, the Companys share of joint
ventures revenue is deducted in reconciling from revenue as
reported under U.K. GAAP to the revenue recorded in the U.S.
GAAP consolidated financial statements.



|  |                                          
|- | -----------------------------------------
| | U.K. GAAP operating exceptional
    items

Under U.K. GAAP, amounts included within
operating profit may be separately disclosed if they are unusual
in size or nature and are not expected to recur. These items are
referred to as operating exceptional items. There is no
equivalent term or treatment in U.S. GAAP and such items are
included in an appropriate line item in arriving at operating
(loss)/profit.

For fiscal 2004, 2003 and 2002, the operating
exceptional items have been classified under business
restructuring charges, direct costs and long-lived asset
impairments in the consolidated statement of operations due to
the nature of the balances.

F-35



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|  |                        
|- | -----------------------
| | Discontinued operations

U.K. GAAP requires disclosure as discontinued
operations any businesses ceased or disposed of before the
earlier of three months after the balance sheet date and the
approval date of the financial statements. Under U.S. GAAP,
discontinued operations also include those operations where
management has committed to a formal plan of disposal by the
balance sheet date. Under U.S. GAAP, the results of the Mobile
Communications, Medical Systems, Data Systems and MES businesses
have been presented as discontinued operations for all years
reported.



|  |                   
|- | ------------------
| | Share option plans

Under both U.K. GAAP and U.S. GAAP, share option
plans give rise to compensation expense when specified criteria
are met. The measurement date and calculation of expense can be
different, giving rise to GAAP adjustments to compensation
expense, accrued liabilities, and additional paid-in capital as
well as goodwill and amortization if such options are issued in
connection with a business combination.



|  |                              
|- | -----------------------------
| | Long-term contract adjustment

An agreement existed for the sale of equipment,
which has been installed and accepted by the customer. Under
U.K. GAAP, these types of arrangements qualify for long-term
contract accounting with revenue recorded based on work
performed under the contract. U.S. GAAP does not permit revenue
recognition in those instances where specific criteria have not
yet occurred, and where the obligation for the customer to pay
has not yet fallen due. Accordingly, adjustments arise due to
the timing differences for recognition under U.K. and U.S. GAAP.
At March 31, 2004, 2003 and 2002, there were no cumulative
differences in revenue recognized between U.K. and U.S. GAAP.



|  |                                               
|- | ----------------------------------------------
| | Pension and other post-retirement
    benefits

Under both U.K. GAAP and U.S. GAAP pension costs
are provided for so as to provide for future pension
liabilities. However, there are differences in the prescribed
methods of valuation, which give rise to GAAP adjustments to the
pension cost and obligation or prepayment. Furthermore, under
U.K. GAAP the notional interest cost associated with the pension
and post-retirement benefit obligation is classified as interest
expense, whereas under U.S. GAAP it is classified with employee
costs.



|  |                                                                      
|- | ---------------------------------------------------------------------
| | Goodwill and intangible asset amortization and
    impairment charges

Under both U.K. and U.S. GAAP, the purchase price
of a transaction accounted for as an acquisition is based on the
fair value of the consideration. Differences in the carrying
value of goodwill arise as the result of U.S. GAAP differences
in the net assets acquired, such as the treatment of share
options issued for acquisitions and deferred taxes. Such
differences in the calculation of goodwill resulted in
differences in amortization expense. Also, effective
April 1, 2002, goodwill is no longer amortized under U.S.
GAAP but continues to be amortised for U.K. GAAP. Differences in
the impairment loss recognized arise as a result of the
differences in the carrying value of the underlying goodwill and
net assets under U.K. GAAP and U.S. GAAP.



|  |                                                                          
|- | -------------------------------------------------------------------------
| | Gain/(loss) on sale of businesses and gain on
    financial restructuring

Differences in the gain or loss on the sale of a
business and in the gain on financial restructuring arise as a
result of the differences in the carrying value of the
underlying net assets under U.K. GAAP and U.S. GAAP.



|  |                    
|- | -------------------
| | Restructuring costs

Under U.K. GAAP, provisions are recognized when
the Company has a present obligation as a result of a past
event, when it is probable that a transfer of economic benefits
will be required to settle the obligation, and when a reliable
estimate can be made of the amount of the obligation. Under U.S.
GAAP, a number of

F-36



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##### Table of Contents



specific criteria must be met before
restructuring costs can be recognized as an expense. Among these
criteria is the requirement that all significant actions arising
from the restructuring plan and their completion dates must be
identified by the balance sheet date, and employees must be
notified in order for termination benefits to be accrued.
Accordingly, adjustments arise due to the timing differences for
recognition under U.K. and U.S. GAAP.




|  |            
|- | -----------
| | Derivatives

Under U.S. GAAP, the carrying amount of certain
hedged items are adjusted for gains or losses attributable to
the hedged risk. This unrealized gain is offset by changes in
the fair value of the derivative. Additionally, on the sale or
early termination of the hedged items, gains and losses are
immediately reclassified to other (income)/expense. Under U.K.
GAAP, these gains and losses are amortized until the date of
termination.

Major customers

At March 31, 2004 the Company no longer
operated any trading activities. At March 31, 2003, the
Company had one customer that accounted for 17% (2002, 12%) of
revenue.

Revenue by geography (U.S.
GAAP)

Revenue to unaffiliated customers by geographic
region is as follows:

|                                     |                                          |                      |    |      |  |      |     |       |  |  |       |       | 
|------------------------------------ | ---------------------------------------- | -------------------- | -- | ---- |  | ---- | --- | ----- |  |  | ----- | ----- | 
|                                     |                                          |                     
|                                     |                                          | Year ended March 31,
|                                     |                                          | 2004                 |    | 2003 |  | 2002
|(in millions)                        |                                          | £                    |    | £    |  | £   
|                                     |                                          |                     
|                                     |                                          |                     
|Revenue by territory of destination: |                                          |                      |    |      |  |      |     |       |  |  |       |      
|United Kingdom                       |                                          |                      | 42 |      |  |      | 500 |       |  |  | 837   |      
|Other                                |                                          |                      | 58 |      |  |      | 668 |       |  |  | 958   |      
|                                     |                                          |                     
|                                     | Total Europe, Middle East, Africa (EMEA) |                      |    | 100  |  |      |     | 1,168 |  |  |       | 1,795 | 
|                                     |                                          |                     
|United States                        |                                          |                      | 50 |      |  |      | 519 |       |  |  | 1,064 |      
|Central and Latin America (CALA)     |                                          |                      | 5  |      |  |      | 62  |       |  |  | 118   |      
|Other                                |                                          |                      |   |      |  |      | 15  |       |  |  | 39    |      
|                                     |                                          |                     
|                                     | Total the Americas                       |                      |    | 55   |  |      |     | 596   |  |  |       | 1,221 | 
|                                     |                                          |                     
|Asia Pacific (APAC)                  |                                          |                      | 13 |      |  |      | 132 |       |  |  | 230   |      
|                                     |                                          |                     
|                                     | Total external revenue                   |                      |    | 168  |  |      |     | 1,896 |  |  |       | 3,246 | 
|                                     |                                          |                     

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##### Table of Contents



|                                 |                                          |                      |    |      |  |      |     |       |  |  |       |       | 
|-------------------------------- | ---------------------------------------- | -------------------- | -- | ---- |  | ---- | --- | ----- |  |  | ----- | ----- | 
|                                 |                                          |                     
|                                 |                                          | Year ended March 31,
|                                 |                                          | 2004                 |    | 2003 |  | 2002
|(in millions)                    |                                          | £                    |    | £    |  | £   
|                                 |                                          |                     
|                                 |                                          |                     
|Revenue by territory of origin:  |                                          |                      |    |      |  |      |     |       |  |  |       |      
|United Kingdom                   |                                          |                      | 58 |      |  |      | 692 |       |  |  | 1,058 |      
|Italy                            |                                          |                      | 19 |      |  |      | 230 |       |  |  | 299   |      
|Other                            |                                          |                      | 21 |      |  |      | 219 |       |  |  | 449   |      
|                                 |                                          |                     
|                                 | Total Europe, Middle East, Africa (EMEA) |                      |    | 98   |  |      |     | 1,141 |  |  |       | 1,806 | 
|                                 |                                          |                     
|United States                    |                                          |                      | 58 |      |  |      | 534 |       |  |  | 1,009 |      
|Central and Latin America (CALA) |                                          |                      | 4  |      |  |      | 57  |       |  |  | 188   |      
|Other                            |                                          |                      |   |      |  |      | 18  |       |  |  | 42    |      
|                                 |                                          |                     
|                                 | Total the Americas                       |                      |    | 62   |  |      |     | 609   |  |  |       | 1,239 | 
|                                 |                                          |                     
|Asia Pacific (APAC)              |                                          |                      | 8  |      |  |      | 146 |       |  |  | 201   |      
|                                 |                                          |                     
|                                 | Total external revenue                   |                      |    | 168  |  |      |     | 1,896 |  |  |       | 3,246 | 
|                                 |                                          |                     

No other individual country contributed more than
10% of revenue in any of the years reported.

Revenue by product (U.S.
GAAP)

Revenue by product is as follows:

|                   |                                             |                      |     |      |  |      |       |       |  |  |       |       | 
|------------------ | ------------------------------------------- | -------------------- | --- | ---- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                   |                                             |                     
|                   |                                             | Year ended March 31,
|                   |                                             | 2004                 |     | 2003 |  | 2002
|(in millions)      |                                             | £                    |     | £    |  | £   
|                   |                                             |                     
|                   |                                             |                     
|                   | Optical networks                            |                      |     | 35   |  |      |       | 439   |  |  |       | 787   | 
|                   | Access systems                              |                      |     | 50   |  |      |       | 493   |  |  |       | 729   | 
|                   | Broadband routing and switching             |                      |     | 9    |  |      |       | 142   |  |  |       | 209   | 
|                   | Other network equipment                     |                      |     | 6    |  |      |       | 57    |  |  |       | 87    | 
|                   |                                             |                     
|Network Equipment  |                                             |                      | 100 |      |  |      | 1,131 |       |  |  | 1,812 |      
|                   |                                             |                     
|                   | Value-added services                        |                      |     | 33   |  |      |       | 373   |  |  |       | 441   | 
|                   | Installation, commissioning and maintenance |                      |     | 35   |  |      |       | 370   |  |  |       | 528   | 
|                   |                                             |                     
|Network Services   |                                             |                      | 68  |      |  |      | 743   |       |  |  | 969   |      
|                   |                                             |                     
|                   | Total Core revenues                         |                      |     | 168  |  |      |       | 1,874 |  |  |       | 2,781 | 
|Capital businesses |                                             |                      |    |      |  |      | 22    |       |  |  | 465   |      
|                   |                                             |                     
|                   | Total external revenue                      |                      |     | 168  |  |      |       | 1,896 |  |  |       | 3,246 | 
|                   |                                             |                     

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Long-lived assets

Within capital employed, the balance sheet
measure reviewed by the chief operating decision maker, the only
long-lived assets included are property, plant and equipment and
other non-current assets.

