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As filed with the Securities and Exchange Commission on 29 September 2005



SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 20-F

|(Mark One)                                                                                         |                                                                                                         
|-------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------
|o                                                                                                  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR SECTION 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
|OR                                                                                                
|ý                                                                                                  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                    
|For the fiscal year ended March 31, 2005                                                          
|OR                                                                                                
|o                                                                                                  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT of 1934                
|OR                                                                                                
|o                                                                                                  | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934             
|Date of event requiring this shell company report    .............................................

|                               |  |  |  |    |  | 
|------------------------------ |  |  |  | -- |  | 
|For the transition period from |  |  |  | to |  | 
|Commission file number         |  | 

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Marconi Corporation PLC(Exact name of Registrant as specified in its charter)

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ENGLAND AND WALES(Jurisdiction of incorporation or organization)

New Century Park
P.O. Box 53
Coventry
Warwickshire CV3 1HJ
United Kingdom(Address of principal executive office)

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

None

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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 25 pence per share.

Ordinary
shares of 25 pence per share.

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

None

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Indicate
the number of outstanding shares of each of the issuer's classes of capital or common stock as of March 31, 2005:

208,740,939
Ordinary Shares of 25p 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 ý    NO o

Indicate by check mark which financial statement item the registrant has elected to
follow. ITEM 17 o    ITEM 18 ý

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o    No ý

(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 o    No o



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EXPLANATORY NOTE AND FORM 20-F RECONCILIATION AND CROSS REFERENCE

Concurrently with the filing of this annual report on Form 20-F, we are releasing our Annual Report and Accounts, which we refer to as our 'UK Annual
Report', in accordance with applicable UK requirements. To facilitate the convergence between our reporting pursuant to such UK requirements and our reporting with the US Securities and Exchange
Commission pursuant to the US Securities Exchange Act of 1934, as amended, we have organised the information contained in this annual report into three principal sections. The first section, which we
refer to as the 'UK Annual Report Information', contains portions of the UK Annual Report (other than the consolidated financial statements), as amended or supplemented for purposes of this report,
that are substantially common to both the UK Annual Report and this annual report on Form 20-F. The second section, which we refer to as 'Additional Information Required by Form 20-F',
contains additional information (other than the consolidated financial statements) that is not covered by the UK Annual Report but is specifically required to be included in an annual report on
Form 20-F. The third section contains our consolidated financial statements, which are prepared in accordance with generally accepted accounting principles in the United Kingdom but also
include supplementary information prepared in accordance with generally accepted accounting principles in the United States.

The
table below provides a reconciliation and cross-reference between the information contained herein and the requirements of Form 20-F.

|                                                                                    |  | Form 20-F Caption                                     |  | Section containing required 20-F information                                                |  | Page*
reference
|----------------------------------------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | ---------------
|PART I                                                                              |  |                                                       |  |                                                                                             |  |                
|Item 1:                                                                             |  | Identity of Directors, Senior Management and Advisors |  | Not applicable                                                                              |  |               
|Item 2:                                                                             |  | Offer Statistics and Expected Timetable               |  | Not applicable                                                                              |  |               
|Item 3:                                                                             |  | Key Information                                       |  |                                                                                             |  |                
|A)                                                                                  |  | Selected Financial Data                               |  | UK Annual Report InformationSelected financial data                                        |  | 6              
|A3)                                                                                 |  | Exchange Rates                                        |  | Additional Information Required by Form 20-FExchange rate information                      |  | 78             
|B)                                                                                  |  | Capitalisation and Indebtedness                       |  | Not applicable                                                                              |  |               
|C)                                                                                  |  | Reasons for the Offer and Use of Proceeds             |  | Not applicable                                                                              |  |               
|D)                                                                                  |  | Risk Factors                                          |  | Additional Information Required by Form 20-FRisk factors                                   |  | 79             
|Item 4:                                                                             |  | Information on the Company                            |  |                                                                                             |  |                
|A)                                                                                  |  | History and Development of the Company                |  | Additional Information Required by Form 20-FBusiness overview                              |  | 87             
|B)                                                                                  |  | Business Overview                                     |  | Additional Information Required by Form 20-FBusiness overview                              |  | 87             
|C)                                                                                  |  | Organisational Structure                              |  | Additional Information Required by Form 20-FOrganisational structure                       |  | 97             
|D)                                                                                  |  | Property, Plant & Equipment                           |  | Additional Information Required by Form 20-FProperties                                     |  | 98             
|Item 5:                                                                             |  | Operating and Financial Review and Prospects          |  |                                                                                             |  |                
|A)                                                                                  |  | Operating Results                                     |  | UK Annual Report InformationOperating and financial reviewOperating review                |  | 11             
|B)                                                                                  |  | Liquidity and Capital Resources                       |  | UK Annual Report InformationOperating and financial reviewLiquidity and capital resources |  | 32             
|C)                                                                                  |  | Research and Development                              |  | UK Annual Report InformationOperating and financial reviewAdjusted operating expenses     |  | 16             
|D)                                                                                  |  | Trend Information                                     |  | UK Annual Report InformationOperating and financial reviewOutlook                         |  | 10             
|                                                                                    |  |                                                       |  | UK Annual Report InformationOperating and financial reviewOperating review                |  | 11             
|*        'Page reference' refers to the page on which the applicable section begins

i

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|         |  | Form 20-F Caption                                       |  | Section containing required 20-F information                                                                         |  | Page*
reference
|-------- |  | ------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | ---------------
|E)       |  | Off Balance Sheet Arrangements                          |  | Consolidated Financial StatementsNote 30(k)Commitments and ContingenciesFinancial and other guarantees            |  | 221            
|F)       |  | Tabular Disclosure of Contractual Obligations           |  | Additional Information Required by Form 20-FContractual obligations and other commercial commitments                |  | 101            
|G)       |  | Safe Harbor                                             |  | Cautionary Note Regarding Forward-looking Statements                                                                 |  | 5              
|Item 6:  |  | Directors, Senior Management and Employees              |  |                                                                                                                      |  |                
|A)       |  | Directors and Senior Management                         |  | UK Annual Report InformationDirectors and senior management                                                         |  | 47             
|B)       |  | Compensation                                            |  | UK Annual Report InformationReport to shareholders by the board on directors' remuneration                          |  | 52             
|C)       |  | Board Practices                                         |  | UK Annual Report InformationCorporate governance                                                                    |  | 39             
|D)       |  | Employees                                               |  | Additional information required by Form 20-FEmployees                                                               |  | 103            
|E)       |  | Share Ownership                                         |  | UK Annual Report InformationReport to shareholders by the board on directors' remuneration(H) Directors' interests |  | 75             
|Item 7:  |  | Major Shareholders and Related Party Transactions       |  |                                                                                                                      |  |                
|A)       |  | Major Shareholders                                      |  | Additional Information Required by Form 20-FMajor shareholders                                                      |  | 104            
|B)       |  | Related Party Transactions                              |  | Additional Information Required by Form 20-FRelated party transactions                                              |  | 105            
|C)       |  | Interests of Expert and Counsel                         |  | Not applicable                                                                                                       |  |               
|Item 8:  |  | Financial Information                                   |  |                                                                                                                      |  |                
|A)       |  | Consolidated Statements and Other Financial Information |  | Consolidated Financial Statements                                                                                    |  | 130            
|A7)      |  | Litigation                                              |  | Additional Information Required by Form 20-FLegal proceedings                                                       |  | 105            
|A8)      |  | Dividend Policy                                         |  | Additional Information Required by Form 20-FDividend policy                                                         |  | 106            
|B)       |  | Significant Changes                                     |  | Consolidated financial statementsNote 29Post balance sheet events                                                  |  | 186            
|Item 9:  |  | The Offer and Listing                                   |  |                                                                                                                      |  |                
|A)       |  | Share Price History                                     |  | Additional Information Required by Form 20-FShare price history                                                     |  | 107            
|B)       |  | Plan of Distribution                                    |  | Not applicable                                                                                                       |  |               
|C)       |  | Markets                                                 |  | Additional Information Required by Form 20-FBusiness overview                                                       |  | 87             
|D)       |  | Selling Shareholders                                    |  | Not applicable                                                                                                       |  |               
|E)       |  | Dilution                                                |  | Not applicable                                                                                                       |  |               
|F)       |  | Expenses of Issue                                       |  | Not applicable                                                                                                       |  |               
|Item 10: |  | Additional Information                                  |  |                                                                                                                      |  |                
|A)       |  | Share Capital                                           |  | Not applicable                                                                                                       |  |               
|B)       |  | Memorandum and Articles of Association                  |  | Additional Information Required by Form 20-FOrdinary shares, memorandum and articles of association                 |  | 108            
|C)       |  | Material Contracts                                      |  | Additional Information Required by Form 20-FMaterial contracts                                                      |  | 115            
|D)       |  | Exchange Controls                                       |  | Additional Information Required by Form 20-FExchange controls                                                       |  | 118            
|E)       |  | Taxation                                                |  | Additional Information Required by Form 20-FTaxation                                                                |  | 119            
|F)       |  | Dividends and Paying Agents                             |  | Not applicable                                                                                                       |  |               
|G)       |  | Statements by Experts                                   |  | Not applicable                                                                                                       |  |               
|H)       |  | Documents on Display                                    |  | Additional Information Required by Form 20-FDocuments on display                                                    |  | 127            
|I)       |  | Subsidiary Information                                  |  | Additional Information Required by Form 20-FPrincipal subsidiary and associated undertakings                        |  | 127            
|         |  |                                                         |  |                                                                                                                      |  |                

ii

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|Item 11:  |  | Quantitative and Qualitative Disclosures about Market Risk                   |  | Additional Information Required by Form 20-FRisk management                        |  | 128
|--------- |  | ---------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------- |  | ---
|Item 12:  |  | Description of Securities other than Equity Securities                       |  | Not applicable                                                                      |  |   
|PART II   |  |                                                                              |  |                                                                                     |  |    
|Item 13:  |  | Defaults, Dividend Arrearages and Delinquencies                              |  | Not applicable                                                                      |  |   
|Item 14:  |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  | Not applicable                                                                      |  |   
|Item 15:  |  | Disclosure Controls and Procedures                                           |  | UK Annual Report InformationCorporate governance                                   |  | 39 
|Item 16A: |  | Audit Committee Financial Expert                                             |  | UK Annual Report InformationCorporate governanceFinancial expert                  |  | 40 
|Item 16B: |  | Code of Ethics                                                               |  | UK Annual Report InformationCorporate governanceDevelopments in control processes |  | 44 
|Item 16C: |  | Principal Accountant Fees and Services                                       |  | Additional Information Required by Form 20-FPrincipal accountant fees and services |  | 129
|PART III  |  |                                                                              |  |                                                                                     |  |    
|Item 17:  |  | Financial Statements                                                         |  | Not applicable                                                                      |  |   
|Item 18:  |  | Financial Statements                                                         |  | Consolidated Financial Statements                                                   |  | 130
|Item 19:  |  | Exhibits                                                                     |  | Additional Information Required by Form 20-FExhibits                               |  | 236

iii

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TABLE OF CONTENTS



|                                                                         
|-------------------------------------------------------------------------
|Presentation of Financial and Other Information                          
|Non-GAAP Measures                                                        
|Cautionary Note Regarding Forward-Looking Statements                     
|Section IUK Annual Report Information                                   
|Selected Financial Data                                                  
|Operating and Financial Review                                           
|Corporate Governance                                                     
|Directors and Senior Management                                          
|Report to Shareholders by the Board on Directors' Remuneration           
|Section IIAdditional Information Required by Form 20-F                  
|Exchange Rate Information                                                
|Risk Factors                                                             
|Business Overview                                                        
|Organisational Structure                                                 
|Properties                                                               
|Contractual Obligations and Other Commercial Commitments                 
|Employees                                                                
|Major Shareholders                                                       
|Related Party Transactions                                               
|Legal Proceedings                                                        
|Dividend Policy                                                          
|Significant Changes                                                      
|Share Price History                                                      
|Ordinary Shares, Memorandum and Articles of Association                  
|Material Contracts                                                       
|Exchange Controls                                                        
|Taxation                                                                 
|Documents on Display                                                     
|Principal Subsidiary and Associated Undertakings                         
|Risk Management                                                          
|Principal Accountant Fees and Services                                   
|Section IIIConsolidated Financial Statements                            
|Report of Independent Registered Public Accounting Firm                  
|Consolidated Profit and Loss Account                                     
|Balance Sheets                                                           
|Consolidated Cash Flow Statement                                         
|Reconciliation of Net Cash Flow to Movements in Net Monetary Funds/(Debt)
|Consolidated Statement of Total Recognised Gains and Losses              
|Reconciliation of Movements in Equity Shareholders' Interests            
|Notes to the Accounts                                                    
|Glossary of Terms                                                        
|Exhibits                                                                 
|Signatures                                                               

1

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this report, the terms 'we', 'us', 'our', 'the Group', 'Marconi Corporation' and 'the Company' refer to Marconi Corporation plc and its subsidiaries and joint
ventures, as the context requires. Marconi Corporation plc is incorporated as a public limited company under the laws of England and Wales.

We
state our financial statements in United Kingdom (UK) pounds sterling. In this report, references to pounds sterling, pounds or £ and to pence or p are to the currency of
the UK, references to euro or € are to the common legal currency of the members of the European monetary union, and references to United States (US) dollars, US$ or $ are to the
currency of the United States of America (USA or US).

Some
of the market share information and other statements in this report regarding our 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 compete. Unless otherwise specified or the
context otherwise requires, market share and market data are based on fiscal 2005 sales.

Our
fiscal year ends on 31 March. Unless otherwise specified, all references in this annual report to our fiscal year refer to a twelve-month financial period ended 31 March. For
example, fiscal 2005 represents the fiscal year beginning on 1 April 2004 and ended on 31 March 2005.

The
consolidated financial statements contained in this report have been prepared in accordance with accounting principles generally accepted in the UK, known as UK GAAP.

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

2

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NON-GAAP MEASURES

We use a number of non-GAAP performance measures in addition to GAAP performance measures in order to provide readers with a better understanding of
the underlying performance of our business, and to improve comparability of our results for the periods concerned. Furthermore, such measures are consistent with those used internally by management to
assess the performance of each of its businesses and to allocate resources. Where such non-GAAP performance measures are given, this is clearly indicated and the comparable GAAP measure is
also given.

The
non-GAAP measures that we use are:



An
explanation of each of these measures is provided below:

Adjusted cost of sales and adjusted gross profitare stated before operating exceptional items as defined by UK GAAP (i.e. items which
derive from events or transactions that fall within the ordinary activities of the Group but which require separate disclosure by virtue of their size or incidence). We believe that using these
adjusted measures after the exclusion of exceptional items (which may vary significantly each year) provides a more accurate comparison of the underlying performance of our operating units, which in
turn allows for a better understanding of actual trading performance and is thus more useful for evaluating the business on an ongoing basis. A reconciliation of cost of sales to adjusted cost of
sales is presented in the 'Operating and Financial Review' in the table captioned 'Group Key FiguresContinuing Operations' on page 12. A reconciliation of gross profit to adjusted
gross profit is presented in the same table captioned 'Group Key FiguresContinuing Operations' on page 12.

Adjusted gross margin %is calculated as adjusted gross profit divided by sales multiplied by 100.

Adjusted operating expensesis calculated as operating expenses before operating exceptional items (see above), goodwill amortisation and
share option costs.

Adjusted operating profit/(loss)is calculated as operating profit/(loss) before operating exceptional items (see above), goodwill
amortisation and share option costs.

We
believe thatadjusted operating expensesandadjusted operating profit/(loss)are also
more representative of the underlying performance of the operating units and are thus more useful for evaluating the business on an ongoing basis. These measures eliminate operating exceptional items
(see above) and non-cash costs that are controlled centrally and are therefore more representative of the underlying performance of the operating units. Management reviews the performance
of the operating units on this basis. In Note 2 to the consolidated financial statements included herein and the operating and financial review, where we present adjusted operating loss by
segment we refer to this as segment adjusted operating loss. A reconciliation of adjusted operating expenses to operating expenses is presented in the 'Operating and Financial Review' in the table
captioned 'Operating expenses' on

3

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page 16
and a reconciliation of operating loss to adjusted operating loss is presented in the table captioned 'Operating (loss)/profit' on page 17.

Adjusted profit/(loss) per shareis calculated as profit/(loss) before the impact of operating exceptional items (see above),
non-operating exceptional items (as defined by UK GAAP), goodwill amortisation and, in fiscal 2004, the write off of capitalised losses on swaps in connection with our financial restructuring and an
exceptional tax credit. We present an adjusted profit/(loss) per share in order to highlight the underlying performance of the Group. Operating and non-operating exceptional items (see above),
including exceptional tax credits, are eliminated as these may vary significantly year-on-year. Goodwill amortisation is also excluded in order to better represent the results of actual trading
performance. We believe that this is the most appropriate measure to evaluate the Group on an ongoing basis. A reconciliation of adjusted profit/(loss) per share to basic profit/(loss) per share is
presented in the 'Operating and Financial Review' in the section captioned 'Profit per Share' on page 22.

Adjusted operating cash flowis operating cash flow before exceptional items is calculated as operating cash flow before operating
exceptional items as defined above. For the reasons noted above, we believe that operating cash flow before operating exceptional items is more representative of the underlying performance of the
business and is thus more useful for evaluating the business on an ongoing basis. A reconciliation of operating cash flow to operating cash flow before exceptional items is presented in the 'Operating
and Financial Review' in the section captioned 'Cash flow' on page 32.

Adjusted R&D expenditureis calculated as R&D expenditure stated before share option costs.

4

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 concerning our business,
operations and financial performance and condition as well as for our plans and objectives for our business operations and financial performance and conditions. You can identify these statements by
words such as "aim", "anticipate", "assume", "believe", "could", "due", "estimate", "expect", "goal", "intend", "may", "objective", "plan", "positioned", "should", "target", "would", and other similar
expressions which are predictions of or indicate future events and future trends. These forward-looking statements involve known and unknown risks, uncertainties and other factors which are in some
cases beyond our control and may cause our actual results, performance and condition or achievements to differ materially from those expressed or implied by such forward-looking statements. Factors
that may cause such differences include, but are not limited to, the risks described under the caption "Risk Factors", as well as the risks set forth below:



5

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SECTION IUK ANNUAL REPORT INFORMATION

SELECTED FINANCIAL DATA

The selected historical consolidated financial information presented below as at and for each of the five years ended 31 March 2001 through 2005 has been
derived from the Group's audited consolidated financial statements prepared in accordance with UK GAAP and audited US GAAP reconciliations.

The
Group results presented below in accordance with UK GAAP include the results of the Continuing and Discontinued Operations unless otherwise indicated. Under US GAAP, the results of
Discontinued Operations are presented separately and are excluded from the operating results set out below for all years presented. Further information about the Group's Discontinued Operations is set
out in the 'Operating and Financial Review' under the caption 'Review of Discontinued Operations' on page 16.

The
information set forth below is not necessarily indicative of future results and should be read in conjunction with the audited consolidated financial statements and accompanying
notes included elsewhere in this annual report and with the information set forth in the 'Operating and Financial Review'.

6

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|                                                           |                                                                    | Fiscal |       
|---------------------------------------------------------- | ------------------------------------------------------------------ | ------ | ------
|
|
|
|AMOUNTS IN ACCORDANCE WITH UK GAAP:                        |                                                                    |        |       
|Turnover                                                   |                                                                    |        |       
|                                                           | Group                                                              |        | 2,525 
|                                                           | Share of joint ventures                                            |        |      
|                                                           |                                                                    |        |       
|                                                           | Total                                                              |        | 2,525 
|                                                           |                                                                    |        |       
|Group operating (loss)/profit                              |                                                                    |        |       
|                                                           | Excluding goodwill amortisation and exceptional items(1)           |        | 2     
|                                                           | Group operating (loss)/profit                                      |        | (187  
|                                                           |                                                                    |        |       
|Group (loss)/profit on ordinary activities before taxation |                                                                    |        |       
|                                                           | Excluding goodwill amortisation and exceptional items(1)           |        | (57   
|                                                           | Group (loss)/profit on ordinary activities before taxation         |        | (51   
|                                                           |                                                                    |        |       
|Net income from Continuing Operations                      |                                                                    | (147   | )     
|                                                           |                                                                    |        |       
|Group retained profit/(loss)                               |                                                                    | 40     |       
|                                                           |                                                                    |        |       
|Earnings/(loss) per share                                  |                                                                    |        |       
|Continuing Operations:                                     |                                                                    |        |       
|                                                           | Adjusted, excluding goodwill amortisation and exceptional items(1) |        | 18.5c 
|                                                           | Basic                                                              |        | (72.0 
|                                                           | Diluted                                                            |        | (68.0 
|                                                           |                                                                    |        |       
|Discontinued Operations:                                   |                                                                    |        |       
|                                                           | Adjusted, excluding goodwill amortisation and exceptional items(1) |        | (1.9)c
|                                                           | Basic                                                              |        | 91.5c 
|                                                           | Diluted                                                            |        | 86.4c 
|                                                           |                                                                    |        |       
|Equity dividends                                           |                                                                    |       |       
|                                                           | Per share                                                          |        | Nil   
|                                                           |                                                                    |        |       
|Goodwill                                                   |                                                                    | 569    |       
|Fixed assets                                               |                                                                    | 219    |       
|Investments                                                |                                                                    | 15     |       
|                                                           |                                                                    |        |       
|                                                           |                                                                    | 803    |       
|Stocks and contracts in progress                           |                                                                    | 306    |       
|Debtors                                                    |                                                                    | 740    |       
|Net monetary funds/(debt)(2)                               |                                                                    | 561    |       
|                                                           |                                                                    |        |       
|Total assets                                               |                                                                    | 2,410  |       
|Total liabilities(3)                                       |                                                                    | (1,645 | )     
|                                                           |                                                                    |        |       
|Net assets/(liabilities)                                   |                                                                    | 765    |       
|                                                           |                                                                    |        |       
|Financed by:                                               |                                                                    |        |       
|                                                           | Equity shareholders' interests                                     |        | 763   
|                                                           | Minority interests                                                 |        | 2     
|                                                           |                                                                    |        |       
|                                                           |                                                                    | 765    |       
|                                                           |                                                                    |        |       
|                                                           |                                                                    |        |       

7

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|AMOUNTS IN ACCORDANCE WITH US GAAP:                                       |  |        |   |       |   |        |   |        |   |        |   |        |  
|------------------------------------------------------------------------- |  | ------ | - | ----- | - | ------ | - | ------ | - | ------ | - | ------ | -
|Revenues from Continuing Operations                                       |  | 2,399  |   | 1,270 |   | 1,244  |   | 1,598  |   | 2,615  |   | 4,011  |  
|Amortisation of goodwill and intangible assets (including joint ventures) |  | (81    | ) | (43   | ) | (43    | ) | (43    | ) | (43    | ) | (43    | )
|Operating loss(4)                                                         |  | (172   | ) | (91   | ) | (222   | ) | (538   | ) | (3,502 | ) | (108   | )
|Tax credit/(charge)                                                       |  | 91     |   | 48    |   | 24     |   | 209    |   | 471    |   | (17    | )
|Group net income/(loss)                                                   |  | 221    |   | 117   |   | 2,765  |   | (1,167 | ) | (6,359 | ) | 194    |  
|Earnings/(loss) per share                                                 |  | 1.08   |   | 0.57  |   | 10.92  |   | (2.04  | ) | (11.10 | ) | 0.07   |  
|                                                                          |  |        |   |       |   |        |   |        |   |        |   |        |  
|Total assets                                                              |  | 2,984  |   | 1,580 |   | 1,897  |   | 3,112  |   | 5,402  |   | 11,394 |  
|Total liabilities                                                         |  | (1,717 | ) | (909  | ) | (1,285 | ) | (6,443 | ) | (7,347 | ) | (6,921 | )
|Long term liabilities                                                     |  | (42    | ) | (22   | ) | (264   | ) | (30    | ) | (2,195 | ) | (2,267 | )
|Net assets/(liabilities)                                                  |  | 1,267  |   | 671   |   | 612    |   | (3,331 | ) | (1,945 | ) | 4,473  |  
|                                                                          |  |        |   |       |   |        |   |        |   |        |   |        |  
|Shares issued and outstanding (millions)(5)                               |  | 209    |   | 209   |   | 200    |   | 573    |   | 573    |   | 573    |  
|                                                                          |  |        |   |       |   |        |   |        |   |        |   |        |  

---

Notes

8

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OPERATING AND FINANCIAL REVIEW

Our business, organisation and outlook

Marconi is a global provider of telecommunications equipment and services, supporting customers in Europe, the Middle East and Africa, North America, Asia Pacific
and Central and Latin America.

Our
customers include a number of the leading telecommunications operators and internet services providers throughout the world, with whom we have a large base of installed equipment. We
also supply private communications networks and services to certain large corporations, government departments and agencies, utilities and educational institutions.

From
the beginning of fiscal 2005, we introduced a new management structure which split our continuing business into three segments:



Optical
and Access Networks comprises the activities of our Optical Networks and Access Networks businesses, which also includes our payphones and interactive systems activities
previously reported under Other Network Equipment. Optical and Access Networks comprises the design and supply of communications systems that transmit and switch voice, data and video traffic
predominantly in public networks. BBRS comprises the equipment and services activities of our North American based business which designs and supplies routing and switching products for the
transmission of voice, data and video in both public and private networks. Network Services comprises the activities of our Installation, Commissioning and Maintenance (IC&M) and Value Added Services
(VAS) businesses. Network Services generally comprises activities that supply a broad range of communications support services to telecommunications operators as well as selected large enterprises and
government agencies.

The
previous structure had been adopted to comply with the requirements of our Loan Notes, which required segmentation along certain geographic lines. Comparative information for fiscal
2004 and fiscal 2003 has been restated to reflect the new segments.

In
fiscal 2005, we completed the disposal of our Outside Plant and Power (OPP) business. The sales and operating results for this business are reported under Discontinued Operations. For
fiscal 2004 and fiscal 2003, Discontinued Operations also comprise our former North American Access business (NAA) (sold in February 2004) and the Mobile Communications businesses, which primarily
relates to the Strategic Communications business (sold in August 2002) and the Medical, Data and Commerce Systems businesses.

Business organisation

On 6 May 2005, we announced changes to our organisation structure that will ensure the Group remains focused on delivering its commitments to customers whilst
improving its competitiveness.

Marconi's
product units have now been combined with its regional business organisations in order to create geographic centres of excellence based on the different product groupings.
Marconi will continue to market its full product range on a global basis. The four new business groups are:



9

---





Each
of these groups will continue to provide its customers with network integration and installation, commissioning and maintenance services.

Our
strong VAS business will continue to offer end-to-end services solutions to enterprise customers. The Asia Pacific and Middle East regional business areas
will continue as sales and service channels for the regional product businesses.

Combining
the product organisations with the regional businesses will enable the Group to dismantle much of the current UK based central operations organisation leading to significant
cost savings. In addition, overhead cost reduction initiatives across all of the Group's other business functions are being instigated. Associated with this, in addition to pre-existing
cost reduction plans in BBRS and payphones, we announced a proposed headcount reduction of up to 800 jobs in the UK.

This
operating and financial review is written on the basis of our segments as at 31 March 2005. There are minimal changes to the way we will report our segments as a result of
the new organisation, which is effective from the first quarter of fiscal 2006.

Outlook

Following BT's announcement on preferred suppliers for its 21CN project, we currently expect a reduction in BT revenues from equipment sales and associated
services in the order of £50 million in fiscal 2006 compared to fiscal 2005.

More
generally, pricing pressure remains fierce across products and services and this, together with a changing business mix, will impact gross margins in fiscal 2006.

Despite
this, overall we currently expect fiscal 2006 revenues will be at a similar level to fiscal 2005, based on continuing high levels of customer interest, tender activity and trials
across our products as well as services.

We
continue to target business cost reductions to counter the pricing pressures we are seeing, as follows:



10

---





In
light of the above we currently expect to see continuing progress in fiscal 2006.

Strategic options

We announced on 3 May that we would continue to pursue all strategic options with the objective of maximising shareholder value. Whilst there is no further
update that we are in a position to communicate to shareholders at the date of this report, we did announce on 8 August that these options include, amongst a range of alternatives, discussions
with third parties about potential business combinations. These discussions are at a preliminary stage and there can be no assurance that an offer will ultimately take place.

Market environment

Market conditions in 2005 remain difficult as vendors continue to fight for market share. Price pressure has increased as market entrants to Europe seek to build
their global presence, fuelling competition with low-cost hardware and software. Operators are also contributing to this trend, showing increased use of competitive procurement methods.

Our
customers' capital expenditure constraints eased slightly in the year. We saw increased order and tender activity as operators began to plan investments in
next-generation internet protocol (IP) networks to eventually replace traditional, higher-cost TDM networks. This is opening up a number of opportunities for vendors around the
world, with both incumbents and competitive national operators. We expect successful initial deployment of IP networks to lead to an eventual increase in investment in the industry.

The
two underlying drivers of growth are the take-up of mobile and broadband services. Both of these are strong drivers for investment as operators compete to deploy new
services to their end customers. Around the world, consumers and small businesses alike are increasingly choosing to use mobile for voice and broadband for internet access, in preference to the
traditional fixed-line service.

The
end customer requirement for increased capacity at lower cost is forcing operators to re-examine their cost base and develop new services. Although this is good news for
the deployment of lower-cost next-generation equipment which can address the needs of operators as they respond to their customers' requirements, we expect operators to
continue to demand that any new investments generate a significant return on investment over the life of the network.

Operating review

Basis of preparation

Our consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the UK
(UK GAAP). The discussion and analysis below of our consolidated results of operations and financial condition are based upon these financial statements.

In
recent years, as a result of its financial restructuring, the Group incurred significant exceptional items and recorded a substantial impairment of goodwill. In order to present more
clearly the underlying business in this Operating and financial review, management presents and focuses its commentary on adjusted gross margins, adjusted operating losses and adjusted cash flows*
after removing the impact of these material items.

---

11

---



Foreign exchange impact

We have significant translation exposure to foreign exchange movements as approximately 12% of our sales are derived in US Dollars and 38% in Euros. The average
Pound Sterling/US Dollar exchange rate has moved from 1.7023 for fiscal 2004 to 1.8504 for fiscal 2005. The average Pound Sterling/Euro
exchange rate has moved from 1.4435 for fiscal 2004 to 1.4632 for fiscal 2005. If we had applied the rates for fiscal 2005 to the Group operating loss before goodwill and exceptional items for fiscal
2004, the loss would have increased by £1 million.

Consolidated Results

Group Key FiguresContinuing Operations

The table below sets forth the key figures relating to the operating performance of our Continuing Operations for fiscal 2005, 2004 and 2003.

|                                                |  | 2005 |   | 2004 |   | 2003 |  
|----------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|
|Sales                                           |  | 289  |   | 305  |   | 330  |  
|Adjusted cost of sales(2)*                      |  | (196 | ) | (204 | ) | (221 | )
|                                                |  |      |   |      |   |      |  
|Adjusted gross profit(2)*                       |  | 93   |   | 101  |   | 109  |  
|Adjusted gross margin*                          |  | 32.2 | % | 33.1 | % | 33.0 | %
|Exceptional credit/(charge) to cost of sales(3) |  | 1    |   | 3    |   | 1    |  
|                                                |  |      |   |      |   |      |  
|Gross profit                                    |  | 94   |   | 104  |   | 110  |  
|                                                |  |      |   |      |   |      |  
|Gross margin                                    |  | 32.5 | % | 34.1 | % | 33.3 | %
|Research and development                        |  | (44  | ) | (47  | ) | (48  | )
|Sales and marketing                             |  | (34  | ) | (34  | ) | (34  | )
|General and administration                      |  | (18  | ) | (18  | ) | (17  | )
|Other operating income/(expense)                |  |     |   |     |   |     |  
|                                                |  |      |   |      |   |      |  
|Adjusted operating expenses(4)*                 |  | (96  | ) | (99  | ) | (99  | )
|                                                |  |      |   |      |   |      |  
|Adjusted operating (loss)/profit(5)*            |  | (3   | ) | 2    |   | 10   |  
|Operating exceptional items                     |  | 1    |   | 2    |   | (4   | )
|Goodwill amortisation                           |  | (22  | ) | (22  | ) | (23  | )
|Share option costs                              |  | (10  | ) | (7   | ) | (4   | )
|                                                |  |      |   |      |   |      |  
|Operating loss                                  |  | (34  | ) | (25  | ) | (21  | )
|                                                |  |      |   |      |   |      |  
|Discontinued Operations                         |  |     |   | (4   | ) |     |  
|                                                |  |      |   |      |   |      |  
|Group operating loss                            |  | (34  | ) | (29  | ) | (21  | )
|                                                |  |      |   |      |   |      |  

---

---

12

---



Continuing Operations overview

During fiscal 2005, sales from Continuing Operations increased by £26 million from fiscal 2004 to £1,270 million. This was
predominantly due to growth in the access market as customers rolled out their mobile and broadband access networks.

As
a result, sales in Europe, the Middle East and Africa for fiscal 2005 increased by £84 million to £1,021 million, which represented 80% of our
sales from Continuing Operations (2004: 75%, 2003: 71%).

North
American sales reduced by £39 million to £136 million, predominantly in BBRS as US Federal Government spending was diverted to other
activities during the year. North American sales amounted to 11% of sales from Continuing Operations (2004: 14%, 2003: 15%).

Sales
in the Asia Pacific region reduced by £31 million to £76 million and represented 6% of sales from Continuing Operations (2004: 9%,
2003 10%).

The
following table sets out the geographic breakdown of our sales from Continuing Operations for fiscal 2005, 2004 and 2003:

£ million

2005

2004

2003Europe, the Middle East and Africa

1,021

80%

937

75%

1,132

71%North America

136

11%

175

14%

244

15%Asia Pacific

76

6%

107

9%

162

10%Central and Latin America

37

3%

25

2%

60

4%Total

1,270

100%

1,244

100%

1,598

100%


We
continued to make progress during fiscal 2005 on improving our gross profit and achieved an adjusted gross margin* of 33.1% and 33.0% in the second and third quarters respectively.
Gross margin
also improved in the second and third quarters at 34.1% and 33.3% respectively. Whilst we delivered improved adjusted gross margin* and gross margin in Optical and Access Networks in the first nine
months of fiscal 2005, price pressure intensified towards the end of fiscal 2005 and this curtailed further gross margin improvement. Adjusted gross margin* for fiscal 2005 was 32.5% and gross margin
was 32.9%. The improvement in adjusted gross margin* from 20.9% in fiscal 2003 to 28.2% in fiscal 2004 reflects cost reductions following our continued rightsizing of the services organisation and
rationalisation and procurement initiatives driven by supply chain management.

The
adjusted operating profit* of £28 million in fiscal 2005 was an improvement of £83 million over the £55 million adjusted
operating loss incurred in fiscal 2004. Adjusted operating profit* was achieved in each of the last three quarters of fiscal 2005, mainly due to increased volumes at improved margins.