Expenditure by sector on property, plant and
equipment is as follows:

|                        |       |                      |   |      |  |      |    |    |  |  |     |     | 
|----------------------- | ----- | -------------------- | - | ---- |  | ---- | -- | -- |  |  | --- | --- | 
|                        |       |                     
|                        |       | Year ended March 31,
|                        |       | 2004                 |   | 2003 |  | 2002
|(in millions)           |       | £                    |   | £    |  | £   
|                        |       |                     
|                        |       |                     
|Network Equipment       |       |                      |  |      |  |      | 34 |    |  |  | 168 |    
|Network Services        |       |                      |   |      |  |      |    |    |  |  |     |    
|Capital                 |       |                      |  |      |  |      | 1  |    |  |  | 159 |    
|                        |       |                     
|                        | Total |                      |   |     |  |      |    | 35 |  |  |     | 327 | 
|Discontinued operations |       |                      |  |      |  |      | 8  |    |  |  | 35  |    
|                        |       |                     
|                        | Total |                      |   |     |  |      |    | 43 |  |  |     | 362 | 
|                        |       |                     

The geographical split of property, plant and
equipment and goodwill and intangibles is as follows:

|               |  |                      |   |      |  |      |       |  |  |  |       | 
|-------------- |  | -------------------- | - | ---- |  | ---- | ----- |  |  |  | ----- | 
|               |  |                     
|               |  | Year ended March 31,
|               |  | 2004                 |   | 2003 |  | 2002
|(in millions)  |  | £                    |   | £    |  | £   
|               |  |                     
|               |  |                     
|United Kingdom |  |                      |  |      |  |      | 567   |  |  |  | 638   | 
|United States  |  |                      |  |      |  |      | 249   |  |  |  | 354   | 
|Italy          |  |                      |  |      |  |      | 48    |  |  |  | 59    | 
|Other          |  |                      |  |      |  |      | 157   |  |  |  | 251   | 
|               |  |                     
|Total          |  |                      |  |      |  |      | 1,021 |  |  |  | 1,302 | 
|               |  |                     

Long-lived assets within other countries are not
individually material for any fiscal year presented.

11. Commitments and
contingencies

Legal proceedings

Under the M (2003) plc scheme of
arrangement, any and all legal claims against
M (2003) plc as at March 27, 2003, whether
liquidated or unliquidated, or actual or contingent, were
compromised. Therefore, there are no circumstances under which
any of these claims will result in liability for
M (2003) plc. Certain of these claims, however, may
result in payments by the M (2003) plc scheme of
arrangement. Where such a claim is pending or threatened and may
have or has had in the recent past, including at least the
12 months immediately preceding the date of this annual
report, a significant effect on the financial position of the
scheme as a whole, this is set out below. Where a liquidated sum
is claimed, a de minimisfigure of £5 million
has been applied in determining which claims may have a
significant effect. The figures given are the full amounts
claimed by the claimants in each case, which may be much greater
than the amounts the claimants realistically believe they can
recover. We and our other former group companies intend to
defend claims vigorously. While we believe that we have
meritorious defenses, the duration and outcome of the litigation
are not predictable at this point.

The following represents the largest recent or
outstanding claims made against us:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Systems Management Specialists, Inc., or SMS, is
    a defendant in a demand for arbitration brought by Esprit de
    Corp, or Esprit, in April 2002. This action relates to two
    outsourcing agreements entered into by Esprit and SMS in 1995
    and 1999; Esprit alleges that SMS breached its obligations under
    the agreements and is seeking damages in range of
    U.S.$8.8-U.S.$18.2 million. M (2003) plc was
    originally a party to the arbitration demand under a legal
    theory alleging that SMS and M (2003) plc

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | are alter egos of one another. In April 2002, M
    (2003) plc filed a complaint for declaratory and injunctive
    relief in the US District Court for the Central District of
    California, to enjoin Esprits attempt to proceed in
    arbitration against M (2003) plc. In June, 2002, Esprit and M
    (2003) plc filed a joint stipulation to stay and enjoin the
    arbitration preceding as to M (2003) plc. In July 2002, M (2003)
    plc filed a motion to dismiss Esprits claims and a motion
    moved to stay the federal court proceeding until after the
    arbitration between SMS and Esprit concluded. The Court denied M
    (2003) plcs motion to dismiss, but granted
    M (2003) plcs motion to stay, and, therefore,
    Esprit will be permitted to proceed on its claims against M
    (2003) plc only after the arbitration between SMS and
    Esprit is completed, and only to the extent Esprit prevails on
    any of its claims in the arbitration against SMS. The parties
    had agreed to conduct the arbitration hearing between
    October 13-24, 2003, and significant discovery had taken
    place. Beginning in September 2003, the parties reached a
    settlement in principle in the U.S.$710,000-U.S.$725,000 range,
    payable to Esprit in exchange for a full release and settlement
    of the actions. On September 28, 2004 the company and
    Scheme Supervisors finally reached agreement with Esprit.                                                                                                                                                                                                                                                                                                                   
|
| |  | Marconi Corporation plc and Marconi Commerce
    Systems Inc., or MCSI, are defendants in an action brought by a
    former employee, Larry Anthony Gillus, or Gillus. The complaint
    alleges that Gillus suffered racial discrimination and
    subsequent retaliatory action whilst employed by Gilbarco,
    subsequently known as MCSI, which has now been sold to
    subsidiaries of Danaher Corporation plc. A second claim has been
    brought against M (2003) plc and MCSI for retaliation
    and intentional infliction of emotional distress alleged to have
    occurred after he brought the original action. Additionally, on
    September 10, 2003, the Court granted plaintiffs
    motion to add a breach of employment contract claim and
    injunctive relief. Gillus counsel has in the past stated
    that he is seeking a total of U.S.$19 million in respect of
    both claims. Potential liabilities in respect of the claim
    against Marconi Corporation plc and M (2003) plc
    were compromised pursuant to its restructuring. As a result, on
    November 5, 2003, Gillus voluntarily dismissed without
    prejudice Marconi Corporation plc and
    M (2003) plc from the cases, thereby retaining his
    right to bring the same claim against the defendants in the
    future. Discovery has been completed with respect to the
    remaining defendant. On August 5, 2004, the Court issued an
    order that trial shall not be scheduled prior to
    February 1, 2005. On August 16, 2004, MCSI filed
    Motions for Summary Judgment in both actions. On
    September 13, 2004, Gillus filed a Brief in Opposition to
    MCSIs Motions for Summary Judgment in both actions.
    MCSIs Reply Briefs are due on October 4, 2004.
|
| |  | Marconi Corporation plc,
    M (2003) plc, Marconi Inc. and Marconi Data Systems
    Inc. are defendants in an action brought by a former employee,
    Thomas Edeus, or Edeus. The complaint asserts three causes of
    action; firstly that Edeus was unlawfully deprived of benefits
    to which he was entitled under Marconi Data Systems Incs
    United States severance plan; secondly for failure to provide
    Edeus with a summary plan description relating to the severance
    plan; and thirdly for age discrimination in employment. The
    plaintiff has purported to have made out claims in various
    specified amounts totaling over U.S.$901,000, some of which may
    be in the alternative, and also unspecified punitive damages,
    liquidated damages and front and back pay, making the impact of
    this claim on us and the former group difficult to assess. An
    answer and affirmative defenses have been filed on behalf of all
    defendants. On June 5, 2003, the court entered an order
    providing as follows: Plaintiff having advised the court
    that one or more defendants [sic] are in Bankruptcy, this
    action is placed on the courts [suspense] calendar pending
    disposition of the bankruptcy case. Plaintiff is directed to
    file a notice for hearing a motion to reinstate upon disposition
    of the bankruptcy proceedings. Potential liabilities in
    respect of the claim against Marconi Corporation plc and
    M (2003) plc were compromised pursuant to our
    restructuring.                                                                                                                                                                                                                  
|
| |  | M (2003) plc and four of its former
    officers were defendants in a consolidated class action lawsuit
    pending in the United States District Court for the Western
    District of Pennsylvania brought on behalf of a putative class
    of all persons, other than defendants and their respective
    affiliates, who purchased American depository receipts or were
    United States residents and purchased common stock of
    M (2003) plc between April 10, 2001 and
    July 5, 2001, inclusive. Plaintiffs alleged that, during                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | this period, M (2003) plc and the individual
    defendants falsely reassured investors that Marconis
    revenues would rise during the year and that its geographic and
    business mix left it relatively immune to the economic downturn
    affecting its competitors. Plaintiffs further alleged that on
    July 4, 2001 defendants belatedly disclosed that tougher
    trading conditions in the quarter ended June 30, 2001
    indicated that M (2003) plcs sales and operating
    profits for fiscal 2002 would fall significantly from the levels
    previously estimated. Defendants alleged
    misrepresentations were said to violate the anti-fraud
    provisions of Section 10(b) of the U.S. Securities Exchange
    Act of 1934 and, as to the individual defendants,
    Section 20(a) of the U.S. Securities Exchange Act of 1934.
    Plaintiffs sought class certification, an award of unspecified
    damages, counsel and expert fees and other costs of suit and
    other unspecified relief. All defendants filed a motion to
    dismiss the lawsuit, which by opinion and order dated
    September 18, 2002, was granted in part and denied in part.
    The Court ruled that it had no jurisdiction over claims of
    holders of Marconi ordinary shares not residents of the United
    States, but had jurisdiction over claims of American resident
    owners of ordinary shares and owners of ADRs. The parties agreed
    to a settlement, which resulted in M (2003) plc and
    the Marconi group not making a payment to the claimants. The
    court approved the settlement and entered the final order and
    judgment on January 16, 2004. No appeals were filed and the
    settlement is now final. The lawsuit has been dismissed.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In April 2002, 11 former employees of Ten Square
    Inc. brought a claim against directors of their company for
    fraud in reducing their compensation package before liquidating
    the company and restarting it under a different name. The claim
    was for a total of $2,160,050.91. The plaintiffs alleged that
    M (2003) plc was a director of Ten Square Inc.
    although in fact M (2003) plc only had a right to
    appoint a director, a right M (2003) plc had not
    recently exercised. Marconi Ventures was also named as a
    plaintiff on September 9, 2002. The plaintiffs did not
    serve proceedings upon M (2003) plc and on
    October 24, 2002 an order for the dismissal of the claim
    against M (2003) plc and Marconi Ventures was entered.
    However, M (2003) plc was named in the second amended
    complaint which was filed on December 24, 2002.
    M (2003) plc is aware of the action but has not been
    served and is not yet a party to it. Potential liabilities in
    respect of the claim against M (2003) plc have been
    compromised pursuant to the M (2003) plc scheme of
    arrangement.

Since March 27, 2003, we are not and have
not been engaged in, nor, so far as we are aware, do we have
pending or threatened by or against us, any additional legal or
arbitration proceedings which may have or have had a significant
effect on our financial position as a whole.

Third party guarantees

The Company has previously entered into
agreements that contained features, which meet the definition of
a guarantee under FIN 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others. FIN 45 defines a
guarantee to be a contract that contingently requires the
Company to make payments (either in cash, financial instruments,
other assets, common shares of the Company or through the
provision of services) to a third party based on changes in an
underlying economic characteristic (such as interest rates or
market value) that is related to an asset, a liability or an
equity security of the other party. FIN 45 requires that upon
issuance of a guarantee, the guarantor must disclose and
recognize a liability for the fair value of the obligation it
assumes under that guarantee. The initial recognition and
measurement requirement of FIN 45 was effective for guarantees
issued or modified after December 31, 2002. As of
March 31, 2004, the fair value of the Companys
guarantees that were issued or modified after December 31,
2002 was not material.

The Company had the following major types of
guarantees that are subject to the disclosure requirements of
FIN 45.

Financial and other guarantees

The Company and various of its subsidiaries have
previously undertaken, in the normal course of business, to
provide support to the joint ventures of the Company, to meet
their liabilities. These undertakings

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contain financial guarantees. A payment under
these undertakings would have been required in the event of any
of the joint ventures being unable to pay its liabilities.
Payment of this funding would be required if requested by the
joint ventures in accordance with the funding agreements. The
potential amount of future payments, which the Company may be
required to make under these guarantees at March 31, 2004
was £nil.


Other guarantees related primarily to financial
standby letters of credit, irrevocable undertakings to guarantee
payment of a specified financial obligation. The maximum
potential amount of future payments which may be required to be
made by the Company under these guarantees is £nil.

Purchase commitments

In the ordinary course of business the Company
entered into contracts for capital expenditure as set out below:

|              |  |                     |   |      |  |      |   |  |  |  |   | 
|------------- |  | ------------------- | - | ---- |  | ---- | - |  |  |  | - | 
|              |  |                    
|              |  | Capital expenditure
|              |  | commitments        
|              |  | 2004                |   | 2003 |  | 2002
|(in millions) |  | £                   |   | £    |  | £   
|              |  |                    
|              |  |                    
|At March 31   |  |                     |  |      |  |      | 4 |  |  |  | 3 | 
|              |  |                    

Leases

The Company leases certain facilities and
equipment under operating leases, many of which contain renewal
options and escalation clauses. Total rental expense for fiscal
2004 was £5 Million (2003, £34 million and
2002, £43 million).

At March 31, 2004, minimum future rental
commitments under operating leases having non-cancelable lease
terms in excess of one year are £nil (2003,
£128 million)

12. Business combinations

The Company made no acquisitions during fiscal
2004 or 2003. The following table presents information about
acquisitions by the Company during fiscal 2002. All of these
acquisitions were accounted for under the purchase method of
accounting.

The aggregate impact of the acquisitions in
fiscal 2002 was not material to net sales, net loss, or basic
earnings per share.

|            |                   |             |      |          |  |          |    |            |  |             |    |             |  |                                |     |            |  |             |     |   |  |  |     |     |  |  |   |  |  |  |     |  |  |  |     |  | 
|----------- | ----------------- | ----------- | ---- | -------- |  | -------- | -- | ---------- |  | ----------- | -- | ----------- |  | ------------------------------ | --- | ---------- |  | ----------- | --- | - |  |  | --- | --- |  |  | - |  |  |  | --- |  |  |  | --- |  | 
|            |                   |             |      |          |  |          |    |            |  |             |    |             |  |                               
|            |                   |             |      |          |  |          |    |            |  |             |    |             |  | Amortization period (in years)
|            |                   | Acquisition |      | Purchase |  |          |    | Existing   |  | Other       |    | IPRD        |  |                                |     | Existing   |  |            
|            |                   | date        |      | price    |  | Goodwill |    | technology |  | intangibles |    | (after tax) |  | Goodwill*                      |     | technology |  | Other      
|            |                   |             |      | £        |  | £        |    | £          |  | £           |    |             |  |                                |     |            |  | intangibles
|            |                   |            
|            |                   |            
|Fiscal 2002 |                   |             |      |          |  |          |    |            |  |             |    |             |  |                                |     |            |  |             |     |   |  |  |     |     |  |  |   |  |  |  |     |  |  |  |     | 
|Northwood   |                   |             | 5/01 |          |  |          | 19 |            |  |             | 16 |             |  |                                | 2   |            |  |             | 1   |   |  |  | n/a |     |  |  | 7 |  |  |  | 4   |  |  |  | 5   | 
|Telit       |                   |             | 4/01 |          |  |          | 11 |            |  |             | 13 |             |  |                                | 1   |            |  |             | 1   |   |  |  | n/a |     |  |  | 7 |  |  |  | 4   |  |  |  | 5   | 
|Other       |                   |             |      |          |  |          | 3  |            |  |             | 5  |             |  |                                | n/a |            |  |             | n/a |   |  |  | n/a |     |  |  | 7 |  |  |  | n/a |  |  |  | n/a | 
|            |                   |             |      |          |  |          |    |            |  |             |    |             |  |                                |     |            |  |            
|            | Fiscal 2002 Total |             |      |          |  |          |    | 33         |  |             |    | 34          |  |                                |     | 3          |  |             |     | 2 |  |  |     | n/a |  |  |   |  |  |  |     |  |  |  |     |  | 
|            |                   |             |      |          |  |          |    |            |  |             |    |             |  |                                |     |            |  |            



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| | * | Amortization of goodwill ceased effective
    April 1, 2002 following the adoption of SFAS 142.

Northwood is a leading provider of radio planning
and engineering software.

Telit is a company involved in the development of
products for the public mobile network infrastructure. Following
an impairment review in fiscal 2002, an impairment charge of
approximately £13 million was recognized against
goodwill and other intangible assets of Telit, and included
within the (loss)/income from discontinued operations. As a
result, the remaining net book value of the goodwill and
intangible assets associated with Telit at March 31, 2002
was £nil and this was included in the net assets of
discontinued operations at March 31, 2002.

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In addition, reductions to goodwill and other
intangibles arising in respect of prior-year acquisitions
totalling £20 million were recorded in fiscal 2002,
which related primarily to purchase price adjustments made
during 2002.

Purchased in-process research and
development

Fiscal 2002

No in-process research and development was
identified in respect of fiscal 2002 acquisitions, as none of
the acquisitions had significant products that had not reached
technological feasibility.

13. Discontinued operations

During fiscal 2002 the Company established a
formal plan for the disposal of the various businesses
comprising the mobile segment. The strategic communication
business, which represents the majority of the segment, was sold
to Finmeccanica S.p.A. for approximately £387 million
in August 2002. The proceeds were received in the form of cash
and debt assumed by Finmeccanica S.p.A. On February 5,
2002, the Company completed the sale of its data systems
business for net cash proceeds of £283 million.

On October 19, 2001, the Company completed
the sale of its medical systems business for net cash proceeds
of £729 million.

Accordingly, the results of these businesses have
been shown as discontinued operations for all years presented. A
summary of operating results of the medical, data systems and
mobile segments is presented below:

|                                               |  |                      |   |      |  |      |     |   |  |  |       |  
|---------------------------------------------- |  | -------------------- | - | ---- |  | ---- | --- | - |  |  | ----- | -
|                                               |  |                     
|                                               |  | Year ended March 31,
|                                               |  | 2004                 |   | 2003 |  | 2002
|(in millions)                                  |  | £                    |   | £    |  | £   
|                                               |  |                     
|                                               |  |                     
|Revenues                                       |  |                      |  |      |  |      | 106 |   |  |  | 1,114 |  
|Operating loss                                 |  |                      |  |      |  |      | (70 | ) |  |  | (35   | )
|Loss before income taxes and minority interest |  |                      |  |      |  |      | (71 | ) |  |  | (28   | )
|Income tax provision and minority interest     |  |                      |  |      |  |      | (3  | ) |  |  | (36   | )
|Net loss from discontinued operations          |  |                      |  |      |  |      | (74 | ) |  |  | (64   | )

Net assets of discontinued operations are as
follows:

|                                           |                                                |                           |   |      |   |  |     |    |    | 
|------------------------------------------ | ---------------------------------------------- | ------------------------- | - | ---- | - |  | --- | -- | -- | 
|                                           |                                                |                          
|                                           |                                                | March 31,                
|                                           |                                                | 2004                      |   | 2003
|(in millions)                              |                                                | £                         |   | £   
|                                           |                                                |                          
|                                           |                                                |                          
|Assets:                                    |                                                |                           |   |      |   |  |     |   
|                                           | Cash and cash equivalents                      |                           |   |     |   |  |     | 2  |   
|                                           | Accounts receivable                            |                           |   |     |   |  |     | 2  |   
|                                           |                                                | Total current assets      |   |      |  |  |     |    | 4  | 
|                                           |                                                |                          
|                                           |                                                | Total assets              |   |      |  |  |     |    | 4  | 
|                                           |                                                |                          
|Liabilities:                               |                                                |                           |   |      |   |  |     |   
|                                           | Accounts payable                               |                           |   |     |   |  |     | 10 |   
|                                           | Accrued expenses and other current liabilities |                           |   |     |   |  |     | 6  |   
|                                           |                                                |                          
|                                           |                                                | Total current liabilities |   |      |  |  |     |    | 16 | 
|                                           |                                                |                          
|                                           |                                                | Total liabilities         |   |      |  |  |     |    | 16 | 
|                                           |                                                |                          
|Net liabilities of discontinued operations |                                                |                           |  |      |   |  | (12 | ) 
|                                           |                                                |                          

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14. Investments in affiliates

Fiscal 2004

All investments in affiliates were disposed of as
a result of the financial restructuring on May 19, 2003, as
described in note 3.