After
share option costs, goodwill amortisation and exceptional items our operating loss from Continuing Operations was £95 million for fiscal 2005, with the quarterly
profile reflecting a reduction in operating loss across each quarter of the year. This represents a significant reduction from an operating loss of £249 million in fiscal 2004 and
£634 million in fiscal 2003, when exceptional costs in relation to our restructuring were significantly higher. The reduction of £385 million in operating loss
from fiscal 2004 to 2003 also reflects decreased operating expenses following the headcount reductions, consolidation activities and site closures resulting from the restructuring.

---

13

---



Book to bill

Book to bill is the ratio of order intake divided by the level of sales in any given period. We continue to have a healthy order book, with a book to bill for
fiscal 2005 of 1.01, consistent with the previous year (2004: 1.02, 2003: 0.88).

Key customer overview

In fiscal 2005, our 10 largest customers were (in alphabetical order): BT, Deutsche Telekom, E-Plus, Metro City Carriers (Germany), O2,
Telecom Italia, Telkom South Africa, Telstra, US Federal Government and Vodafone.

In
aggregate, these customers accounted for 57% of sales from Continuing Operations in fiscal 2005. The 10 largest customers accounted for 55% of sales from Continuing Operations in
fiscal 2004 and 48% in fiscal 2003.

Sales to BT

BT was our largest customer and accounted for 25% of sales from Continuing Operations in fiscal 2005 (2004: 25%, 2003: 21%).

The
breakdown of our revenues from BT in fiscal 2005, 2004 and 2003 is as follows:

2005
£ million

2004
£ million

2003
£ millionServices, of which:



173



159



148Cable services

101



83



72IC&M and support

72



76



76Optical



88



89



124Legacy access



48



52



68Broadband access



13







3Total sales



322



300



343


Of
our total BT revenues of £322 million in fiscal 2005, £173 million was services revenues. The largest element of our services revenues for fiscal
2005 was the £101 million earned under our four-year frame services contract with BT Cable Services. The contract, which runs to 2008, involves the installation of fibre
and copper services to residential and business users and is not directly associated with BT's 21CN project.

The
balance of our services revenues (£72 million) was for the installation, commissioning and support of optical, access and switching equipment.

Our
optical sales to BT are under a three-year frame contract, which guarantees Marconi a minimum of 70% of BT's transmission requirements until March 2006. Optical
sales to BT in fiscal 2005 were £88 million.

Broadband
access rollout, which is also covered under our three-year frame contract with BT, accounted for £13 million of product sales in fiscal 2005,
having increased to £7 million in the final quarter of the fiscal year. The contract with BT runs until August 2006.

Legacy
access products made up the balance of sales to BT in fiscal 2005 (£48 million).

While
it was announced on 28 April 2005 that Marconi has not been selected as a preferred supplier for BT's 21CN project, we expect to continue to supply products and services to
BT under existing contracts.

14

---



Non-BT sales

In fiscal 2005, non-BT sales increased to £948 million (2004: £944 million, 2003: £1,255 million).
Sales of Optical and Access products grew 10% year-on-year and represented 54% of the non-BT revenues. Excluding BBRS, non-BT sales increased by 7% from
£754 million to £808 million (2003: £1,039 million).

The
following table sets forth the breakdown of our non-BT sales on a percentage basis for fiscal 2005, 2004 and 2003:

2005

2004

2003%

%

%Optical and Access Networks

54

49

46Network Services

31

31

36BBRS

15

20

18


With
the exception of the US Federal Government, we saw spending increases by all of our 10 largest customers in fiscal 2005.

In
Northern Europe, the growth in European DSL rollout has fuelled deployment of our Access Hub with customers such as Bulldog (Cable & Wireless), while UK carrier customers such
as Kingston, Jersey and Gamma Telecom have already deployed the Impact SoftSwitch in their networks. Optical customers include UK operators such as Energis as well as European operators such as KPN
and Belgacom. In addition to our recently announced multi-vendor support contract with Energis, we also have ongoing support contracts with a number of UK operators.

In
Southern Europe, Telecom Italia is a major customer, with spending split evenly between optical and access equipment. The majority of our business continues to be under frame
contracts covering SDH, access and optical DWDM. Vodafone is also an important customer, with their wireless traffic running on a Marconi optical backbone. We also continue to supply SDH and DWDM
directly into Italian
regional operators and indirectly into customers such as Telefónica through our distribution agreement with Ericsson.

Our
Central Europe business continues to be driven by demand from the German mobile operators as we build their fixed wireless access and optical networks. As a group, the German metro
city carriers also represent a significant revenue stream and we have begun to see firm orders for our next-generation optical products from these customers. In addition, we also recently
announced a frame contract with T-Com for the supply of 40Gbit/s optical DWDM and continue to provide them with our ServiceOn Access tool for the management of their access network.

In
the rest of Europe, the Middle East and Africa, we also saw increased deployment of access products by Telkom South Africa as they extended their broadband access coverage. We also
continue to supply SDH into Scandinavian regional operators.

Our
VAS business is driven by long-term contracts for the build, maintenance and transformation of enterprise customer networks. We have announced a 13-year
contract with Tube Lines and an 8-year contract with a Middle East government defence customer. Other contracts include those with Toll Collect in Germany (which runs to 2009), a number of
Highways Agency contracts (which run to 2007) and a Network Rail frame contract (which runs to 2010).

The
US Federal Government remained one of our 10 largest customers in fiscal 2005. Although there has been some reduction of spend in recent quarters, switch and router sales and
services contracts with the US Federal Government continue to be important contributors to overall sales.

In
Australia, we have a longstanding relationship with Telstra which has traditionally included SDH and network management. In the last few quarters, we have increased sales under our
multi-year frame contracts for the supply and support of 10Gbit/s and 2.5Gbit/s optical networks.

15

---



Review of Discontinued Operations

The Group disposed of its OPP business in September 2005, which generated sales of £67 million in fiscal 2005. During fiscal 2004, the Group
disposed of its NAA business
and, in fiscal 2003, disposed of the Strategic Communications business. These activities are shown as Discontinued Operations in the consolidated financial statements for all periods presented.

Operating expenses

The following table sets forth the breakdown of operating expenses for fiscal 2005, 2004 and 2003:

|                                            |  | 2005 |  | 2004 |  | 2003
|------------------------------------------- |  | ---- |  | ---- |  | ----
|
|Research and development                    |  | 44   |  | 47   |  | 48  
|Sales and marketing                         |  | 34   |  | 34   |  | 34  
|General and administration                  |  | 18   |  | 18   |  | 17  
|Net other operating (income)/expense        |  |     |  |     |  |    
|                                            |  |      |  |      |  |     
|Adjusted operating expenses*                |  | 96   |  | 99   |  | 99  
|Exceptional charge to operating expenses(1) |  |     |  | 1    |  | 5   
|Share options                               |  | 10   |  | 7    |  | 4   
|Goodwill amortisation                       |  | 22   |  | 22   |  | 23  
|                                            |  |      |  |      |  |     
|Operating expenses                         |  |      |  |      |  |     
|Continuing Operations                       |  | 128  |  | 129  |  | 131 
|Discontinued Operations                     |  | 9    |  | 4    |  |    
|                                            |  |      |  |      |  |     
|Group                                       |  | 137  |  | 133  |  | 131 
|                                            |  |      |  |      |  |     

---

Adjusted operating expenses

Adjusted operating expenses* have reduced to £385 million for fiscal 2005 from £433 million on a pro forma basis for fiscal
2004 and £619 million for fiscal 2003 as we saw the benefits of headcount reductions and other cost reduction initiatives, which we began to implement in 2004.

During
fiscal 2005, we increased R&D investment to support our next-generation product portfolio. At the same time, we were able to achieve R&D savings over the previous two
years (2005: £181 million, 2004: £200 million on a pro forma basis, 2003: £286 million as reported). This efficiency in R&D spend was the
result of rationalisation of R&D locations and streamlining of R&D programmes.

The
following table reconciles R&D costs to adjusted R&D costs:

|                   |  | 2005 |  | 2004 |  |     |  |    
|------------------ |  | ---- |  | ---- |  | --- |  | ---
|
|
|
|Adjusted R&D costs |  | 181  |  | 200  |  | 174 |  | 286
|Share option costs |  | 1    |  | 1    |  | 2   |  |   
|                   |  |      |  |      |  |     |  |    
|R&D costs          |  | 182  |  | 201  |  | 176 |  | 286
|                   |  |      |  |      |  |     |  |    

---

16

---



An
analysis of R&D spend by product area as a percentage of total adjusted R&D expenditure* (stated before share option costs) for the last three fiscal years is shown below:

|                 |  | 2005 |  | 2004(1) |  | 2003
|---------------- |  | ---- |  | ------- |  | ----
|Optical Networks |  | 43%  |  | 42%     |  | 44% 
|Access Networks  |  | 36%  |  | 33%     |  | 25% 
|BBRS             |  | 18%  |  | 20%     |  | 24% 
|Network Services |  | 3%   |  | 5%      |  | 7%  

---

Sales
and marketing expenses remained stable at £34 million per quarter throughout fiscal 2005. This was a result of new investments for customer trials being offset
by savings achieved in other areas. The decline in sales and marketing expenses from fiscal 2003 to fiscal 2004 reflects the impact of headcount reductions and the rationalisation of sales offices
worldwide.

Quarterly
general and administration (G&A) costs have declined over fiscal 2005 (from £18 million in the first quarter to £16 million in the final
quarter) as we saw efficiency improvements over the previous year. Total G&A costs for fiscal 2005 were £69 million. This represents a £17 million reduction on
the previous year on a pro forma basis. The reduction in G&A costs in fiscal 2004, compared to fiscal 2003, related to headcount reductions, the relocation of our UK Head Office and reduced
expenditure on professional fees incurred in the normal course of business.

Operating (loss)/profit

The following table sets forth the breakdown of operating (loss)/profit for fiscal 2005, 2004 and 2003:

|                                  |  | 2005 |   | 2004 |   | 2003 |  
|--------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Optical and Access Networks(1)    |  | (8   | ) | (4   | ) | 11   |  
|BBRS                              |  | 8    |   | 11   |   | 3    |  
|Network Services(1)               |  | 5    |   | 3    |   | 4    |  
|Central costs                     |  | (8   | ) | (8   | ) | (8   | )
|Other                             |  |     |   |     |   |     |  
|                                  |  |      |   |      |   |      |  
|Adjusted operating (loss)/profit* |  | (3   | ) | 2    |   | 10   |  
|Operating exceptional items       |  | 1    |   | 2    |   | (4   | )
|Share option costs                |  | (10  | ) | (7   | ) | (4   | )
|Goodwill amortisation             |  | (22  | ) | (22  | ) | (23  | )
|                                  |  |      |   |      |   |      |  
|Operating loss                   |  |      |   |      |   |      |  
|Continuing Operations             |  | (34  | ) | (25  | ) | (21  | )
|Discontinued Operations           |  |     |   | (4   | ) |     |  
|                                  |  |      |   |      |   |      |  
|Group                             |  | (34  | ) | (29  | ) | (21  | )
|                                  |  |      |   |      |   |      |  

---

---

17

---



Adjusted operating profit/(loss)

Adjusted operating profit* in fiscal 2005 amounted to £28 million, a significant improvement from the £55 million loss
incurred in fiscal 2004. All segments have achieved an adjusted operating profit* in the year and central costs reduced due to cost reduction initiatives which we began to implement in the previous
year. The significant reduction in adjusted operating loss in fiscal 2004 compared to fiscal 2003 was achieved by the cost reduction initiatives to improve gross profit and lower operating costs,
particularly R&D and sales and marketing expenses. Operating loss is discussed below.

Operating exceptional costs

Operating exceptional costs for fiscal 2005 were £9 million, significantly reduced from £76 million in fiscal 2004 and
£267 million in fiscal 2003. We continued to implement restructuring plans in fiscal 2005, incurring employee severance costs of £20 million (2004:
£64 million; 2003: £104 million), a net nil charge (2004: £12 million; 2003: £165 million) for site rationalisation and
other restructuring costs and a £4 million credit in respect of the release of liability provisions associated with the Group's financial restructuring. Cost of sales credits of
£5 million (2004: £9 million; 2003: £19 million) relate primarily to proceeds for stock previously provided and subsequently utilised by Jabil.
In 2003, stock credits of £19 million were offset by rationalisation costs of £40 million associated with the outsourcing of manufacturing operations to Jabil.
Other exceptional items in 2003 related primarily to the impairment of fixed assets and investments. Note 4a to the consolidated financial statements provides further analysis.

Share option costs

Share option costs are charged to the profit and loss account over the life of the plans as performance targets are expected to be met. Our current share option
plans have five performance targets, each having a period in which the options over shares will vest.

The
overall impact from 1 April 2005 through to fiscal 2007 is expected to be £59 million under UK GAAP. Costs in fiscal 2005 reduced to £25 million
(2004: £31 million; 2003: £nil million), as the fourth performance target was achieved. We continue to accrue costs related to the fifth performance target.

Goodwill amortisation

Goodwill amortisation remained broadly stable at £89 million in fiscal 2005 and 2004, compared to £83 million in fiscal
2003.

Operating loss

In fiscal 2005 the operating loss from Continuing Operations was £95 million. This represented a decrease in operating loss compared with
£249 million recorded in fiscal 2004 and £634 million in fiscal 2003, when operating exceptional items from our restructuring were significantly higher.

The
operating loss from Discontinued Operations was £4 million in fiscal 2005 compared with £8 million profit in fiscal 2004 and a loss of
£95 million in fiscal 2003.

---

18

---



Loss on ordinary activities before taxation

Joint ventures and associates

During fiscal 2005, operating profits in respect of joint ventures and associates were £nil. In fiscal 2004, operating losses in respect of joint
ventures and associates amounted to £13 million, relating primarily to our share of operating losses and related goodwill
amortisation in Confirmant Limited and Easynet Group plc. In fiscal 2003, operating losses in respect of joint ventures and associates amounted to £129 million. This also mainly
comprised the Group's share of the operating losses, operating exceptional items, goodwill amortisation and impairment charges of Confirmant and Easynet. The Group also recorded a
£14 million gain on cessation of its joint venture investment in Ultramast Limited through a capital reduction.

Non-operating exceptional items

Non-operating exceptional items amounted to a £103 million gain in fiscal 2005 due to the profit on disposal of OPP. A
£177 million gain was recorded in fiscal 2004, principally due to gains on disposals in fiscal 2003 and fiscal 2004 (North American Access, Easynet Group plc and other fixed asset
investments), and a £141 million gain in fiscal 2003, principally due to a £123 million release of a provision, following the agreement that the potential
Employee Share Option Plan (ESOP) derivative litigation would be settled on 19 May 2003.

Interest and finance expenditure/(income)

In fiscal 2005, net interest amounted to £nil. This compared with a net £35 million of interest paid in fiscal 2004, principally
related to the Loan Notes issued in connection with our financial restructuring, which were fully redeemed in the second quarter of the year. Net interest paid for fiscal 2003 was
£242 million, reflecting the higher level of debt prior to the financial restructuring.

Net
finance expenditure of £31 million in fiscal 2005 arose principally from the premium payable on the redemption of the Loan Notes. In fiscal 2004 net finance
expenditure totalled £82 million due to an exceptional write off of capitalised losses arising from our financial restructuring. In fiscal 2003, net finance charges amounted to
£14 million, including net pension charges of £6 million and a loss on unhedged foreign exchange borrowings of £11 million.

19

---



Profit/(loss) on ordinary activities after taxation

The following table sets forth the breakdown of profit/(loss) on ordinary activities after taxation for fiscal 2005, 2004 and 2003:

|                                                                                                                   |  | 2005 |   | 2004 |   | 2003 |  
|------------------------------------------------------------------------------------------------------------------ |  | ---- | - | ---- | - | ---- | -
|
|Group operating loss                                                                                               |  | (34  | ) | (29  | ) | (21  | )
|Share of operating loss of joint ventures                                                                          |  |     |   |     |   |     |  
|Share of operating loss of associates                                                                              |  |     |   |     |   |     |  
|                                                                                                                   |  |      |   |      |   |      |  
|Total operating loss                                                                                               |  | (34  | ) | (29  | ) | (21  | )
|Non-operating exceptional items                                                                                    |  |     |   | 103  |   |     |  
|Amounts written off investments                                                                                    |  |     |   |     |   |     |  
|Gain on waiver of balance payable to M (2003) plc group                                                            |  |     |   |     |   |     |  
|Net interest (payable)/receivable                                                                                  |  | (2   | ) | (1   | ) | 1    |  
|Net finance expenditure                                                                                            |  | (3   | ) | (26  | ) |     |  
|                                                                                                                   |  |      |   |      |   |      |  
|(Loss)/profit on ordinary activities before taxation                                                               |  | (39  | ) | 47   |   | (20  | )
|Taxation                                                                                                           |  | 3    |   | (22  | ) | (1   | )
|                                                                                                                   |  |      |   |      |   |      |  
|(Loss)/profit on ordinary activities after taxation                                                                |  | (36  | ) | 25   |   | (21  | )
|                                                                                                                   |  |      |   |      |   |      |  
|Equity minority interests                                                                                          |  |     |   |     |   |     |  
|                                                                                                                   |  |      |   |      |   |      |  
|(Loss)/profit on ordinary activities attributable to equity shareholders and retained (loss)/profit for the period |  | (36  | ) | 25   |   | (21  | )
|                                                                                                                   |  |      |   |      |   |      |  
|Basic profit/(loss) per share                                                                                      |  |      |   |      |   |      |  
|Diluted basic profit/(loss) per share                                                                              |  |      |   |      |   |      |  
|Adjusted profit/(loss) per share*                                                                                  |  |      |   |      |   |      |  

The
loss on ordinary activities before taxation amounted to £27 million in fiscal 2005 compared to a loss of £171 million in the previous year and
£1,328 million in fiscal 2003.

Taxation

In fiscal 2005, the Group's tax credit on ordinary activities to the profit and loss account was £48 million (2004:
£19 million credit; 2003: £185 million credit). The net tax credit in fiscal 2005 was mainly due to the release of tax provisions of
£33 million in respect of prior years following progress to resolve historic US and UK tax issues and audits and a credit of £18 million for US and UK tax
refunds, offset by a charge of £3 million for the year.

In
fiscal 2004, the net tax credit of £19 million was mainly due to the release of tax provisions of £20 million in respect of prior years following
the Marconi Corporation plc Scheme of Arrangement, the release of deferred tax provisions of £6 million and current tax provisions and refunds of £5 million
(including joint ventures and associates). These were offset by a tax charge of £8 million on the disposal of the NAA business and tax charges for those territories incurring tax
payments.

The
fiscal 2003 tax credit of £185 million was primarily due to the release of tax provisions in respect of prior years following progress to resolve historic US and
UK tax issues and audits. This included a repayment in the UK of £45 million related to tax returns from prior years.

---

20

---



As
previously disclosed, there is ongoing tax litigation with the Indian tax authorities. Marconi has sought leave to appeal against the high court decision to the Indian supreme court
and is currently waiting to hear the outcome of its application. A potential cash outflow of £6 million for tax and related interest is at risk. For further details see note 30(k)
to the consolidated financial statements on page 217.

Returns to shareholders

Profit on ordinary activities attributable to equity shareholders

After accounting for taxation, the profit on ordinary activities attributable to equity shareholders and retained for fiscal 2005 was
£21 million compared to a loss of £153 million in fiscal 2004 and a loss of £1,144 million in fiscal 2003.

Profit per share

The basic profit per share, which includes goodwill amortisation and exceptional items, was 10.3p for fiscal 2005. The diluted profit per share was 9.7p. In the
previous two fiscal years the effect of share options was anti-dilutive, such that the basic and diluted loss per share was 61.4p in fiscal 2004 and

21

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199.6p
in fiscal 2003. The adjusted profit per share* excluding goodwill amortisation and exceptional items was 8.8p for fiscal 2005 (2004: loss 54.2p; 2003: loss 86.0p) and is calculated as set out
below:

|                                                             |                                                            | Year ended 31 March 2005 |      | Year ended 31 March 2004 |       | Year ended 31 March 2003 |    
|------------------------------------------------------------ | ---------------------------------------------------------- | ------------------------ | ---- | ------------------------ | ----- | ------------------------ | ---
|
|Basic profit/(loss) and basic profit/(loss) per share        |                                                            | 21                       |      | 10.3                     |       | (153                     | )  
|Operating exceptional items                                  |                                                            |                          |      |                          |       |                          |    
|                                                             | Restructuring costs included in cost of sales              |                          | (5   | )                        | (2.4  | )                        | (9 
|                                                             | Restructuring costs                                        |                          | 16   |                          | 7.8   |                          | 89 
|                                                             | (Decrease)/increase in provision for litigation settlement |                          | (2   | )                        | (1.0  | )                        | 5  
|                                                             | Releases in respect of doubtful debts                      |                          |     |                          |      |                          | (4 
|                                                             | Impairment of fixed assets investments                     |                          |     |                          |      |                          |   
|                                                             | Onerous contracts                                          |                          |     |                          |      |                          |   
|                                                             | Oracle implementation                                      |                          |     |                          |      |                          |   
|                                                             | Joint ventures' operating exceptional items                |                          |     |                          |      |                          |   
|                                                             | Associates' operating exceptional items                    |                          |     |                          |      |                          |   
|Non-operating exceptional items                              |                                                            |                          |      |                          |       |                          |    
|                                                             | Gain on disposal of Discontinued Operations                |                          | (103 | )                        | (50.4 | )                        | (75
|                                                             | Gain on disposal of joint ventures and associates          |                          |     |                          |      |                          | (77
|                                                             | Gain on disposal of investments in Continuing Operations   |                          |     |                          |      |                          | (25
|                                                             | Amounts written off investments                            |                          |     |                          |      |                          | 2  
|                                                             | Gain on waiver of balance payable to M (2003) plc group    |                          |     |                          |      |                          | (25
|                                                             | Merger/demerger items                                      |                          |     |                          |      |                          |   
|                                                             | Share of joint ventures' non-operating exceptional items   |                          |     |                          |      |                          |   
|Goodwill amortisation                                        |                                                            | 91                       |      | 44.5                     |       | 103                      |    
|Write off of capitalised losses on swaps                     |                                                            |                         |      |                         |       | 46                       |    
|Exceptional tax credit                                       |                                                            |                         |      |                         |       | (12                      | )  
|                                                             |                                                            |                          |      |                          |       |                          |    
|Adjusted profit/(loss) and adjusted profit/(loss) per share* |                                                            | 18                       |      | 8.8                      |       | (135                     | )  
|                                                             |                                                            |                          |      |                          |       |                          |    

Dividends

Subsequent to the April 2005 announcement that Marconi had not been selected as a preferred supplier for BT's 21CN project, the Group recognised the need
to refocus its business. The Board will therefore continue to pursue all strategic options with the objective of maximising shareholder value.

There
is no dividend announcement being made at this time.

Segmental results

Set out below is a discussion of the results of our operating segments. These results are shown before the cost of exceptional items, share option costs and
goodwill amortisation, which is the measure used by management to review the financial performance of the operating units and is referred to as segment adjusted operating profit/(loss)*.

---

22

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Cost reclassification

From 1 April 2004 we reclassified certain costs, which were previously accounted for within cost of sales and are now treated as operating expenses. This
reclassification impacted our Optical and Access Networks and Network Services segments, the effect of which was to reduce the operating loss for the Optical and Access Networks segment by
£12 million and reduce the operating profit for the Network Services segment by £12 million in fiscal 2004.

Management
viewed these cost reclassifications as a more appropriate allocation of costs in order to increase control and accountability within the context of our move towards an
outsourced supply chain model.

Three
main factors contribute to the overall cost reclassification:



These
reallocations do not represent changes of accounting policy and do not impact our operating profit/(loss) and we have not, therefore, restated prior year analysis. For ease of
comparison, we have shown pro forma adjusted gross profit and adjusted operating expenses for fiscal 2004 for Continuing Operations as if we had adopted the new cost allocations from 1 April
2003. This information is also consistent with the financial information provided to management.

23

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Optical and Access Networks (52% of fiscal 2005 sales from Continuing Operations)

The following table sets forth certain information for our Optical and Access Networks segment for fiscal 2005, 2004 and 2003:

|                                  |                  | 2005 |     | 2004 |     | 2003 |    
|--------------------------------- | ---------------- | ---- | --- | ---- | --- | ---- | ---
|
|Sales                             |                  |      |     |      |     |      |    
|                                  | Optical Networks |      | 77  |      | 76  |      | 89 
|                                  | Access Networks  |      | 60  |      | 76  |      | 94 
|                                  |                  |      |     |      |     |      |    
|                                  | Total            |      | 137 |      | 152 |      | 183
|                                  |                  |      |     |      |     |      |    
|Book to bill ratio                |                  | 1.01 |     | 1.15 |     | 0.99 |    
|Gross profit                      |                  | 47   |     | 57   |     | 70   |    
|Gross margin                      |                  | 34.3 | %   | 37.5 | %   | 38.3 | %  
|Adjusted gross profit*            |                  | 46   |     | 54   |     | 69   |    
|Adjusted gross margin*            |                  | 33.6 | %   | 35.5 | %   | 37.7 | %  
|Adjusted operating (loss)/profit* |                  | (8   | )   | (4   | )   | 11   |    

---

Optical Networks sales (26% of fiscal 2005 sales from Continuing Operations)

Optical Networks comprises Marconi's range of SDH and DWDM transmission equipment as well as its network management systems. Sales of Optical Networks equipment
amounted to £329 million in fiscal 2005, unchanged from the previous year (2004: £330 million). Revenues with customers in Europe and Australia represented over
three-quarters of total revenues in fiscal 2005. In the UK, sales to new customers more than offset flat sales to BT (2005: £88 million; 2004: £89 million).
However, the UK increase was offset by lower overall sales in the Asia Pacific region.

Sales
of Optical Networks equipment declined (to £330 million in fiscal 2004 from £439 million in fiscal 2003). Significant reductions were recorded in
Northern Europe, Southern Europe and Asia Pacific as our main customers refocused their capital expenditure budgets towards Broadband Access rollouts. Initial network buildouts were also completed for
Wind and Vodafone in Italy during fiscal 2003 which contributed to the decline in fiscal 2004.

Access Networks sales (26% of fiscal 2005 sales from Continuing Operations)

Access equipment connects the end user to a service provider's switch or local exchange across what has been traditionally known as the 'last mile' or 'local
loop'. This is the physical wire, fibre or wireless
link that runs from a subscriber's telephone or other communications device to the service provider's local exchange. We design, manufacture, sell and support a range of access equipment, which
maximises the capabilities of physical transport media, including copper telephone lines, fibre optics and both licensed and unlicensed wireless spectra.

---

24

---



Access
Networks comprises three main sub-segments: fixed wireless access, broadband access and other access.

Access
Networks sales increased by £48 million or 17% to £330 million in fiscal 2005 (2004: £282 million). The growth was
predominantly due to sales of fixed wireless access products (36% of Access Network sales) mainly through sales to German mobile operators for their 3G mobile network rollouts. In fiscal 2005 we also
saw growth in sales of broadband access (22% of Access Network sales), which includes our Access Hub and Impact SoftSwitch products. Access Hub sales to our major customers in the UK and Italy
represented the majority of the sales in the year. We also saw sales growth from new customers under frame contracts in the UK, South Africa and Germany. The growth in the fixed wireless and broadband
access sub-segments was partially offset by the reduction in sales of other access products (42% of Access Network sales). This was predominantly in the UK, as a result of BT's reduced
expenditure on legacy products, as well as reduced payphone sales in the UK and South Africa following our announced withdrawal from these businesses.

The
decline in Access Network sales (to £282 million in fiscal 2004 from £315 million in fiscal 2003) reflected a delay in volume deployments of Fixed
Wireless Access equipment by mobile operators in Germany and a reduced level of sales of narrowband access equipment as software upgrades completed in fiscal 2003 were not repeated in 2004. The
decline was partially offset by an increase in sales of AccessHub to Telecom Italia.

Book to bill

The book to bill ratio for Optical and Access Networks, at 0.99 for fiscal 2005, was largely unchanged from 0.97 in fiscal 2004 and 0.99 in fiscal 2003.

Gross profit

Gross profit in Optical and Access Networks was £244 million for fiscal 2005 (2004: £179 million on a pro forma basis; 2003:
£81 million as reported).

Adjusted gross profit

Adjusted gross profit* in Optical and Access Networks was £239 million in fiscal 2005 (2004: £170 million on a pro forma
basis). This represented an adjusted gross margin* of 36.3%, an improvement over the 27.8% recorded in fiscal 2004. The £69 million increase was driven by product cost reductions
and higher sales of Access products, particularly in Germany. We also saw a more favourable product mix within Access Networks and increased sales to our new and established broadband access
customers. We delivered improved adjusted gross margin* in the first nine months of fiscal 2005 but price pressure intensified towards the end of fiscal 2005 and this curtailed further gross margin
improvement.

The
improvement in adjusted gross profit in fiscal 2004 of £170 million on a pro forma basis compared to £102 million as reported in fiscal 2003 arose due
to cost savings achieved through rationalisation and procurement initiatives in our European supply chain and manufacturing operations.

Adjusted operating profit

We achieved an adjusted operating profit* of £20 million in fiscal 2005 compared with a £68 million loss in fiscal 2004 (on a pro
forma basis) and a £216 million loss in fiscal 2003 (as reported). This significant continued improvement was driven by the gross profit increases described above and reduced
operating expenses resulting from ongoing cost reduction initiatives, which we began to implement in the previous year.

---

25

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BBRS (11% of fiscal 2005 sales from Continuing Operations)

The following table sets forth certain information for our BBRS segment for fiscal 2005, 2004 and 2003:

|                           |           | 2005 |    | 2004 |    | 2003 |   
|-------------------------- | --------- | ---- | -- | ---- | -- | ---- | --
|
|Sales                      |           |      |    |      |    |      |   
|                           | Equipment |      | 24 |      | 28 |      | 19
|                           | Services  |      | 14 |      | 14 |      | 11
|                           |           |      |    |      |    |      |   
|                           | Total     |      | 38 |      | 42 |      | 30
|                           |           |      |    |      |    |      |   
|Book to bill ratio         |           | 0.69 |    | 0.88 |    | 0.89 |   
|Gross profit               |           | 24   |    | 26   |    | 18   |   
|Gross margin               |           | 63.2 | %  | 61.9 | %  | 60.0 | % 
|Adjusted operating profit* |           | 8    |    | 11   |    | 3    |   

---

Sales

BBRS mainly comprises sales of multi-service routers and switches as well as support for these products. Sales in BBRS for fiscal 2005 were
£140 million, down by £45 million or 24% compared with the previous year (2004: £185 million). Of this reduction,
£15 million was due to adverse exchange rate movements between the pound sterling and the dollar as over 90% of sales in this business are generated in North America.

BBRS
equipment sales reduced from £130 million in fiscal 2004 to £89 million in fiscal 2005, predominantly due to reduced US Federal Government
spending as US defence spending was diverted to other activities beginning in the third quarter of the year. In addition, we saw a reduction in our US service provider business compared to the
previous year.

Whilst
BBRS services sales in local currency increased in fiscal 2005, the impact of exchange rate movements resulted in a reported decrease of £4 million in fiscal
2005 compared to fiscal 2004.

BBRS
equipment and services sales declined in fiscal 2004 compared to fiscal 2003. Sales to the US Federal Government increased in fiscal 2004 from fiscal 2003, however this was not
sufficient to offset the decline in rest of world sales and the impact of the declining value of the dollar in fiscal 2004 compared to fiscal 2003. In US dollars, BBRS equipment sales were flat
year-on-year.

Book to bill

The book to bill ratio for fiscal 2005 was 0.86, reduced from 1.02 in fiscal 2004 and 0.82 in fiscal 2003. This was due to reduced orders from the US Federal
Government as discussed above.

Gross profit

Gross profit for fiscal 2005 was £86 million (2004: £116 million on a pro forma basis) due to the reduced volume of sales in
the period and adverse exchange rate movements, which accounted for £9 million of the reduction. Driven by an increased proportion of
services and higher sales to US enterprise customers, gross margin for fiscal 2005 was 61.4% compared with a gross margin of 62.7% in fiscal 2004.

---

26

---



Gross
profit for fiscal 2004 reduced by £6 million compared to fiscal 2003 due to lower sales volumes. Gross margin improved year-on-year from 55.7% in fiscal 2003 to
62.7% in fiscal 2004, driven by cost savings achieved through rationalisation and procurement initiatives in our North American supply chain and manufacturing operations.

Adjusted operating profit

Adjusted operating profit* of £25 million for fiscal 2005 was below that of fiscal 2004 (£44 million on a pro forma basis)
due to the reduction in sales volume and the resulting impact on gross profit. Exchange rate movements accounted for £4 million of the reduction, which has partially been offset by
overhead cost reductions.

Reduced
operating expenses led to an increase in adjusted operating profit* for fiscal 2004 compared to £31 million reported in fiscal 2003. The main area of cost
reduction was in R&D, principally as a result of realigning core programmes to meet specific customer demand.

During
fiscal 2005 we announced actions to refocus the BBRS R&D effort on IP-related features and functionality and have taken actions to further realign our cost base, which resulted in
a headcount reduction of 150 during March and April 2005.

Network Services (37% of fiscal 2005 sales from Continuing Operations)

The following table sets forth certain information for our Network Services segment for fiscal 2005, 2004 and 2003:

|                           |       | 2005 |     | 2004 |     | 2003 |    
|-------------------------- | ----- | ---- | --- | ---- | --- | ---- | ---
|
|Sales                      |       |      |     |      |     |      |    
|                           | IC&M  |      | 48  |      | 46  |      | 53 
|                           | VAS   |      | 66  |      | 65  |      | 64 
|                           |       |      |     |      |     |      |    
|                           | Total |      | 114 |      | 111 |      | 117
|                           |       |      |     |      |     |      |    
|Book to bill ratio         |       | 0.86 |     | 1.03 |     | 1.15 |    
|Gross profit               |       | 23   |     | 21   |     | 22   |    
|Gross margin               |       | 20.2 | %   | 18.9 | %   | 18.8 | %  
|Adjusted operating profit* |       | 5    |     | 3    |     | 4    |    

---

Sales

Network Services sales for fiscal 2005 were £471 million, an increase of £24 million or 5% compared to the previous year
(2004: £447 million).

There
are two sub-segments within Network Services:

IC&M
sales are directly related to the installation, commissioning and maintenance of our network equipment products. IC&M sales in fiscal 2005 increased by
£25 million to £207 million (2004: £182 million). As discussed above, we saw increased Access product sales in the UK and Germany which led to
higher IC&M sales. We also saw additional revenues in Australia as we began to roll out the Telstra 2.5 Gbit/s optical contract.

---

27

---



Fiscal
2004 sales decreased by £28 million from £210 million recorded in fiscal 2003. The decrease corresponded to the lower level of equipment sales in Optical
and Access Networks.

VAS
sales comprises two main activities:



VAS
sales for fiscal 2005 were £264 million (2004: £265 million). Sales to BT under our cable services contract accounted for
£101 million of VAS sales in fiscal 2005, compared with £82 million in the previous year. However, this increase was partly offset by a now completed UK
Government contract, a non-recurring software sale in 2004 to a US wireless operator and the conclusion of a consultancy contract in the Middle East.