Fiscal 2003

At March 31, 2003, the Company had two
investments, which it accounted for using the equity method,
Easynet Group plc (Easynet) and Confirmant. At March 31,
2002 Ultramast was also accounted for using the equity method.

In February 2003, the Company completed the
disposition of Ultramast through a capital reduction and settled
all litigation associated with Ultramast. As a result, the
Company acquired an additional 1.3 million ordinary shares
in Easynet, which increased its equity holding to 72.7% and its
holding of voting shares to 51.6%. Under the Articles of
Association of Easynet and the Companys Relationship
Agreement with Easynet, the Companys voting rights were
limited to 49.9%. Accordingly, despite ownership of a
majority-voting shareholder, the Company determined that it did
not control Easynet in the period and the Company continued to
account for its investment in Easynet using the equity method of
accounting. In addition to the Easynet shares, the Company also
received cash proceeds of £41 million reflecting a
gain on disposal of £14 million.

As at December 31, 2002, Easynet had net
liabilities under U.S. GAAP of approximately
£39 million. Consequently, the Company discontinued
recording its share of the losses of Easynet because it had no
commitment to provide further funding to Easynet.

Fiscal 2002

In March 2002, the Company disposed of its 50%
stake in General Domestic Appliances Holdings Limited
(GDA) for cash consideration of £113 million,
recognizing a profit of £35 million on the
transaction. At March 31, 2001, the Company held a 50%
share of GDA for which it accounted under the equity method. At
this time, there was no difference between the carrying value
and the underlying equity in net assets of GDA. GDA was not
listed so a market value cannot be provided.

In July 2001, the Company sold its interest in
ipsaris (a subsidiary) and received a 71.9% equity holding in
and a 49.9% holding in the voting shares in Easynet. As the
Company had 22% of board representation, no unilateral rights or
vetoes, and no involvement in day-to-day operations, the Company
determined that control did not exist, but that significant
influence did exist, and therefore accounted for its investment
using the equity method. The consideration was determined based
on the fair value of the shares received of
£217 million and a loss on disposal of
£185 million was recorded.

Easynet has a December 31 year-end. As
it is a company listed on The London Stock Exchange, no interim
period results are available. Therefore the results from the
date of acquisition to December 31 have been used to record
the equity share of Easynet results. No material events occurred
in the intervening period.

In June 2001, the Company disposed of its
remaining stake in Alstom SA, a publicly traded company which
specializes in the contracting of infrastructure construction
projects for power generation, power transmission and
distribution and railway transportation, for cash consideration
of £235 million, recording a gain on disposal of
£214 million.

In April 2001, the Company invested
£65 million in a 50% equity stake in Ultramast
Limited, a joint venture with Railtrack Telecom Services
Limited. The Company determined that it did not exercise
control, but that significant influence did exist, and therefore
accounted for its investment using the equity method.

Dividends received from equity investments for
fiscal year 2004 were £nil (2003, £nil and 2002,
£29 million).

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Summarized financial information for
investment in affiliates is as follows:

|                   |                         |           |   |      |  |  |     |     | 
|------------------ | ----------------------- | --------- | - | ---- |  |  | --- | --- | 
|                   |                         |          
|                   |                         | March 31,
|                   |                         | 2004      |   | 2003
|(in millions)      |                         | £         |   | £   
|                   |                         |          
|                   |                         |          
|Balance sheet data |                         |           |   |      |  |  |     |    
|                   | Current assets          |           |   |     |  |  |     | 139 | 
|                   | Non-current assets      |           |   |     |  |  |     | 81  | 
|                   |                         |          
|Total assets       |                         |           |  |      |  |  | 220 |    
|                   |                         |          
|                   | Current liabilities     |           |   |     |  |  |     | 94  | 
|                   | Non-current liabilities |           |   |     |  |  |     | 118 | 
|                   |                         |          
|Total liabilities  |                         |           |  |      |  |  | 212 |    
|                   |                         |          

|                             |  |           |   |      |  |      |     |   |  |  |      |  
|---------------------------- |  | --------- | - | ---- |  | ---- | --- | - |  |  | ---- | -
|                             |  |          
|                             |  | March 31,
|                             |  | 2004      |   | 2003 |  | 2002
|(in millions)                |  | £         |   | £    |  | £   
|                             |  |          
|                             |  |          
|Statement of operations data |  |           |   |      |  |      |     |   |  |  |      |  
|Revenues                     |  |           |  |      |  |      | 89  |   |  |  | 291  |  
|Operating loss               |  |           |  |      |  |      | (74 | ) |  |  | (276 | )
|Net loss                     |  |           |  |      |  |      | (81 | ) |  |  | (240 | )

15. Investment in securities

All marketable securities are classified as
available-for-sale and reported at fair value as follows:

|                |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |    | 
|--------------- | ----------------- | -------- |  | ---------- |  | ---------- |  | ---------- |  |  |  | - |  |  |  | -- | 
|                |                   |          |  | Gross      |  | Gross      |  |           
|                |                   | Carrying |  | unrealized |  | unrealized |  | Estimated 
|                |                   | value    |  | Gains      |  | losses     |  | fair value
|(in millions)   |                   | £        |  | £          |  | £          |  | £         
|                |                   |         
|                |                   |         
|March 31, 2004: |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |   
|                | Equity securities |          |  |           |  |            |  |           |  |  |  |  |  |  |  |   | 
|                |                   |         
|March 31, 2003: |                   |          |  |            |  |            |  |            |  |  |  |   |  |  |  |   
|                | Equity securities |          |  | 16         |  |            |  |           |  |  |  |  |  |  |  | 16 | 
|                |                   |         

During fiscal 2004, an impairment charge of
£nil (2003, £38 million, and 2002, £nil) was
recorded in the statement of operations related to declines in
value of equity securities judged to be other than temporary.

Proceeds from the sale of investment in
securities were £289 million for fiscal 2002. The
Company realized gains on the sales of these investments in the
amount of £41 million.

On May 19, 2003 the investment in securities
were disposed of as part of the financial restructuring
described in note 3.

16. Shareholders equity

Holders of ordinary shares in the Company are
entitled to one vote per share on matters to be voted on by the
shareholders, and to receive dividends when and as declared by
the board. Shareholders are not entitled to pre-emptive rights
and have no subscription, redemption or conversion privileges.
The ordinary shares do not have cumulative voting rights. The
rights, preferences and privileges of holders of ordinary shares
are subject to the rights of the holders of shares of any series
of preferred shares issued or that may be issued in the future.

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17. Employee stock option plans

Prior to the financial restructuring the Company
accounted for employee stock option plans under APB 25 and
had nine plans under which it granted options: the GEC Employee
1992 Savings-Related Share Option Plan, the GEC 1984
Managers Share Option Plan, the GEC 1997 Executive Share
Option Plan, the Marconi 1999 Stock Option Plan, the Marconi
U.K. Sharesave Plan, the Marconi International Sharesave Plan,
the Marconi Launch Share Plan, the Marconi Long Term Incentive
Plan and the Marconi Phantom Option Plan. In addition, during
fiscal 2002, the Company granted options in its ADRs under
the Marconi Employee Stock Purchase Plan for the Companys
employees in North America.

As of March 31, 2003, the Company had
granted options under the following eight plans in respect of
the acquisitions of Reltec, Mariposa, MSI and Northwood
Technologies: the 1998 Equity Participation Plan of Reltec
Corporation, the amended and restated 1995 Stock Purchase and
Option Plan for employees of Reltec Holdings Inc., and
subsidiaries, the MSI 1995 Stock Option Plan, the MSI 1999 Stock
Option Plan, the MSIH Stock Option Plan, the Mariposa
Technology, Inc. 1998 Employee Incentive Plan and the Marconi
Restricted Share Plan.

Under the terms of the stock option plans,
employees have been granted rights to purchase ordinary shares
and/or phantom options. The terms of the grant vary and each of
the main plans is described below.

At the date of the financial restructuring,
options outstanding under the majority of plans have been
forfeited because the employees are no longer employed by a
group company. For the remaining share options issued under
variable plans, the compensation cost has been re-measured on
the basis of a £nil value of M (2003) plc stock at
March 31, 2004 because the directors believe that the
shares are worthless. The full expense has been recognized in
the current year because there is no future service period and
the options are not expected to hold any future value.

Plans under which options were still
outstanding in respect of the Companys ordinary shares at
March 31, 2004:

Non-savings related plans

The
Marconi Launch Share Plan

Under this plan, employees at November 30,
1999 were, at the discretion of the board, granted the right to
receive up to 1,000 Company ordinary shares, which would be
exercisable provided that two conditions are met. The first
condition is that the market price of a Company ordinary share
must have doubled from 801.5p to £16.03 during the period
between November 30, 1999 and November 30, 2004. The
second condition is that a participant must normally remain in
employment until November 30, 2002 or, if later, at the
time that the first condition is met. The Company applied
variable plan accounting for grants under this plan and would
have accounted for the compensation expense if the first
condition had been met. At March 31, 2004, 19,589,228
Company shares were outstanding to be purchased under the plan.

Metapath
Software Corporation Amended and Restated 1995 Stock Option
Plan, the Metapath Software International, Inc. Amended and
Restated 1999 Stock Option Plan, and the Mobile Systems
International Holdings Limited Share Option Plan.

Each of these option plans had been in place over
MSI shares prior to the acquisition by the Company in June 2000.
Following the acquisition, MSI option holders who would become
employees of the Company exchanged options over MSI shares for
options over Marconi plc shares. Following the exchange the
option holder was kept in the same economic position as before
the exchange through an adjustment to the exercise price and an
increase in the number of shares under option. The option holder
was given a choice to retain their options with their existing
vesting schedule, or to elect to accept an amended vesting
schedule (vesting one third of their options on each of the
first, second and third anniversaries of the acquisition)
together with an award of restricted stock over the same number
of shares as they had shares under option. Compensation expense
was recognized on the shares that were unvested at the
acquisition date (based on the intrinsic value of the shares as
of the acquisition date) over the vesting period. The fair value
of all shares issued at the date

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##### Table of Contents



of acquisition, less the amount allocated to
compensation expense, has been recorded as a cost of the
acquisition. Certain arrangements under the Marconi Restricted
Share Plan, the Marconi 1999 Stock Option Plan, the MSI 1995
Plan and the MSIH Plan were modified subsequent to acquisition.
As a result, the modified arrangements became subject to
variable accounting.


At March 31, 2004, 2,530,225 Company shares
were outstanding. For fiscal 2004, a charge of approximately
£2 million has been recorded related to these plans to
recognize in full the remaining compensation cost relating to
the outstanding shares.

Mariposa
Technology, Inc. 1998 Employee Incentive Plan

Prior to the acquisition by the Company in
October 2000, options had been granted under The Mariposa
Technology, Inc. 1998 Employee Incentive Plan over Mariposa
Technology, Inc. shares. Following the acquisition, option
holders who would become employees of the Company exchanged
options over Mariposa Technology, Inc, shares for options over
Company shares. Following the exchange the option holder was
kept in the same economic position as before the exchange
through an adjustment to the exercise price and an increase in
the number of shares under option. Compensation expense was
recognized on the shares that were unvested at the acquisition
date (based on the intrinsic value of the shares as of the
acquisition date) over the vesting period. The fair value of all
shares issued at the date of acquisition, less the amount
allocated to compensation expense, has been recorded as a cost
of the acquisition.

At March 31, 2004, 320,684 Company shares
were outstanding. For fiscal 2004, a charge of approximately
£7 million has been recorded related to these plans to
recognize in full the remaining compensation cost relating to
the outstanding shares.



| |                                     
| | ------------------------------------
| | The Marconi Long Term Incentive Plan

Under the long term incentive plan (LTIP),
participants could be granted performance-related awards
entitling them, at the end of a three-year period, to be granted
a right to call for a number of ordinary shares of the Company
without payment based on corporate performance of the business
in which they worked and of the Company as a whole over that
period. The annual award was limited to a maximum value of 50%
of base salary. Any right so granted would normally become
exercisable in three equal tranches. The first tranche would
become exercisable immediately, and the second and third
tranches would normally become exercisable on the first and
second anniversaries of the date of grant. All full-time
employees of the Company, directors of the Company and executive
directors of the Company were eligible to participate in the
long-term incentive plan, at the discretion of the remuneration
committee of the board of directors of the Company. No newly
issued shares could be used to satisfy options under this plan.
The Company applied variable plan accounting for grants under
this plan and recognized compensation cost when achievement of
the performance conditions became probable. No new shares were
granted during the year and no charges were recorded. At
March 31, 2004, 617,963 Company shares were outstanding.

Additional plans at March 31,
2003:

Savings related plans



| |                                
| | -------------------------------
| | The Marconi U.K. Sharesave Plan

All employees of participating U.K. companies
including full-time executive directors were eligible to
participate in the U.K. sharesave plan. Under this plan,
participants were granted options to purchase shares with an
exercise price not less than 80% of the market value of a
Company ordinary share on the trading day immediately before the
invitation day (as defined in the rules of the plan). In order
to participate, each employee must have entered into a savings
contract with a specified financial institution under which they
agreed to make monthly contributions, not exceeding £250
per month in aggregate. The savings contracts typically expired
on the third or fifth anniversary of the date of grant. The plan
was compensatory and compensation expense was recorded over the
vesting period.

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At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

The
Marconi International Sharesave Plan

The international sharesave plan, at the
discretion of the board of directors of Marconi plc permitted
employees of the Company who were resident outside the U.K. to
participate in a share option plan that was substantially
similar to the U.K. sharesave plan. Unlike the U.K. sharesave
plan, under the international sharesave plan the savings
contracts could not generate the exact amount required to
exercise the options because of currency fluctuations and
interest rate differences. Additional cash may have been
required when the options were exercised, however, any excess
savings generated could not be used to purchase additional
shares.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

The
Marconi International Sharesave Plan  Italian
Appendix

All employees and executive directors whose
remuneration was subject to taxation in Italy were eligible to
participate in the Italian Appendix of the International
Sharesave Plan. Under the Italian Appendix of the International
Sharesave Plan, participants could exercise options to purchase
shares with an exercise price not less than the market value of
a Company ordinary share averaged over the 30 trading days
immediately before the date of grant. Upon exercise,
participants would be gifted such number of additional shares as
could be purchased on the market with 10% of their total
accumulated savings and interest. In order to participate, each
employee must have entered into a savings contract with a
specified financial institution under which they agreed to make
monthly contributions, not exceeding the Italian Lira/ Euro
equivalent of £250 per month in aggregate.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

The
Marconi Employee Stock Purchase Plan for Employees in North
America

All employees of participating U.S. and Canadian
companies were eligible to participate in the Stock Purchase
Plan. Employees could purchase shares with after-tax payroll
deductions at the end of an Offering Period, at a price not less
than 85% of the lower of the closing price of a share on the
Offering Date and the closing price of a share on the Purchase
Date (as defined in the rules of the Plan). No employee could
purchase shares pursuant to the Stock Purchase Plan at a rate,
which exceeded U.S.$25,000 in any calendar year or such lower
limit as the Company specified from time to time. This plan was
non-compensatory in nature.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

Non-savings related plans

The
Marconi 1999 Share Option Plan

All employees and full-time executive directors
were eligible to be granted options under the option plan at the
discretion of the remuneration committee. Options granted prior
to July 2001 to participants were not normally exercisable
unless our earnings per share over a period of at least three
financial years exceeded the growth in the U.K. Retail Price
Index by at least an average of 3% per year. Options granted
after July 2001 became exercisable over periods and subject to
conditions defined by the remuneration committee. Options
granted under the plan in November 2001 became progressively
exercisable over four years and were subject to conditions
related to reduction in the Companys consolidated net debt
and the Companys total shareholder return being better
than that of the company at the fiftieth percentile of FTSE 100
companies.

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Options entitled the option holder to acquire
Company ordinary shares at a price per share determined by the
remuneration committee, not less than the market value of a
Company share shortly before the date of grant.


The Company applied variable plan accounting for
grants under this scheme and recognized compensation cost if
achievement of the performance conditions became probable.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

The
Marconi Phantom Option Plan

In June 1999, the GEC remuneration committee
adopted the phantom option plan for the purpose of granting
incentives relating to any increase in our value primarily to
executives and employees of Reltec and Fore Systems following
our acquisition of those businesses. From November 1999, the
Company operated the phantom option plan and made awards by
reference to Company shares and previous awards (grants made
between June 1999 and November 1999 in relation to GEC Shares)
were adjusted so that they related to Company shares on a
value-for-value basis. Following the adjustment the holder of a
phantom unit was kept in the same economic position as before
through an adjustment to the exercise price and an increase in
the number of units. A phantom option is similar to a share
option except that it is a cash-based award granted in relation
to a stated number of phantom units, each of which has the same
economic value as a Company ordinary share. Upon exercise of a
phantom option, the holder was entitled to receive a cash
payment equal to the difference between the base price of the
phantom option (normally corresponding to the market value of a
Company ordinary share at the time the phantom option was
granted) and market value of a Company ordinary share on the
date of exercise. The Company may give notice to participants
that it elects to substitute options to acquire real Company
ordinary shares for phantom options. If such an election is
made, a participant would be required on exercise to pay an
amount equal to the base price of the phantom options to the
Company and would receive Company ordinary shares. Options were
normally exercisable between the third and tenth anniversaries
of grant. The Company recognized compensation expense measured
at the end of each period as the amount by which the quoted
market value of a Company share exceeded the unit price payable
by the unit holder. The expense was recognized over the service
period. Changes, either increases or decreases, in the quoted
market value of the shares between the date of grant and the
date the phantom options were exercised result in a change in
the compensation expense to be recognized.

Where the phantom options were granted in
exchange for Reltec and Fore Systems options as part of
those business combinations, the fair value of those options was
treated as part of the respective purchase prices.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

Marconi
Restricted Share Plan

The Restricted Share Plan was introduced to
enable the Company to award share based incentives to employees
of companies which the Company acquired. The Remuneration
Committee had discretion to make awards of restricted stock,
which entitled the employee to call for shares at £nil cost
once the stock had vested. The stock vested either at certain
specified times or subject to the satisfaction of performance
conditions. In practice the performance conditions imposed
generally related to specific integration targets or business
goals of the acquired company. Once the restrictions had ended
or the conditions had been met, the restricted share vested and
would either be automatically released (in the case of U.S.
employees) or could be called for by the employee (in all other
jurisdictions). The Company applied variable plan accounting for
grants under this plan, and compensation expense was recorded
over the vesting period.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

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##### Table of Contents



The
Marconi Associated Companies Share Option Plan

The associated companies option plan enabled
options to be granted to executives of companies in which the
Company had a direct or indirect equity interest of between 20%
and 50%. The terms of the associated companies option plan were
substantially similar to the Marconi 1999 Share Option Plan. No
options were granted under this plan.

Existing
GEC share option plans

Options plans similar to the Marconi 1999 Stock
Option Plan and the Marconi U.K. Sharesave Plan had been in
place over GEC shares. There was a non-compensatory plan known
as the 1992 Savings-Related Scheme. There was a fixed plan known
as the 1984 Managers Scheme (1984 Scheme). There was a
variable plan known as the 1997 Executive Scheme (1997 Scheme).
During fiscal 2000, option holders who would remain employees of
the Company were able to exchange options over GEC shares for
options over Company shares. Following the exchange the option
holder was kept in the same economic position after the exchange
as before the exchange through an adjustment to the exercise
price and an increase in the number of shares under option. The
exchange resulted in no change in measurement date for either
the 1992 Savings-Related Scheme or the 1984 Scheme. As
performance conditions in respect of the 1997 Scheme ceased to
apply, the measurement date for this option plan occurred. These
performance conditions were the achievement of earnings per
share targets and a vesting period. Option holders in the three
plans who would not remain employees of the Company were able to
exercise their options.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The 1998 Equity Participation Plan of Reltec
    Corporation, the Amended and Restated 1995 Stock Purchase and
    Option Plan for Employees of Reltec Holdings, Inc. and
    Subsidiaries

During fiscal 2002, options originally granted
under the Marconi Phantom Option Plan, governed by the rules of
these plans, were converted to options over Company shares,
governed by the rules of these plans, and continued to be
accounted for as variable options under APB 25.



| |                                                      
| | -----------------------------------------------------
| | The Northwood Technologies Inc. Stock Option
    Plan

Prior to the acquisition by the Company in
October 2002, Northwood Technologies Inc. (Northwood) granted
options under the Northwood Technologies Inc. stock option plan
over Northwood shares. Following the acquisition by the Company,
option holders who would become employees of the Company
exchanged options over Northwood shares for options over 70,536
Company shares. Following the exchange, the option-holder was
kept in the same economic position as before the exchange
through an adjustment to the exercise price and an increase in
the number of shares under option. Compensation expense was
recognized on the shares that were unvested at the acquisition
date (based on the intrinsic value of the shares as of the
acquisition date) over the vesting period. The fair value of all
share issued at the date of acquisition, less the amount
allocated to compensation expense, was recorded as a cost of the
acquisition.