VAS
sales for fiscal 2004 declined compared to sales of £375 million in fiscal 2003. The decrease relates to a significantly reduced level of sales in the Middle East
and a reduction in the level of sales of wireless software and services, particularly in the US. The decline also reflects the impact of the disposal of our SMS subsidiary completed in December 2002.

Book to bill

The book to bill ratio for fiscal 2005 was 1.08, which was consistent with fiscal 2004. The book to bill ratio was above 1 due to a significant
multi-year contract from Tube Lines. Book to bill in fiscal 2003 was 0.71. The book to bill ratio is less meaningful in Network Services given the long-term nature of this
business where the full value of a service contract, which can be significant, is booked as an order at the point of firm contract signature. Sales are recognised over the life of the contract, which
can typically be over a period of two to five years.

Gross profit

The gross profit of £88 million and gross margin of 18.7% for fiscal 2005 were below the previous year's results
(£92 million, on a pro forma basis, and 20.6% respectively). In fiscal 2004 we benefited from a high margin software sale to a US wireless operator and higher margins from
long-term contracts which have now been completed.

Reduced
IC&M and VAS sales volumes impacted gross profit in fiscal 2004, which declined by £9 million compared to fiscal 2003. Gross margin increased year-on-year,
from 17.3% in fiscal 2003 to 20.6% in fiscal 2004, resulting from a high margin software sale to a wireless operator, higher margins from long-term contracts completed in the year and improved
utilisation of resources in this labour intensive activity.

Adjusted operating profit

The increase in adjusted operating profit* to £15 million in fiscal 2005 from £9 million on a pro forma basis in fiscal 2004
was achieved despite the fall in gross profit. The improvement was due to cost reductions and efficiency improvements made in the first half of fiscal 2005. Adjusted operating profit* also increased
in fiscal 2004, compared to fiscal 2003. The reduced operating expenses in fiscal 2004 more than compensated for the lower level of gross profit and drove this improvement.

---

28

---



Financial reviewBalance Sheet

Net assets

At 31 March 2005, we had net assets of £405 million compared to £352 million at 31 March 2004.
Significant movements in our balance sheet and working capital balances are described below.

Net
assets sold with OPP amounted to £85 million, including goodwill of £44 million, fixed assets of £24 million, inventory of
£29 million, net debtors of £25 million, net creditors and provisions of £21 million and a pension provision of £16 million.

Goodwill

At 31 March 2005, the net book value of Group goodwill amounted to £301 million compared to a net book value at 31 March 2004 of
£436 million. The reduction in the year comprised amortisation of £91 million and goodwill disposed of with the sale of OPP of £44 million.
From 2005-06 we will report under IFRS and will no longer amortise goodwill. We will continue to test for impairment on an annual basis or whenever events or circumstances indicate impairment.

Fixed assets

As at 31 March 2005, we had fixed assets of £116 million compared to £148 million at 31 March 2004.

The
reduction during the year was mainly due to depreciation of £39 million and the disposal of our OPP business (fixed assets disposed:
£24 million), partially offset by net capital expenditure in the year of £32 million.

Investments

As at 31 March 2005, we had fixed asset investments, including our share of interests in joint ventures and associates, of £8 million
compared to £9 million at 31 March 2004. The reduction in the year ended 31 March 2005 was a result of foreign exchange movements.

Within
our existing investments we retain an investment in Plessey Holdings Limited. This entity no longer trades but contains a number of environmental exposures in North America.
Plessey Holdings Limited is taking remedial action against these exposures, which are funded from its own cash balances. We consolidate our share of its assets and liabilities, being
£10 million each.

Working capital ratios

|                    |  | 30 June
2004 |  | 30 Sept
2004 |  | 31 Dec
2004 |  | 31 March
2005 |  | 31 March
2004
|------------------- |  | ------------ |  | ------------ |  | ----------- |  | ------------- |  | -------------
|Stock turnsGroup   |  | 5.5          |  | 5.2          |  | 5.3         |  | 5.9           |  | 6.1          
|Debtor daysGroup   |  | 72           |  | 69           |  | 61          |  | 64            |  | 60           
|Creditor daysGroup |  | 67           |  | 61           |  | 59          |  | 63            |  | 53           

Provisions

Provisions for liabilities and charges reduced from £219 million at 31 March 2004 to £145 million at 31
March 2005. Detailed analysis of provision movements for the year is set out in note 20 to the consolidated financial statements.

Of
this £74 million movement, a restructuring provision accounted for £17 million, reducing from £41 million to
£24 million as cost reduction commitments were fulfilled. Within the £24 million balance for the year was £8 million charged to restructuring
as we commenced further cost reduction initiatives.

29

---



Further
guidance on restructuring plans, costs and cost savings is set out in the section titled 'Outlook' on page 10.

Contracts
and commitments reduced from £48 million to £16 million. The £32 million movement was due to release and utilisation of
provisions on a number of long-term contracts in the normal course of business, as well as releases following resolution of certain contract risks.

Litigation
and indemnities reduced by £16 million, from £82 million to £66 million, as we settled the Telcordia litigation during
the year. The closing balance consists of environmental liabilities, employee related claims for industrial diseases which have been assessed by actuaries, insurance and merger and acquisition
balances.

The
remaining movement was due to warranty costs and a decrease in other provisions mainly in respect of share option costs incurred in the year.

The
majority of the outstanding provisions at 31 March 2005 are for items which we do not expect to be settled in the short-term.

Pensions and other retirement benefits

Our pension scheme deficit at 31 March 2005 amounted to £228 million, compared to £246 million at 31
March 2004.

At
31 March 2005, the largest single element of the pension deficit was accounted for by the UK Plan, which had a deficit of £109 million, down from
£118 million at 31 March 2004. The geographical split of our pension net deficit was as below:

|£ million |  | 2005 |   | 2004 |  
|--------- |  | ---- | - | ---- | -
|UK        |  | (109 | ) | (118 | )
|Germany   |  | (91  | ) | (76  | )
|Italy     |  | (17  | ) | (15  | )
|US        |  | (11  | ) | (37  | )
|          |  |      |   |      |  
|Total     |  | (228 | ) | (246 | )
|          |  |      |   |      |  

The
reduction of £18 million since 31 March 2004 was principally due to the impact of contribution and benefit payments, service costs and settlement and
curtailment gains arising from the sale of our OPP business.

We
benefited from an actuarial gain of £1 million, which is accounted for in the consolidated statement of total recognised gains and losses (STRGL). The key elements
of the gain are shown below.

30

---



STRGL movements

|£ million                                            |  | 2005 |   | 2004 |   | 2003 |  
|---------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|UK                                                   |  |      |   |      |   |      |  
|Gain/(loss) on plan assets                           |  | 71   |   |      |   | 115  |  
|Gain from reduction in salary growth assumption      |  | 10   |   |      |   |     |  
|Gain from reduction in credited interest rate        |  | 35   |   |      |   | 33   |  
|Loss from increase in mortality assumption           |  | (102 | ) |      |   | (66  | )
|Net loss from changes in inflation and discount rate |  |     |   |      |   |     |  
|Gain from changes in early retirement factors        |  |     |   |      |   |     |  
|Experience gains arising on scheme liabilities       |  |     |   |      |   | 9    |  
|                                                     |  |      |   |      |   |      |  
|                                                     |  |      |   | 14   |   |      |  
|US                                                   |  |      |   |      |   |      |  
|(Loss)/gain on plan assets                           |  | (4   | ) |      |   | 15   |  
|Loss from decrease in discount rate                  |  |     |   |      |   | (10  | )
|Experience gains arising on scheme liabilities       |  | 3    |   |      |   | 2    |  
|                                                     |  |      |   |      |   |      |  
|                                                     |  |      |   | (1   | ) |      |  
|Germany                                              |  |      |   |      |   |      |  
|Loss from reduction in discount rate                 |  | (9   | ) |      |   |     |  
|Experience (loss)/gain arising on scheme liabilities |  | (1   | ) |      |   | 1    |  
|                                                     |  |      |   |      |   |      |  
|                                                     |  |      |   | (10  | ) |      |  
|Italy                                                |  |      |   |      |   |      |  
|Loss from reduction in discount rate                 |  | (2   | ) |      |   | (1   | )
|Gain from reduction in revaluation rate              |  | 1    |   |      |   |     |  
|Experience loss arising on scheme liabilities        |  | (1   | ) |      |   | (2   | )
|                                                     |  |      |   |      |   |      |  
|                                                     |  |      |   | (2   | ) |      |  
|                                                     |  |      |   |      |   |      |  
|Total STRGL movement for the year                    |  |      |   | 1    |   |      |  
|                                                     |  |      |   |      |   |      |  

The
actuarial assumptions are set out in note 26 to the consolidated financial statements.

The
UK Plan benefited from a greater than expected return on assets of £71 million in the year ended 31 March 2005. In the UK Plan, the trustees have discretion
to credit interest (bonuses) to pension awards. We have reduced this from 3.0% to 2.5% to align with expected awards, leading to a gain of £35 million. A reduction in the UK Plan
salary growth assumption from 4.75% at 31 March 2004 to 4.25% at 31 March 2005 resulted in a £10 million gain.

Partially
offsetting these gains for the UK Plan was a loss arising from revisions to our mortality assumptions. We observed an increase in life expectancy since the last funding
valuation and recognised that improvements in longevity were likely to continue into the future. Consequently we made an additional allowance for this within the FRS17 liabilities at 31 March
2005. This resulted in a £102 million loss in the year ended 31 March 2005.

The
discount rates applied to our pension liabilities were reviewed at 30 September 2004 and 31 March 2005. Movements in the rates led to a £9 million
loss in the German Plan and a £2 million loss in the Italian Plan.

A
funding valuation is being carried out for the UK Plan, as at 5 April 2005, the results of which will be available during the second half of the year ending 31 March
2006.

31

---



Deferred tax assets

At 31 March 2005, we had unrecognised deferred tax assets of £817 million. This represented a 24% increase on the
£659 million disclosed at 31 March 2004, primarily due
to the accessibility of US tax losses and attributes. We announced at the time of our financial restructuring that our US tax losses, in existence at 19 May 2003, would be forfeit. We have
since conducted a detailed technical review and undertaken extensive valuation work with external advisors. We have now concluded as a result of this work, and our advisors have confirmed, that a
large part of our pre-restructuring US tax attributes are accessible.

Our
unrecognised tax assets are closely aligned with the territories in which we do business today. The distribution of tax assets by territory is as follows:

Distribution of tax assets

£ millionUK

413US

144Italy

134Germany

101Brazil

14Other

11Total

817


Some
of these deferred tax assets expire if they are not used within local statutory timelines.

Liquidity and capital resources

The following table sets forth a breakdown of net cash as at 31 March 2005 and 2004:

2005

2004£ millionSenior Notes



(265
)Other bilateral and bank debt

(37
)
(40
)Gross financial indebtedness

(37
)
(305
)Restricted cash

103

124Cash at subsidiaries and in transit

64

74Available deposits

167

321334

519Net cash

297

214


In
fiscal 2006, we expect to meet the cash requirements for funding our operations, including purchase commitments of £45 million (see page 101), other long-term
liabilities and repayments of
capital leases from our existing cash resources, cash funds generated from operations and the proceeds arising from asset disposals.

Cash flow

During fiscal 2005 we strengthened our net cash position from £214 million to £297 million (2003:
£(3,617) million as reported, which reflects our pre-restructuring net debt). We fully redeemed our

32

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Senior
Notes in the second quarter of fiscal 2005. We also achieved an operating cash inflow from Continuing Operations of £32 million before payment of exceptional items for fiscal
2005.

|                                                                          |  | 2005 |   | 2004 |   | 2003 |  
|------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Group operating cash flow before exceptional items                        |  |      |   |      |   |      |  
|Continuing Operations                                                    |  | 32   |   | 124  |   | 46   |  
|Discontinued Operations                                                  |  | (9   | ) | 27   |   | (38  | )
|                                                                          |  |      |   |      |   |      |  
|                                                                          |  | 23   |   | 151  |   | 8    |  
|Exceptional operating cash flow (before financial restructuring payments) |  | (43  | ) | (166 | ) | (329 | )
|                                                                          |  |      |   |      |   |      |  
|Group operating cash flow (after exceptional items)                       |  | (20  | ) | (15  | ) | (321 | )
|Returns on investments and servicing of finance                           |  | (32  | ) | (72  | ) | (164 | )
|Tax                                                                       |  | (7   | ) | (4   | ) | 31   |  
|Capital expenditure and financial investment                              |  | (32  | ) | 36   |   | (30  | )
|Acquisitions and disposals                                                |  | 169  |   | 222  |   | 433  |  
|                                                                          |  |      |   |      |   |      |  
|Group cash flow before use of liquid resources and financing              |  | 78   |   | 167  |   | (51  | )
|Management of liquid resources                                            |  | 23   |   | 103  |   | (159 | )
|Cash element of scheme consideration                                      |  |     |   | (340 | ) |     |  
|Other net cash outflow from financing                                     |  | (266 | ) | (416 | ) | (40  | )
|                                                                          |  |      |   |      |   |      |  
|Decrease in cash and net bank balances repayable on demand                |  | (165 | ) | (486 | ) | (250 | )
|                                                                          |  |      |   |      |   |      |  

Cash flow for the year ended 31 March 2005

Group operating cash flow before exceptional items

Group operating cash inflow before exceptional items for fiscal 2005 was £23 million. As disclosed in note 23a to the consolidated
financial statements, the Group operating loss before exceptional items of £90 million in fiscal 2005 was offset by depreciation and amortisation of £130 million,
non-cash costs relating to share options of £23 million and a £40 million outflow from working capital. This outflow was due to cash outflow on
debtors, stock and provisions being only partially offset by inflows on creditors.



---

33

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Exceptional cash flows

In fiscal 2005, we incurred £43 million of exceptional cash costs. The settlement of litigation with Telcordia amounted to
£12 million and the balance was cash payments relating to severance and onerous lease commitments for obligations on vacant property. Guidance on future exceptional cash flows is
set out in the section captioned 'Outlook' on page 10.

Group operating cash flow (after exceptional items)

Group operating cash flow after exceptional items was a £20 million outflow in fiscal 2005, compared to outflows of
£15 million and £321 million in fiscal 2004 and 2003 respectively.

Returns on investments and servicing of finance

In fiscal 2005, returns on investments and servicing of finance resulted in a £32 million outflow. £28 million of this was
due to the premiums paid on the redemption of the Senior Notes. Net interest paid, after accounting for interest of £3 million earned in the second half of fiscal 2005 when we were
in a net cash position following redemption of the Loan Notes, amounted to £4 million.

Tax paid

Tax paid in fiscal 2005 amounted to £7 million and represented tax arising in territories where we have no tax loss coverage and payments on
account that will be refunded.

Capital expenditure and financial investment

During fiscal 2005 we invested £35 million in fixed assets, which included customer trials and new computer systems. We received
£3 million from proceeds on disposal of assets.

Cash flows from acquisitions and disposals

During fiscal 2005 we benefited from a net inflow of £169 million from acquisitions and disposals. The majority of this figure was comprised of
£204 million gross proceeds on the disposal of OPP, offset by cash costs of £17 million, including £6 million for tax, and a
£15 million payment to Easynet Group plc in respect of tax losses purchased for a former subsidiary, ipsaris Limited, now known as Easynet Telecommunications Limited.

Group cash inflow before use of liquid resources and financing

As a result of the above, cash inflow before use of liquid resources and financing was £78 million in fiscal 2005.

Group cash outflow

Net cash inflow from liquid resources amounted to £23 million in fiscal 2005. Cash outflow to redeem Senior Notes and other debt was
£270 million in fiscal 2005, offset by £4 million received from issuing shares on the exercise of share options. Group cash outflow for fiscal 2005 was
£165 million, down from an outflow of £486 million in fiscal 2004.

34

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Cash flow for the year ended 31 March 2004

Group operating cash flow before exceptional items

In fiscal 2004, the operating loss before exceptional items of £160 million was offset by depreciation and amortisation of
£171 million, non-cash costs relating to share options of £25 million and a £115 million improvement in working capital. The
working capital improvement was due largely to tight control of cash receipts from trade debtors and the successful renegotiation of shorter payment terms with key customers in Northern Europe. Cash
was also generated through the sale of inventory to our outsourced manufacturing partner in Germany. This resulted in an operating cash inflow before exceptional items of
£151 million.

Group cash inflow before use of liquid resources and financing

In addition to the operating cash inflow in fiscal 2004, we generated £222 million of cash from the disposal of businesses and investments and
£36 million cash inflow from capital expenditure as we disposed of assets or transferred them to suppliers. The total cash inflows in fiscal 2004 more than offset the exceptional
cash outflow of £166 million incurred in our operational restructuring and the £72 million of interest and finance costs resulting from the financial
restructuring. In fiscal 2004, we generated a cash inflow before the use of liquid resources and financing of £167 million. Operating exceptional cash costs related mainly to
severance, onerous lease commitments, operational restructuring payments, obligations associated with our financial restructuring and a payment to the Employee Share Option Plan (ESOP) creditors as
part of our financial restructuring. Interest and finance expenditure related primarily to interest paid on our Loan Notes and financing charges on their redemption.

Group cash outflow

Group cash outflow for fiscal 2004 was £486 million following settlement of scheme consideration of £340 million and
repayment of debt.

Cash flow for the year ended 31 March 2003

Group operating cash flow before exceptional items

Group operating cash inflow for fiscal 2003 was £8 million. Group operating losses before exceptional items of £412 million were offset by
depreciation and amortisation of £239 million and a £181 million improvement in working capital. The reduction in working capital during fiscal 2003 was largely driven
by improved utilisation of inventory and increased focus on collection of debtors, partially offset by a reduction in creditors.

Group cash outflow before use of liquid resources and financing

In addition to the operating cash inflow in fiscal 2003, we generated £433 million in net proceeds from acquisitions and disposals, which related
mainly to the termination of the Group's 50% share holding in Ultramast through a capital reduction and the disposal of our Strategic Communications and Applied Technologies businesses, partially
offset by the payment of transaction-related costs and fees. We received a further cash inflow of £31 million from tax repayments. These cash inflows were more than offset by an
exceptional cash outflow of £329 million and £164 million of interest and finance costs. Over half of the £329 million of exceptional costs related to the direct
cash cost of severance payments and site closures in the context of the Group's operational restructuring and reorganisation. The balance relates to cash costs associated with the Group's
manufacturing outsourcing programme and payments made under onerous contracts and as a result of supplier liability claims. The payment of fees and expenses to advisors in the context of the Group's
financial restructuring is also included in

35

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operating
exceptional cash flows. The £164 million of interest and finance costs were incurred mainly in relation to the Group's former syndicate bank and bond debt.

Group cash outflow

Group cash outflow for fiscal 2003 was £250 million following a £159 million cash outflow from liquid resources and a £40
million financing outflow, mainly related to the repayment of debt.

Application of critical accounting policies

The Group's financial statements are prepared in accordance with accounting principles generally accepted in the UK. The preparation of the financial statements
requires the Group to make estimates, judgements and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and
liabilities. The directors base their estimates on historical experience and various other assumptions that they believe are reasonable under the circumstances, the results of which form the basis for
making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions. The Group believes that the following are some of the more critical judgement areas in the application of its accounting policies that affect the Group's financial position and results of
operations.

The
development and selection of these critical accounting estimates has been discussed with the Audit Committee and the Audit Committee has reviewed the Group's disclosure herein.

Going concern

The directors have a reasonable expectation that the Group will continue in operational existence for the foreseeable future and have therefore used the going
concern basis to prepare the accounts.

Revenue recognition

Revenue is recognised when all of the following conditions are satisfied: 1) there is persuasive evidence that an arrangement exists; 2) delivery has
occurred or services have been rendered; 3) the fee is fixed or determinable; and 4) it is probable that the debtor will be converted into cash.

It
is common for the Group's sales agreements to cover the delivery of several products and/or services. These range from arrangements where a contract covers the delivery and
installation of equipment to more complex arrangements, which also include training of customer personnel, sale of software and other support services. Revenue from contracts with multiple element
arrangements, such as those including installation and commissioning services, is recognised as each element is earned based on objective evidence of the relative fair values of each element and when
there are no undelivered elements that are essential to the functionality of the delivered elements.

Revenues
and estimated profits on long-term contracts are recognised under the percentage-of-completion method of accounting using a
cost-to-cost methodology. Significant judgement is required in determining progress toward completion and in estimating revenues and costs. Profit estimates are revised
periodically based on changes in facts in the underlying contract. 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 foreseeable. Advance payments received from contracts are recorded as a liability unless there is a right of set-off against the value of
work undertaken.

36

---



Impairment of long-lived assets

The Group reviews the carrying value of other fixed assets and assets to be disposed of, including other intangible assets, whenever indicators of impairment
exist. Indicators of impairment include (but are not limited to):



These
tests for impairment require significant judgements in determining estimates of future cash flows and the resulting value in use of the relevant fixed asset. Estimations of the
present value of future cash flows contain inherent uncertainty and include estimates of market size and market share information, growth rates, product demand and technological development, costs of
labour and supplier purchases, working capital requirements and discount rates to be applied to future cash flows.

If
the carrying value of a fixed asset is considered impaired, an impairment charge is recorded for the amount by which the carrying value of the fixed asset exceeds the higher of its
net realisable value or its value-in-use. The Group did not record any impairment charges in relation to tangible fixed assets in either fiscal 2005, 2004 or 2003. The Group
believes that its estimates of future cash flows are reasonable and no goodwill impairments have been made in either fiscal 2005, 2004 or 2003.

Contingent liabilities

The Group is subject to legal proceedings and other claims arising in the ordinary course of business. Various claims and proceedings have been or may be
instituted or asserted against the Group relating to the conduct of its business, including those pertaining to patents, environmental, health and safety, employment and contractual matters. The Group
is required to assess the likelihood of any adverse judgements or outcomes to these matters, as well as potential ranges of probable losses. A determination of the amount of reserves required, if any,
for these contingencies is based on a careful analysis of each individual issue with the assistance of outside legal counsel. Although the outcome of litigation cannot be predicted with certainty and
some lawsuits, claims or proceedings may be disposed of unfavourably, the Group believes that the ultimate outcome of these matters will not have a material adverse effect on the results of operations
or financial position or cash flows except as discussed in note 27 to the consolidated financial statements.

Pension and other post retirement benefits

Pension and other post retirement benefit costs and obligations are dependent on actuarial assumptions used in calculating such amounts. These assumptions include
discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates and other factors. While the Group believes that the assumptions used are
appropriate, the assumptions used may differ materially from actual results due to changing market and economic conditions, higher or lower withdrawal rates or longer or shorter life spans of
participants. These differences may result in a significant impact on the amount of future pension or post retirement benefits expense and the resulting liability. Holding all other assumptions
constant, a 0.5% increase or decrease in the discount rate would have increased or decreased the net loss for fiscal 2005 by approximately £nil.

37

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Likewise,
a 0.5% increase or decrease in the expected return on plan assets would have increased or decreased the pre-tax loss for fiscal 2005 by approximately
£12 million.

Product warranties

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. The Group actively studies trends of warranty claims and takes action to improve equipment quality and minimise warranty claims. The Group believes that the warranty reserve is
appropriate. However, actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. If the Group were to experience an increase in warranty claims compared
with its historical experience, or if costs of servicing warranty claims were greater than the expectations on which the accrual had been based, the Group's gross margins could be adversely affected.

International Financial Reporting Standards (IFRS)

The Group's financial statements have been prepared under UK GAAP. From 1 April 2005, we will be reporting under IFRS. An unaudited summary of the key
differences between UK GAAP and IFRS that affect the Group was furnished with the SEC on Form 6-K on 8 March 2005. The impacts set out in this document are unaudited and are based on IFRS
currently in issue and management's current interpretation of the standards. As such, the impacts discussed are indicative and will not be finalised until the Group publishes its first audited
financial statements under IFRS for fiscal 2006.

Group financial management

The main risks faced by the Group in financial markets are liquidity risk, currency and interest rate risk, counter-party risk, insurance risks and risks related
to contract bonding facilities.

The
Board reviews and agrees policies for managing each of these. Details of our risk policies and organisation, as well as an update on our position with respect to each of these risks,
are set out in note 28 to the consolidated financial statements.

38

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CORPORATE GOVERNANCE

Marconi Corporation plc (the Company) was the holding company of the Marconi Group throughout the period under review.

The
principal corporate governance guidance that applies to UK companies listed with the UK Listing Authority is contained in the 2003 FRC Combined Code (the Combined Code), which was
introduced in 1998 and revised in 2003.

As
the Company's American Depositary Receipts are listed on Nasdaq, it must also comply with the Nasdaq Marketplace Rules including the rules on corporate governance, except in certain
circumstances where Nasdaq permits foreign issuers, such as ourselves, to follow home-country practice. See 'Exemptions from Nasdaq Corporate Governance Requirements' below.

The Board

The Company is controlled through the Board of directors which currently comprises the Chairman, two executive directors and five non-executive
directors who, with their different backgrounds, bring with them a wide range of expertise and experience to the Company. The Board considers all five of the non-executive directors to be
independent both in relation to the criteria set out in the Combined Code and the Nasdaq rules on corporate governance. There are no cross-directorships or "interlocks" between any of the directors
arising from their directorships of other companies.

The
names and biographical details of the directors, together with the membership of the principal Board committees, are set out on page 47.

There
is a clear division of responsibilities between the Chairman and Chief Executive Officer with no single individual having unfettered powers of decision. The Chairman is responsible
for running the Board and ensures that all directors receive sufficient, accurate, clear and relevant information on
financial, business and corporate matters, in a timely manner, to enable them to participate effectively in Board decisions. The Chairman's other significant business commitments are his
non-executive chairmanships of BizzEnergy Group Limited, Ergo Finance LLP, MCC Energy plc, and NATS Holdings Limited.

The
Chief Executive Officer's primary role is the effective management and proper control of the Company's businesses with the objective of achieving the delivery of the strategic and
financial objectives approved by the Board from time to time.

Mr
M K Atkinson was designated the Senior Independent Director throughout the year and continues to fulfill this role. In this capacity, he is available to shareholders should they have
concerns that they are unable to resolve through the normal channels of contact with the Chairman, Chief Executive Officer or Chief Financial Officer. He is also responsible for leading the
performance evaluation of the Chairman.

The
Board ordinarily meets at least 10 times a year but holds additional meetings when circumstances require. Between meetings, the Chairman, the Chief Executive Officer and the Company
Secretary update the non-executive directors on current matters. In addition, the Chairman holds meetings with the non-executive directors, without the executive directors
present, and the Senior Independent Director holds meetings with the non-executive directors, without the Chairman present.

The
Board does not have a formal policy limiting the number of other boards that directors may serve on but evaluates this on a case-by-case basis. No executive
director served on any other boards during the year under review.

39

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The
Board, which has reserved certain specific matters to itself, is responsible for overall Group strategy, acquisition and divestment policy, consideration of significant financial
matters, review of the financial performance and strategic direction of the operating businesses and establishing appropriate levels of delegated authority.

Directors
receive appropriate training on appointment and as necessary thereafter. They attend an induction programme which aims to provide an understanding of the Company, its strategy,
structure, geographical spread of operations, financial position, the markets in which it operates, its products and technologies, its people and, where appropriate, their legal responsibilities as a
director. The directors have access to the advice and services of the Company Secretary, who is responsible for advising them
on corporate governance matters, and there is an approved procedure by which all directors can obtain independent professional advice at the Company's expense in furtherance of their duties, if
required.

Financial Expert

We consider Mr M K Atkinson to be the financial expert serving on our audit committee. Mr Atkinson is an independent non-executive director.

Code of Ethics

We have adopted a code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Group Financial Controller and all persons performing a
similar function. This code of ethics is also applicable to all employees.

Performance evaluation

The Company engaged the services of an external consultancy to assist with Board performance evaluation. The first phase, which took the form of a detailed
questionnaire sent to each director, related to the performance of the Board and its principal committees. As a result of the process, the Board was satisfied with its effectiveness and that of its
principal committees and it identified specific objectives for itself in addition to the objectives set for the executive directors.

The
second phase dealt with the performance of individual directors and included a detailed questionnaire and peer reviews. The feedback on the second phase was provided to the Chairman
for all other directors and to the Senior Independent Director in respect of the Chairman. The results confirmed that the directors were performing effectively.

Board Committees

Terms of reference of the Audit, Nomination, Operations, Remuneration and Executive committees of the Board are published on the Company's website and are
available on request from the Company Secretary. The principal committees and a summary of their terms of reference are as follows:

Audit Committee

The Board believes that Mr Atkinson, who chairs the committee, has the appropriate recent and relevant financial experience to do so. All the members of the
committee are independent non-executive directors. The committee meets formally at least four times a year with the Chairman, Chief Executive Officer and Chief Financial Officer attending
by invitation.

The
committee's principal activities relate to (1) the engagement of external auditors and the monitoring of their effectiveness and independence, (2) considering the
effectiveness of the internal audit function (see page 45), (3) reviewing the Group's accounting and financial reporting procedures and systems of internal control, and
(4) reviewing formal announcements relating to the Company's

40

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financial
performance, including UK and US quarterly and annual results announcements and annual financial statements. The Company's internal and external auditors attend committee meetings by
invitation and meet, several times a year, with the committee members in the absence of the executive directors and management.

To
fulfil its responsibility for ensuring auditor objectivity and independence, the committee receives regular reports from the Company's external auditors in relation to any
non-audit services provided, proposed or contemplated and is required to pre-approve the provision of such services and take whatever actions or make whatever recommendations
it feels are appropriate to maintain the objectivity and independence of the external auditors. The audit committee has implemented procedures relating to the provision of non-audit services by the
Company's auditors. These include (1) the maintenance of a schedule of certain non-audit services, including consultancy, investment banking and legal services, which the Company is
specifically prohibited from obtaining from the audit firm, (2) requiring the selection of providers of permitted non-audit services to be subject to a tender process, where appropriate, and
(3) requiring non-audit work and the fees involved to be approved in advance by the audit committee.

An
analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out on page 129 and in note 27 to the
consolidated financial statements.

The
committee is also responsible for the arrangements in relation to the Company's Financial Code of Ethics and its "Speak up" policy, which provides a facility for employees to raise
concerns, in confidence, about possible accounting irregularities, failures of internal controls or other similar matters. The Code and policy are published on the Company's website.

Nomination Committee

This committee is chaired by Mr J F Devaney. The committee evaluates the balance of skills, knowledge and experience represented on the Board and makes
recommendations to the Board concerning any adjustments deemed to be necessary.

Following
a process, which involves the preparation of a job specification and assessment of the capabilities required to fulfil it, briefing an external executive search consultancy and
interviewing any candidates that the committee feels are appropriate from those identified by the search consultancy, the committee makes recommendations to the Board on all proposed new appointments
of directors.

In
accordance with the Company's Articles of Association, all directors are subject to reappointment at the first annual general meeting following their appointment and to reappointment
thereafter at intervals of no more than three years.

As
a result of the first phase of the Board performance evaluation process, which was led by the Chairman and involved the whole Board, the committee's responsibilities, defined in its
terms of reference, have subsequently been expanded to include this function.

Operations Committee

This committee meets at least twice a year. Its current membership comprises Ms K R Flaherty, who chairs the committee, Mr W K Koepf and Mr N D Sutcliffe,
the Group's Head of Operations. The committee's main functions include the review of the Group's manufacturing strategy, product cycle management, sales and marketing strategy, delivery performance,
quality performance and customer satisfaction.

41

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Remuneration Committee

The Report to shareholders by the Board on directors' remuneration, on pages 52 to 77, describes the membership and terms of reference of the committee. It also
sets out the Company's remuneration policy, practice and details of the remuneration of individual directors. Approval of this report will be sought at the forthcoming Annual General Meeting.

Executive Committee

This committee, which normally meets monthly, comprises the executive directors, the regional managing directors and five nominated senior executives. The current
membership of the committee is Mr D C Beck, Mr G Bertolina, Mr P S Binning, Mr A L Evans, Mr J Ferrara, Mr M Harriman, Mr S Kindt, Mrs E Nardi, Mr M W J
Parton, Mr M E Plato, Mrs M A Skelly, Mr R J Smith and Mr N D Sutcliffe. The quorum (of three) requires the presence of at least two executive directors.
Mr M W J Parton chairs the committee. The committee's main functions include approval of the Group's business plan and budget, the review of performance against plan, the
Group's strategies in areas including technology, people, information technology, corporate communications and change programmes, all subject to approval by the Board. This committee also deals with
day-to-day matters of a routine nature (for which the quorum is two, one of whom must be an executive director). The committee also fulfils the role of a business risk
committee.

Attendance at meetings

The following table indicates the number of Board meetings and meetings of the Audit, Nomination and Remuneration committees held in the year to 31 March
2005 and attendance at those meetings.

|                                            |  | Board   |  | Audit |  | Nomination |  | Remuneration
|------------------------------------------- |  | ------- |  | ----- |  | ---------- |  | ------------
|Number held                                 |  | 13      |  | 7     |  | 1          |  | 6           
|                                            |  |         |  |       |  |            |  |             
|Number attended (number eligible to attend) |  |         |  |       |  |            |  |             
|J F Devaney                                 |  | 12 (13) |  | N/A   |  | 1 (1)      |  | N/A         
|M K Atkinson                                |  | 13 (13) |  | 7 (7) |  | 1 (1)      |  | 6 (6)       
|P S Binning                                 |  | 13 (13) |  | N/A   |  | N/A        |  | N/A         
|M J Donovan                                 |  | 8 (8)   |  | N/A   |  | N/A        |  | N/A         
|K R Flaherty                                |  | 12 (13) |  | N/A   |  | 1 (1)      |  | 6 (6)       
|P C F Hickson                               |  | 12 (12) |  | 7 (7) |  | 1 (1)      |  | 6 (6)       
|W K Koepf                                   |  | 12 (13) |  | 6 (7) |  | 1 (1)      |  | 6 (6)       
|D F McWilliams                              |  | 12 (13) |  | 7 (7) |  | 1 (1)      |  | 4 (4)       
|M W J Parton                                |  | 13 (13) |  | N/A   |  | N/A        |  | N/A         
|                                            |  |         |  |       |  |            |  |             

The
Chairman was unavailable for one Board meeting due to ill-health. That meeting was chaired by the Senior Independent Director. The chairmen of the principal committees
were available and chaired all of the relevant committee meetings.

All
directors in office at the commencement of the annual general meeting held on 13 September 2004 were in attendance for the meeting.

Relations with shareholders

The Company gives a high priority to communication with shareholders. The announcement of interim and final results provide opportunities for the Company to
answer questions from institutional investors covering a broad range of issues. In addition, there is regular dialogue with institutional investors to ensure a mutual understanding of objectives.

42

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The
Company's website provides access for all shareholders to information about the Company including the annual report and quarterly financial reports, details of recent announcements,
investor
presentations and share price information. Shareholders are able to put questions to the Company through its website.

The
Chief Executive Officer and Chief Financial Officer maintain a regular dialogue with the Company's major institutional investors and brief the other members of the Board on the views
expressed by those investors. In addition all directors receive analysts' briefing notes on the Company. The Chairman and Senior Independent Director are available to institutional investors to
discuss corporate governance matters, as and when required, and the Chairman invites major institutional investors, should they wish, to meet with newly appointed non-executive directors.

The
chairman of the Remuneration Committee discussed certain aspects of senior executive compensation arrangements with a number of major institutional investors during the period under
review.

The
Company aims to deal expeditiously with all enquiries from individual shareholders. Individual shareholders also have the opportunity of attending annual general meetings, to put
questions to the Chairman and the other directors. Directors also meet informally with shareholders after the meeting. The Company keeps under review ways in which it can communicate more effectively
with its shareholders throughout the year as well as at annual general meetings.

It
is the Company's practice to send the notice of the Annual General Meeting and related papers to shareholders at least 20 working days before the meeting and to propose separate
resolutions on each substantially separate issue. Votes will be taken by poll at the forthcoming Annual General Meeting and the results, including any votes withheld, will be published as soon as
possible after the conclusion of the meeting. All directors are expecting to attend this year's Annual General Meeting.

Internal control

The Board has established procedures that enable the Group to comply with both the guidance on internal controls issued by the Turnbull Committee and that
included in the Combined Code. In addition, the Group intends to comply fully with the Nasdaq Marketplace Rules on corporate governance, as they come into force.

Responsibility

The directors have overall responsibility for the Group's system of internal control and for reviewing its effectiveness. Any system of internal control can only
manage and not eliminate the risk of failing to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss.

Risk and the control structure

A framework for managing risk exists within the Group and the Board oversees an ongoing process for identifying, evaluating and managing the significant risks
faced by the Group. These risks include strategic, operational, commercial and financial matters.

Terms
of reference clearly define responsibilities of the Board, the Executive Committee and the Audit Committee and written policies establish levels of delegated authority throughout
the Group's businesses.

A
formal business risk management process, in accordance with the Turnbull guidance, has been followed during the year and up to the date of this report from which the Audit Committee
has established an internal audit plan. The risk process identifies, evaluates and manages significant risks

43

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faced
by the Group. Risks are identified through a "bottom up" process whereby each management unit maps the risks they face, evaluates the likelihood of the risks occurring and the impact if they do
occur. The Executive Committee has assessed and prioritised the management unit risks, identified potential Group risks and developed action plans to mitigate these risks to a desired level. Progress
is reviewed quarterly against these plans.

Developments in control processes

During the year the Group redeemed the last remaining Loan Notes established as part of the financial restructuring in May 2003 but continues to apply many
of the controls that were put into place in 2003 to ensure compliance with the terms of the Loan Notes.

Following
the SEC's announcement of a one year delay in the application of Section 404 of the Sarbanes-Oxley Act of 2002 to foreign registrants, the Group's certification date
will now be 31 March 2007. The Group has continued to develop appropriate documentation and testing procedures to demonstrate compliance. A substantial amount of internal audit resource has
been deployed in support of this work.

The
Group has increased the capacity and capability of its finance function, by implementing a new consolidation and reporting IT system with effect from 1 April 2005, and is
planning the replacement of its UK ERP system.

The
Group has established a Finance Committee that reports to the Board on the management of financial risks and policy, including compliance with debt covenants, funding and capital
structure and tax and treasury policy. Following the removal of restrictions imposed by the terms of the Loan Notes on the use of derivatives, the Group's Treasury function has developed hedging
policies and procedures. These are reviewed by the Finance Committee and Audit Committee prior to implementation and on an ongoing basis.

In
the latter part of the year the Group's outsourced internal audit function was moved to KPMG following a competitive tender process. The internal audit plan for the new financial year
has been approved by the Board and Audit Committee.

Control environment

A comprehensive system exists for controlling the business and risks, ensuring adequate stewardship of assets, reporting accurate and timely financial information
and maintaining proper accounting records. Financial results and key operating statistics are prepared and reported in accordance with Group policies and procedures. Forecasts are prepared each month
and actual results are compared with forecasts and budgets and reviewed each month by the Executive Committee and the Board.

Budgets
are prepared by management units, reviewed by the Executive Committee and approved by the Board. Business units have also prepared comprehensive assessments and evaluations of
business risks that are reviewed by the Executive Committee.

Corporate
reviews and approval procedures are in place to cover investments, disposals, strategy, capital expenditure, contract tenders, research and development investment, litigation,
industrial relations, treasury management, insurance, taxation, outsourcing, pensions and environmental issues.

A
Financial Code of Ethics exists for the Chief Executive Officer, Chief Financial Officer and senior finance team. The Code deals with honest and ethical conduct, disclosure in reports
and accounts and compliance with laws and regulations. In addition, a wider code of conduct for all employees has also been adopted, which includes a "Speak up" policy that provides a means of

44

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communication
to enable employees to raise, amongst other things, concerns about the Group's financial conduct.

Monitoring of internal controls

Clear processes exist for monitoring internal controls and reporting any significant control weaknesses and mitigation plans. These are co-ordinated
by the Audit Committee.

Business
units and members of the Executive Committee certify quarterly to the Chief Executive Officer and Chief Financial Officer, through a letter of assurance, compliance with
internal policies and procedures, including balance sheet reviews and revenue recognition, ethics and fraud, local laws and regulations, delegated authorities, related party transactions, IT policy
and reporting internal control weaknesses. The Chief Executive Officer and Chief Financial Officer consider the letters of assurance, interview those who have prepared them and monitor actions taken
to address any significant issues. Summaries of these certifications are presented to the Audit Committee quarterly. In addition, the Audit Committee reviews disclosures arising from this process
proposed for inclusion in the Group's quarterly financial reports filed in the UK and US.

Members
of the Executive Committee also review and approve the information disclosed in the Group's quarterly financial reports filed in the UK and US.

The
Audit Committee reviews, on behalf of the Board, the effectiveness of the system of internal control and carried out the following during the year:



Reports
from the Group's external auditors are presented quarterly to the Audit Committee prior to filing of the Group's quarterly financial reports in the UK and US. They discuss any
internal control issues and financial reporting matters.

Review of effectiveness

As required by the Securities Exchange Act of 1934, as amended ('Exchange Act'), we have evaluated, under the supervision and with the participation of
management, including the Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that as of the end of the period covered by this annual report, the disclosure controls and procedures are effective to provide reasonable assurance that
information required to be disclosed in the reports that the Group files or submits under the Exchange Act is recorded, processed, summarised and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. No changes occurred during the year ended 31 March 2005 in the Group's internal controls over financial reporting that have materially
affected, or are reasonably likely to materially affect, internal control over financial reporting.

45

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Compliance statement

The Listing Rules of the UK Listing Authority require the Board to report on compliance with the provisions contained in Section 1 of the Combined Code
throughout the accounting period and up to the date of approval of the financial statements. Throughout, and since, the year ended 31 March 2005, the Company has been in compliance with the
provisions set out in Section 1 of the Combined Code.

Exemptions from Nasdaq Corporate Governance Requirements

Nasdaq allows foreign private issuers, such as ourselves, to take advantage of certain exemptions from its corporate governance rules in order to follow
home-country practice. We are currently exempted from compliance with the following Nasdaq rules:

Nasdaq Marketplace Rule 4350(f)

Marketplace Rule 4350(f) requires a company listed on Nasdaq to provide for a quorum for any meeting of the holders of its common stock of not less than
331/3% of the outstanding shares of the company's common voting stock. By contrast, under the Company's articles of association, two shareholders present or by proxy and entitled to
vote on the business to be transacted at a general meeting of the Company shall be a quorum.

Nasdaq Marketplace Rule 4350(b)(1)(A)

Marketplace Rule 4350(b)(1)(A) requires a company listed on Nasdaq to distribute copies of its annual report with audited financial statements to the
holders of its Nasdaq-listed shares prior to its annual meeting. Publicly listed companies in the UK are generally not obliged to distribute copies of their annual report to all beneficial owners of
their securities and the London Stock Exchange does not require companies to distribute annual reports to beneficial owners directly or via holders of record. We distribute copies of our annual report
to the record holders of our ordinary shares listed on the London Stock Exchange.

Nasdaq Marketplace Rule 4350(c)(4)(A)

Marketplace Rule 4350(c)(4)(A) states that nominees for the board of directors of any Nasdaq-listed company must be selected or recommended for selection
by either (i) a majority of the company's independent directors or (ii) a nomination committee comprised solely of independent directors. Nominees for the Company's board of directors
are recommended for selection by the Company's nomination committee, which is currently comprised of the Company's Chairman, John Devaney, who does not currently qualify as an independent director
under the Nasdaq Marketplace Rules, and each of the Company's four independent, non-executive directors.

Nasdaq Marketplace Rule 4350(c)(1)

Marketplace Rule 4350(c)(1) states that a majority of the board of directors of any Nasdaq-listed company must be comprised of independent directors.
Although the Company currently complies with this rule, it may not in the future.

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DIRECTORS AND SENIOR MANAGEMENT

Chairman and directors

J F Devaney

Chairman; Chairman of the Nomination Committee(b)

Aged
59. Appointed Chairman of the Board of directors of Marconi Corporation plc in December 2002, he is also Chairman of the Nomination Committee. Mr Devaney is founder and
chairman of BizzEnergy Group Limited and chairman of Ergo Finance LLP and MCC Energy plc. He was appointed to the board of NATS Holdings Limited (National Air Traffic Services) on 1 July 2005
and became non-executive chairman from 1 September 2005. He was a director of EA Technology Limited until May 2003 and chairman of Liberata plc until November 2002. He stepped
down in September 2002 as chairman of EXEL plc and was a non-executive director of HSBC Bank plc from 1994 to 2000 and British Steel Limited (now known as Corus UK Limited) from
1998 to 1999. He was executive chairman of Eastern Electricity Limited until 1998 and prior to that executive chairman of Kelsey-Hayes Corporation.

M K Atkinson

Senior Independent Director; Chairman of the Audit Committee(a)(b)(c)

Aged
60. Appointed non-executive director of Marconi Corporation plc in December 2002, he is also Chairman of the Audit Committee and was designated Senior Independent
Director in March 2004. He is the senior non-executive director of Coca-Cola HBC S.A. (Athens) and chairman of its audit committee. In January 2005 he was
appointed a non-executive director of The Standard Life Assurance Company Limited and is a member of its audit committee. In May 2005 he was appointed a non-executive director of Axalto
Holding N.V. and is chairman of its audit committee. He was a non-executive director of Cookson Group plc from April 2003 until April 2005 where he served as the senior
independent director and chairman of its audit committee. Previously he served as group finance director at Lloyds TSB Group plc between 1994 and 2002 and remained on that board as a
non-executive director until April 2003. Mr Atkinson spent his early career in Latin America and the Middle East and held various senior management roles internationally and in the
UK for 24 years before becoming Lloyds TSB Group plc's finance director.

P S Binning

Chief Financial Officer

Aged 45. Appointed to the Board of directors of Marconi Corporation plc in October 2003. He previously held a number of senior corporate and operational
finance roles at Diageo Plc from 1986, most recently as corporate finance director, group financial controller, CFO Europe and CFO Americas. Prior to joining Diageo, Mr Binning worked for Solex Plc
and Electrolux Limited.

---

Denotes membership of:

47

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K R Flaherty

Non-executive director; Chairman of the Operations Committee(b)(c)(d)

Aged
54. Appointed non-executive director of Marconi Corporation plc in May 2003. Ms Flaherty is currently chief marketing officer of AT&T Business Services and
serves as a
non-executive director of GenTek, Inc. She was formerly a director of CMS Energy Corporation and Consumers Energy Company. She is a US based global telecommunications executive with
over 20 years' experience in the communications industry. She spent 17 years with MCI Communications Corporation, latterly as senior vice president, global product architecture and
engineering. Between 1995 and 1997, she spent two years on secondment from MCI to BT, during which time she was BT's marketing director for National Business Communications and between 1998 and 2001
she was in Brussels and New York as president and chief operating officer of Winstar International, a fixed wireless communications company.

P C F Hickson

Non-executive director; Chairman of the Remuneration Committee(a)(b)(c)

Aged
60. Appointed non-executive director of Marconi Corporation plc in May 2004, he is also Chairman of the Remuneration Committee. Mr Hickson has been chairman of
AWG plc since January 2003 having been a non-executive director of the company since May 2002. He was group finance director of Powergen plc from 1996 to 2002 and of MAI plc
from 1991 to 1996. He was also a non-executive director of RAC Plc from 1994 to 2002.

W K Koepf

Non-executive director(a)(b)(c)(d)

Aged
63. Appointed non-executive director of Marconi Corporation plc in December 2002. Mr Koepf is a director of PXP Software AG (formerly Pixel Park CEE
Holdings AG) and Gemplus International SA as well as an adviser to venture capital company Techno Venture Management GmbH. Previously he was chief executive officer of Compaq Computer Corporation for
the EMEA region until 2002. Prior to joining Compaq he held a range of senior management positions with some of the world's leading technology companies, including Texas Instruments, Siemens and
European Silicon Structures S.A.

D F McWilliams

Non-executive director(a)(b)(c)

Aged
53. Appointed non-executive director of Marconi Corporation plc in September 2003. He is founder and chief executive of the Centre for Economics and Business
Research (cebr); an independent consultancy providing analysis, forecasting and strategic advice to major UK and multi-national corporations, financial institutions, government departments and
agencies as well as the European Commission. He is an economics adviser to the Chartered Institute of Marketing. Prior to founding cebr in 1993, Mr McWilliams spent four years as chief economic
adviser to the CBI. He is also a former chief economist with IBM United Kingdom Limited.

M W J Parton

Chief Executive Officer

Aged 51. Appointed to the board of directors of M (2003) plc in January 2000 and became a director of Marconi Corporation plc in November 2001. He
resigned as a director of M (2003) plc following the restructuring of the Marconi Group in 2003. Mr Parton was appointed Chief Executive Officer of the Marconi Group in September 2001. He
joined G.E.C. in 1991 as finance director of

48

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GPT,
GEC's telecommunications joint venture with Siemens, and was appointed managing director of GPT's public networks group in 1995, managing director of G.E.C.'s industrial group in 1997 and Chief
Executive Officer of Marconi Communications in July 1998. Previously he held a number of finance appointments in STC Telecommunications Limited, between 1986 and 1991,
G.E.C.-Marconi Limited, between 1980 and 1986, and ICL plc, between 1977 and 1980.

Senior executive team

D C Beck

Director of Communications

Appointed Director of Communications for Marconi in February 2002, having previously been managing director of Bell Pottinger Financial, part of the Chime
Communications group, where he held a number of positions over 15 years. Mr Beck holds a degree in Philosophy from the University of Kent at Canterbury.

G Bertolina

MD Optical, Access, Network Management & Southern Europe, CALA

Joined Marconi in early 1998 as Finance Director and, after the merger between the GPT group Ltd and Marconi SpA, led the Integration Project between the
two companies. In 1999, Mr Bertolina was appointed Deputy Managing Director of the Strategic Communications Division and, in 2001, he became Executive Vice President within the Sales &
Marketing Division. Before joining Marconi, he was Area Manager Northern/Eastern Europe and North America of the Olivetti group. Mr Bertolina holds a degree in Economics.

A L Evans

Chief Technology & Information Officer

Joined Marconi as Chief Technology & Information Officer in December 2004, having previously been Chief Technical Officer at FLAG Telecom. Starting
his career as a System Designer at British Telecom, he later spent seven years as a Senior European Telecommunications specialist at McKinsey & Company, and has also been Head of
Strategy & Partnerships at Netscalibur, a pan-European business internet service provider. Mr Evans has a 1st Class Honours degree in Engineering & Electrical
Sciences from Cambridge University and an MBA (with High Distinction) from Harvard Graduate School of Business Administration.

J Ferrara

CEO North America

Appointed to the position of CEO of North America in July 2005 and is responsible for the North American businesses, including Data Networks and Wireless.
Prior to this role, he held a number of roles within Data Networks including VP of Business Operations, VP of Marketing, and VP of Customer Services and Support. Mr Ferrara has 15 years
experience as a business, marketing and operations professional. Prior to joining Marconi, he held senior level positions with Startec Global Communications and MCI. He has a degree from Penn State
University and an MBA from the University of Maryland.

49

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M Harriman

Chief Marketing Officer

Joined Marconi in September 2000 as UK Marketing Director and took up his current role in September 2001. Prior to Marconi, Mr Harriman had held a
number of roles with British Telecom, including general management within BT Retail and Head of Business-to-Business Marketing. His early career was as a naval officer, where
he undertook a variety of appointments including helicopter pilot, captain of a frigate and a year-long secondment to the United Nations in Cambodia. Mr Harriman holds degrees in
Psychology, History and Business Administration.

S Kindt

MD Marconi Communications GmbH

Appointed Managing Director of Marconi Communications GmbH in August 2003. Now based in Backnang, Germany, he joined Marconi in June 2000 as Vice
President Marketing and Business Development for Marconi's Optical Networks Division in Coventry. Prior to joining Marconi, he worked for seventeen years in Siemens' telecommunications business in
roles ranging from R&D to product marketing and sales, lastly working as President of Sales for Siemens' Optical Networks division. Mr Kindt studied Physics in Berlin and London, and holds a PhD in
Physics from Berlin University.

E Nardi

Group HR Director

Joined Marconi in August 2001 and worked in a number of senior positions within HR before taking up her current position in December 2004.
Ms Nardi started her career in 1986 with the Ford Motor Company, where she held positions in employee relations, and later training and development. She then moved to HJ Heinz, where she worked
in a number of generalist HR roles, before joining Pepsico Restaurants International in 1992 as a senior human resources director. In 1994, she established an independent consultancy organisation,
specialising in strategic HR, which she successfully ran until joining Marconi. Ms Nardi holds degrees in both Psychology and Sociology.

M E Plato

EVP, Value Added Services

Appointed EVP Value Added Services in 2002. Mr Plato joined GPT (later Marconi Communications) in 1995, overseeing the successful development of our Services
business for the Enterprise, Transportation, Education and Government sectors, and subsequently held several senior positions within Marconi. Prior to joining GPT, he was responsible for the
communications and logistics projects for London Underground Limited.

M A Skelly

Company Secretary

Appointed Company Secretary in July 2002 having previously been the Company Secretary at The Albert Fisher Group plc.

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R J Smith

MD Northern Europe

Joined the company in 1990 in the Mobile Systems and Terminals group as Head of Marketing and Strategic Planning. Mr Smith then spent two years in sales in the
Business Systems group before becoming General Manager of GPT Finance. From 1996 to 1998 he returned to a sales role: firstly, in charge of the BT and Concert accounts, then as Head of Sales for the
UK region and, later, for the EMEA region. He took up his current position in charge of Marconi's Northern Europe business in 2003.

N D Sutcliffe

Head of Operations

Appointed Head of Operations in November 2004, having been Human Resources Director since April 2002. Prior to this, Mr Sutcliffe had held the
positions of CEO Marconi Capital, CEO Enterprise Division and Managing Director of strategic networks for the European services business of GPT. He
was a systems engineer with British Aerospace from 1984 to 1988 and a manufacturing consultant with Coopers and Lybrand from 1988 until he joined GPT in 1992.

51

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REPORT TO SHAREHOLDERS BY THE BOARD ON DIRECTORS' REMUNERATION

(A)  Introduction

This Report outlines the Company's policy on remuneration of executive and non-executive directors of the Company and senior executives of the Group
and details actual remuneration of both executive and non-executive directors of the Company for the year ended 31 March 2005. During the year the remuneration of the Chairman and
the executive directors was considered by the Company's Remuneration Committee. The fees of non-executive directors were reviewed and determined by the Board.

(B)  The Remuneration Committee:

(i) Membership

The Remuneration Committee was established by the Board with effect from 19 May 2003. The Committee currently comprises the following
non-executive directors:



P
C F Hickson became a member and was appointed Chairman of the Committee on 6 May 2004. D F McWilliams became a member of the Committee on 30 November 2004. In accordance
with the best practice recommendations of the Combined Code the Committee's members are all independent of management and free from any business or other relationship, which could materially interfere
with the exercise of their independent judgement. The Company Secretary acts as secretary to the Committee.

(ii) Terms of reference

The Committee operates in accordance with written terms of reference, which have been determined by the Board and take into account best practice and the
requirements of the Combined Code. The Committee meets formally at least twice a year and otherwise as required.

The
Committee makes recommendations to the Board on broad policy to be adopted for executive remuneration and on the total remuneration packages of the Chairman and the executive
directors and certain other senior executives of the Group. This includes, where appropriate, the determination of basic salary, cash bonuses and other incentive scheme entitlements, other benefits
including pensions and the terms of individual service agreements.

The
Committee has access to the advice and services of Elisa Nardi, the Group Human Resources Director, and Peter Harris, the Head of Compensation, Pensions and Benefits, neither of whom
have been formally appointed by the Committee. The Committee also takes the advice of the Chairman and Chief Executive, as appropriate, on the performance of executive directors and other senior
executives but they do not participate in any discussion relating to their own remuneration. Kepler Associates have advised the Committee on executive remuneration policy and practice and provide no
other services to the Company.

(iii) Remuneration policy and practice

Since 1 April 2004, the Committee has undertaken a thorough review of the Company's remuneration arrangements for executive directors and certain other
senior executives of the Group

52

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and
of market practice in conjunction with its advisers Kepler Associates. The key principles adopted by the Committee following the review are:



The
main elements of remuneration of the Chairman and the executive directors during the year to 31 March 2005 were:



During
the year to 31 March 2005 the Chairman and the executive directors were remunerated by a combination of fixed and performance related elements. Fixed remuneration consists
of basic salary, pension and benefits in kind. Performance related remuneration consists of share options. The performance related elements of remuneration are intended to provide a significant
proportion of their potential total remuneration.

Following
the review of the Company's remuneration plans, shareholders will be asked at the Company's forthcoming Annual General Meeting to amend the Company's Articles of Association to
allow participants in the Management Plan (see below) to participate in the Company's Annual Incentive Plan.

Basic salary

Basic salaries for the Chairman and the executive directors are normally reviewed annually by the Remuneration Committee. The general approach adopted by the
Committee, when determining the level of salaries, is to take into account business performance, individual performance and skills and external competitiveness (in conjunction with other elements of
remuneration). In assessing competitiveness, the Committee considers pay levels primarily across European companies in similar or adjacent market sectors, companies of a similar size, companies with
whom we may compete for executive talent and pay levels generally across the Marconi Group.

As
a result of the 2005 annual review, the basic salary of P S Binning was increased to £325,000 with effect from 1 July 2005.

During
the year the Committee reviewed the remuneration arrangements for the Chairman, J F Devaney. The Committee determined that, with effect from 1 December 2004,
he would no longer participate in any future performance related incentive plans although he will retain historical option awards. His basic salary was accordingly revised to £350,000 per
annum.

Share based incentives

The Company currently operates the Marconi Corporation plc Senior Management Share Option Plan (the Management Plan), the Marconi Corporation plc Employee Share
Option Plan (the Employee Plan) and the Marconi Corporation plc Sharesave Plan (the Sharesave Plan). The Remuneration Committee will determine, if appropriate, any future grants under these plans.

53

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The
following table sets forth certain information as of 31 March 2005 with respect to these plans under which our equity securities are currently authorised for issuance.

|Plan Category                                              |  | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights(a) |  | Weighted average
exercise price of
outstanding options,
warrants, and rights |      | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column(a))
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- | ---- | ------------------------------------------------------------------------------------------------------------------------------------------
|Plans approved by shareholders:                            |  |                                                                                                |  |                                                                              |      |                                                                                                                                           
|None                                                       |  |                                                                                               |  |                                                                              |     |                                                                                                                                           
|Plans not approved by shareholders:                        |  |                                                                                                |  |                                                                              |      |                                                                                                                                           
|Marconi Corporation Senior Management Share Option Plan(1) |  | 10,135,000                                                                                     |  | £                                                                            | Nil  |                                                                                                                                           
|Marconi Corporation plc Employee Share Option Plan(1)      |  | 5,384,485                                                                                      |  | £                                                                            | 3.50 |                                                                                                                                           
|                                                           |  |                                                                                                |  |                                                                              |      |                                                                                                                                           
|Total                                                      |  | 15,519,485                                                                                     |  | £                                                                            | 1.22 |                                                                                                                                           
|                                                           |  |                                                                                                |  |                                                                              |      |                                                                                                                                           

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(1) The Management Plan

Administration

The Remuneration Committee administers the management plan in accordance with the terms set out below.

Eligibility

Participation in the Management Plan is open to employees and executive directors selected by the Remuneration Committee. Employees within two years of their
normal retirement date may not participate in the Management Plan.

Grant of options

Options may be granted under the Management Plan for a period of up to five years from 19 May 2003 (the Plan start date) in the following periods:
42 days commencing on the plans start date; the day immediately following announcement of our results for any periods; or a day on which the board resolves that exceptional circumstances exist
which justify the grant.

Options
are granted by either the Company or the trustee of the proposed Marconi Corporation plc employee benefit trust. Options may be satisfied using newly issued or existing ordinary
shares. The initial options were granted in five tranches, each of which will be subject to different performance conditions as described below. Participation in the Management Plan will not form part
of, or affect a participant's rights under the terms of his employment.

Option exercise price

Options granted under the Management Plan are exercisable for a nominal payment, the amount of which will be determined by the Remuneration Committee. The total
amount payable on the exercise of an option, whether the whole or in part, will be £1 per exercise irrespective of the number of ordinary shares that are subject of an option exercise.

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Individual limit on participation

There is no limit under the management plan on the aggregate maximum value of options, which may be granted to a participant in any year or over the life of the
Management Plan.

Overall limit on our ordinary shares to be made available under the Management Plan

The number of ordinary shares, issued or unissued, that may be committed under the Management Plan is limited to 9% of the Company's issued share capital
immediately following the plans start date.
The Company's ordinary shares over which options have lapsed or been surrendered is not included in calculating this limit. This number of shares is reduced by the number of ordinary shares that are
committed under the Employee Plan described below, as a result of employees, who would otherwise have been expected to participate in the Management Plan, participating in the Employee Plan rather
than the Management Plan, because it is beneficial, for tax or similar reasons, for them to do so.

Exercise of options

Options granted under the Management Plan will only become exercisable, or vest, to the extent that the performance targets set out below have been satisfied.
While the performance targets for the initial grant of options will be the same, two vesting schedules will apply; one schedule applicable to participants who have released their rights under the
Retention and Emergence plan (R&E plan), and the other schedule applicable to participants who did not have any rights under the R&E plan. For subsequent grants, for example, to new employees or as a
result of promotions or expanded roles or responsibilities the Remuneration Committee will set performance targets which are appropriate in the circumstances and at least as challenging as those for
the initial grant.

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Under
the initial grant made on 24 June 2003, options become exercisable in five tranches between 12 and 63 months after the Plan start date subject to the achievement of
the following performance conditions:

|  |  | Percentage of shares
subject to option that vest            |  |                                                            
|- |  | ----------------------------------------------------------- |  | -----------------------------------------------------------
|
|1 |  | 20                                                          |  | 10                                                         
|2 |  | 10                                                          |  | 10                                                         
|3 |  | 20                                                          |  | 20                                                         
|4 |  | 20                                                          |  | 30                                                         
|5 |  | (within 51 months
of the Plan start date)
30                |  | (within 51 months
of the Plan start date)
30               
|  |  | (between 51 months
and 63 months of the
Plan start date)
20 |  | (between 51 months
and 63 months of the
Plan start date)
20

---

56

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These
performance conditions and the numbers of options granted to each participant were determined in order to:



In
order for tranche 5 to become exercisable, the rolling average market capitalisation must exceed the stated target for a 90-day period. The performance criteria in
respect of tranches 1 to 4 have now been met and tranches 1 to 4 have vested.

If
any performance target is not satisfied within the stated period the tranche of the option subject to that performance target will lapse and cease to be capable of becoming
exercisable.

In
relation to tranches 4 and 5, the Group's market capitalisation is measured using the daily volume weighted average share price determined from prices quoted on the principal exchange
on which our ordinary shares are listed and the number of our ordinary shares outstanding immediately following the plans start date. In order to determine if the relevant condition is satisfied, the
daily volume weighted average share price will be obtained for each day of a rolling 90 day period and the average price over that 90 day period will be determined. If that average price
when multiplied by the number of our ordinary shares in issue on the plans start date exceeds the relevant target market capitalisation, the applicable condition will have been satisfied.

Options
were granted to P S Binning, J F Devaney and M W J Parton under the Management Plan. Details are set out on page 76 of this report. Each of these grants is subject to the
performance conditions explained above although the dates on which the option granted to P S Binning becomes exercisable differ. No director holds any share options (or any other
long-term incentive), which are not subject to performance conditions. No further grants will be made to the Chairman or the executive directors under the Management Plan.

Taxation

The exercise of an option may be made conditional upon a participant agreeing to comply with any arrangements specified by us for the payment of taxation, social
security contributions or any other deductions at source, including in the UK, as is likely to be the case, in respect of at least part of the relevant employing company's secondary class 1
National Insurance contributions liability arising on exercise required or permitted in respect of an option.

Termination of employment

If a participant ceases employment voluntarily or he is dismissed for cause, his options will normally lapse on the date of cessation.

However,
where a participant ceases employment due to death, injury, disability, ill-health, redundancy, retirement or the sale of the business or subsidiary for which the
participant works, or termination of employment by the employer without cause, his options will become vested to the extent the financial performance conditions have been satisfied at the date of
cessation of employment, or, if terminated without full notice, to the extent the financial performance conditions have been satisfied on the date notice would have expired, and will become
exercisable at the time they would otherwise have been exercisable as set out in the table above for a period of six months, 12 months in the case of death. The Remuneration Committee may
decide whether a different proportion of an option should vest on the cessation of employment of any participant due to the sale of a business or subsidiary that was a key business or subsidiary.
Following the expiry of the relevant period, all of a participant's unexercised options will lapse.

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Lapse of options

Options will lapse in any event on the tenth anniversary of their grant and will lapse after a takeover or reconstruction when the specified time periods for
exercise have passed as described below. Options will also lapse on the cessation of employment of a participant as described above. Options will also lapse to the extent that they cease to be capable
of becoming exercisable due to the failure to satisfy any of the performance targets within the specified time periods.

Ordinary
shares over which options have lapsed or have been surrendered will be available, within the overall limit referred to above, to form the subject of further option grants to new
participants in the Management Plan but not to existing participants unless the participant has been promoted or his/her role and/or responsibility has significantly expanded and the Remuneration
Committee determines that such a grant is merited.

Rights attaching to ordinary shares on the exercise of options

Ordinary shares allotted under the management plan will carry the same rights as all other issued ordinary shares. Participants do not qualify for any rights
attaching to ordinary shares where the record date is before the date on which the option is exercised.

Takeover, reconstruction or winding-up

If any person obtains control of the Company as a result of making an offer to acquire the whole of the Company's issued share capital, or, having such control,
makes a general offer to acquire all the shares other than those already owned by that person, the first grant of options under the Management Plan will become exercisable in full to the extent that
the financial performance conditions have been satisfied immediately prior to a change of control. A proportion of the remainder of any ordinary shares, which are the subject of outstanding options,
will vest and become exercisable according to the following formula:

Remainder of ordinary shares the
subject of outstanding options

×

market capitalisation on change of control
(as evidenced by the consideration paid by the acquirer and the number of the ordinary shares in issue immediately following the plan start date)£1.5 billion


The
formula above assumes that a change of control occurs 63 months after the plans start date. If a change of control occurs sooner, to reflect the benefit to shareholders of the
early release of funds, the £1.5 billion figure will be reduced by £25 million for each complete quarter between the change of control and the date which is
63 months after the Plan's start date.

Participants
will have six months within which to exercise their options to the extent exercisable, following the change of control, or general offer; thereafter, the options will lapse.
The Remuneration Committee will determine the extent to which any subsequent options will vest in the event of a takeover, having regard to the performance targets to which those options are subject.
If a person becomes bound or entitled to give notice to acquire ordinary shares under sections 428 to 430F of the UK Companies Act 1985, a participant may exercise his options to the extent
exercisable as referred to above during the period when that person remains so bound or entitled; thereafter, they will lapse. Participants may, in certain circumstances, be given the opportunity to
exchange their options for options over ordinary shares in an acquiring company.

If
the Group is reconstructed, the effect of which is that a person obtains control of the Company, other than as a result of making an offer for the Company's issued share capital, the
provisions relating to a change of control following an offer shall apply. These provisions shall not apply if there is a reconstruction, the purpose and effect of which is to create a new holding
company where such holding

58

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company
has substantially the same shareholders and proportionate shareholdings as those currently in place. On the occurrence of a reconstruction of that type, the Remuneration Committee will use its
best endeavors to ensure that any outstanding options are rolled-over so that they continue over shares in the new holding company. If there is no roll-over, options will
continue unaffected by the scheme of arrangement in connection with our restructuring. If there is any other reconstruction or if the Company is wound-up, options will lapse on the
reconstruction or winding-up taking effect.

Adjustments of options

If there is a variation in the Company's share capital, including by way of a capitalisation, rights issue, consolidation, sub-division, reduction or
any other variation or our implementation of a demerger or payment of a super-dividend which would materially affect the value of options under the Management Plan, the Remuneration Committee may,
subject to the approval of the UK Inland Revenue (in the case of approved options), make the adjustments it considers appropriate to the number of ordinary shares currently in place under option and
the exercise price.

Amending the Management Plan

The rules of the Management Plan can be amended at any time by the Board of directors, provided that no amendment to the Management Plan can be made without our
prior approval in a general meeting of shareholders if the amendment relates to the provisions in the rules relating to eligibility, limits on the number of ordinary shares available for issue under
the Employee Plan, the basis for determining a participant's entitlement to ordinary shares and any adjustment in the event of a variation in our share capital. In addition, no amendment that would
materially prejudice the interests of existing participants may be made without the prior consent of participants holding three-quarters of the aggregate number of shares subject to outstanding
options.

For
participants in the US, the Management Plan is structured as a conditional award of our shares or ADRs, rather than as an option, for tax purposes. No price is payable on the vesting
of the awards. Awards will not vest during a prohibited period. No option may be granted more than five years after the plan's start date.

(2) The Employee Plan

Administration

The Employee Plan is administered by the Remuneration Committee in accordance with the terms set out below.

Eligibility

Participation in the Employee Plan is open to employees and executive directors selected by the Remuneration Committee. Employees within two years of their normal
retirement date may not participate in the Employee Plan. Employees who participate in the Management Plan cannot participate in the Employee Plan.

Grant of Options

Options may be granted under the Employee Plan for a period of up to five years from 19 May 2003.

Options
to acquire ordinary shares under the Employee Plan will be granted by either the Company or the trustee of the trust. Options may be satisfied using newly issued or existing
ordinary shares. UK Inland Revenue approved options, or approved options, and non-Inland Revenue approved options, or unapproved options, may be granted under the Employee Plan.

59

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Options may be granted in the following periods: 42 days commencing on the plans start date; the day immediately following announcement of our results for any period; or a day on
which the board resolves that exceptional circumstances exist which justify the grants. The exercise price for such initial grant of options shall be the average middle market quotation of the
Company's ordinary shares for the five business days immediately prior to the date of grant.