At May 19, 2003, the outstanding options
were forfeited due to the financial restructuring as a result of
which the participants are no longer employees of the Company.

F-50



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##### Table of Contents



Option activity under the non-savings related
plans is as follows:

|                            |                                                    |           |             |              |   |  |      |      | 
|--------------------------- | -------------------------------------------------- | --------- | ----------- | ------------ | - |  | ---- | ---- | 
|                            |                                                    |           |             | Weighted    
|                            |                                                    |           |             | average     
|                            |                                                    | Number of |             | exercise    
|                            |                                                    | shares    |             | price       
|                            |                                                    |          
|                            |                                                    |          
|Outstanding, March 31, 2001 |                                                    |           | 213,455,397 |              |   |  | 4.98 |     
|                            | Granted (weighted average fair value of
    £0.22) |           |             | 87,502,652   |   |  |      | 0.35 | 
|                            | Lapsed                                             |           |             | (35,672,282  | ) |  |      | 6.50 | 
|                            | Exercised                                          |           |             | (7,087,202   | ) |  |      | 0.64 | 
|                            |                                                    |           |             |              |   |  |      |     
|Outstanding March 31, 2002  |                                                    |           | 258,198,565 |              |   |  | 3.32 |     
|                            | Granted                                            |           |             |             |   |  |      |     | 
|                            | Lapsed                                             |           |             | (58,148,518  | ) |  |      | 4.12 | 
|                            | Exercised                                          |           |             | (2,928,096   | ) |  |      | 0.47 | 
|                            |                                                    |           |             |              |   |  |      |     
|Outstanding March 31, 2003  |                                                    |           | 197,121,951 |              |   |  | 3.24 |     
|                            | Granted                                            |           |             |             |   |  |      |     | 
|                            | Forfeited(1)                                       |           |             | (174,063,851 | ) |  |      | 3.61 | 
|                            | Exercised                                          |           |             |             |   |  |      |     | 
|                            |                                                    |           |             |              |   |  |      |     
|Outstanding March 31, 2004  |                                                    |           | 23,058,100  |              |   |  | 0.43 |     
|                            |                                                    |           |             |              |   |  |      |     



| |     |                                                                                                                                                                                             
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | At the date of the financial restructuring,
    options outstanding under the majority of plans have been
    forfeited because the employees are no longer employed by a
    group company.

All options were granted with an exercise price
equal to the market value of shares as of date of grant, with
the exception of those granted for acquisitions and the LTIP as
noted above.

Of the total number of non-savings related
options outstanding at March 31, 2004, none are expected to be
exercised as the Companys shares were delisted as part of
the financial restructuring and there are no circumstances under
which any value will be attributed to these share options. All
options are considered to be anti-dilutive.

Additional information regarding all options
outstanding as of March 31, 2004 is noted in the table
below:

|            |  |                           |            |               |  |           |      |             |  |           |      |  |  |  |           |  |  |  |      | 
|----------- |  | ------------------------- | ---------- | ------------- |  | --------- | ---- | ----------- |  | --------- | ---- |  |  |  | --------- |  |  |  | ---- | 
|            |  |                           |            |              
|            |  | Total options outstanding |            | Total options
|            |  |                           |            | Weighted      |  |           |      | exercisable
|            |  |                           |            | average       |  | Weighted  |      |             |  | Weighted 
|Range of    |  | Total                     |            | remaining     |  | average   |      |             |  | average  
|exercise    |  | number                    |            | contractual   |  | exercise  |      | Number      |  | exercise 
|prices (£)  |  | outstanding               |            | life (years)  |  | price (£) |      | exercisable |  | price (£)
|            |  |                          
|            |  |                          
|nil         |  |                           | 20,207,191 |               |  |           | 2.59 |             |  |           | nil  |  |  |  | 617,963   |  |  |  | nil  | 
|0.03  0.2  |  |                           | 66,715     |               |  |           | 2.54 |             |  |           | 0.19 |  |  |  | 66,715    |  |  |  | 0.19 | 
|0.35  0.8  |  |                           | 324,118    |               |  |           | 5.71 |             |  |           | 0.56 |  |  |  | 324,118   |  |  |  | 0.56 | 
|1.22  2.66 |  |                           | 1,708,105  |               |  |           | 5.21 |             |  |           | 2.12 |  |  |  | 1,708,105 |  |  |  | 2.12 | 
|2.73  4.72 |  |                           | 63,367     |               |  |           | 4.61 |             |  |           | 2.91 |  |  |  | 63,367    |  |  |  | 2.91 | 
|6.85  9.57 |  |                           | 688,604    |               |  |           | 5.89 |             |  |           | 8.73 |  |  |  | 688,604   |  |  |  | 8.73 | 
|            |  |                           |            |               |  |           |      |             |  |           |      |  |  |  |           |  |  |  |      | 
|nil  9.57  |  |                           | 23,058,100 |               |  |           | 2.93 |             |  |           | 0.43 |  |  |  | 3,468,872 |  |  |  | 3.51 | 
|            |  |                           |            |               |  |           |      |             |  |           |      |  |  |  |           |  |  |  |      | 

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18. Fair values of financial
instruments

The carrying amounts and fair values of material
financial instruments at March 31, 2004 and 2003 are as
follows:

|                         |  |          |   |        |  |          |   |        |  |  |      |   |  |  |      |  
|------------------------ |  | -------- | - | ------ |  | -------- | - | ------ |  |  | ---- | - |  |  | ---- | -
|                         |  |          |   |       
|                         |  | 2004     |   | 2003  
|                         |  | Carrying |   | Fair   |  | Carrying |   | Fair  
|                         |  | amounts  |   | values |  | amounts  |   | values
|(in millions)            |  | £        |   | £      |  | £        |   | £     
|                         |  |         
|                         |  |         
|Marketable securities    |  |          |  |        |  |          |  |        |  |  | 16   |   |  |  | 16   |  
|Total long-term debt*    |  |          |  |        |  |          |  |        |  |  | 30   |   |  |  | 30   |  
|Equity forward contracts |  |          |  |        |  |          |  |        |  |  | (158 | ) |  |  | (158 | )



| |   |                                                
| | - | -----------------------------------------------
| | * | excluding current maturities of long-term debt.

The following methods and assumptions were used
in estimating the fair values of financial instruments:

Equity forward contracts

At March 31, 2003 the carrying value and
fair value of the equity forward contracts was
£158 million. As a result of the financial
restructuring, which was concluded on May 19, 2003, an
agreement was reached and these equity forward contracts were
settled for £35 million. See note 2 for further
discussion of these equity forward contracts.

Cash and cash equivalents, receivables,
payables, accrued liabilities and short-term
borrowings

The carrying values of cash and cash equivalents,
receivables, payables, accrued liabilities and short-term
borrowings approximate their fair values due to the short-term
nature of the instruments.

Marketable securities, long-term debt and
finance leases

The fair value of marketable securities has been
determined using quoted market prices. The fair value of finance
leases and long-term debt, including current portion, has been
determined by discounting projected future cash flows, using
reference rates taken from the debt markets at which similar
loans would be made to borrowers with similar credit ratings and
for the same maturities. In the case of the Marconi
Corporation plc bonds, which were guaranteed by
M (2003) plc, a fair value was derived from traded
market prices.

19. Valuation and qualifying
accounts

|                                |  |           |     |            |  |               |    |               |  |             |      |           |  |  |   |  |  |  |    |   |  |  |   | 
|------------------------------- |  | --------- | --- | ---------- |  | ------------- | -- | ------------- |  | ----------- | ---- | --------- |  |  | - |  |  |  | -- | - |  |  | - | 
|                                |  |           |     |            |  | Net effect of |    | Effect of     |  |             |      |          
|                                |  | March 31, |     | Additions/ |  | financial     |    | exchange rate |  |             |      | March 31,
|                                |  | 2003      |     | (release)  |  | restructuring |    | changes       |  | Utilization |      | 2004     
|Description                     |  | £         |     | £          |  | £             |    | £             |  | £           |      | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 78  |            |  |               | (2 | )             |  |             | (76  | )         |  |  |  |  |  |  |   |   |  |  |  | 
|Warranty reserve*               |  |           | 43  |            |  |               | 2  |               |  |             | (43  | )         |  |  |  |  |  |  | (2 | ) |  |  |  | 
|                                |  |          
|Total                           |  |           | 121 |            |  |               |   |               |  |             | (119 | )         |  |  |  |  |  |  | (2 | ) |  |  |  | 
|                                |  |          

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|                                |  |           |     |            |  |               |     |             |  |           |    |   |  |  |      |   |  |  |     | 
|------------------------------- |  | --------- | --- | ---------- |  | ------------- | --- | ----------- |  | --------- | -- | - |  |  | ---- | - |  |  | --- | 
|                                |  |           |     |            |  | Effect of     |     |             |  |          
|                                |  | March 31, |     | Additions/ |  | exchange rate |     |             |  | March 31,
|                                |  | 2002      |     | (release)  |  | changes       |     | Utilization |  | 2003     
|Description                     |  | £         |     | £          |  | £             |     | £           |  | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 167 |            |  |               | (10 | )           |  |           | (7 | ) |  |  | (72  | ) |  |  | 78  | 
|Warranty reserve*               |  |           | 29  |            |  |               | 49  | (1)         |  |           | (1 | ) |  |  | (34  | ) |  |  | 43  | 
|                                |  |          
|Total                           |  |           | 196 |            |  |               | 39  |             |  |           | (8 | ) |  |  | (106 | ) |  |  | 121 | 
|                                |  |          



| |     |                                                                                                                                                                        
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | The addition of £49 million in fiscal
    2003 includes a £12 million change in liability in
    respect of the estimated pre-existing warranties at
    April 1, 2002.