The
initial options were granted in five tranches, each of which will be subject to different performance conditions as described below. Participation in the Employee Plan will not form
part of or affect a participant's rights under the terms of his employment. The following is a summary of the provisions, which apply equally to approved options and unapproved options.

Options
granted under the Employee Plan only become exercisable to the extent that the performance targets to which they are subject have been satisfied. The performance targets and
vesting schedule for the initial grant of options are the same as those for the initial grant under the Management Plan.

Further
options were granted under the Employee Plan in December 2004 subject to performance conditions, which are aligned with the initial grant of options. These conditions are:

|Market capitalisation achieved after date of grant |  | Percentage of shares under option that become exercisable                          
|-------------------------------------------------- |  | -----------------------------------------------------------------------------------
|Below £1.35 billion                                |  | 0%                                                                                 
|£1.35 billion                                      |  | 25% (if achieved before 19 August 2007)
16.67% (if achieved before 19 August 2008) 
|£1.5 billion and above                             |  | 100% (if achieved before 19 August 2007)
66.67% (if achieved before 19 August 2008)
|Between £1.35 billion and £1.5 billion             |  | percentage of shares vesting will be prorated                                      

---

If
any performance target is not satisfied within the stated period, the tranche of the option subject to that performance target will lapse and cease to be capable of becoming
exercisable.

In
relation to tranches 4 and 5, the Group's market capitalisation will be measured using the Company's daily volume weighted average share price determined from prices quoted on the
principal exchange on which the Company's ordinary shares are listed and the number of ordinary shares outstanding immediately following the plans start date. In order to determine if the relevant
condition is satisfied, the daily volume weighted average share price will be obtained for each day of a rolling 90 day period and the average price over that 90 day period will be
determined. If that average price, when multiplied by the number of ordinary shares in issue on the plans start date, exceeds the relevant target market capitalisation, the applicable condition will
have been satisfied.

The
exercise price of options under the Employee Plan is determined by the Remuneration Committee and is not less than the middle market price of the Company's shares as derived from the
London Stock Exchange Daily Official List on a date (or dates, in the case of an average quotation) not more than 30 days prior to the date of grant of the options (or such other period as the
Inland Revenue may agree in relation to Inland Revenue Approved Options). No options have been granted to the Chairman or the executive directors under the Employee Plan.

60

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Individual limit on participation

There is no limit under the Employee Plan on the aggregate maximum value of options, which may be granted to a participant in any year or in the life of the
Employee Plan, subject to certain statutory limitations.

Overall limit on our ordinary shares to be made available under the Employee Plan

The number of ordinary shares, issued or unissued, that may be committed to be issued under the Employee Plan is limited to 5% of the Company's issued share
capital immediately following the plans start date. This number of shares may be increased, with a corresponding reduction in the number of ordinary shares available to be committed under the
Management Plan if any employee who would otherwise have been expected to participate in the Management Plan participates in the Employee Plan rather than the Management Plan because it is beneficial,
for tax or similar reasons, for them to do so. This 5% limit is only available for use on the following basis: (1) 3% in the first 12 months following 19 May 2003; (2) 1%
in the second 12 months following 19 May 2003; and (3) 1% in the third 12 months following 19 May 2003. Any unused part of this limit may be utilised in subsequent
years during the life of the Employee Plan. Ordinary shares over which options have lapsed or been surrendered will not be included in calculating this limit.

Taxation

The exercise of an option may be made conditional upon a participant agreeing to comply with any arrangements specified by us for the payment of taxation, social
security contributions or any other deductions at source, including in the UK, as is likely to be the case, in respect of at least part of the relevant employing company's secondary class 1
National Insurance contributions liability arising on exercise required or permitted in respect of an option.

Termination of employment

If a participant ceases employment voluntarily or he is dismissed for cause, his options will normally lapse on the date of cessation.

However,
where a participant ceases employment due to death, injury, disability, ill-health, redundancy, retirement or the sale of the business or subsidiary for which the
participant works, or termination of employment by the employer without cause, his options will become vested to the extent the financial performance conditions have been satisfied at the date of
cessation of employment, or, if terminated without full notice, to the extent the financial performance conditions have been satisfied on the date notice would have expired, and will become
exercisable at the time they would otherwise have been exercisable as set out in the table above for a period of six months, 12 months in the case of death. The Remuneration Committee may
decide whether a different proportion of an option should vest on the cessation of employment of any participant due to the sale of a business or subsidiary that was a key business or subsidiary.
Following the expiry of the relevant period, all of a participant's unexercised options will lapse.

Lapse of options

Options will lapse in any event on the tenth anniversary of their grant and will lapse after a takeover or reconstruction when the specified time periods for
exercise have passed as described below. Options will also lapse on the cessation of employment of a participant as described above. Options will also lapse to the extent that they cease to be capable
of becoming exercisable due to the failure to satisfy any of the performance targets within the specified time periods.

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Rights attaching to ordinary shares on the exercise of options

Ordinary shares allotted under the Employee Plan will carry the same rights as all other issued ordinary shares. Participants will not qualify for any rights
attaching to ordinary shares where the record date is before the date on which the option is exercised.

Takeover, reconstruction or winding-up

If any person obtains control of the Company as a result of making an offer to acquire the whole of our issued share capital, or, having such control, makes a
general offer to acquire all the shares other than those already owned by that person, the first grant of options under the Employee Plan will become exercisable in full to the extent that the
financial performance conditions have been satisfied immediately prior to a change of control. A proportion of the remainder of any ordinary shares, which
are the subject of outstanding options will vest and become exercisable according to the following formula:

Remainder of ordinary shares the
subject of outstanding options

×

market capitalisation on change of control
(as evidenced by the consideration paid by the acquirer and the number of the ordinary shares in issue immediately following the plan start date)£1.5 billion


The
formula above assumes that a change of control occurs 63 months after the plans start date. If a change of control occurs sooner, to reflect the benefit to shareholders of the
early release of funds, the £1.5 billion figure will be reduced by £25 million for each complete quarter between the change of control and the date which is
63 months after the plans start date.

Participants
will have six months within which to exercise their options to the extent exercisable, following the change of control, or general offer; thereafter, the options will lapse.
The Remuneration Committee will determine the extent to which any subsequent options will vest in the event of a takeover, having regard to the performance targets to which those options are subject.
If a person becomes bound or entitled to give notice to acquire ordinary shares under sections 428 to 430F of the UK Companies Act 1985, a participant may exercise his options to the extent
exercisable as referred to above during the period when that person remains so bound or entitled; thereafter, they will lapse. Participants may, in certain circumstances, be given the opportunity to
exchange their options for options over ordinary shares in an acquiring company.

If
the Group is reconstructed, the effect of which is that a person obtains control of the Company, other than as a result of making an offer for the Company's issued share capital, the
provisions relating to a change of control following an offer shall apply. These provisions shall not apply if there is a reconstruction, the purpose and effect of which is to create a new holding
company where such holding company has substantially the same shareholders and proportionate shareholdings as those currently in place. On the occurrence of a reconstruction of that type, the
Remuneration Committee will use its best endeavors to ensure that any outstanding options are rolled-over so that they continue over shares in the new holding company. If there is no
roll-over, options will continue unaffected by the scheme of arrangement in connection with our restructuring. If there is any other reconstruction or if the Company is
wound-up, options will lapse on the reconstruction or winding-up taking effect.

Adjustments of options

If there is a variation in the Company's share capital, including by way of a capitalisation, rights issue, consolidation, sub-division, reduction or
any other variation or our implementation of a demerger or payment of a super-dividend which would materially affect the value of options under the Employee Plan, the Remuneration Committee may,
subject to the approval of the UK Inland Revenue (in the

62

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case
of approved options), make the adjustments it considers appropriate to the number of ordinary shares currently in place under option and the exercise price.

Amending the Employee Plan

The rules of the Employee Plan can be amended at any time by our board, provided that no amendment to the Employee Plan can be made without prior approval in a
general meeting of shareholders if the amendment relates to the provisions in the rules relating to eligibility, limits on the number of ordinary shares available for issue under the Employee Plan,
the basis for determining a participant's entitlement to ordinary shares and any adjustment in the event of a variation in our share capital. In addition, no amendment that would materially prejudice
the interests of existing participants may be made without the prior consent of participants holding three-quarters of the aggregate number of shares subject to outstanding options. For these
purposes, the interests of the holders of approved options and unapproved options are separate.

Participants in the US

For participants in the US, the Employee Plan will be structured as a qualifying incentive stock option plan and a non-qualifying stock option plan
over ordinary shares or ADRs. Options will be granted on the same terms and will be subject to the same performance conditions as described above, save any changes necessary to take account of the
relevant US legislation.

General

Additional schedules to the rules of the Employee Plan can be established to operate the Employee Plan in overseas countries. These schedules can vary the rules
of the Employee Plan to take account of any securities, exchange control, or taxation laws or regulations for any participants or any company in our Group. Any ordinary shares issued under those
schedules will count towards overall limits under the Employee Plan.

No
options can be granted under the Employee Plan more than five years after the plan's start date.

(3) The Sharesave Plan

The Sharesave Plan was approved by shareholders at the 2004 Annual General Meeting. Options granted under the Sharesave Plan are linked to a savings contract, the
proceeds of which may be used to exercise the option. All employees (including the Chairman and the executive directors) are eligible to participate in the Sharesave Plan.

A
total of 1,724,274 options were granted to employees under the Sharesave Plan on 3 February 2005. The Remuneration Committee will determine if any future grants will be made
under the Sharesave Plan.

Cash BonusesAnnual Incentive Plan

As referred to above, the Company, on the recommendation of the Remuneration Committee, will ask shareholders, at the forthcoming Annual General Meeting, to amend
the Company's Articles of Association, by the deletion of Article 111, to allow participants in the Management Plan to join the Company's Annual Incentive Plan with effect from 1 October
2005. Article 111 provides that without the approval, by ordinary resolution, of the members of the Company in general meeting, no participant in the Management Plan (other than persons
eligible to receive sales related bonuses or commissions) can participate in any annual bonus arrangement or any long-term incentive plan before

63

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the
date on which all the tranches of options granted in the initial grant under the Management Plan have lapsed or become capable of exercise.

Pension

Pension Plans

The Company operates two defined benefit pension plans for its employees and those of its subsidiary companies of which all of the executive directors are members
and a defined benefit FURBS for one of the executive directors who left the employment of the Company during the year. Both of the pension plans are subject to periodic actuarial valuations. The
assets of the pension plans are held in trust and the funds are independent of the Company.

At
31 March 2005, the amounts held by the trustee of each of the schemes was as follows:

|                                                        |  | £'000    
|------------------------------------------------------- |  | ---------
|The G.E.C. 1972 Plan                                    |  | 2,388,000
|The Marconi No 15 FURBS                                 |  | Nil      
|The Marconi Communications Public Sector Pension Scheme |  | 71,558   

The
last actuarial valuation of the G.E.C. 1972 Plan was undertaken as at 5 April 2002, the results of which concluded that it was fully funded at that date. The next valuation is
due as at 5 April 2005 and is currently being undertaken. An actuarial valuation of the Marconi Communications Public Sector Pension Scheme was undertaken at 1 November 2002, which
showed that it was 75% funded at that date and resulted in an increased contribution being paid by the employer. The next actuarial valuation is due as at 1 November 2005.

The
following tables provide estimated annual benefits payable upon retirement, with respect to the named executive officers, under benefit and actuarial plans under which benefits are
determined primarily by final (or average final) compensation and years of service.

The G.E.C. 1972 Plan

|        |  | Years of Service
|------- |  | ----------------
|
|
|125,000 |  | 16,139          
|150,000 |  | 20,260          
|175,000 |  | 24,381          
|200,000 |  | 28,502          
|225,000 |  | 32,623          
|250,000 |  | 36,743          
|300,000 |  | 44,985          
|400,000 |  | 50,949          
|450,000 |  | 50,949          
|500,000 |  | 50,949          

Benefits
that are based on the service and final salary formula in the G.E.C. 1972 Plan are calculated as n/50ths (where n is years of service) of final pensionable earnings, less a UK
National Insurance offset. In addition, the accrual of benefits can be affected by restrictions imposed by the UK tax authorities. All figures in the table above are in pounds sterling and show values
payable relating to members' service. Each of the executive officers is entitled to benefits under the G.E.C. 1972 Plan. The

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final
remuneration for each of the executive directors is restricted to approximately US$165,000 by the UK tax authorities and their service under the G.E.C. 1972 Plan to 31 March 2005 is as
follows:

|PS Binning   |  | 2 years 
|------------ |  | --------
|J F Devaney  |  | 2 years 
|M W J Parton |  | 15 years

The Marconi Communications Public Sector Pension Scheme

|        |  | Years of Service
|------- |  | ----------------
|
|
|125,000 |  | 12,878          
|150,000 |  | 15,453          
|175,000 |  | 18,029          
|200,000 |  | 20,604          
|225,000 |  | 23,180          
|250,000 |  | 25,755          
|300,000 |  | 30,907          
|400,000 |  | 41,209          
|450,000 |  | 46,360          
|500,000 |  | 50,949          

Benefits
that are based on the service and final salary formula in the Marconi Communications Limited Public Sector Pension Scheme are calculated as n/80ths (where n is years of service)
of final pensionable earnings. None of the named executive officers is entitled to benefits under the Marconi Communications Limited Public Sector Pension Scheme.

G.E.C. 1972 Plan

The G.E.C. 1972 Plan (the UK Plan), is the only tax exempt approved plan of which the Company is the principal employer. The only other tax exempt approved
pension plan in the UK operated by the Company is the Marconi Communications Limited Public Sector Pension Scheme, where Marconi Communication Limited is the principal employer and is responsible for
its own contributions. Employee contributions to the UK Plan are 3% of pensionable earnings with employers paying the balance of the cost. The Company is the UK Plan's principal employer but group
companies also participate and are responsible for their own contributions. The executive directors are members of the UK Plan. The other UK defined benefit pension schemes are FURBS, described above
and UURBS described below.

Marconi USA Employees' Retirement Plan

The principal pension plan in the US is the Marconi USA Employees' Retirement Plan (the 'US Plan'), which is a tax-qualified, funded defined
benefit plan.

In
addition to the US Plan, the Access Business Retirement Plan was also maintained in the US (the 'Access Plan'). This plan was a tax-qualified, funded defined benefit plan.
On 11 January 2005 an annuity contract was purchased from the assets funding the plan to cover all the benefits accrued under the plan. The plan was terminated on 15 February 2005. In
December 2004 and early in 2005 filings were made with the Pension Benefit Guaranty Corporation and the Internal Revenue Service regarding the termination of the plan. The affairs of this plan
will be officially concluded when appropriate responses are received with respect to such filings or an appropriate time period expires after such filings.

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Pension BenefitsChairman and Executive Directors

P S Binning, J F Devaney and M W J Parton are members of the Group's approved UK pension scheme, the G.E.C. 1972 Plan. Payment of pension benefits is not linked
to performance. They have a normal retirement age of 62, other than J F Devaney who has a normal retirement age of 65. J F Devaney was admitted to the G.E.C. 1972 Plan under standard
terms and conditions with effect from 19 May 2003 and has accrued benefits in the G.E.C. 1972 Plan since that date. P S Binning was admitted to the G.E.C. 1972 Plan under standard
terms and conditions with effect from 22 October 2003 and has accrued benefits in the G.E.C. 1972 Plan since that date.

Basic
salary is the only element of remuneration that is pensionable. The earnings of P S Binning, J F Devaney and M W J Parton are subject to the Inland Revenue earnings cap that
restricts the benefits that can be accrued under a tax approved pension scheme. Each has an unapproved arrangement to provide additional pension and life assurance benefits from those accrued under
the G.E.C. 1972 Plan other than J F Devaney who has such an arrangement in respect of life assurance only. Funded Unapproved Retirement Benefit Schemes (FURBS) were operated during the year for
P S Binning and M W J Parton.

A
review of retirement benefits for the Chairman and the executive directors has been instigated as a result of the enactment of the Finance Act 2004 and the Pensions Act 2004. Proposals
resulting from this review will be presented to the Remuneration Committee during the financial year ending on 31 March 2006.

Further
details about the benefits of the Chairman and the executive directors under the G.E.C. 1972 Plan and FURBS can be found in section (G).

Other benefits

In addition to basic salary the Chairman and the executive directors receive certain other benefits including car allowance, private medical insurance and life
assurance.

(C)  Directors' service agreements

The Remuneration Committee determines the terms and conditions of the Chairman's and the executive directors' service agreements with the Company including
duration, notice period and termination provisions. It is the Company's policy that:



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The
following is a summary of the details of the service agreements of each director who served during the year:

|Name of director                  |  | Effective date of service
agreement/letter of appointment |  | Unexpired term and
notice period at
31 March 2005
|--------------------------------- |  | --------------------------------------------------------- |  | -------------------------------------------------
|Chairman and executive directors: |  |                                                           |  |                                                  
|P S Binning                       |  | 20 October 2003                                           |  | See note (1)                                     
|J F Devaney                       |  | 16 December 2002                                          |  | See note (2)                                     
|M W J Parton                      |  | 19 May 2003                                               |  | See note (3)                                     
|Non-executive directors:          |  |                                                           |  |                                                  
|M K Atkinson                      |  | 16 December 2002                                          |  | 8.5 months                                       
|K R Flaherty                      |  | 19 May 2003                                               |  | 13.5 months                                      
|P C F Hickson                     |  | 6 May 2004                                                |  | 25 months                                        
|W K Koepf                         |  | 16 December 2002                                          |  | 8.5 months                                       
|D F McWilliams                    |  | 8 September 2003                                          |  | 17 months                                        
|Former director:                  |  |                                                           |  |                                                  
|M J Donovan                       |  | 19 May 2003                                               |  | See note (5)                                     

---

Notes:



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68

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The
Company's articles provide for the removal of a director by, amongst other causes, the written requirement of at least three-quarters of the other directors or by extraordinary
resolution or by ordinary resolution on special notice.

For
fiscal 2005, the aggregate remuneration, including salaries, fees, pension contributions, bonus payments, severance payments and benefits in kind, granted to the directors was
approximately £3.7 million. It is estimated that for fiscal 2006, under arrangements in force at the date of this document, the remuneration of the directors will be approximately
£2.1 million.

There
is no arrangement under which a director has waived or agreed to waive future emoluments nor have there been any such waivers agreed during the financial year immediately preceding
the date of this document. There are no outstanding loans or guarantees granted or provided by us to, or for the benefit of, any of the directors.

External appointments

With the Company's approval the Chairman and the executive directors are permitted to hold appointments outside the Company. Any such appointments must be in line
with the Company's internal procedures and any fees payable in connection with these appointments may be retained by individuals unless otherwise agreed.

(D)  Non-executive directors

The policy on remuneration of non-executive directors is determined by the Board, by reference to practice in companies similar in size to the Company
and reflects the importance and increasing complexity of the role.

Prior
to 1 January 2005 the basic fee of each non-executive director was based on two days' service to the Company per month. The non-executive directors
could also be paid a fee of £1,500 per day for each additional day devoted to the Company's business over and above the threshold of 24 days per annum in respect of Board service plus an
additional four days per annum in respect of chairmanship of Board Committees where applicable. The Chairman of the Audit Committee received an additional fee of £15,000 per annum and the
Chairman of the Remuneration Committee an additional fee of £10,000 per annum.

A
new fee structure for all non-executive directors was agreed by the Board on 22 December 2004, and was effective from 1 January 2005. The new arrangements are
as follows:

|Name of director |  | Basic fee |  | Committee
Chairman
fees |  | Senior
Independent
Director fee |  | Committee
membership
fees |  | Total fees
|---------------- |  | --------- |  | ----------------------- |  | ------------------------------- |  | ------------------------- |  | ----------
|M K Atkinson     |  | £35,000   |  | £20,000                 |  | £15,000                         |  | £5,000                    |  | £75,000   
|K R Flaherty     |  | £35,000   |  | £5,000                  |  |                                |  | £5,000                    |  | £45,000   
|P C F Hickson    |  | £35,000   |  | £15,000                 |  |                                |  | £5,000                    |  | £55,000   
|W K Koepf        |  | £35,000   |  |                        |  |                                |  | £13,000                   |  | £48,000   
|D F McWilliams   |  | £35,000   |  |                        |  |                                |  | £10,000                   |  | £45,000   

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The non-executive directors are also paid advance fees, which, by agreement with the non-executive directors, are specifically used to purchase shares in the
Company. These fees are paid in advance for each of the corresponding years of their appointment as follows:

|Name of director |  | Year one |  | Year two |  | Year three
|---------------- |  | -------- |  | -------- |  | ----------
|M K Atkinson     |  | £100,000 |  | £30,000  |  | £30,000   
|K R Flaherty     |  | £30,000  |  | £30,000  |  | £30,000   
|P C F Hickson    |  | £30,000  |  | £30,000  |  |          
|W K Koepf        |  | £100,000 |  | £30,000  |  | £30,000   
|D F McWilliams   |  | £30,000  |  | £30,000  |  | £30,000   

The
non-executive directors must hold the shares purchased in year one (included in section (H)(i)) for three years from the date of their appointment and those
purchased in years two and three for one year from the respective purchase dates. If an appointment is terminated for any reason during any year, for which an advance fee has been paid, the director
concerned is obliged to repay the advance fee for that year, less an amount pro rata to the time served during the year. The Chairman has discretion to waive the holding periods if he considers there
to be a valid reason to justify this.

Non-executive
directors do not participate in any other incentive scheme or the Group's pension arrangements and receive no further benefits or entitlements.

(E)  Performance graph

The Directors Remuneration Report Regulations 2002 require the Company to provide, in this Report, a line graph illustrating the Company's performance, measured
by Total Shareholder Return (TSR), as compared with an appropriate and broad equity market index. TSR is defined as the return shareholders would receive if they held a notional number of shares in
the Company. It measures the percentage growth in the Company's share price together with the value of any dividends paid, assuming that the dividends are reinvested in the Company's shares.

The
following graphs show, since 19 May 2003, being the date on which the Company's shares commenced trading on the London Stock Exchange, the TSR on a holding of shares in the
Company as against that of a hypothetical holding of shares made up of shares of the same kinds and number as those by reference to which the FTSE 250 Index is calculated. The FTSE 250 Index was
selected for this purpose as it is a widely recognised performance comparison for UK companies of a similar size to the Company.

CHART

As
a result of the significant fall in the Company's share price following the announcement, on 21 April 2005, of BT's decision not to select the Company as a preferred supplier
in respect of its 21CN project, the Remuneration Committee felt it appropriate to publish the following graph, in

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addition
to the graph above, which shows the TSR performance from 19 May 2003 and 31 August 2005.

CHART

(F)   Directors' remuneration for the year ended 31 March 2005

|                   |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  | Pension Contributions |  |    
|------------------ |  | ----- |  | --- |  | --- |  | - |  | -- |  | ----- |  | ----- |  | ----- |  | --------------------- |  | ---
|
|
|
|
|Current directors: |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    
|M K Atkinson       |  | 52    |  | 30  |  |    |  |  |  | 3  |  |      |  | 85    |  | 127   |  |                      |  |   
|P S Binning        |  | 299   |  |    |  | 48  |  |  |  |   |  |      |  | 347   |  | 157   |  | 71                    |  | 32 
|J F Devaney        |  | 283   |  |    |  | 17  |  |  |  | 20 |  |      |  | 320   |  | 271   |  | 38                    |  | 21 
|K R Flaherty       |  | 38    |  | 30  |  |    |  |  |  | 1  |  |      |  | 69    |  | 55    |  |                      |  |   
|P C F Hickson      |  | 40    |  | 27  |  |    |  |  |  | 1  |  |      |  | 68    |  |      |  |                      |  |   
|W K Koepf          |  | 48    |  | 30  |  |    |  |  |  | 4  |  |      |  | 82    |  | 160   |  |                      |  |   
|D F McWilliams     |  | 34    |  | 30  |  |    |  |  |  |   |  |      |  | 64    |  | 34    |  |                      |  |   
|M W J Parton       |  | 522   |  |    |  | 97  |  |  |  |   |  |      |  | 619   |  | 860   |  | 159                   |  | 514
|                   |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    
|                   |  | 1,316 |  | 147 |  | 162 |  |  |  | 29 |  |      |  | 1,654 |  | 1,664 |  | 268                   |  | 567
|                   |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    
|Former directors:  |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    
|M J Donovan        |  | 295   |  |    |  | 71  |  |  |  |   |  | 1,294 |  | 1,660 |  | 490   |  | 87                    |  | 125
|                   |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    
|                   |  | 1,611 |  | 147 |  | 233 |  |  |  | 29 |  | 1,294 |  | 3,314 |  | 2,154 |  | 355                   |  | 692
|                   |  |       |  |     |  |     |  |   |  |    |  |       |  |       |  |       |  |                       |  |    

---

Notes:

71

---





The following table shows emoluments paid or payable to all directors and executive officers of Marconi Corporation plc as a group for the year
ended 31 March 2005.

|                                                |  | Excluding Pension Contributions |  | Pension
contributions |  | Gains made on
exercise of
share options |  |       |  |      
|----------------------------------------------- |  | ------------------------------- |  | --------------------- |  | --------------------------------------- |  | ----- |  | -----
|
|
|
|
|Total for all directors
and executive officers* |  | 3,885                           |  | 2,216                 |  |                                        |  | 6,101 |  | 4,565
|                                                |  |                                 |  |                       |  |                                         |  |       |  |      

---

The
emoluments for all of the directors and executive officers are in respect of full year or, where appropriate, from their dates of appointment.

(G)  Retirement benefits

The Chairman and the executive directors are members of the Group's principal pension scheme, the G.E.C. 1972 Plan, which is a defined benefit scheme. The last
actuarial valuation of the scheme was carried out as at 5 April 2002. Members contribute at the rate of 3% of pensionable earnings, subject to limits imposed by the Inland Revenue. Company
contributions made during the year ended 31 March 2005 amounted to 8.2% of pensionable earnings. Such Company contributions were restricted in a similar manner to the members' own
contributions.

Details
of the Funded Unapproved Retirement Benefit Schemes (FURBS) operated during the year for P S Binning, M J Donovan and M W J Parton are set out below.

The
Company made contributions to the FURBS established for M W J Parton during the year ended 31 March 2005. A gross contribution of 35% of basic salary is paid as a pension
allowance, 60% of which is payable to the FURBS established for him and the balance of 40% is paid direct to M W J Parton.

The
Company made contributions to the FURBS established for P S Binning during the year ended 31 March 2005. A gross contribution of 25% of basic salary is paid as a pension
allowance, 60% of which is payable to the FURBS established for him and the balance of 40% is paid direct to P S Binning.

Until
the date that M J Donovan left the employment of the Company, contributions were made to the FURBS established for him to provide benefits at his normal retirement age of 62
equivalent to a pension of two-thirds of average final pensionable salary. The targeted benefit took into account the

72

---



capital
value of benefits arising from Mr Donovan's membership of the G.E.C. 1972 Plan and any relevant benefit in payment or otherwise arising from previous employment. The contribution rate was 39%
of his base salary, although while he was posted to the US the rate was 46% owing to local tax legislation. Contributions were paid in the ratio of 60% directly to the FURBS established for him and
40% to M J Donovan, or as required under US tax law.

As
Mr Donovan had a defined benefit promise, in respect of his FURBS, an actuary assessed the amount that was paid in contributions periodically in order to meet the promise. In such an
arrangement, the amount actually required to meet the promise can only be assessed accurately at the date at which the benefit is paid. The settlement payment, as referred to in section (C)
above, was paid to Mr Donovan in order to finalise his retirement benefits as at his date of leaving the employment of the Company. The Company took advice from an independent actuary about the
settlement payment which was deemed fair and reasonable and in the interests of both parties.

Death in service benefits

In the event of death in service, a lump sum of four times basic salary, plus additional benefits for a surviving spouse and/or children, inclusive of any death
benefits arising from the G.E.C. 1972 Plan and from previous employment where specified, will be held in trust for the benefit of dependants of P S Binning and
M W J Parton. In the case of J F Devaney a lump sum of four times basic salary, inclusive of any death benefits arising from the G.E.C. 1972 Plan, will be held in
trust for the benefit of his dependants.

In
accordance with the requirements of the Listing Rules and the Directors Remuneration Report Regulations 2002, the disclosures required for the year ended 31 March 2005 are set
out below.

Listing Rulestax unapproved benefits

The pension benefits earned by the directors of Marconi Corporation plc under the FURBS arrangements are:

|Name of director |  | Length of
pensionable
service |  | Increase/(decrease)
in accrued pension
over the period to
31 December 2004
(net of inflation) |   | Cost of pension
benefits accrued
during the period net of
member's contributions |   | Accumulated total
accrued pension at
31 December 2004
|---------------- |  | ----------------------------- |  | --------------------------------------------------------------------------------------------- | - | -------------------------------------------------------------------------------- | - | -----------------------------------------------------
|
|M J Donovan*     |  | 6                             |  | (8                                                                                            | ) | (48                                                                              | ) | 79                                                   
|                 |  |                               |  |                                                                                               |   |                                                                                  |   |                                                      

---

Until
the date that M J Donovan left the employment of the Company, his defined benefit FURBS arrangement existed to provide a pension equivalent to two thirds of average final
pensionable earnings, inclusive of benefits provided by the G.E.C. 1972 Plan and from other employment (retained benefits). The value of retained benefits and those from the G.E.C. 1972 Plan have
increased during the year resulting in a lower cost to fund the FURBS promise.

The
pension entitlement shown above is that which would be paid annually at normal retirement based on service to 31 December 2004. The increase in accrued pension during the
period excludes any increase for inflation. Contributions paid to M J Donovan's FURBS during the period were £61,303 (2004: £87,648).

73

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P
S Binning and M W J Parton have defined contribution FURBS arrangements. During the year the Company paid £110,250 (2004: £463,250) to M W J Parton's FURBS and
£45,000 (2004: £20,481) to P S Binning's FURBS.

Listing Rulestax approved benefits

The pension benefits earned by the directors of Marconi Corporation plc under the G.E.C. 1972 Plan are:

|Name of director |  | Length of
pensionable
service |  | Increase in accrued
pension over the period to
31 March 2005
(net of inflation) |  | Cost of
pension benefits accrued
during the period net of
member's contributions |  | Accumulated total
accrued pension at
31 March 2005
|---------------- |  | ----------------------------- |  | ------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------------------------------------------
|
|P S Binning      |  | 1                             |  | 1                                                                               |  | 3                                                                                |  | 2                                                 
|J F Devaney      |  | 1                             |  | 2                                                                               |  | 12                                                                               |  | 4                                                 
|M J Donovan*     |  | 6                             |  | 12                                                                              |  | 115                                                                              |  | 21                                                
|M W J Parton     |  | 14                            |  | 2                                                                               |  | 7                                                                                |  | 32                                                
|                 |  |                               |  |                                                                                 |  |                                                                                  |  |                                                   

---

The
pension entitlement shown above is that which would be paid annually at their expected retirement age based on service to 31 March 2005 (other than for M J Donovan whose
pension entitlement is calculated for service to 31 December 2004). The increase in accrued pension excludes any increase for inflation. The cost of pension benefits accrued during the period
net of members' contributions has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The cost of pension benefits accrued during the period net of
members' contributions is a measure of the capital cost of providing future pension payments and accordingly is a liability of the Group's pension arrangements and not a sum paid or due to the
directors of the Company.

Directors' Remuneration Report Regulations 2002tax approved benefits

|Name of director |  | Increase in
accrued
pension over
the period to
31 March
2005 |  | Accumulated
total
accrued
pension at
31 March
2005 |  | Transfer
value
of accrued
pension as at
31 March
2004 |  | Transfer
value
of accrued
pension as at
31 March
2005 |  | Increase in
transfer value
over the
period net
of member's
contributions
|---------------- |  | ------------------------------------------------------------ |  | -------------------------------------------------- |  | ----------------------------------------------------- |  | ----------------------------------------------------- |  | ------------------------------------------------------------------------
|
|P S Binning      |  | 1                                                            |  | 2                                                  |  | 5                                                     |  | 18                                                    |  | 4                                                                       
|J F Devaney      |  | 2                                                            |  | 4                                                  |  | 24                                                    |  | 48                                                    |  | 15                                                                      
|M J Donovan*     |  | 12                                                           |  | 21                                                 |  | 90                                                    |  | 221                                                   |  | 123                                                                     
|M W J Parton     |  | 3                                                            |  | 32                                                 |  | 266                                                   |  | 318                                                   |  | 36                                                                      
|                 |  |                                                              |  |                                                    |  |                                                       |  |                                                       |  |                                                                         

---

Notes:

74

---



Directors' Remuneration Report Regulations 2002tax unapproved benefits

|Name of director |  | Increase/
(decrease) in
accrued
pension over
the period to
31 December
2004 |   | Accumulated
total
accrued
pension at
31 December
2004 |  | Transfer
value
of accrued
pension as at
31 March
2004 |  | Transfer
value
of accrued
pension as at
31 December
2004 |  | Increase in
transfer value
over the
period net
of member's
contributions |  
|---------------- |  | --------------------------------------------------------------------------- | - | ----------------------------------------------------- |  | ----------------------------------------------------- |  | -------------------------------------------------------- |  | ------------------------------------------------------------------------ | -
|
|M J Donovan*     |  | (6                                                                          | ) | 79                                                    |  | 512                                                   |  | 504                                                      |  | (8                                                                       | )
|                 |  |                                                                             |   |                                                       |  |                                                       |  |                                                          |  |                                                                          |  

---

Notes:

(H)  Directors' interests

The directors' interests as defined by the Companies Act 1985 (which include trustee holdings and family interests incorporating holdings of minor children) in
shares of the Company and its subsidiaries are as follows:

(i) Ordinary shares

The interests of the directors and other executive officers in Marconi Corporation plc ordinary shares of 25p each and warrants over such shares are shown below.

|Shares: Name of director                       |  | As at
31 March 2005
Beneficial |  | As at
31 March 2005
Percentage of shares owned |   | As at
1 April 2004
Beneficial |  | As at
1 April 2004
Percentage of shares owned |  
|---------------------------------------------- |  | ------------------------------ |  | ---------------------------------------------- | - | ----------------------------- |  | --------------------------------------------- | -
|M K Atkinson                                   |  | 23,263                         |  | 0.01                                           | % | 20,138                        |  | 0.01                                          | %
|P S Binning                                    |  | 10,000                         |  | 0.00                                           | % | 10,000                        |  | 0.00                                          | %
|J F Devaney                                    |  |                               |  |                                               |   |                              |  |                                              |  
|K R Flaherty                                   |  | 8,400                          |  | 0.00                                           | % | 5,390                         |  | 0.00                                          | %
|P C F Hickson                                  |  | 2,959                          |  | 0.00                                           | % |                              |  |                                              |  
|W K Koepf                                      |  | 23,805                         |  | 0.01                                           | % | 20,480                        |  | 0.01                                          | %
|D F McWilliams                                 |  | 5,439                          |  | 0.00                                           | % | 2,469                         |  | 0.00                                          | %
|M W J Parton                                   |  | 45                             |  | 0.00                                           | % | 45                            |  | 0.00                                          | %
|Total for all directors and executive officers |  | 74,673                         |  | 0.04                                           | % | 58,589                        |  | 0.03                                          | %
|                                               |  |                                |  |                                                |   |                               |  |                                               |  

75

---



|Warrants: Name of director                     |  | As at
31 March 2005
Beneficial |  | As at
1 April 2004
Beneficial
|---------------------------------------------- |  | ------------------------------ |  | -----------------------------
|M W J Parton                                   |  | 2,287                          |  | 2,287                        
|Total for all directors and executive officers |  | 4,097                          |  | 4,097                        
|                                               |  |                                |  |                              

None
of the directors held any non-beneficial interests in the shares of the Company or its subsidiaries during the year.

There
have been no other changes in the directors' interests in Marconi Corporation plc shares and warrants between 31 March 2005 and 26 September 2005.

(ii) Options

Details of options, over Marconi Corporation plc ordinary shares of 25p each, held by executive directors under the Management Plan (as detailed in
section (B)) and in total for all directors and executive officers are as follows:

|Name of director**                             |  | Number of
shares under
option as at
1 April 2004 |  | Total
exercise
price pence
(per exercise) |  | Date of grant |  | Number of
options
granted
in the year* |  | Number of
options
exercised
in the year* |  | Number of
shares under
option as at
31 March
2005* |  | Exercise period                
|---------------------------------------------- |  | ------------------------------------------------ |  | ----------------------------------------- |  | ------------- |  | -------------------------------------- |  | ---------------------------------------- |  | -------------------------------------------------- |  | -------------------------------
|P S Binning                                    |  | 1,000,000                                        |  | 100                                       |  | 13 Feb 2004   |  | Nil                                    |  | 160,000                                  |  | 840,000                                            |  | Oct 2004 to Oct 2013           
|J F Devaney                                    |  | 600,000                                          |  | 100                                       |  | 24 June 2003  |  | Nil                                    |  | 192,000                                  |  | 408,000                                            |  | May 2004 to May 2013           
|M J Donovan                                    |  | 2,000,000                                        |  | Nil                                       |  | 24 June 2003  |  | Nil                                    |  | 600,000                                  |  | 1,400,000                                          |  | See note (2) below             
|M W J Parton                                   |  | 3,500,000                                        |  | 100                                       |  | 24 June 2003  |  | Nil                                    |  | 1,400,000                                |  | 2,100,000                                          |  | May 2004 to May 2013           
|Total for all directors and executive officers |  | 11,940,000                                       |  | Various                                   |  | Various       |  | Nil                                    |  | 4,513,000                                |  | 6,027,000                                          |  | Various, maximum 10 year period

---

Notes:

76

---





The
Company does not currently operate any long-term incentive plans other than the share option plans described in section (B).

The
information provided above is a summary and full details of directors' shareholdings and options are contained in the Company's register of directors' interests.

Sections
(F), (G) and (H) (other than directors interests as disclosed in section (H) (i)) of this report were subject to audit by Deloitte & Touche LLP. The
performance criteria for share schemes given in section (B) (iii) (1) and (2) also forms part of the audited information.

77

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SECTION IIIADDITIONAL INFORMATION REQUIRED BY FORM 20-F

Exchange Rate Information

The noon buying rate for pounds sterling expressed in US dollars per pounds sterling on 26 September 2005 was £1.00 = US$1.7772

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

2005

High

LowMarch

1.9292

1.8657April

1.9197

1.8733May

1.9048

1.8205June

1.8368

1.7930July

1.7753

1.7303August

1.8148

1.7695September (through 26 September 2005)

1.8420

1.7772


The
following table sets forth the average noon buying rate for pounds sterling expressed in US 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 31 March

Average2001

1.47372002

1.43202003

1.55412004

1.70232005

1.8504


78

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Risk Factors

The telecommunications market fluctuates and demand, competition, pricing and margin are impacted by many factors, including decisions by
our customers relating to their deployment of technology and their timing of purchases, which could have a material adverse effect on our business, operating results and financial
condition.

The
telecommunications industry is extremely sensitive to market conditions. Over the last three years, our operating results have been adversely affected as a result of unfavourable
market conditions and reduced capital spending by carriers and businesses, particularly in the US and Europe. Many of our current and potential customers are network operators that have or have had
high levels of indebtedness and, in some cases, emerging or weak revenue streams. Adverse economic conditions, network over-capacity due to excess build-out, lack of funding
for telecommunications development, overspending on license fees have forced network operators to undertake extensive restructuring and cost-cutting initiatives. Following a number of
years in which the telecommunications market deteriorated significantly, in 2004, the market stabilised but is still subject to fluctuations.

If
capital investment by our customers improves at a slower pace than we anticipate, our revenues and profitability may be adversely affected. As a result of the uncertainty and
variations in our market, accurately forecasting revenues, results and cash flow remains difficult. In addition our sales volumes and product mix impact our gross margin. Therefore if our sales volume
does not improve or we have an unfavourable product mix we may not achieve the gross margin rate we expect, resulting in lower than expected results of operation. These factors may fluctuate from
quarter to quarter.

Rationalisation and consolidation amongst our customers in the service provider industry may cause us to experience a loss of customers and increased
competition.

The
downturn in the telecommunications industry may cause rationalisation and consolidation amongst our customers. Some network operators may merge and we and one or more of our
competitors may each supply products to the companies that merge. This rationalisation and/or consolidation could result in our dependence on a smaller number of customers, purchasing decision delays
by the merged companies and/or our playing a lesser role, or no longer playing a role, in the supply of communications products to the merged companies. A rationalisation of industry participants
could also increase the supply of used communications products for resale by affected industry participants, resulting in increased competition and pressure on pricing for our products.

In
addition, telecommunications equipment suppliers may enter into business combinations, or may be acquired by or sell a substantial portion of their assets to other competitors which
may or may not involve our businesses. Such moves could result in accelerated product development, increased financial
strength, or more concentrated customers, and the emergence of even more powerful or aggressive competitors.

The largest growth opportunities are in markets and geographical areas where we lack critical mass.

A
number of our competitors have greater scale and presence in developing markets where growth in demand is more rapid. If we do not implement and execute an adequate regionalisation
strategy in respect of these markets, a lack of critical mass may make it difficult for us to win new business and compete in these markets.

We may need to effect further changes in our business in order to achieve our near-term financial objectives.

We
have not made an operating profit after goodwill and exceptional items in the last three fiscal years, nor have we recorded positive operating cash flow after exceptional items.

79

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Trading
conditions in the telecommunications market remains uncertain. Whilst many of the major telecommunications operators have begun to restore their capital investment programmes the
competitive nature of the equipment supply sector has increased markedly. Price competition, particularly from suppliers in China, and the rapid introduction and commoditisation of new technologies
have placed severe pressure on our ability to improve gross margin, operating profit and operating cash flow. Unless we are able to reverse these trends through some combination of volume increase,
improved product mix, product cost reductions through further outsourcing and real cost reductions in our sales, marketing and general administrative costs, it is unlikely that we will be able to
achieve sustained profitability and positive cash flows.

Lower
than expected profitability and cash flows could contribute to volatility in the market price of our publicly traded securities and will affect our ability to pay dividends on the
ordinary shares. In addition, we may find that we have limited or no ability to raise additional capital through offerings of debt or equity securities in the capital markets in the near or medium
term.

A relatively small number of customers account for a large proportion of our business. Our top 10 customers represent 57% of our revenue. The loss of one of these
customers or reduced spending by one of these customers or our inability to obtain new customers would result in lower sales and could have a material adverse effect on our business, operating results
and financial condition.

A
relatively small number of customers account for a significant proportion of our revenues. In the fiscal year ended 31 March 2005, sales to our 10 largest customers represented
approximately 57% of our total sales.

Because
of this concentration, adverse changes that affect only a small number of customers or customer relationships could have a significant adverse effect on our results. If we do not
fully appreciate the dynamics of our customers, their needs, key business drivers and decision criteria, we will not be able to forecast demand effectively, communicate our network vision and migrate
these customers to our next generation products.

The
telecommunications industry may have entered a new phase of consolidation, one recent example being the merger of Cable & Wireless and Energis. If such consolidation occurs it is
possible that in the next financial year and subsequent years an even greater percentage of our revenues will be attributable to a smaller number of customers.

Reductions
or delays in or cancellations of orders from one or more of our significant customers or the loss of one or more significant customers in any period could have an adverse
effect on our revenues, profitability and cash flow.

We were not selected as a provider to British Telecommunications plc (BT) for its 21st Century Network project (21CN). BT is our largest customer
with £322 million revenue in fiscal 2005. Following BT's announcement we currently expect a reduction in BT revenues from equipment sales and associated services in the order of
£50 million in fiscal 2006 compared to fiscal 2005.

BT
and its subsidiaries are of particular importance to us. In fiscal 2005 and 2004, sales to BT represented approximately 25% of our total sales in both years. BT are expected to incur
significant capital and operational expenditure in their plans to build the new telecommunications network known as 21CN over the next few years. We bid for this business in response to BT's
invitation to tender and failed to win any business from BT in relation to 21CN. We have announced 800 job losses in the UK principally as a consequence of us not being selected by BT. Some of our new
products, such as our Impact Softswitch product, were offered in response to BT's tender invitation for 21CN. Whilst these products received praise for their technological performance, the failure to
have BT as a reference customer for these products may have an adverse impact on our business. Our failure to participate in 21CN will result in our focusing our research and development spend on
those products which we see as having the highest sales growth and profit potential. We are also maintaining our commitment to product roadmaps and features which our customers require. As a result
the research and development

80

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spend
is expected to show a modest reduction as we will no longer be developing BT specific features for our Impact Softswitch product. This may mean we fail to develop new products that our customers
need and may result in an adverse impact on our business, operating results and financial condition.

We are exposed to the risk of increasing price pressure due to commodity pricing, aggressive pricing strategies and moving to next generation network products
with lower margins.

Our
products are sold in markets that are characterised by a rapid adoption of new technologies, many new product introductions, shortening product lifecycles, aggressive pricing
strategies such as internet auctions and evolving industry standards. We face increasing pricing pressure from competitors based in countries which operate a significantly lower cost base than us,
particularly from competitors based in the Far East, in particular China. If our products continue to be exposed to such increasing price pressure and if we are unable to reduce our product costs and
remain competitive, we would be likely to lose customers and sales, which would materially affect our business, results of operations and financial condition.

We operate in a highly competitive and rapidly changing market particularly from competitors in the Far East, in particular China, and may be unable to invest
sufficiently in research and development to develop the right products necessary to sustain or increase sales.

A
number of our competitors, particularly those based in the Far East, in particular China, have a lower cost basis and greater financial and technological resources than we do and,
therefore, are in a better position to invest in developing and acquiring proprietary technology, to expand into new business segments and geographies and to increase their market shares. Some of our
larger competitors have greater geographic reach and presence in certain regions of the world, which enables them to service more effectively those geographies, and win more business there than we
can.

The
process for developing new products based on rapidly moving technologies for broadband fixed networks and optical networks is complex and variable. It requires innovative solutions
that are cost effective and based on accurate insights into technology and trends. Success depends on the timely and effective introduction of new products or enhancements to existing products in a
way that meets customer needs and differentiates our products from those offered by our competitors. At the same time, these new product introductions must achieve market acceptance, anticipate and
accommodate emerging industry standards and be compatible with current and competitor products. If there is an unforeseen change in one or more of the technologies affecting telecommunications, our
products may cease to be competitive.

If
we are unable to achieve cost reductions in our research and development processes on a timely basis, we may not be able to develop new products and services at the same rate,
maintain compatibility of our products with competitors' products or keep up with technology market trends. If our products and services are not competitive, it is likely that we will lose customers
and business, our revenues will decline and our business will be materially adversely affected.

Many of our current and planned products are highly complex and may contain defects or errors that are detected only after deployment in communications networks.
If that occurs, our reputation may be harmed.

Our
products are highly complex and some of them can only be fully tested when deployed in communications networks or with other equipment. From time to time, our products have contained
undetected defects, errors or failures. The occurrence of any defects, errors or failures could result in cancellation of orders, product returns, diversion of our resources, reduced profitability
resulting from an increase in costs to correct errors, legal actions by our customers or our customers' end-users and other losses to us, our customers and end-users.

81

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Rapid changes to existing regulations or technical standards or the implementation of new regulations or technical standards upon products and services not
previously regulated could be disruptive and costly to us.

Many
of our products and services are developed in reliance upon existing regulations and technical standards, our interpretation of unfinished technical standards or the lack of such
regulations and standards. Rapid changes to existing regulations and technical standards or the implementation of new regulations and technical standards upon products and services not previously
regulated could adversely affect development, demand, sale and warranty of our products and services, thus increasing our costs and decreasing the demands for our products and services.

Measures to reduce operating costs could adversely affect relations with our employees, our suppliers and/or our partners, which could disrupt our
business.

In
order to reduce operating costs, we intend to reduce the size of our workforce. We have announced up to 800 job losses in the UK principally as a consequence of us not being selected
to participate in BT's 21CN project. It may also be necessary for us to instigate other headcount reduction programmes in other key territories in order to ensure the competitiveness of our business.
In addition to this, the planned closure of the product assembly and customer configuration facility based in New Horizon Park, Coventry in the UK, with movement of this facility to Italy, could
result in disruption to the smooth operation of our supply chain. We have also renegotiated some existing contracts with suppliers and partners in order to obtain more favourable terms. The
implementation of these plans may negatively impact relations with our employees and our suppliers and partners resulting in low employee morale and labour related disruptions against us. This could
impact operational efficiency and inhibit the operating cost reduction programmes that are fundamental to achieving our objectives.

In
Europe, employees are protected by laws through local and central work councils that give them rights of consultation with respect to specific matters regarding their employers'
business and operations. These laws and collective bargaining agreements to which we, our suppliers and partners may be subject, could make cost reductions programmes very challenging to deliver and
we need to work in close partnership with employee representative groups to ensure they are completed fairly and in a timely manner.

We are dependent on key management personnel and skilled technology workers whose departure could adversely affect our ability to develop our products and operate
our business.

The
overall headcount of our businesses has been reduced to approximately 9,810 at 31 March 2005 from 12,245 at 31 March 2004. This reduction has been due to the
implementation of cost-reduction plans and disposals of assets and businesses. During this period we have lost managers and employees with operational experience in our business. Other
reductions we are undertaking might include further key employees with valuable skills and knowledge whose departure would adversely affect our ability to continue to develop new, and enhance
existing, products and operate our business efficiently.

At
the same time, the uncertainties created by headcount reductions and our prospects generally may cause key employees to leave and otherwise increase employee and management turnover,
which may contribute to, and result in, inefficiencies in running our business.

These
same uncertainties may make it difficult to attract and retain additional highly skilled individuals. The combined risk of losing key employees and not being able to attract
additional highly skilled individuals may make it difficult to achieve and maintain the right skill mix in our business.

Stock
options under our stock option plan began to become exercisable in May 2004. The fourth tranche of stock options under our stock option plan became exercisable in
August 2005. There is a risk that some senior employees may leave following the exercise of some or all of these options. The vesting of the fifth tranche of options under our stock option plan
is subject to the achievement of

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performance
criteria yet to be met and time restrictions that provide for the vesting of those options still exist between now and August 2008.

We rely on the continued performance of third parties in relation to some of our outsourcing arrangements.

We
rely on outsourcing arrangements for information technology and the manufacture of some products and components and are considering further potential outsourcing opportunities in our
supply chain and logistics organisation. If the third parties on whom we rely or will rely in relation to these outsourcing arrangements do not fulfil their obligations under such contracts, or seek
to terminate or change the terms of their contracts due to perceived uncertainty with respect to our ongoing ability to perform under such contracts, or if we do not otherwise properly manage these
relationships, such supplies or services could be severely disrupted or reduced. A significant increase in the price of key supplies or services or constraints on suppliers' capacities, particularly
during periods of significant demand, in the absence of an alternative supplier, would adversely affect our business. Moreover, outsourcing initiatives ultimately may not yield the benefits we expect,
and may raise product costs and delay product production and service delivery. Such outsourcing initiatives may lead to disruptions in contractual and industrial relations.

Our financial reporting systems require significant operational resources.

As a result of our rapid expansion in 1999 and 2000, the number of different systems acquired and the disposal of a number of businesses, the operation of our
financial reporting systems has required and will continue to require considerable personnel resources. Taken together with the demands of our restructuring in fiscal 2003, this has placed significant
pressure on the resources of our finance function. We are also in the process of implementing a number of changes to our consolidation and financial reporting systems, with a view to streamlining the
existing reporting processes. Although we currently believe that our financial reporting systems are, and without the changes referred to above would remain, fit for this purpose, the continued
effectiveness of these systems following our restructuring is dependent on a combination of the continued availability of sufficient finance team resources and any changes that are made to the
financial reporting system being successfully implemented.

Funding of pension plans may become more difficult.

The combination of poor equity markets, low interest rates and increasing life expectancy over the last few years has had a significant negative impact on the
funded status of, and liabilities under, our defined benefit pension plans and contribution obligations under such plans. We either sponsor such plans or are exposed to liabilities with respect to
plans sponsored by affiliates or former affiliates. It is possible that unless equity markets and/or interest rates improve, such obligations may require us and/or our affiliate sponsoring companies
to those plans to make additional contributions. Likewise, changes in the statement of investment principles of the G.E.C. 1972 Pension Plan (UK plan) the actuarial assumptions employed in conjunction
with any such plans or legislation could also result in a need for us and/or our affiliates to make additional contributions to such plans.

If
the UK plan is wound up, it is unlikely that it will have sufficient assets to discharge in full all liabilities, calculated on a winding-up rather than an
on-going basis. No plans have been made to wind up the UK plan but should such a decision be made, we would be required to make good any statutory debt. If a statutory debt were to arise,
the size of the debt could have a materially detrimental effect on our resources. The significance of the potential detrimental effect should be seen against our estimate that, as at 31 March
2005, the value of the UK plan's assets was £2.4 billion and the value of its liabilities was £2.5 billion. There is no guarantee that the value of the UK plan's
assets will not deteriorate. The details of the new 'scheme specific funding' requirements introduced in the Pensions Act 2004 are still awaited, but it is highly likely that these will be more
stringent than the current statutory funding requirement.

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In
the US, Marconi Corporation plc was required in March 2003 to enter into an agreement with the Pension Benefit Guaranty Corporation (PBGC), an entity created under U.S. law
that insures to an extent benefits under US defined benefit plans (PBGC Agreement). This agreement was entered into by reason of our financial restructuring of 19 May 2003. Under this agreement
Marconi is required to cause US$1.75 million to be contributed at the end of each calendar quarter to the US defined benefit plans maintained by Marconi affiliates in the US. Marconi is also
required to cause the annual normal cost associated with the continuation of benefits to be contributed to the plans. For the calendar year 2004 these additional normal costs and other amounts
required to be contributed by virtue of the agreement with the PBGC (other than amounts required to be contributed by reason of the sale of a business unit or to plans which are now terminated or the
responsibility of a non-Marconi entity) were US$10 million to the US Marconi defined benefit plan. Based on estimates determined as of 31 March 2005 in relation to the US
plan affected by the PBGC agreement, the plan was overfunded by US$5.8 million on a FAS 87 basis. Furthermore, the US Congress is considering amending US law governing defined benefit plan
contribution obligations to increase plan sponsor funding obligations commencing at some point in the future. The various funding obligations referred to above will continue with respect to a plan
until the earlier of (1) the date all the liabilities of the plans are assumed by another entity, or (2) the date, not less than five years after March 2003, on which Marconi's
debt rating is rated BBB or better by Standard and Poor's and Baa2 or better by Moody's or (3) the date, not less than five years after March 2003, on which the plan is funded
on a termination basis for a period of two plan years. These contribution obligations and the underfunding of the U.S. defined benefit plans (determined on a plan termination basis) may have an
adverse affect on our business, results of operations and financial condition.

If
we sell business units and the purchaser of the business unit does not assume the defined benefit plan liability associated with the business unit, we are required under the PBGC
Agreement to contribute to the US defined benefit plan an amount equal to the estimated plan underfunding determined on a termination basis for current and former employees of the sold business unit.
In such a case, if the pension liability associated with the business unit is not satisfied by the purchase of annuities from an insurance company, we will continue to be obligated to fund such
liability to the extent required under US law.

If we fail to protect our intellectual property rights, our business and prospects may be harmed.

Intellectual properties, such as patents, are vital to our business, and developing new products and technology that are unique to us is critical to our success.
We have numerous patents and numerous pending patents, but we cannot predict whether any patents, issued or pending, will provide us with any competitive advantage, or will be challenged by third
parties. Moreover, our competitors may already have applied for patents that, once issued, could prevail over our patent rights or otherwise limit our ability to sell our products. Our competitors
also may attempt to design around our patents or copy or otherwise obtain and use our proprietary technology. In addition, patent applications that we have currently pending may not be granted. If we
do not receive the patents we seek, or if other problems arise with our intellectual property, our competitiveness could significantly be impaired, which would limit our future revenues and harm our
prospects.

There is a risk that third party intellectual property rights will be asserted against us.

We
rely on patents, trademarks, trade secrets, design rights, copyrights, confidentiality provisions and licensing agreements to establish and protect our proprietary technology and to
protect against claims from others. Infringement claims have been and may continue to be asserted against us or against our customers in connection with their use of our systems and products. We
cannot ensure the outcome of any such claims and, should litigation arise, such litigation could be costly and time-consuming to resolve and could result in the suspension of the
manufacture of the products utilising the relevant intellectual property. In each case, our operating results and financial condition could be materially affected.

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The adverse resolution of litigation against us could negatively impact our business.

We
are currently a defendant in a number of lawsuits and we are and may in the future be subject to other litigation arising in the normal course of our business. Litigation may be time
consuming, expensive and distracting from the conduct of our business and the outcome of litigation is difficult to predict. The adverse resolution of some lawsuits could have a material adverse
effect on our business, results of operations and financial condition.

We are subject to environmental, health and safety laws, which could be costly and could restrict our future operations.

Our
operations are subject to a wide range of environmental, health and safety laws, including laws relating to the use, disposal, clean up of, and human exposure to, hazardous
substances. Although we believe our reserves are adequate to cover our environmental liabilities, factors such as the discovery of additional contaminants, the extent of remediation and compliance
expenses, and the imposition of additional cleanup obligations and other sites could cause our capital expenditure and other expenses relating to the remediation activities to exceed the amount
reflected in our environmental reserve and adversely affect our results of operations or cash flows. Compliance with existing or future environmental, health and safety laws could subject us to future
liabilities, cause the suspension of production, restrict our ability to expand facilities, require us to acquire costly pollution control equipment or incur other significant expenses or modify
manufacturing processes.

It is unlikely that we will be able to pay dividends for the foreseeable future.

Our
ability to pay dividends is currently restricted as we do not have distributable reserves and we are restricted from doing so in many cases due to the terms of the undertaking we
gave to the High Court in connection with our reduction of capital undertaken in May 2003. In addition, Marconi Corporation plc is a holding company and is wholly dependent on receiving funds
from its subsidiaries to pay dividends. Some institutional investors may only invest in dividend-paying equity securities or may operate under other restrictions that may prohibit or limit their
ability to invest in the ordinary shares. This may reduce the demand for the ordinary shares until we are able to pay dividends in respect of the ordinary shares, which may in turn adversely affect
the price of the ordinary shares in the market.

Pre-emptive rights for non-UK holders of ordinary shares may not be available.

In
the case of, amongst other things, an increase of our share capital, existing shareholders are entitled to pre-emptive rights pursuant to the UK Companies Act 1985 and our
articles of association, unless waived by a resolution of the shareholders at a general meeting or in the circumstances stated in our articles of association. Even where pre-emptive rights
apply, holders of the ordinary shares in the US, South Africa, Australia, Canada and other jurisdictions outside the UK may in practice not be able to exercise pre-emptive rights in
respect of their ordinary shares unless we decide to comply with applicable local laws and regulations and, in the case of holders of the ordinary shares in the US, a registration statement under the
US Securities Act of 1933 is effective with respect to such rights, or an exemption from the registration requirements there under is available. We intend to evaluate at the time of any
pre-emptive rights offering the costs and potential liabilities associated with any registration statement and compliance with other applicable local laws and regulations, as well as the
indirect benefits to us of thereby enabling or facilitating the exercise by holders of the ordinary shares in the US and such other jurisdictions of their pre-emptive rights for new
securities in respect of their ordinary shares. In addition, we will consider any other factors we consider appropriate at the time, and then make a decision as to how to proceed and whether to
file a registration statement or comply with those other applicable local laws and regulations. We cannot assure you that any registration statement with respect to the securities offered under
a pre-emptive issue would be filed or any of those other local laws and regulations would be complied with to enable the exercise of that holder's pre-emptive rights.

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Ordinary
shares over which options have lapsed or have been surrendered will be available, within the overall limit referred to above, to form the subject of further option grants to new
participants in the management plan but not to existing participants unless the participant has been promoted or his/her role and/or responsibility has significantly expanded and the remuneration
committee determines that such a grant is merited.

Our planned compliance with the Sarbanes-Oxley Act 2002 will involve considerable management time and resource.

We
have committed substantial resources, including management time, to review our internal controls to ensure they will be compliant with the requirements of Section 404 of the
Sarbanes-Oxley Act 2002. The management time and resource committed may have an adverse impact on the operational efficiency of our business. If we fail to meet the demands placed upon us
by the requirements of Sarbanes-Oxley our ability to report our financial results accurately or in a timely manner may be affected and this may have an impact on our stock price.

We are exposed to the credit risk of some of our customers and to credit exposures in weakened markets, which could result in material
losses.

Most
of our sales are on a credit basis, with typical payment terms of 30 days from the date of invoice in the UK and, because of local customs or conditions, longer in some
markets outside the UK. We monitor individual customer payment capability in granting credit to our customers to amounts we believe our customers can pay, and maintain reserves we believe are adequate
to cover exposure for doubtful accounts. We do not enter into customer financing and facilitation of leasing arrangements. Our credit exposure to our customers makes us vulnerable to downturns in the
economy or in the industry and to adverse changes in our customers' businesses. In addition, as we continue to enter into new markets and work with new customers who may not have established credit
and strong financial resources, we will continue to have risk of collecting our accounts receivable from these customers.

Man-made problems such as computer viruses or terrorism may disrupt our operations and harm our operating results.

Despite our implementation of network security measures, our products and servers are vulnerable to computer viruses, break-ins, and similar
disruptions from unauthorised tampering with our computer systems. Any such event could have a material adverse effect on our business, operating results, and financial condition. In addition, the
continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to the economies of countries in
which we operate and create further uncertainties or otherwise materially harm our business, operating results, and financial condition. This may also cause a lack of confidence in our products.

We have formed and may continue to form, strategic partnerships. If we are unsuccessful in operating these partnerships, our business performance, and financial
condition may be materially and adversely affected.

We
have formed strategic alliances and partnerships, such as with Huawei Technologies and ZTE Corporation, and other companies whom we work with to offer complementary products and
services. These arrangements are generally limited to specific projects, the goal of which is generally to facilitate product compatibility and adoption of industry standards. If successful, these
relationships may be mutually beneficial and result in industry growth. However, these alliances carry an element of risk because, in most cases, we must compete in some business areas with a company
with which we have a strategic alliance and, at the same time, co-operate with that company in other business areas. In addition, if these companies fail to perform or if these
relationships fail to materialise as expected, we could suffer delays in product development or other operational difficulties.

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Business Overview

Marconi Corporation plc, previously called The General Electric Company, p.l.c. or G.E.C., was incorporated as a private limited company in England in 1900 under
the name The General Electric Company (1900) Limited. G.E.C. originally operated in the electrical industry.

Marconi's
core business is the provision of equipment and services to telecommunications service providers and other telecommunications network operators, supporting customers in Europe,
the Middle East and Africa, North America, Asia Pacific and Central and Latin America.

Marconi
sells the hardware and software to enable its customers to increase the capacity, predictability and reliability of voice, video and data communications carried over their
networks. Marconi also provides services from design implementation through to ongoing continuous support and operation of telecommunications networks.

During
the last year it has become even more evident that the traditional telecommunications operator's business model, which is based on a connection between revenue and usage, is
breaking down. As operators struggle to profitably sustain their infrastructures, they have begun to consider transforming their networks to capture revenue and reduce costs. Next-generation networks
will enable operators to create new infrastructures, capable of delivering multiple services, lowering costs, simplifying operations and improving responsiveness to customer demands.

We
believe that Marconi is well positioned to help operators drive their network transformation projects.

On
6 May 2005, we announced a new organisation structure which combined our product units with the regional business organisations in order to create geographical centres of excellence
based on the different product groupings. The four new business groups are:



We
will continue to report our results under the existing business segments that have applied throughout fiscal 2005:



Effective
1 April 2005, we will provide additional analysis of our Access revenues to reflect the way that the product groupings are now being overseen at a regional level.

The
discussion of our business that follows is based on the existing segments and should be read in conjunction with the segmental analysis of revenues in the 'Operating and Financial
Review' on page 22.

In
fiscal 2005, we completed the disposal of our Outside Plant and Power (OPP) business. The sales and operating results for this business are reported under Discontinued Operations.

Customers

Our customers include a number of the leading telecommunications operators and internet services providers throughout the world, with whom we have a large base of
installed equipment. We also

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supply
private communications networks and services to certain large corporations, government departments and agencies, utilities and educational institutions.

During
fiscal 2005, our ten largest customers accounted for 57% of revenues from Continuing Operations. With the exception of the US Federal Government, these were mainly large
telecommunications operators and services providers deploying optical and access networks and related services:

|              |                                                                                          
|------------- | -----------------------------------------------------------------------------------------
|Europe:       | BT, Deutsche Telekom, E-Plus, Metro City Carriers (Germany), O2, Telecom Italia, Vodafone
|Africa:       | Telkom South Africa                                                                      
|USA:          | US Federal Government                                                                    
|Asia-Pacific: | Telstra                                                                                  

BT
was our largest customer and accounted for 25% from Continuing Operations for fiscal 2005 (2004: 25%; 2003: 21%). For further details see 'Key Customer Overview' on page 14.

Sales, marketing & distribution

Sales to customers are undertaken both directly as well as through indirect channels such as local partners and distribution partners. The regional businesses
that we have in place have sales, marketing and distribution activities to serve the customers in each major geographic region (Northern Europe, Central Europe, Southern Europe, North America). We
also maintain sales and services channels for the regional product businesses in Asia Pacific and Central and Latin America.

Each
of the regions has responsibility for account management, sales, technical support and contract negotiation.

Partners

Partnerships have always played a key role in Marconi's strategy. As the industry has changed over recent years, we have always recognised that we would have to
find ways to improve our competitive positioning. This year, we have continued to strengthen our partnerships, with a view to building both our outbound route to market partners and our inbound
technology partners.

Outbound route to market partnerships

These partnerships enable Marconi to enter new market areas, geographic areas and customers. In addition to renewing our partnership with Ericsson through which
we sell optical and SDH products into certain markets, we have also announced Mutual Distribution Agreements with Huawei and ZTE in fiscal 2005. Under the agreement with Huawei, Marconi will resell a
full range of carrier-class data communications products to telecommunications service providers while Huawei will resell Marconi's microwave radio products and associated network services. The
extended portfolio will complement and augment a suite of data communications product that Marconi currently develops and sells.

Inbound technology partnerships

These partnerships enable Marconi to fill gaps in the product portfolio for niche or specialist products where the business case does not justify
in-house development. This year has seen us strengthen our partnerships in the area of access products as well as reaffirming our partnership with our partner in the broadband switching
and routing space.

During
the year, we have also initiated discussions aimed at joint product development and continue to maintain a small number of marketing alliances.

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Outsourced manufacturing

Under the terms of the sale of our factories in 2001, we committed to a single sourced agreement for manufacturing, allowing our outsourced manufacturing partner,
Jabil, to recover the costs of the facilities they purchased. In April 2005, we signed new free market supply contracts with Jabil, superseding our previous agreement, as well as with a new partner,
Celestica. This will allow us to undertake more regular tendering for our volume products, and enable us to continue to align the manufacturing cost base for our products. Elcoteq is also an
outsourced manufacturing partner for our radio products.

Optical and Access Networks

The Optical and Access Networks segment comprises the design and supply of communications systems that transmit and switch voice, data and video traffic
predominantly in public networks.

Overview of the Optical and Access market

Historically, government-owned or government-regulated monopolies have operated public networks, which traditionally transmitted voice calls between users.
Privatisation and deregulation of public networks contributed to the entry of a large number of new companies into the public network market, offering new voice, data and video services.

The
telecommunication vendor network markets in which we operate are highly competitive. Our principal competitors include Alcatel, Ciena, Cisco Systems, ECI Telecom, Ericsson, Fujitsu,
Huawei Technologies, Lucent Technologies, NEC, Nortel Networks, Siemens and Tellabs. The primary method of competition in the telecommunication network market is the widespread use of open bids for
equipment purchases. Buyers use a combination of factors to evaluate bids, including price, technical
compliance, and ability to deliver in the required timescale and provide after-sales support, financial stability and long-term viability. As the public and private network markets
converge, other specialist companies in the information technology sector may also emerge as strong competitors. In addition, competitors from rapidly developing telecommunications markets such as
China are building an ever-increasing presence in the global market.

A
typical telecommunication network can be portrayed as comprising three high-level layers. These are the service, switching and transport layers. Traffic in the network is
moved around the network by equipment in the transport layer and routed to different points in the network by equipment in the switching layer. Equipment in the services layer defines and makes
available the service associated with each particular class of network traffic, for example, voice, data or video services. Public networks, which comprise the three layers above, can typically be
either access, metro or core networks, depending on the connections they establish. The access network typically connects an end user of a service to a network operator's local exchange, where
switches are located. The core network usually connects an operator's major points of presence such as the routes between two cities. The metro network typically provides connections between the
access and core networks such as between a major city and the various local exchanges or points of presence within a particular geographic region.

Product offerings

Optical Networks

Communications service providers primarily use three technologies, Synchronous Digital Hierarchy (SDH), Synchronous Optical Network (SONET) and Dense Wavelength
Division Multiplexing (DWDM), to transmit voice, data and video traffic over fibre optic communications networks. DWDM is a relatively new transmission technology that is used worldwide. SDH is the
digital transmission

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standard
that is used in most regions except North America and Japan. SONET is the predominant standard that is used in North America and Japan. We no longer develop and sell SONET products.

Sales
of our optical networks products constituted 50% of our total Optical and Access revenues in fiscal 2005 (2004: 54%; 2003: 55%). During fiscal 2005, approximately 81% of Optical
Networks sales were in EMEA, with APAC and CALA representing the balance of revenues (2004: 76% EMEA and the balance in APAC and CALA; 2003: 75% EMEA and the balance in APAC and CALA).

We
have focused our development on a comprehensive range of optical transmission equipment based on SDH and, more recently, DWDM technology.