|                                |  |           |    |           |  |                |     |               |  |             |    |           |  |  |   |  |  |  |      |   |  |  |     | 
|------------------------------- |  | --------- | -- | --------- |  | -------------- | --- | ------------- |  | ----------- | -- | --------- |  |  | - |  |  |  | ---- | - |  |  | --- | 
|                                |  |           |    |           |  | Net effect of  |     | Effect of     |  |             |    |          
|                                |  | March 31, |    |           |  | acquisitions   |     | exchange rate |  |             |    | March 31,
|                                |  | 2001      |    | Additions |  | less disposals |     | changes       |  | Utilization |    | 2002     
|Description                     |  | £         |    | £         |  | £              |     | £             |  | £           |    | £        
|                                |  |          
|                                |  |          
|Allowance for doubtful accounts |  |           | 64 |           |  |                | 175 |               |  |             | (3 | )         |  |  |  |  |  |  | (69  | ) |  |  | 167 | 
|Warranty reserve*               |  |           | 34 |           |  |                | 43  |               |  |             | (2 | )         |  |  |  |  |  |  | (46  | ) |  |  | 29  | 
|                                |  |          
|Total                           |  |           | 98 |           |  |                | 218 |               |  |             | (5 | )         |  |  |  |  |  |  | (115 | ) |  |  | 196 | 
|                                |  |          



| |   |                                                                          
| | - | -------------------------------------------------------------------------
| | * | These amounts are included in accounts payable
    and other liabilities.

In light of the declining market and economic
trends the Company was experiencing, a provision against bad and
doubtful debts of £150 million was charged during
fiscal 2002. Of this amount, £10 million was
reassessed and released to the statement of operations in fiscal
2003.

20. Income taxes

The geographic analysis of income /(loss) from
continuing operations before income taxes, minority interests
and cumulative changes in accounting principles is as follows:

|                   |  |           |       |      |  |      |      |   |  |  |        |  
|------------------ |  | --------- | ----- | ---- |  | ---- | ---- | - |  |  | ------ | -
|                   |  |          
|                   |  | March 31,
|                   |  | 2004      |       | 2003 |  | 2002
|(in millions)      |  | £         |       | £    |  | £   
|                   |  |          
|                   |  |          
|United Kingdom     |  |           | 2,304 |      |  |      | (673 | ) |  |  | (260   | )
|Non-United Kingdom |  |           | (27   | )    |  |      | (230 | ) |  |  | (6,109 | )
|                   |  |          
|Total              |  |           | 2,277 |      |  |      | (903 | ) |  |  | (6,369 | )
|                   |  |          

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Income tax benefit/(provision) includes:

|                      |                    |                      |  |      |    |      |  |     |     |  |  |     |     |  
|--------------------- | ------------------ | -------------------- |  | ---- | -- | ---- |  | --- | --- |  |  | --- | --- | -
|                      |                    |                     
|                      |                    | March 31,           
|                      |                    | 2004                 |  | 2003 |    | 2002
|(in millions)         |                    | £                    |  | £    |    | £   
|                      |                    |                     
|                      |                    |                     
|Current income taxes  |                    |                      |  |      |    |      |  |     |     |  |  |    
|                      | United Kingdom     |                      |  |     |    |      |  | 155 |     |  |  | 18  |    
|                      | Non-United Kingdom |                      |  | (1   | )  |      |  | 32  |     |  |  | (25 | )  
|                      |                    |                     
|                      |                    | Total current taxes  |  |      | (1 | )    |  |     | 187 |  |  |     | (7  | )
|Deferred income taxes |                    |                      |  |      |    |      |  |     |     |  |  |    
|                      | United Kingdom     |                      |  |     |    |      |  | 29  |     |  |  | 96  |    
|                      | Non-United Kingdom |                      |  |     |    |      |  | (7  | )   |  |  | 382 |    
|                      |                    |                     
|                      |                    | Total deferred taxes |  |      |   |      |  |     | 22  |  |  |     | 478 |  
|                      |                    |                     
|                      |                    | Total income taxes   |  |      | (1 | )    |  |     | 209 |  |  |     | 471 |  
|                      |                    |                     

The differences between the Companys tax on
profit on ordinary activities, and the statutory income tax rate
in the United Kingdom are as follows:

|                                                                    |  |           |      |      |  |      |      |   |  |  |        |  
|------------------------------------------------------------------- |  | --------- | ---- | ---- |  | ---- | ---- | - |  |  | ------ | -
|                                                                    |  |          
|                                                                    |  | March 31,
|                                                                    |  | 2004      |      | 2003 |  | 2002
|(in millions)                                                       |  | £         |      | £    |  | £   
|                                                                    |  |          
|                                                                    |  |          
|Taxes computed at the statutory rate: (30% 2004,
    2003 and 2002) |  |           | 683  |      |  |      | (271 | ) |  |  | (1,911 | )
|Non-deductible intangible amortization and
    impairment charge    |  |           |     |      |  |      |     |   |  |  | 1,276  |  
|Non-U.K. tax rate differences                                       |  |           |     |      |  |      | (9   | ) |  |  | (177   | )
|Non-deductible/(non-taxable) items                                  |  |           | (682 | )    |  |      | 30   |   |  |  | (292   | )
|Changes in reinvestment position                                    |  |           |     |      |  |      |     |   |  |  | (63    | )
|Valuation allowances on losses and other assets                     |  |           |     |      |  |      | 38   |   |  |  | 715    |  
|Other, net                                                          |  |           |     |      |  |      | 3    |   |  |  | (19    | )
|                                                                    |  |          
|Income tax (benefit)/provision                                      |  |           | 1    |      |  |      | (209 | ) |  |  | (471   | )
|                                                                    |  |          
|Effective tax rate                                                  |  |           | 0    | %    |  |      | 23.1 | % |  |  | 7.2    | %

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Deferred income tax assets/(liabilities) in the
balance sheet are as follows:

|                             |                                         |           |   |      |  |  |      |     |  
|---------------------------- | --------------------------------------- | --------- | - | ---- |  |  | ---- | --- | -
|                             |                                         |          
|                             |                                         | March 31,
|                             |                                         | 2004      |   | 2003
|(in millions)                |                                         | £         |   | £   
|                             |                                         |          
|                             |                                         |          
|Net deferred tax assets      |                                         |           |   |      |  |  |      |    
|                             | Net operating losses                    |           |   |     |  |  |      | 670 |  
|                             | Provisions and other expenses           |           |   |     |  |  |      | 90  |  
|                             | SFAS 133                                |           |   |     |  |  |      | 21  |  
|                             | Pension and post-retirement benefits    |           |   |     |  |  |      | 93  |  
|                             | Investment write-downs                  |           |   |     |  |  |      | 3   |  
|                             |                                         |          
|Sub total                    |                                         |           |  |      |  |  | 877  |    
|Valuation allowance          |                                         |           |  |      |  |  | (841 | )  
|                             |                                         |          
|Sub total                    |                                         |           |  |      |  |  | 36   |    
|                             |                                         |          
|Net deferred tax liabilities |                                         |           |   |      |  |  |      |    
|                             | Property and equipment                  |           |   |     |  |  |      | (8  | )
|                             | Intangible assets (other than goodwill) |           |   |     |  |  |      | (33 | )
|                             |                                         |          
|Sub total                    |                                         |           |  |      |  |  | (41  | )  
|                             |                                         |          
|Total                        |                                         |           |  |      |  |  | (5   | )  
|                             |                                         |          

All deferred tax assets or liabilities were
disposed of with the assets, liabilities and businesses to which
they relate as part of the financial restructuring of
May 19, 2003.

As of March 31, 2003 the net deferred income
tax liability of £5 million was presented in the
balance sheet based on tax jurisdiction as required by SFAS 109,
Accounting for Income Taxes, as a non-current deferred
tax liability of £5 million. At that date
approximately £2.3 billion of net operating losses
were available to be carried forward. A full valuation allowance
was recorded against the deferred tax asset in relation to such
losses in 2003 and 2002 due to the fact that it was more likely
than not, that such assets would not be realized.

Although the Company had in excess of
£2 billion of net operating tax losses as of
March 31, 2003, these may not have been available to cover
earlier years that were open for or under tax audit. In
addition, in some jurisdictions the loss carry forwards may be
forfeited (this applies to the U.S.) or could be restricted
(this may apply to Germany and the U.K.) following the
Companys financial restructuring. There will be ongoing
tax cash costs, therefore, where losses are unavailable.

No deferred tax assets were provided for the
undistributed losses to the extent that they were permanently
reinvested in the Companys non-U.K. operations.

The financial restructuring was implemented by
way of two separate schemes of arrangement under section 425 of
the U.K. Companies Act 1985. As a result, the gain on financial
restructuring described in note 3 will not give rise to any
taxable amounts.

The tax on discontinued operations and on the
disposal of discontinued operations is £nil.