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Access Networks

Access equipment connects the end user to a service provider's switch or local exchange across what has been traditionally known as the 'last mile' or 'local
loop'. This is the physical wire, fibre or wireless link that runs from a subscriber's telephone set or other communications device to the service provider's local exchange. We design, manufacture,
sell and support a range of access equipment, which maximizes the capabilities of physical transport media, including copper telephone lines, fibre optics, and both licensed and unlicensed wireless
spectra.

Revenues
for our Access business contributed approximately 50% of our total Optical and Access revenues in fiscal 2005, 46% in fiscal 2004 and 45% in fiscal 2003. During fiscal 2005,
approximately 93% of Access Networks sales were in EMEA, with APAC and CALA representing the balance of revenues (2004: 90% EMEA and the balance in APAC and CALA; 2003: 85% EMEA and the balance in
APAC and CALA).

Our
Access Networks business comprises three main product groupings: Broadband Access products, Fixed Wireless Access products and Other Access products. Broadband Access sales were
£74 million or 22% of Access Network Sales in fiscal 2005 (2004: £45 million or 16%; 2003: £32 million or 10%). Fixed Wireless Access
represented £118 million or 36% of Access Networks sales in fiscal 2005 (2004: £81 million or approximately 29%; 2003: £86 million or 27%).
Other Access products declined to £139 million or 42% in fiscal 2005 (2004: £156 million or 55%; 2003: £197 million or 63%).



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BBRS

BBRS comprises both the equipment and services activities of our BBRS business.

Revenues
for BBRS for fiscal 2005 were £140 million, or approximately 11% of our total revenues, compared to £185 million or approximately 15% of
total revenues in fiscal 2004 and £219 million or approximately 14% in fiscal 2003.

BBRS
sales are made predominantly in the North American market. Our single largest customer of BBRS products is the US Federal Government with whom we have enjoyed a long relationship.
BBRS has a base of almost US$1.5 billion in deployed network platforms and support services across various departments and agencies of the US Federal Government.

Overview of the BBRS market

Within the broadband switching and routing market, we believe that the IP router market will be a significant source of potential growth in the longer term due to
the continued growth in IP traffic and the launch of new services such as VoIP. We note, however, that the introduction of these new services is dependent on the development of technologies that
permit the transmission, over IP, of services such as voice and real-time multimedia where high quality of service is important. In the meantime, concern from carriers and security
sensitivity of private network operators over the security and reliability of their networks are expected to continue interest in ATM products and, more specifically, in products that provide for the
evolution from ATM to IP applications without compromise of mission, performance or network security.

Product offering

Our principal BBRS products comprise a range of multi-service switch-router devices that both establish the physical communication links between end points and
determine the optimal route across a network. We have, in the last two years, expanded our multi-service switch-router portfolio with IP router products that provide service edge routing functionality
for large private networks and carrier network applications.

Revenues
for BBRS Equipment for fiscal 2005 were £89 million, or approximately 64% of our BBRS revenues, compared to £130 million or approximately
70% of total revenues in fiscal 2004 and £142 million or approximately 65% in fiscal 2003.

Our
broadband routing and switching multi-service platforms combine the scalability and reliability to protect existing revenue streams with the flexibility to offer profitable, carrier
class, next-generation IP, Ethernet, Third Generation (3G) and packetised voice services. Designed for Core and Edge

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networks,
our switch-routers, support the exceptionally high quality of service needed for real-time, mission-critical, IP-based applications.

Our
products address the three principal packet-oriented protocols in use today:



We
design our switch-router platforms to support communications traffic transmitted by ATM, IP and MPLS protocols as well as enable operators to build on their existing switching and
routing infrastructures to continue to support their legacy services while offering the flexibility and scalability to roll-out next-generation IP, wireless and packet voice
services. This approach also allows operators to reduce their capital investment and operating costs.

The
ASX-4000 can switch at transmission speeds ranging from 10 to 40 Gbit/s and can be positioned either within the core or at the edge of service provider networks or
high-capacity private networks. The platform allows service providers to transport voice traffic over packet switched infrastructures such as ATM (Voice Telephony Over ATM (VTOA)) or IP
(Voice Over Internet Protocol (VoIP)).

The
BXR-48000 can operate at transmission speeds ranging from 40 Gbit/s to 480 Gbit/s. It can be configured as a very high capacity router or a very high capacity
switch. Routers function in the IP (packet) networking domain, while switches typically operate in the traditional voice, frame relay and ATM domains. The BXR-48000 has been deployed by US
Federal Government agencies to carry mission critical traffic. The military-grade capabilities demonstrated by the BXR-48000 are equally applicable for the voice, video, data and
multi-service networks of service providers and large non-military institutions.

The
BXR-5000 is a key product in the BBRS portfolio supporting customers that require ATM core transport connected to IP services and applications at the edge. It is a high
capacity router that is resold to BBRS customers through an OEM agreement with Laurel Networks. The BXR-5000 provides high transmission speed interfaces for Ethernet and ATM with speeds up
to 2.5 Gbit/s and supports LAN emulation services critical to a number of the BBRS customers.

Marconi
has also announced enhancements to its ViPr (virtual presence) communications system, to give ViPr users new tools for remote SIP-based video communications, including up to
15-way videoconferencing and improved display of streaming video.

Given
developments towards a more rapid migration to IP/MPLS routers, we have reoriented our research and development on multi-service products to meet the requirements of the US Federal
Government. In particular, we recognise the need to continue support for the ATM networks that transport today's services as well as providing a safe and viable migration path for the convergence of
these networks with data oriented IP networks. To address the increasing requirements for IP services, we have developed a platform for a range of IP services routers, which can provide virtual
private networks in the mission critical applications typically required by our customers. It is based on the intellectual property and assets acquired from Crescent Networks in 2004.

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Services offering

We also provide support services to customers of our BBRS products. The BBRS business service offerings range from routine technical support and assistance for
our switch-routers, to dedicated, on-site project and program support for complex network environments.

Revenues
for BBRS Services for fiscal 2005 were £51 million, or approximately 36% of our BBRS revenues, compared to £55 million or approximately 30%
of total revenues in fiscal 2004 and £77 million or approximately 35% in fiscal 2003.

Network Services

Network Services generally comprises activities that supply a broad range of communications support services to telecommunications operators as well as selected
large enterprise and government agencies. We support both our own products as well as those of other vendors of network equipment.

Revenues
for Network Services for fiscal 2005 were £471 million, or approximately 37% of our total revenues, compared to £447 million or
approximately 36% of total revenues in fiscal 2004 and £585 million or approximately 35% in fiscal 2003.

The
nature of the network support services market means there are no dominant competitors in the provision of services to the public network market. However, major telecommunications
vendors, such as Alcatel, Cisco, Ericsson, Lucent and Siemens are extending their service capabilities to offer total solutions in direct competition to us. In addition, major information technology
and systems integrators, such as CSC, EDS and IBM, are now offering telecommunications solutions to their customers. Furthermore, independent service and support organizations such as Data and
Telindus offer a broad portfolio of services.

The
principal method of competition in this market is through open bidding. Services may also be sold as a part of, or linked to, equipment sales.

Service offerings

We provide, plan, build and operate support services for both fixed line and wireless operators. We target customers in the service provider, large scale 'carrier
class' markets as well as in the government, transportation and utilities sectors. The Services segment has two main sub-groupings: IC&M and VAS.

IC&M

Revenues for IC&M for fiscal 2005 were £207 million, representing 44% of our total Network Services revenues, compared to
£182 million or approximately 41% in fiscal 2004 and £200 million or approximately 38% in fiscal 2003.

IC&M
comprises the following activities:



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We
continue to build on our experience of working with equipment from other vendors. The majority of our revenues in this sub-segment continues to be derived from sales of
our own Optical and Access equipment. Support for BBRS equipment is not included in IC&M as it is reported separately within our BBRS segment revenues.

VAS

Revenues for VAS for fiscal 2005 were £264 million, representing 56% of our total Network Services revenues, compared to
£265 million or approximately 59% in fiscal 2004 and £325 million or approximately 62% in fiscal 2003.

VAS
comprises the following activities:



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Organisational Structure

Set out below is the simplified legal structure chart of our principal Group companies following our financial restructuring and reflecting our new reporting
structure adopted effective 1 October 2003. The chart does not show all intermediate companies. As at March 31 2005, all companies shown were wholly owned directly or indirectly by
Marconi Corporation plc unless otherwise stated.

CHART

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Properties

Our registered office is located at New Century Park, P.O. Box 53, Coventry, Warwickshire CV3 1HJ. Our London office is located at 34 Grosvenor
Square, London W1K 2HD.

We
have facilities in the UK, continental Europe, North America, Africa, Asia and Australasia. We own or lease all of our principal sites. Our principal facilities, most of which are
used jointly by our reporting segments, are as follows:

Owned property

|Location                                                           |  | Tenure                 |  | If current Leasehold,
Rent per annum |  | If leasehold
Expiry of term                                |  | Building or site
area sq ft            |  | Principal use                 
|------------------------------------------------------------------ |  | ---------------------- |  | ------------------------------------ |  | ---------------------------------------------------------- |  | -------------------------------------- |  | ------------------------------
|Hueftelaecker 1 T Backnang Germany                                 |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 8,762                                  |  | Offices R&D                   
|Gerberstrasse 33 71522 Backnang, Germany                           |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 714,160                                |  | Offices R&D                   
|Max-Planck Str. 1 77656 Offenburg, Germany                         |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 454,000                                |  | Manufacturing                 
|Main Site S.P. Casapuzzano, Caserta, Marcianise, Italy             |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 113,021                                |  | Manufacturing                 
|Via Ambrogio' Negrone 1/A (excluding L1 floor)
16153 Genova, Italy |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 250,000 including Via Ludovico Calda 5 |  | Offices R&D                   
|Via Ludovico Calda 5
16153 Genova, Italy                           |  | Freehold finance lease |  | Finance Lease Payment £808,219       |  | Finance Lease arrangement ends January 2007, then Freehold |  | See Via Negrone above                  |  | Offices R&D                   
|Iron Road
New Era Springs,
Johannesburg 1560,
South Africa         |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 318,289                                |  | Manufacturing & Offices       
|18/20 Denington Road Wellingborough,
Northants UK                  |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 44,929                                 |  | Offices & Services            
|1000 Marconi Drive Warrendale, PA 15086 Pennsylvania, USA          |  | Freehold               |  | Not applicable                       |  | Not applicable                                             |  | 574,286                                |  | Manufacturing, Offices and R&D

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Leased properties

|Location                                                                                     |  | Tenure    |  | If current Leasehold,
Rent per annum      |  | If leasehold
Expiry of term |  | Building or site
area sq ft |  | Principal use                                          
|-------------------------------------------------------------------------------------------- |  | --------- |  | ----------------------------------------- |  | --------------------------- |  | --------------------------- |  | -------------------------------------------------------
|1755 North Collins Blvd, Richardson, Texas, USA                                              |  | Leasehold |  | £240,672                                  |  | 2006                        |  | 29,691                      |  | Offices                                                
|Franklinstrasse 56
60486 Frankfurt, Germany                                                  |  | Leasehold |  | £315,295                                  |  | 2009                        |  | 26,694                      |  | Offices and R&D                                        
|Robert Bosch Str.10.
01454 Radeburg, Germany                                                 |  | Leasehold |  | £296,587                                  |  | Indefinite 6 months' notice |  | 51,020                      |  | R&D                                                    
|Via del Monti
Lepini, Latina, Italy                                                          |  | Leasehold |  | £485,000                                  |  | 2009                        |  | 23,680                      |  | Offices and R&D                                        
|Via del Giorgione
59 (5th Floor), Rome, Italy                                                |  | Leasehold |  | £250,000                                  |  | 2009                        |  | 8,500                       |  | Offices                                                
|Lot 24 Kumlim Industrial Estate 00009, Kulm, Kedah Daralam, Malaysia                         |  | Leasehold |  | No cost to Marconi-joint venture property |  | 2046                        |  | 348,483                     |  | Manufacturing                                          
|New Century Park PO Box 53,
Coventry, Warwickshire CV3 1HJ, UK                               |  | Leasehold |  | £1,313,200                                |  | 2021                        |  | 618,924                     |  | Offices and R&D                                        
|New Horizon Park Waterman Road, Coventry, Warwickshire CV6 5TT, UK                           |  | Leasehold |  | £645,579                                  |  | 2007                        |  | 314,000                     |  | Offices and Manufacturing                              
|Crompton Close, Basildon, Essex SS14 3BA, UK                                                 |  | Leasehold |  | £250,451                                  |  | 2008                        |  | 48,975                      |  | Offices and Regional Service Centre                    
|Chase Point 1, The Gallagher Business Park, Mallory Way, Rowleys Green, Coventry CV6 6PA, UK |  | Leasehold |  | £431,649                                  |  | 2011                        |  | 80,000                      |  | Storage, customer configuration and distribution centre
|Carr Lane, Chorley, Lancashire PR7 3JP, UK                                                   |  | Leasehold |  | £135,000                                  |  | 2066                        |  | 97,004                      |  | Manufacturing and Offices                              
|Siemens Technology House Technology Drive, Beeston Nottingham NG6 1LA, UK                    |  | Leasehold |  | £400,000                                  |  | 2008                        |  | 65,326                      |  | R&D                                                    
|Grosvenor Square
London W1K 2HD UK                                                           |  | Leasehold |  | £210,000                                  |  | 2006                        |  | 5,860                       |  | Corporation Offices                                    
|Edge Lane, Liverpool
L7 9NW, UK                                                              |  | Leasehold |  | £1,458,118                                |  | 2012                        |  | 221,091                     |  | Offices & R&D                                          
|90 Arthur Street, North Sydney, Australia                                                    |  | Leasehold |  | £358,600                                  |  | 2006                        |  | 43,583                      |  | Offices                                                

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Since our financial restructuring, there has been significant consolidation from existing facilities concentrating our activities on our remaining
major key hub locations. We believe that our principal facilities are suitable and adequate for their use. Use of these facilities may vary with economic and other business conditions, but none of the
principal plants are currently idle. In conjunction with the announcement of our new organisational structure on 6 May 2005, we have announced the closure of our Edge Lane facility in fiscal
2006.

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Contractual obligations and other commercial commitments

The following tables summarise our actual contractual obligations and commercial commitments at 31 March 2005, presented under UK GAAP, and the
effect such obligations are expected to have on our liquidity and cash flows in future periods:

|                               |  | Payments due by period
|------------------------------ |  | ----------------------
|
|Contractual obligations        |  |                       
|Long-term debt(1)              |  | 35                    
|Capital leases(2)              |  | 2                     
|Operating leases(3)            |  | 54                    
|Purchase commitments(4)        |  | 291                   
|Other long-term liabilities(5) |  | 228                   
|                               |  |                       
|Total                          |  | 610                   
|                               |  |                       

|                             |  | Payments due by period
|---------------------------- |  | ----------------------
|
|Other commercial commitments |  |                       
|Bank and surety bonds        |  | 137                   
|                             |  |                       
|Total                        |  | 137                   
|                             |  |                       

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This
table does not include trade creditors of £187 million nor taxes payable, accrued expenses and other current liabilities that are recorded in our 31 March 2005
consolidated balance sheet. In addition, this table does not include estimated future capital expenditures that are not yet contracted for.

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Employees

The table below sets out the average number of people (full time equivalents) we employed in the previous three financial years:

|                             |  | For the year ended
31 March
|---------------------------- |  | ---------------------------
|
|
|Employees by business:       |  |                            
|Optical and Access Networks  |  | 5                          
|Network Services             |  | 4                          
|BBRS                         |  | 1                          
|                             |  |                            
|Continuing Operations        |  | 10                         
|Discontinued Operations      |  | 1                          
|                             |  |                            
|                             |  | 11                         
|                             |  |                            
|Employees by location:       |  |                            
|United Kingdom               |  | 4                          
|The Americas                 |  | 2                          
|Rest of Europe               |  | 4                          
|Africa, Asia and Australasia |  | 1                          
|                             |  |                            
|                             |  | 11                         
|                             |  |                            

During
fiscal 2005, we took further steps to reduce our workforce as we continued to target business cost reductions in response to ongoing pricing pressure.

In
May 2005, we announced a new organisation structure which will see our product units combined with our regional business organisation, in order to create geographic centres of
excellence. This latest change will include the reshaping of our UK workforce and will see a reduction of up to 800 employees.

A
number of our employees are collectively represented by and are members of trade unions and work councils. Membership and representation varies from country to country, and we have
entered into various collective bargaining agreements. It is our practice to renew or replace our various labour arrangements relating to continuing operations as and when they expire, and we are not
aware of any material arrangements whose expiration is pending and which is not expected to be satisfactorily renewed or replaced in a timely manner. We have not experienced any material work
stoppages or strikes in the past three fiscal years. Although trade unions, from time to time, have publicly expressed dissatisfaction with our plans to reduce our workforce, we believe that relations
with our employees are generally good.

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Major Shareholders

As at 26 September 2005, we had 6,586 registered holders of ordinary shares with addresses in the UK. These UK ordinary shareholders collectively held
209,546,693 ordinary shares, or approximately 99.9% of our total issued share capital of 209,706,560 as at 26 September 2005.

As
at 8 September 2005, there were 65 registered holders of our American depositary receipts. Each ADR issued represents ten ordinary shares. Of these registered ADR holders, 46
have addresses in the US. 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 1,482,889 ADRs, or approximately 1.42% of our total issued share capital as at 8 September 2005.

The
table below sets out as of 26 September 2005 the number of shares and percentage of our share capital held by each person known to us to own, of record or beneficially, 3% or
more of our ordinary shares:

Holders of 3% or more of ordinary shares in Marconi Corporation plc as at 26 September 2005:

|Name                                                             |  | No. of Shares |  | Percentage
|---------------------------------------------------------------- |  | ------------- |  | ----------
|AMVESCAP PLC as agent for INVESCO Perpetual UK Investment Series |  | 39,731,437    |  | 18.95     
|FMR Corp and Fidelity International Limited                      |  | 25,082,691    |  | 11.96     
|HBOS plc                                                         |  | 10,382,454    |  | 4.95      
|Barclays plc                                                     |  | 8,164,024     |  | 3.89      
|Legal & General Group Plc companies                              |  | 6,811,201     |  | 3.25      

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, 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

See note 30, section (p) of the consolidated financial statements (beginning on page 130) for a summary of related party transactions during fiscal
years 2005, 2004 and 2003.

Legal proceedings

See note 30, section (j) of the consolidated financial statements (beginning on page 130) for a description of claims against us or our
former Group companies, claims brought by our Group companies and industrial injury claims.

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Dividend policy

We are subject to legal restrictions in the UK on the amount of dividends that we can pay our shareholders. In particular, the UK Companies Act 1985 provides that
a UK public company may pay dividends only if:



In
addition, we may only declare a dividend if sufficient distributable profits are available for this purpose. Distributable profits are accumulated realised profits not previously
distributed or capitalised less accumulated realised losses not previously written off. However, in connection with the capital reduction that we affected in connection with our financial
restructuring, we were required to create a special reserve out of the excess reserve over the deficit on our profit and loss account as at the date of the capital reduction that we may not distribute
to our shareholders until certain of our creditors have been paid off.

Holders
of ADRs on the relevant record date will be entitled to receive any dividends payable on the ordinary shares underlying the ADRs, subject to the terms of the deposit agreement
under which the ADRs are issued. Subject to exceptions provided in the deposit agreement, cash dividends paid in pounds will be converted by the depositary to US dollars and paid by the depositary to
holders of ADRs, net of conversion expenses of the depositary, and in accordance with the deposit agreement. The rights of holders of ADRs to any dividends or other distributions on the ordinary
shares underlying the ADRs will be governed by the deposit agreement and may be different from the rights of holders of ordinary shares.

There
is no dividend announcement being made at this time.

Significant changes

Except as otherwise disclosed in this report there has been no significant change in the financial position of the Group since 31 March 2005.

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Share price history

Our ordinary shares have been listed on the London Stock Exchange since 19 May 2003. Since that time, the highest closing market price has been
732 pence and the lowest closing market price has been 256 pence.

ADRs
representing our ordinary shares have been quoted on the Nasdaq National Market under the symbol MRCIY since 2 October 2003. Since that time, the highest closing market price
has been 2,750 cents and the lowest closing market price has been 945 cents.

Each
ordinary share entitles the holder to dividends if, as and when declared by our board of directors, to one vote at all meetings of holders of ordinary shares, and to participate
rateably in any distribution of our assets upon liquidation, dissolution or winding up, subject to the prior rights of holders of any securities ranking senior in priority to the ordinary shares. At
this time there are no other such securities in issue.

The
following table sets forth market price information for our ordinary shares on the London Stock Exchange (as reported by Bloomberg) and the ADRs in the
over-the-counter market and Nasdaq National Market (as reported by Bloomberg) for the periods indicated:

|                                      |  | London Stock Exchange
(Sterling pence) |  | ADRs(2)
(US dollars)
|------------------------------------- |  | -------------------------------------- |  | --------------------
|
|Fiscal Year                           |  |                                        |  |                     
|19 May 2003 to 31 March 2004          |  | 732.00                                 |  | 270.00              
|1 April 2004 to 31 March 2005         |  | 696.00                                 |  | 501.00              
|Fiscal Quarter                        |  |                                        |  |                     
|19 May 2003 to 30 June 2003(1)        |  | 342.50                                 |  | 270.00              
|1 July 2003 to 30 September 2003(1)   |  | 505.00                                 |  | 305.00              
|1 October 2003 to 31 December 2003    |  | 633.00                                 |  | 420.00              
|1 January 2004 to 31 March 2004       |  | 732.00                                 |  | 587.50              
|1 April 2004 to 30 June 2004          |  | 685.00                                 |  | 530.50              
|1 July 2004 to 30 September 2004      |  | 696.00                                 |  | 553.50              
|1 October 2004 to 31 December 2004    |  | 601.50                                 |  | 501.00              
|1 January 2005 to 31 March 2005       |  | 630.00                                 |  | 539.00              
|1 April 2005 to 30 June 2005          |  | 557.00                                 |  | 256.00              
|Month                                 |  |                                        |  |                     
|March 2005                            |  | 580.00                                 |  | 539.00              
|April 2005                            |  | 557.00                                 |  | 261.50              
|May 2005                              |  | 301.00                                 |  | 256.00              
|June 2005                             |  | 308.00                                 |  | 296.00              
|July 2005                             |  | 303.00                                 |  | 270.75              
|August 2005                           |  | 308.00                                 |  | 267.00              
|September 2005 (to 26 September 2005) |  | 303.25                                 |  | 280.00              

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Ordinary shares, memorandum and articles of association

Our memorandum provides that our objects are, amongst other things, to carry on any business, other than life insurance, which are incidental or may be thought
conducive to the attainment of those objects referred to in the memorandum.

In
this section statutes means the UK Companies Act 1985 and every other statute, statutory instrument, regulation or order for the time being in force concerning companies registered
under the UK Companies Act 1985. A summary of certain provisions of our articles is set out below.

Rights attaching to our ordinary shares

Dividends

Subject to the provisions of the statutes, we may by ordinary resolution declare a dividend in accordance with the respective rights of our members, and may fix
the time for payment of such dividend provided that no dividend shall exceed the amount recommended by our board.

Except
as otherwise provided by the rights attached to ordinary shares, all dividends shall be declared and paid according to the amounts paid up on the ordinary shares on which the
dividend is paid. Except as otherwise provided by the rights attached to ordinary shares, all dividends shall be apportioned and paid proportionately to the amounts paid up on the ordinary shares
during any portion of the period in respect of which the dividend is paid.

Subject
to the provisions of the statutes, we may pay interim dividends, if it appears to our board that they are justified by our financial position. We may also pay any dividend
payable at a fixed rate at intervals settled by our board whenever our financial position, in the opinion of our board, justifies its payment. If our board acts in good faith, none of the directors
shall incur any liability to the holders of ordinary shares conferring preferred rights for any loss such holders may suffer in consequence of the payment of an interim dividend on any ordinary shares
having deferred or non-preferred rights. No dividend or other money payable by us on or in respect of an ordinary share shall bear interest against us unless otherwise provided by the
rights attached to the ordinary share. There are no fixed dates on which entitlement to dividends arise.

Our
board may make payment of any interim dividend wholly or partly by the distribution of specific assets and, in particular, including without limitation, of property interests,
intellectual property rights or the benefit of contractual or other rights, paid up ordinary shares, debentures or debenture stock of any other company or in any one or more of those ways. Where any
difficulty arises in regard to a distribution, our board may settle it as it thinks expedient.

A
general meeting declaring a dividend may, on the board's recommendation, by ordinary resolution, direct that payment of any dividend may be satisfied in whole or in part by the
distribution of specific assets, including, without limitation, paid up ordinary shares or debentures of another body corporate. Our board may make any arrangements it thinks fit to settle any
difficulty arising in connection with such distribution. Our board may, if authorized by our ordinary resolution, offer any holders of ordinary shares the right to elect to receive further ordinary
shares, whether or not of that class, credited as fully paid instead of cash in respect of any dividend or part thereof. The offer shall be on the terms and be made in the manner specified in our
articles.

All
unclaimed dividends, interest or other sums payable may be invested or otherwise made use of by the board for our benefit until claimed. Any dividend which has remained unclaimed for
twelve years from the date when it became due for payment shall, if the board so resolves, be forfeited and shall cease to remain owing by us.

We
may cease sending dividend warrants and checks by post or otherwise to a member if such instruments have been returned undelivered to, or left uncashed by, that member on at least two
consecutive occasions, or, following one such occasion, reasonable inquiries have failed to establish any

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new
address of the member. We must resume sending warrants and checks if the member claims a dividend or cashes a dividend warrant or check.

Voting rights

Subject to our articles and to any rights or restrictions as to voting for the time being attached to any class of ordinary shares, on a show of hands, every
member who is present in person or by proxy or, being a corporation, is present by a duly authorized corporate representative, not being himself a member, at a general meeting, shall have one vote. On
a poll, every member present in person or by proxy, or being a corporation, is present by a duly authorized corporate representative, shall have one vote for every ordinary share of which he is the
holder. Unless a member appoints more than one
proxy to attend on the same occasion with respect to different ordinary shares, the proxies so appointed shall not be entitled to vote on a show of hands in the case of a special or extraordinary
resolution.

Unless
the board otherwise decides, no member shall be entitled to vote at a general meeting or at a separate meeting of the holders of any class of ordinary shares in our capital,
either in person or by proxy, in respect of any ordinary share held by him unless all money presently payable by him in respect of that ordinary share have been paid.

Rights attaching to ordinary shares on a distribution of assets

If we are wound-up, the liquidator may, with the sanction of an extraordinary resolution and any other sanction required by the UK Insolvency Act
1986, divide among the members, in specie, the whole or any part of our assets in the manner as he may determine or vest the whole or any part of the assets in trustees upon those trusts for the
benefit of the members as he, with like sanction, determines. No member shall be compelled to accept any assets on which there is a liability.

Transfer of ordinary shares

All transfers of ordinary shares held in certificated form may be effected by an instrument of transfer in any usual form or in any other form approved by the
board. The instrument of transfer of an ordinary share shall be signed, by or on behalf of the transferor and, unless the ordinary share is fully paid, or is a forfeited or surrendered ordinary share
by or on behalf of the transferee. The board may, in its absolute discretion and without giving any reason for its decision, refuse to register any instrument of transfer of a certificated ordinary
share which is not fully paid up in the case of a class of ordinary shares which has been admitted to the Official List of the London Stock Exchange. The board may not refuse to register those
ordinary shares if it would prevent dealings in the ordinary shares from taking place on an open and proper basis or on which we have a lien. Subject to the requirements of the UK Listing Authority,
the board may also refuse to register any instrument of transfer unless:



We
shall register the transfer of any ordinary shares held in uncertificated form in accordance with the statutes. The board may, in its absolute discretion and without giving any reason
for its decision, refuse to register any transfer of an uncertificated ordinary share where permitted by the statutes.

If
the board refuses to register a transfer of an ordinary share, it shall give the transferee notice of its refusal within two months after the date on which the instrument of transfer
was lodged with us or the operator-instruction was received, as the case may be. The board may suspend the registration of

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transfers
of any ordinary shares or any class of ordinary shares at such times and for such periods, not exceeding 30 days in any year, as it may determine, the registration of transfers of any
ordinary shares or any class of ordinary shares which are for the time being participating securities, however, may only be suspended as permitted by the statutes.

Disclosure of interests in ordinary shares

If the holder of or other person appearing to be interested in any of our ordinary shares has been given a notice under section 212 of the U.K. Companies
Act 1985 and, in respect of that ordinary share, has been in default for a period of fourteen days after notice has been given in supplying to us the information thereby required, then certain
restrictions shall apply. The restrictions available are the suspension of voting or other rights conferred by membership in relation to our meetings in respect of the relevant ordinary shares. In
addition, in the case of a shareholding representing at least 0.25% of the class of ordinary shares concerned, restrictions include the withholding of payment of dividends on, and the restriction of
transfers of, the relevant ordinary shares. The restrictions on transfer shall not prejudice the right of either the member holding the ordinary shares or, if different, any person having a power of
sale over those ordinary shares to sell or agree to sell those ordinary shares under an exempt transfer.

Changes in ordinary share capital

Subject to the statutes and without prejudice to any rights attached to any existing ordinary shares or class of shares, we may issue any ordinary share with
rights or restrictions as we may by ordinary
resolution determine or, subject to and in default of such determination, as the board shall determine. Subject to the provisions of the statutes and without prejudice to any rights attached to any
existing ordinary shares, we may issue ordinary shares which are, or at our option or the holder are liable, to be redeemed. Subject to the provisions of the statutes and the articles, unissued
shares, including ordinary shares, are at the disposal of the board.

We
may by ordinary resolution:



Whenever
any members are entitled to fractions of an ordinary share as a result of a consolidation and division or sub-division of ordinary shares, our board may deal with
the fractions as it thinks fit.

Subject
to the statutes and to any relevant rights attached to any class of ordinary shares, we may by special resolution reduce our ordinary share capital, any capital redemption
reserve and any ordinary share premium account. We may also, subject to the statutes, the requirements of the U.K. Listing Authority, and the rights attached to any class of ordinary shares, purchase
our own ordinary shares.

Variation of rights

If at any time our capital is divided into different classes of shares, all or any of the rights for the time being attached to any class of shares, including
ordinary shares in issue may from time to time, whether or not we are being wound up, be varied in the manner as those rights may provide or, if no such provision is made, either with the consent in
writing of the holders of three-fourths in nominal

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value
of the issued shares of that class or with the authority of an extraordinary resolution passed at a separate general meeting of the holders of those ordinary shares.

Unless
otherwise expressly provided by the rights attached to any class of shares, including ordinary shares, those rights shall not be deemed to be varied by the creation or issue of
further shares, including ordinary shares, rankingpari passuwith them or by the purchase or redemption by us of any of our own shares, including
ordinary shares.

Lien and forfeiture

We will have a first and paramount lien on every partly paid share, not being a fully paid share, including ordinary shares, for all amounts payable to us,
whether presently or not in respect of that ordinary share. Subject to our articles, the board may call any money unpaid on ordinary shares and may forfeit shares, including ordinary, shares on which
calls payable are not duly paid. The forfeiture shall include all dividends declared and other money payable in respect of the forfeited ordinary share which have not been paid before the forfeiture.

Directors' interests

A director shall not vote, or be counted in the quorum at a meeting, in relation to any resolution relating to any contract or arrangement or other proposal in
which he has an interest which, together with any interest of any person connected to him, is, to his knowledge, a material interest. If he purports to do so, his vote shall not be counted, but the
prohibition shall not apply and a director may vote and be counted in the quorum in respect of any resolution concerning any one or more of the following matters:



A
director shall not vote, or be counted in the quorum at a meeting, in respect of any resolution concerning his own appointment, including fixing or varying its terms, or the
termination of his own appointment, as the holder of any office or place of profit with us or any other company in which we are interested.

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Remuneration of directors

The fees of the non-executive directors for their services, excluding amounts payable under any other provision of our articles described below, shall
not exceed in aggregate £1.5 million per annum or such higher amount as we may from time to time by ordinary resolution determine. Each non-executive director shall be
paid a fee, which shall be deemed to accrue from day to day, at such rate as may from time to time be determined by the board. Any director who is appointed to any executive office shall be entitled
to receive such remuneration as the board may determine.

Any
director who does not hold executive office and who serves on any committee of the board, who by the request of the board goes or resides abroad for any purpose of ours or otherwise
performs special services which in the opinion of the board are outside the scope of the ordinary duties of a non-executive director, may, without prejudice to the preceding paragraph, be
paid extra remuneration by way of salary, commission or otherwise as determined by the board.

The
board may exercise all of our powers to pay, provide or procure the grant of benefits, whether by the payment of gratuities, pensions or by insurance or otherwise, for:



Without
the prior approval by ordinary resolution of our shareholders in general meeting, no bonus arrangement or scheme or any long-term incentive scheme for persons who are
participants in the management plan, described herein, other than participants who are eligible to receive commission and/or bonus payments that relate to sales, shall be introduced within the period
commencing with the date on which our articles come into force and ending on the date on which all
the tranches of options granted in the initial grant under the management plan have either lapsed or become capable of exercise.

We
may pay the directors all travelling, hotel and other expenses properly incurred by them in attending meetings of the board or committees of the board or general meetings or otherwise
in connection with the discharge of their duties.

Appointment and retirement of directors

We may appoint directors by ordinary resolution or the board may appoint them. Unless otherwise determined by ordinary resolution, the number of directors other
than alternate directors shall not be less than three nor more than twenty-four in number. At each annual general meeting any director then in office who has been appointed by the board
since the previous annual general meeting or at the date of the annual general meeting would have held office for more than three years since we appointed or last re-appointed him in
general meeting shall retire from office but shall be eligible for re-appointment.

A
director shall retire at the first annual general meeting following the birthday at which he attains 70 years of age. A director may be re-appointed after attaining
70 years of age provided that we appoint him in general meeting, special notice is given of the resolution appointing the director and the notice states the age of the prospective director. A
director who is re-appointed after attaining 70 years of age must retire at every annual general meeting thereafter but may be re-appointed in accordance with the
procedure set out above.

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Borrowing powers

The board may exercise all our powers to borrow money, to guarantee, to indemnify, to mortgage or charge all or any part of its undertaking, property, assets,
both present and future, and uncalled capital, and to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of ours or of any third
party. The board shall restrict our borrowings and exercise all voting and other rights or powers of control exercisable by us in relation to our subsidiaries, if any. In so doing the board must
ensure that the aggregate principal amount outstanding at any time in respect of all borrowings by our Group, exclusive of any intergroup borrowings, after deducting the amount of cash at the bank and
in hand will not, without the previous authority of us in general meeting, exceed the higher of two times adjusted capital and reserves, as defined in our articles, or
£1.5 billion, or any higher limit fixed by ordinary resolution which is applicable at the relevant time.

The
limits set out above shall be deemed not to have been breached until the amount of borrowings has exceeded that limit for 30 consecutive days. This provision overrides all other
provisions of the relevant article.