21. Related party transactions

The Company and its subsidiaries had sales and
purchases during the year with equity investments, joint
ventures and associates, which are not consolidated, during
fiscal 2004, 2003 and 2002. All transactions are in the ordinary
course of business. The primary transactions between the Company
and related parties are summarized as follows:

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|                         |  |                |   |       |  |  |   | 
|------------------------ |  | -------------- | - | ----- |  |  | - | 
|                         |  |               
|                         |  | Year ended    
|                         |  | March 31, 2004
|                         |  | MMFG(1)        |   | Other
|(in millions)            |  | £              |   | £    
|                         |  |               
|                         |  |               
|Statement of operations: |  |                |   |       |  |  |   | 
|Net sales                |  |                |  |       |  |  | 4 | 
|Purchases                |  |                |  |       |  |  |  | 
|Balance sheet:           |  |                |   |       |  |  |   | 
|Trade receivables        |  |                |  |       |  |  |  | 
|Trade payables           |  |                |  |       |  |  |  | 

|                         |  |                |   |       |  |  |    | 
|------------------------ |  | -------------- | - | ----- |  |  | -- | 
|                         |  |               
|                         |  | Year ended    
|                         |  | March 31, 2003
|                         |  | MMFG(1)        |   | Other
|(in millions)            |  | £              |   | £    
|                         |  |               
|                         |  |               
|Statement of operations: |  |                |   |       |  |  |    | 
|Net sales                |  |                |  |       |  |  | 30 | 
|Purchases                |  |                |  |       |  |  |   | 
|Balance sheet:           |  |                |   |       |  |  |    | 
|Trade receivables        |  |                |  |       |  |  | 26 | 
|Trade payables           |  |                |  |       |  |  | 9  | 

|                         |  |                |    |       |  |  |    | 
|------------------------ |  | -------------- | -- | ----- |  |  | -- | 
|                         |  |               
|                         |  | Year ended    
|                         |  | March 31, 2002
|                         |  | MMFG(1)        |    | Other
|(in millions)            |  | £              |    | £    
|                         |  |               
|                         |  |               
|Statement of operations: |  |                |    |       |  |  |    | 
|Net sales                |  |                | 25 |       |  |  | 40 | 
|Purchases                |  |                | 1  |       |  |  | 14 | 
|Balance sheet:           |  |                |    |       |  |  |    | 
|Trade receivables        |  |                |   |       |  |  | 26 | 
|Trade payables           |  |                |   |       |  |  | 9  | 



| |     |                                                                                
| | --- | -------------------------------------------------------------------------------
| | (1) | MMFG  Marconi Medical Financial Group
    (formerly known as Picker Financial)

All the contracts and other arrangements are with
Atlantic Telecommunications Limited/ GaMMa, Alstom and the joint
ventures described below which management believe have been on
arms-length terms and which were part of the Group prior
to the financial restructuring on May 19, 2003.

Atlantic Telecommunications
Limited/GaMMa

The Company owned 19.7% of Atlantic
Telecommunications Limited (Atlantic). Atlantic went into
administration on October 5, 2001. GaMMa acquired certain
assets from Atlantic in bankruptcy. The Company received a 14.3%
beneficial holding in GaMMa in December 2001, in consideration
of the waiver of retention of title claims against certain
assets of Atlantic, the grant of software licenses and
procurement of the assignment of the indefeasible right of use
terms granted by Easynet. Under the terms of the agreement with
GaMMa, the Company received warrants equating to 1.7% of the
authorized share capital of GaMMa.

Alstom

The Company owned approximately 24% of Alstom
until February 2001, when it disposed of 18% through a public
offering of shares. Upon the initial public offering of Alstom
in 1998, prior to which we had a 50% stake in GEC Alstom, as it
was called prior to the initial public offering, the Company
entered into a transitional services agreement providing for the
termination of existing group services provided by the

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Company to Alstom except that the Company would
continue to provide transitional services in the fields of
research and development, real estate management, bulk
purchasing, and environmental advice and insurance. These
transitional services are now completed, and as a result, among
others, the Company no longer provides insurance services to
Alstom. The Company did however, have an ongoing maintenance
contract and provided some supply works on Alstoms
Northern Line. From time to time in the ordinary course of
business, the Company supplied products or services to Alstom
and Alstom supplied products or services to the Company. In June
2001, the Company disposed of its remaining interest in Alstom.


CosmoCom

As of June 18, 2003, Capital Limited owned
5.7% of CosmoCom, Inc. CosmoCom, Inc. develops and deploys call
center products and services. Marconi Communications
International Limited, or MCIL, entered into a Value Added
Reseller Agreement with CosmoCom, Inc. on March 3, 2000, as
amended by Amendment No. 1, dated September 8, 2000,
the VAR, whereby MCIL would act as a reseller of certain
CosmoCom, Inc. products. Subject to other terms of the VAR,
including the termination provisions contained therein, MCIL was
required to purchase products and/or services of $12,000,000
over approximately a three year period. On or about
October 29, 2001, MCIL advised CosmoCom, Inc. that it was
terminating the VAR, and is making no further purchases at this
time. During the term of the VAR, MCIL purchased approximately
$1.5 million of products and/or services.

Marconi (Malaysia) SDN BHD

Marconi Communications S.p.A. owns a 30%
shareholding in Marconi (Malaysia) SDN BHD, a business that
sells and installs telecommunications equipment. During the
fiscal year ended March 31, 2003, the Company supplied
network equipment products totaling £23.1 million to
Marconi (Malaysia) SDN BHD, at arms-length terms.

Ultramast

The Company formed a joint venture company with
Railtrack Telecom Services Limited, or RTSL, on April 26,
2001 to support the deployment of next generation broadband
wireless networks. The Company and RTSL each had a
50 percent interest in the joint venture company until
February 2003 when the Company settled litigation with RTSL and
RTSL assumed full control of Ultramast. Albany Partnership Ltd.,
or APT, a wholly owned subsidiary of the Company prior to the
financial restructuring, has a consultancy agreement with
Ultramast to provide it with telecommunications consultancy
services to design, construct and maintain masts for the next
generation networks. Ultramast also has an agreement with
ipsaris Limited under which ipsaris is nominated as the
preferred supplier for connectivity for the telecommunications
network.

Confirmant

Confirmant is a 50-50 joint venture between
Marconi Corporation plc and Oxford Glyco Sciences
(U.K.) Limited, a wholly owned subsidiary of Oxford Glyco
Sciences plc. Confirmant was formed in June 2001 for the purpose
of completing and then offering for subscription a proteomic
database and for providing managed hosting services to the
biotech sector. Although the Companys outstanding
contracts with Confirmant have not been formally cancelled, all
members of the Confirmant board of directors have acknowledged
that they are de facto cancelled and, therefore, the Company has
no remaining liability under those contracts.

Easynet Group plc

In February 2002, the Company was obliged to
acquire by a put option 1,324,054 ordinary shares in Easynet for
£20 million. The Company disputed the legal basis of
the put option and entered into litigation with Railtrack Group.
In February 2003, the litigation with Railtrack Group was
settled and the Company became beneficial owners of the
1,324,054 Easynet ordinary shares under the put option.
Consequently, the £20 million and related impairment
have been reflected in equity in loss of affiliates. The put
option increased

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the equity holding to 72.7% and the holding of
voting shares to 51.6%. However, under the Articles of
Association of Easynet and a relationship agreement with
Easynet, the voting rights in Easynet are limited to 49.9%.
Accordingly, Easynet applied in April 2003 to the
U.K. Listing Authority to cancel the
1,324,054 ordinary shares and non-voting convertible shares
were issued to the Company in exchange. Since the Company was
not able to exercise control over Easynet at anytime, the
Company continued to account for Easynet using the equity method
of accounting prior to the financial restructuring.


No significant transactions with directors or
other executive officers of the Company have occurred during
fiscal 2004, 2003 or 2002. Sir Alan Rudge, a non-executive
director of the Company and non-executive chairman of MSI
(acquired in 2001), held a substantial number of share options
in MSI. At completion, he received approximately
$5.3 million from MSI in respect of the cancellation of his
options. Sir Alan Rudge did not participate in that part of any
board meeting, which considered the acquisition of MSI, nor did
he receive any board papers related thereto.

22. Subsidiary company and equity
investee information

The following table provides information on the
principal subsidiary undertakings and other associated companies
that the Company considers to have had a significant impact on
the assessment of the assets and liabilities, the financial
position and/or the profits and losses of the Company to
March 31, 2004. Except where stated otherwise, each of
these companies was wholly owned by a member of the Company and
the share capital was fully paid up to May 19, 2003.

|                               |                                                                         |                   |                                                                                                                             
|------------------------------ | ----------------------------------------------------------------------- | ----------------- | ----------------------------------------------------------------------------------------------------------------------------
|Name                           |                                                                         | Registered Office
|                               |                                                                         |                  
|Network Equipment and Services |                                                                         |                  
|                               | Marconi Communications Limited                                          |                   | New Century Park, PO Box 53, Coventry CV3 1HJ,
    England                                                                  
|                               | Marconi Communications S.p.A.                                           |                   | Via Ludovico Calda 5, 16153 Genoa, Italy                                                                                    
|                               | Marconi Communications, Inc.                                            |                   | c/o The Corporation Trust Company, Corporation
    Trust Center, 1209 Orange Street, Wilmington, Delaware, 19801,
    U.S.A.
|                               | Marconi Communications GmbH                                             |                   | Gerberstrasse 33, D 71522 Backnang, Germany                                                                                 
|Capital                        |                                                                         |                  
|                               | Marconi Mobile S.p.A.(1)                                                |                   | Via A. Negrone 1/ A, 16153 Genoa, Italy                                                                                     
|Other Associated Companies     |                                                                         |                  
|                               | Easynet Group plc (72.7% group equity share;
    49.9% voting share)(2) |                   | 44-46 Whitfield Street, London W1T 2RJ, England                                                                             



| |     |                                                                                                                                           
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Marconi Mobile S.p.A. was sold as part of the
    disposal of Marconi Mobile Holdings S.p.A. to Finmeccanica
    S.p.A. on August 2, 2002.
|
| | (2) | See note 14, Investments in affiliates.                                                                                                   

The undertakings in which the Companys
interest at March 31, 2004 is more than 20% are as follows:

|                             |  |                   |  |             |  |             |      | 
|---------------------------- |  | ----------------- |  | ----------- |  | ----------- | ---- | 
|                             |  |                   |  |             |  | Class and  
|                             |  |                   |  |             |  | percentage 
|                             |  | Country of        |  | Principal   |  | of ordinary
|Undertakings                 |  | incorporation     |  | activity    |  | shares held
|                             |  |                  
|                             |  |                  
|Ancrane                      |  | England and Wales |  | Non trading |  |             | 100% | 
|M Ansty Limited              |  | England and Wales |  | Dormant     |  |             | 100% | 
|M Nominees Limited           |  | England and Wales |  | Dormant     |  |             | 100% | 
|Photoniqa Limited            |  | England and Wales |  | Dormant     |  |             | 100% | 
|GEC Reconstructions Limited* |  | England and Wales |  | Dormant     |  |             | 50%  | 
|Yeslink Unlimited**          |  | England and Wales |  | Dormant     |  |             | 100% | 

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| |    |                                                                
| | -- | ---------------------------------------------------------------
| | *  | GEC Reconstructions Limited was liquidated on
    June 8, 2004.
|
| | ** | Yeslink Unlimited is a subsidiary of Photoniqa
    Limited.    

All other subsidiary undertakings were disposed
of as part of the financial restructuring on May 19, 2003
described in note 3.

F-59