Indemnity of officers

Subject to the statutes but without prejudice to any indemnity to which a director may otherwise be entitled, every one of our directors or other officers,
excluding an auditor, shall be indemnified out of our assets against any liability incurred by him in defending any proceedings whether criminal or civil if:



Untraced shareholders

We shall be entitled to sell, at the best price reasonably obtainable, the ordinary shares of a member or the ordinary shares to which a person is entitled by
transmission provided that:



The
net proceeds of the sale shall belong to us. We shall be obliged to account to the former member or other person previously entitled to the ordinary shares for an amount equal to the
proceeds as our creditor.

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Notices to members

Except where otherwise expressly provided within the articles, any notice to be given to or by any person under our articles shall be in writing or, to the extent
permitted by the statutes and subject to the articles, contained in an electronic communication. The board may from time to time specify the form and manner in which a notice may be given to the
members by electronic means. A notice may be given to the members by electronic means only if it is given in accordance with the requirements specified by the board.

We
may give or serve a notice in writing, document or other communication to any member either personally or by sending it through the mail addressed to the member at his registered
address or by leaving it at that address. A member whose registered address is not within the UK shall be entitled to have notices given to him at the date of that address if, at the time of giving
that notice, he is the registered holder of 1% or more of our issued capital. Any other member whose registered address is not within the UK and who gives us an address within the UK at which notices
may be given to him shall be entitled to have notices given to him at that address but, unless he does so, shall not be entitled to receive any notice from us.

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Material contracts

The following is a summary of material contracts to which we or any member of our Group is 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'.

Disposals

Asset Purchase Agreement dated 5 January 2004 between Marconi Communications, Inc., Marconi Intellectual Property
(Ringfence) Inc., Marconi Corporation plc, Advanced Fibre Communications, Inc. and Advanced Fibre Communications North America, Inc.

On
5 January 2004, Marconi Corporation plc and certain of its subsidiaries entered into an Asset Purchase and Sale Agreement to sell its North American Access Systems business
(NAA) to Advanced Fibre Communications, Inc. and Advanced Fibre Communications North America, Inc. (AFC) for a purchase price of US$240 million. The proceeds were received in cash
and the transaction closed on 20 February 2004.

The
NAA business designed, developed, manufactured and sold voice, data and video transport systems for copper and fibre access networks including digital loop carriers, digital
subscriber lines and systems delivering fibre to the kerb, fibre to the premises and fibre to the home and provided related technical services, field support services, repair and replacement services
and ongoing maintenance services for such systems.

The
total proceeds were used to fund a further paydown of the Group's US dollar denominated Secured Notes at 110% of par value. On 8 March 2004 the proceeds from the sale of the
NAA business completed the paydown of the US$127.4 million principal amount of Junior Notes outstanding and reduced the principal amount of Senior Notes by approximately US$95.0 million
to US$622.2 million.

In
connection with the sale of NAA, the Company provided certain indemnities to the purchaser, AFC. Under the terms of the asset purchase and sale agreement (the Agreement), the Company
indemnified AFC for losses arising from an inaccuracy or breach of covenant, obligations, representation or warranty made by the Company in the documents delivered in connection with the Agreement. In
addition, the Company provided indemnities in respect of assets, liabilities and obligations that were not transferred to AFC; obligations to customers as a result of sale made prior to the
transaction; claims by specified parties to an interest in intellectual property and technology transferred to AFC; and any failure by the Company to comply with bulk sales laws. The Company performed
a valuation exercise to determine the fair value of such indemnities at 31 March 2004 and attributed a value of £Nil to the obligations. In addition, under the terms of the
Agreement, the Company agreed to repay AFC pursuant to provisions relating to working capital adjustments. The total repaid to AFC by the Company was US$1.9 million on 27 July 2004.

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Asset Purchase and Sale agreement dated 6 July 2004, between Marconi Corporation plc, Marconi Communications, Inc., Marconi Intellectual Property
(Ringfence) Inc., Marconi Communications Canada Inc., Marconi Communications de Mexico S.A. de C.V., Marconi Communications Exportel, S.A. de C.V., Administrativa Marconi Communications
S.A. de C.V., Marconi Polska SP ZOO, Marconi Colombia, S.A., Emersub XCII, Inc., Emerson Electric Canada Limited, Emerson Mexico Corporate Services, S. de R.L. de C.V and Emerson Electric Co.,
together with Exhibits and Disclosure Schedules

On
6 July 2004 Marconi Corporation plc and certain of its subsidiaries entered into an Asset Purchase and Sale Agreement to sell its Outside Plant, Power and Services Business and
Test Systems Business (OPP) to Emersub XCII, Inc., Emerson Electric Canada Limited, Emerson Mexico Corporate Services, S. de R.L. de C.V. and Emerson Electric Co for a purchase price of
US$406 million of which US$375 million was paid in cash. The transaction closed on 16 August 2004.

The
OPP business provided configuration, design, implementation and support services for network systems, designed, developed, manufactured and sold enclosures for housing both active
and passive electronic and communications systems, connection and protection products for the local loop and central office, power systems and power products for network systems and provided related
technical services, field support services, repair and replacement services and ongoing maintenance services for all such systems.

The
test systems business designed, developed, manufactured, sold and installed hardware and software test systems used by telephone service providers for the purpose of maintaining
copper line service to subscribers and qualifying copper lines for application of broadband technology including interfacing the system's remote measuring units with deployed access and switching
network elements to perform fault analysis of the copper transport facility used for its subscriber loops, providing analysis of the loop to determine suitability for transport of broadband services,
remote control and monitoring of test results, auxiliary hardware used in applications to facilitate access to test ports and providing related installation, turn-up and custom engineering
services for such hardware and software test systems.

The
cash proceeds were used to fund a further paydown of the Senior Notes on 1 September 2004.

Financings

Performance bonding facilities

Performance Bonding Facility dated 27 March 2003 relating to a £50 million committed revolving facility between
Marconi Bonding Limited (MBL), as applicant, Marconi Corporation plc, HSBC Bank plc, as agent and security trustee, the original issuing banks named therein, the original banks named therein
and the original indemnifying subsidiaries named therein and the Security Over Cash Agreement dated 27 March 2003 between MBL and HSBC Bank plc

The
performance bonding facility was used for the issuance of bonds, guarantees, letters of credit, indemnities or similar instruments at the request of MBL for the purpose of
supporting, directly or indirectly, obligations of members of our Group to third parties for obligations incurred in the ordinary course of our Group's trade or business. The purposes for which the
performance bonding facility was available include supporting financing facilities which have been provided to members of our Group for the purpose of supporting directly obligations of members of our
Group in the ordinary course of our Group's trade or business, other than obligations in respect of financial indebtedness. For example, this may be used in connection with supporting a facility in a
foreign currency where such foreign currency is not available under the performance bonding facility.

Under
the security over cash agreement, MBL had granted, in favour of HSBC Bank plc, as security trustee, security over the accounts into which cash collateral deposits will be made in
respect of bonds issued under the performance bonding facility.

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The
performance bonding facility was terminated on 29 June 2005 in connection with the agreement of the new performance bonding facility described below.

Availability Period Extension Letter & Consent from HSBC Bank plc, as agent and security trustee, dated 27 September 2004 to Performance Bonding
Facility dated 27 March 2003 relating to a £50 million committed revolving facility between MBL, as applicant, Marconi Corporation plc, HSBC Bank plc, as agent and
security trustee, the original issuing banks named therein, the original banks named therein and the original indemnifying subsidiaries named therein

The
availability period of the performance bonding facility dated 27 March 2003 was extended to 18 November 2005 upon the request of Marconi Corporation plc and consent was
granted by HSBC Bank plc, as agent and security trustee.

Performance Bonding Facility dated 29 June 2005 relating to a £35 million committed multicurrency revolving facility between MBL, as
applicant, Marconi Corporation plc, HSBC Bank plc, as agent and security trustee, the original issuing banks named therein, the original banks named therein and the original indemnifying
subsidiaries named therein

The
performance bonding facility is used for the issuance of bonds, guarantees, letters of credit, indemnities or similar instruments at the request of MBL for the purpose of supporting,
directly or indirectly, obligations of members of our Group to third parties for obligations incurred in the ordinary course of our Group's trade or business. The purposes for which the performance
bonding facility is available include supporting financing facilities which have been provided to members of our Group for the purpose of supporting directly obligations of members of our Group in the
ordinary course of our Group's trade or business, other than obligations in respect of financial indebtedness. For example, this may be used in connection with supporting a facility in a foreign
currency where such foreign currency is not available under the performance bonding facility.

Under
the security over cash agreement, MBL has granted, in favour of HSBC Bank plc, as security trustee, security over the accounts into which cash collateral deposits will be made in
respect of bonds issued under the performance bonding facility.

Other Material Contracts

Patent Licence Agreement dated 25 June 2004 between Marconi Communications Inc., Marconi Corporation plc and Telcordia
Technologies, Inc.

Marconi
Communications Inc., Marconi Corporation plc and Telcordia Technologies, Inc. ('Telcordia') entered into a Patent License Agreement on 25 June 2004
(the 'Agreement'). The Agreement required us to pay to Telcordia a one-time payment of US$21 million dollars in exchange for a fully paid, worldwide, irrevocable and
non-exclusive license to use all of Telcordia's patents which relate to ATM technology. The Agreement was the result of litigation brought by each party against the other alleging patent
infringement of several patents. The litigation was settled and dismissed and the parties agreed, as part of the terms of settlement that the parties would enter into the Agreement and that each party
would release the other from liability with respect to the alleged infringement.

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Exchange controls

There are currently no decrees or regulations under the laws of the UK restricting the import or export of capital or affecting the remittance of dividends or
other payments to holders of Marconi Corporation plc ordinary shares or American depositary shares who are non-residents of the UK.

There
are no limitations relating only to non-residents of the UK under UK law or the Group's Memorandum and Articles of Association or on the right to be a holder of, and to
vote, Marconi Corporation plc ordinary shares.

Marconi
Corporation plc and its subsidiaries are not permitted, under the laws of the UK, to hold ordinary shares in Marconi Corporation plc.

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Taxation

US Federal Income Taxation

The following summary describes material US federal income tax consequences that may be relevant to the acquisition, ownership and disposition of our warrants,
ordinary shares and/or ADRs. This summary addresses only US federal income tax considerations for holders that will hold our warrants, 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 warrants,
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 or currencies; (d) tax-exempt entities; (e) persons
that will hold our warrants, 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 US federal income tax purposes; (f) persons that have a 'functional currency' other than the US dollar; (g) persons that own (or are deemed to own) 5% or more (by voting
power) of our share capital; (h) regulated investment companies; (i) persons who hold our warrants, ordinary shares and/or ADRs through partnerships or other pass-through
entities; (j) real estate investment companies; and (k) S corporations. Further, this summary does not address alternative minimum tax consequences or the indirect effects on the
holders of equity interests in a holder of our warrants, ordinary shares and/or ADRs.

This
summary is based on the Internal Revenue Code of 1986, as amended (the Code), US Treasury regulations and judicial and administrative interpretations thereof, and the
Convention between the Government of the United States of America and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Income and Capital Gains signed on 24 July 2001, with an amending protocol signed 19 July 2002, or the new treaty, replacing a treaty between
the USA and the UK signed on 31 December 1975, or the old treaty, in each case as in effect and available on the date of this document. All of the foregoing are subject to change, which could
apply retroactively and could affect the tax consequences described below.

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

US Holders should also review the discussion below under 'UK Taxation' for the UK tax consequences to a US holder of our warrants, ordinary shares and/or
ADRs.

For
purposes of this summary a 'US holder' is a beneficial owner of our warrants, ordinary shares and/or ADRs that is, for US federal income tax purposes: (a) a citizen or
resident of the USA; (b) a corporation or other entity treated as a corporation for US tax purposes, created or organised in or under the laws of the USA or any state thereof, including the
District of Columbia; (c) an estate, the income of which is subject to US federal income taxation regardless of its source; or (d) a trust if (i) a court within the US is able to
exercise primary supervision over its administration and (ii) one or more US persons have the authority to control all of the substantial decisions of such trust. If a partnership holds our
warrants, ordinary shares and/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 warrants, ordinary shares and/or ADRs should consult its tax advisor. A 'Non-US holder' is a beneficial owner of our warrants, ordinary shares and/or ADRs that is not a US holder.

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The Warrants

Consequences of exercise

Upon the exercise of a warrant, a US holder will not recognise gain or loss, except to the extent of cash, if any, received in lieu of the issuance of fractional
ordinary shares, and will have a tax basis in our ordinary shares acquired pursuant to such exercise equal to that US holder's tax basis in our warrant plus the exercise price of our warrant. The
holding period for our ordinary shares so acquired will commence on the date of exercise of our warrant. Subject to the discussion 'Passive Foreign Investment Company considerations', if
any cash is received in lieu of fractional ordinary shares, the US holder will recognise gain or loss in an amount and of the same character that this US holder would have recognised if this US holder
had received such fractional shares and then immediately sold them for cash back to us.

Sale, exchange and expiration of warrants

Subject to the discussion 'Passive Foreign Investment Company considerations', the sale of a warrant will result in the recognition of capital gain
or loss to the US holder in a manner similar to that described below under 'Sale or other disposition of Marconi Corporation plc Shares'. It is unclear whether the repurchase of a
warrant by us would be treated as a sale or exchange.
If it were not so treated, any gain or loss to a US holder on such repurchase would likely be treated as ordinary income or loss.

If
a warrant expires unexercised, a US holder will generally recognise a capital loss equal to the US holder's tax basis in the warrant. That capital loss may, subject to certain
limitations, be used to offset capital gains, if any, otherwise realised by a US holder.

Constructive distributions

Under section 305 of the Code, adjustments to the exercise price or conversion ratio of the warrants which occur under certain circumstances, or the
failure to make such adjustments, may result in the receipt of taxable constructive dividends by a US holder. See 'The Marconi Corporation plc Shares and/or ADRs' below.

The Marconi Corporation plc Shares and/or ADRs

The US Treasury Department has expressed concern that depositaries for depositary receipts, or other intermediaries between the holders of shares of an issuer and
the issuer, may be taking actions that are inconsistent with the claiming of US foreign tax credits by US holders of such receipts or shares. Accordingly, the analysis regarding the availability of a
US foreign tax credit for UK taxes and sourcing rules described below could be affected by future actions taken by the US Treasury Department.

Distributions

Subject to the discussion 'Passive Foreign Investment Company considerations', the gross amount of any distributions of cash or property, including
any amounts withheld in respect of any applicable withholding tax and the tax credit amount, as described below, that is actually or constructively received by a US holder with respect to our ordinary
shares and/or ADRs will be a dividend includible in gross income of a US holder as ordinary income to the extent of our current and accumulated earnings and profits as determined under US federal
income tax principles. Dividends paid on our ordinary shares and/or ADRs generally will constitute income from sources outside the US and will not be eligible for the 'dividends received' deduction.

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A
distribution to a US holder in excess of our current and accumulated earnings and profits will be treated first as a non-taxable return of capital to the extent of such US
holder's adjusted tax basis in our ordinary shares and/or ADRs, as the case may be, and any distribution in excess of such basis will constitute capital gain from the sale or exchange of property, and
will be long-term capital gain (taxable at a reduced rate for individual holders, trusts or estates) if our ordinary shares and/or ADRs, as applicable, were held for more than one year.

We
do not maintain our calculations of our earnings and profits under US federal income tax principles. Therefore, a US holder should expect that a distribution will generally be treated
as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above. 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.

Under
recently enacted US tax legislation, certain dividends received by individual US holders will be subject to a maximum income tax rate of 15%. This reduced income tax rate is only
applicable to dividends paid by 'qualified corporations' and only with respect to shares held by a qualified US holder (i.e. an individual) for a minimum holding period (generally,
61 days during the 120-day period beginning 60 days before the ex-dividend date). We should be considered a qualified corporation under the new US tax
legislation. Accordingly, dividends paid by us to individual US holders on ordinary shares and/or ADRs held for the minimum holding period may be eligible for a reduced income tax rate. Under the new
US tax legislation, the reduced tax rate for qualified dividends is scheduled to expire on December 31, 2008, unless further extended by Congress.Each prospective
holder should consult its own tax advisor regarding the implications of the new US tax legislation.

The
gross amount of any distribution paid in foreign currency will be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency
calculated by reference to the exchange rate in effect on the date received by the US holder, regardless of whether the foreign currency is converted into US dollars. If the foreign currency is
converted into US dollars on the date of receipt, a US holder generally should not be required to recognise foreign currency gain or loss in respect of the dividend. If the foreign currency
received as a dividend is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US 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 US for
foreign tax credit limitation purposes.

For
purposes of calculating the foreign tax credit, dividends paid on our ordinary shares and/or ADRs will be treated as income from sources outside the USA and will generally constitute
'passive income' or, in the case of certain US holders, 'financial services income.' In certain circumstances, a US holder that (i) has held ordinary shares and/or ADRs for less than a
specified minimum period during which it is not protected from risk of loss or (ii) is obligated to make payments related to the dividends, will not be allowed a foreign tax credit for UK
withholding taxes imposed on dividends paid on our ordinary shares and/or ADRs, as the case may be. Subject to certain limitations, a US holder may be entitled to a credit or deduction against its US
federal income taxes for the amount of any foreign taxes that are withheld from distribution payments made to such US holder. The decision to claim either a credit or deduction must be made annually,
and will apply to all foreign taxes paid by the US holder to any foreign country or US possession with respect to the applicable tax year. The limitation on foreign taxes eligible for credit is
calculated separately with respect to specific classes of income. For tax years beginning before 1 January 2007, income received with respect to the Notes will be treated as foreign source
income and generally will constitute 'passive income', or, in the case of certain holders, 'financial services income' for US foreign tax credit limitation purposes, and for tax years beginning after
31 December 2006, will be treated as 'passive income' or 'general income' for US foreign tax credit limitation purposes. The rules regarding the availability of foreign tax credits are complex
and US holders may be subject to various limitations on the amount of foreign tax credits that

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are
available. Under the new US tax legislation, the amount of the qualified dividend income paid by us to a US holder that is subject to the reduced dividend income tax rate and that is taken into
account for the purposes of calculating the US holder's US foreign tax credit limitation must be reduced by the 'rate differential portion' of such dividend (which, assuming a US holder in the highest
income tax bracket, would generally require a reduction of the dividend amount by approximately 57.14%).Each prospective holder should consult its own tax advisor regarding
the implication of the new US tax legislation on the calculation of US foreign tax credits.

Subject
to the discussion under 'Backup withholding and information reporting', a Non-US holder generally will not be subject to US 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-US holder of a trade or business within the USA.

However,
as discussed in 'Item 3: Key InformationRisk Factors' set out on page 79 above, we do not expect to pay a dividend in the foreseeable future.

Sale or other disposition of Marconi Corporation plc Shares and/or ADRs

Subject to the discussion 'Passive Foreign Investment Company considerations', a US holder will generally recognise a gain or loss for US 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 US dollar value of the amount realised from such sale or exchange and
the US holder's tax basis in those
ordinary shares and/or ADRs, as the case may be. Such 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 and/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 US. The deductibility of
capital losses is subject to significant limitations.

To
the extent US holders receive our ordinary shares and/or ADRs pursuant to our restructuring, any gain arising from the sale or other disposition of our ordinary shares and/or ADRs may
be characterised as ordinary income to the extent of any accrued market discount attributable to those ordinary shares and/or ADRs.Prospective holders should consult their own
tax advisors regarding the applicability of the market discount rules under the Code to each of their own individual circumstances and the US federal income tax consequences relating to the sale or
other disposition of our ordinary shares and/or ADRs with accrued market discount.

A
US holder that receives foreign currency on the sale or other disposition of our ordinary shares and/or ADRs will realise an amount equal to the US dollar value of the foreign currency
on the date of sale (or in the case of cash basis and electing accrual basis taxpayers, the US dollar value of the foreign currency on settlement date). If a US holder receives foreign currency upon a
sale or exchange of our ordinary shares and/or ADRs, gain or loss, if any, recognised on the subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and
will generally be income or loss from sources within the USA for foreign tax credit limitation purposes. However, if such foreign currency is converted into US dollars on the date received by the US
holder, a cash basis or electing accrual US holder should not recognise any gain or loss on such conversion.

When
a US holder's basis in our ordinary shares and/or ADRs includes any amount recognised under the passive foreign investment company rules (described below) and the US holder
recognises a loss on the transaction with respect to such amounts that exceeds certain specified thresholds, the US holder may be required to specifically disclose certain information with
respect to the transaction on its tax return under recently issued tax disclosure regulations.US holders should consult their own tax advisors as to the applicability of these
disclosure regulations.

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Subject
to the discussion under 'Backup withholding and information reporting', a Non-US holder generally will not be subject to US federal income or withholding
tax on any gain realised 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-US holder of a trade
or business in the US, (b) in the case of any gain realised by an individual Non-US holder, that holder is present in the US for 183 days or more in the taxable year of the
sale or exchange and certain other conditions are met, or (c) the Non-US holder is subject to tax pursuant to provisions of the Code applicable to certain expatriates.

Redemption of Marconi Corporation plc Shares and/or ADRs

Subject to the discussion 'Passive Foreign Investment Company considerations', a redemption of our ordinary shares and/or ADRs will be treated as a
sale of our redeemed ordinary shares and/or ADRs, as the case may be, by the US holder (which is taxable as described under 'Sale or other disposition of Marconi Corporation plc
Shares and/or ADRs') or, in certain circumstances, as a distribution to the US holder (which is taxable as described under 'Distributions').

Passive Foreign Investment Company considerations

A corporation organised outside the US generally will be classified as passive foreign investment company, or PFIC, for US 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.

We
believe that we are not, and do not expect to become, a PFIC, for US federal income tax purposes. However, 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 US holders.

If
we are a PFIC in any year during which a US holder owns our ordinary shares and/or ADRs, the US holder will be subject to additional taxes on any excess distributions received from us
and any gain realised from the sale or other disposition of our ordinary shares and/or ADRs (whether or not we continue to be a PFIC). A US 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 US holder's holding
period). To compute the tax on the excess distributions or any gain, (a) the excess distribution or the gain is allocated rateably over the US 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 US holder makes a valid 'mark-to-market' election (in which
case, subject to certain limitations, the US 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 and/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 and/or ADRs will be treated as ordinary income, and any losses will be treated as ordinary

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losses
to the extent of any 'mark-to-market' gains for prior years. A 'mark-to-market' election is only available to US holders in any tax year that the
PFIC stock is considered "regularly traded" on a 'qualified exchange' within the meaning of applicable US Treasury regulations. PFIC stock is 'regularly traded' if, among other requirements, it is
traded on at least 15 days during each calendar quarter. The London Stock Exchange will constitute a qualified exchange for this purpose.Prospective holders should
consult their own tax advisors 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 US holder is eligible for and timely makes a valid 'QEF election' (in which case the US holder
would be required to 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 US holder with certain information. We may decide not to provide the required information.

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

Prospective holders are urged to consult their own tax advisors regarding whether an investment in our ordinary shares and/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 US holders of dividends on our ordinary shares and/or ADRs and
to the proceeds of a sale or redemption of our warrants, 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 US holder fails (a) to furnish the US
holder's taxpayer identification number, (b) to certify that such US 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 US holders, including, among others, corporations, are not subject to the backup withholding and information
reporting requirements. Non-US holders who hold our warrants, ordinary shares and/or ADRs through a US broker or agent or through the US office of a non-US broker or agent may
be required to comply with applicable certification procedures to establish that they are not US 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
US federal income tax liability provided that the required information is furnished timely to the IRS.

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

UK Taxation

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

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This
summary is based on current UK law and the practice of Her Majesty's Revenue and Customs (HMRC) at the date hereof, and on the terms of the double tax treaty concluded between the
governments of the US and the UK on 24 July 2001, and amended by a protocol agreed on 19 July 2002, and which came into force on 31 March 2003 (the "new treaty'). If you are in
any doubt as to whether you are entitled to benefits under the new treaty, you should consult your own tax advisors

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

Taxation of dividends

Under current UK tax legislation, no tax is required to be withheld at source from cash dividends paid on our ordinary shares and/or ADRs. US shareholders are not
entitled to any UK tax credit (or to any payment from HMRC in respect of any tax credit) on dividends paid on our ordinary shares and/or ADRs.

Taxation of capital gains

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



A
US shareholder who is an individual and who has ceased to be resident or ordinarily resident for tax purposes in the UK on or after 17 March 1998 and continues not to be
resident or ordinarily resident in the UK for a period of less than five years of assessment and who disposes of his shares, warrants or ADRs during that period may also be liable on his return to the
UK to UK tax on capital gains, subject to any available exemption or relief, even though he or she is not resident or ordinarily resident in the UK at the time of the disposal. If the Finance Bill
2005 is enacted in its current form these rules will also apply to an individual who is resident or ordinarily resident in the UK but falls to be regarded as resident outside the UK for the purposes
of any double tax treaty (Treaty non-resident) and who becomes Treaty non-resident on or after 16 March 2005. There are special rules for individuals who leave the UK
part way through a year of assessment.

UK stamp duty and stamp duty reserve tax (SDRT)

UK 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. 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 UK and remains at all subsequent times outside the UK, no UK 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 UK 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

125

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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. It is customarily also the purchaser who pays UK stamp duty.

Warrants
held in uncertificated form are held through CREST (the UK electronic settlement service). Under the CREST system for paperless transfers, deposits of warrants into CREST will
generally not be subject to stamp duty or SDRT unless such a transfer is made for a consideration in money or money's worth, in which case a liability to SDRT will arise, usually at the rate of 0.5%
of the value of the consideration given. Paperless transfers of warrants within CREST are generally liable to SDRT, rather than stamp duty, at the rate of 0.5% of the amount or value of the
consideration payable. CREST is obliged to collect SDRT from the purchaser of the warrants on relevant transactions settled within the system.

The
conveyance or transfer of warrants outside CREST may give rise to a charge to UK stamp duty or SDRT at the rate of 0.5% of the amount or value of the consideration given.

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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 100 F Street,
N.E., Room 1580, Washington, D.C. 20549. You may obtain more information on the operation of the public reference facilities by calling the SEC at
1-800-SEC-0330. The Securities and Exchange Commission also maintains a website that contains reports and information about issuers, like us, who file
electronically with the SEC. The address of that website is www.sec.gov.

Principal subsidiary and associated undertakings

The following table provides information on the principal subsidiary undertakings and other associated companies that the Group considers will likely have a
significant impact on the assessment of the assets and liabilities, the financial position and/or the profits and losses of the Group to 31 March 2005. Except where stated otherwise,
each of these companies is wholly owned by a member of the Group and the share capital is fully paid.

|Name                           |  | Registered Office                                                                                                
|------------------------------ |  | -----------------------------------------------------------------------------------------------------------------
|Marconi Communications Limited |  | New Century Park, PO Box 53,
Coventry, Warwickshire 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, USA
|Marconi Communications GmbH    |  | Gerberstrasse 33, D 71522 Backnang, Germany                                                                      

127

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Risk Management

Financial instruments

The Group's treasury activities are coordinated by our treasury function, which operates in accordance with policies and procedures approved by Marconi
Corporation plc's Board of directors. It does not operate as a profit centre. The treasury function advises operational management on treasury matters and undertakes all derivative
transactions. All treasury related transactions undertaken by our operating businesses are required to be in accordance with guidelines laid down by the central treasury function and must comply with
Group risk management policies.

Prior
to the Group's financial restructuring in May 2003, the Group used financial instruments, including derivatives (principally interest rate swaps, cancellable interest rate swaps,
currency swaps and forward foreign exchange contracts) to manage interest rate and currency risk exposures. In February 2005, the Group recommenced hedging of foreign currency cash flows with forward
foreign exchange contracts. The Group is reviewing its interest rate hedging policy and any requirement for interest rate hedging instruments to mitigate interest rate risks.

At
31 March 2005, 55% of our borrowings were at fixed rates of interest. Borrowings totalled £37 million, whilst gross cash totalled £334 million at
31 March 2005, therefore, our main exposure to interest rates was to changes in the interest rates earned on our short-term bank deposits, principally changes in
short-term interest rates in pounds sterling, euros and US dollars. A one percentage point increase in market interest rates would have increased interest income by
£3 million (£7 million in fiscal 2004). The impact on interest expense in fiscal 2005 and fiscal 2004 was immaterial. Therefore the combined effect of a one
percentage point increase in market interest rates on debt and cash would
have reduced the loss from continuing operations before income taxes in fiscal 2005 by approximately £3 million (£7 million decrease in loss in fiscal 2004).

Foreign exchange risk

We are a global communications company, and as such we conduct a significant portion of our business activities outside the UK in currencies other than sterling.
Our principal exchange rate exposures relate to US dollar/pounds sterling and euro/pounds sterling exchange rates for both transactional and translation related exposures.

We
also have overseas subsidiaries that earn profits and whose net assets are denominated in foreign currencies. It is our policy not to use derivatives to hedge exposures arising from
the translation of these overseas profits and net assets into pounds sterling.

At
31 March 2005, the Group's cash and liquid resources totalled £334 million (31 March 2004: £519 million), of which
£138 million (31 March 2004: £111 million) was denominated in sterling, £35 million (31 March 2004:
£262 million) in US dollars, £128 million (31 March 2004: £110 million) in Euro and the balance of £33 million
(31 March 2004: £36 million) in other currencies.

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 million in fiscal 2005 (immaterial in the year ended 31 March 2004).

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Principal accountant fees and services

The following table provides information on the aggregate fees paid for fiscal years ended 31 March 2005 and 2004 to our principal accounting firm,
Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, 'Deloitte'):

|              |  | Fiscal year ended
31 March
|------------- |  | --------------------------
|
|
|Deloitte      |  |                           
|Audit         |  | 2                         
|Audit-related |  |                          
|Tax           |  | 1                         
|Other         |  |                          
|              |  |                           
|Total fees    |  | 3                         
|              |  |                           

Audit and audit-related fees:

Consists of professional services rendered for the audits of the consolidated financial statements of the Group, quarterly reviews, statutory audits, issuance of
comfort letters, consents, income tax provision procedures and other work in connection with documents filed with the SEC. Audit fees are £1.8 million (2004:
£2.3 million).

Tax fees:

Tax fees include fees of £0.6 million (2004: £1.6 million) dealing with tax computations, submissions, appeals and
restructuring and £0.2 million (2004:
£0.6 million) for expatriate services. Expatriate services have now been transitioned to another professional services firm.

Other:

Other services include operational internal audit fees of £0.2 million (2004: £0.6 million) and
£0.2 million (2004: £0.2 million) for Sarbanes Oxley, project work and technical advice. All internal audit work was transitioned to another professional services
firm during the year.

Pre approval procedures for Services:

All non-audit services performed by the auditors are pre-approved by the Audit Committee, following a competitive tender where
appropriate, in accordance with our auditors' independence policy.

All
of the amounts shown above were charged to administrative expenditure.

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SECTION IIICONSOLIDATED FINANCIAL STATEMENTS

Marconi Corporation plc and subsidiaries  Consolidated financial statements as of 31 March 2005, 2004 and 2003 and  for the three years ended 31 March 2005

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and the Shareholders of Marconi Corporation plc

We have audited the accompanying consolidated balance sheets of Marconi Corporation plc and subsidiaries as of 31 March 2005 and 2004, and the related
consolidated profit and loss account, consolidated statement of total recognised gains and losses, reconciliation of movements in equity shareholders' interests and consolidated cash flow statement
for each of the three years in the period ended 31 March 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion
on these 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 financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its Internal
control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but
not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits also included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Marconi Corporation plc and subsidiaries as of 31 March
2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended 31 March 2005, in conformity with accounting principles generally
accepted in the United Kingdom.

Accounting
principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America.
Information relating to the nature and effect of such differences is presented in Note 30 to the consolidated financial statements.

Deloitte & Touche LLPLondon, England
28 September 2005

130

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Consolidated profit and loss account        For the year ended 31 March

|£ million, except per share data                                                                                               |                                                                           | Note |    | 2005  |       | 2004  |       | 2003   |       
|------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------- | ---- | -- | ----- | ----- | ----- | ----- | ------ | ------
|Turnover                                                                                                                       |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               | Continuing Operations                                                     |      | 3  |       | 1,270 |       | 1,244 |        | 1,598 
|                                                                                                                               | Discontinued Operations                                                   |      | 3  |       | 67    |       | 314   |        | 404   
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Group                                                                                                                          |                                                                           | 2    |    | 1,337 |       | 1,558 |       | 2,002  |       
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Group operating (loss)/profit                                                                                                  |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               | Continuing Operations                                                     |      |    |       | (95   | )     | (249  | )      | (634  
|                                                                                                                               | Discontinued Operations                                                   |      |    |       | (4    | )     | 8     |        | (95   
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               |                                                                           | 3    |    | (99   | )     | (241  | )     | (729   | )     
|Share of operating loss of joint ventures                                                                                      |                                                                           |      |    |      |       | (2    | )     | (40    | )     
|Share of operating loss of associates                                                                                          |                                                                           |      |    |      |       | (11   | )     | (89    | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Total operating loss                                                                                                           |                                                                           | 2    |    | (99   | )     | (254  | )     | (858   | )     
|Non-operating exceptional items                                                                                                |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               | Gain/(loss) on disposal of Discontinued Operations                        |      | 4b |       | 103   |       | 75    |        | (5    
|                                                                                                                               | Gain on disposal of joint ventures and associates                         |      | 4b |       |      |       | 77    |        |      
|                                                                                                                               | Gain on disposal of fixed assets and investments in Continuing Operations |      | 4b |       |      |       | 25    |        | 26    
|                                                                                                                               | Merger/demerger items                                                     |      |    |       |      |       |      |        | 123   
|                                                                                                                               | Group share of associates' non-operating exceptional items                |      |    |       |      |       |      |        | (3    
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               |                                                                           |      |    | 103   |       | 177   |       | 141    |       
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Amounts written off investments                                                                                                |                                                                           | 4c   |    |      |       | (2    | )     | (40    | )     
|Gain on waiver of balance payable to M (2003) plc group                                                                        |                                                                           | 4d   |    |      |       | 25    |       | (315   | )     
|Net interest payable                                                                                                           |                                                                           | 5    |    |      |       | (35   | )     | (242   | )     
|Net finance expenditure                                                                                                        |                                                                           | 6    |    | (31   | )     | (82   | )     | (14    | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Loss on ordinary activities before taxation                                                                                    |                                                                           |      |    | (27   | )     | (171  | )     | (1,328 | )     
|Tax credit on loss on ordinary activities                                                                                      |                                                                           | 7a   |    | 48    |       | 19    |       | 185    |       
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Profit/(loss) on ordinary activities after taxation                                                                            |                                                                           |      |    | 21    |       | (152  | )     | (1,143 | )     
|Equity minority interests                                                                                                      |                                                                           | 8    |    |      |       | (1    | )     | (1     | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Profit/(loss) on ordinary activities attributable to the equity shareholders and retained profit/(loss) for the financial year |                                                                           |      |    | 21    |       | (153  | )     | (1,144 | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Earnings per sharebasic (in pence)                                                                                            |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               | Income/(loss) from Continuing Operations                                  |      |    |       | (38.1 | )     | (91.1 | )      | (195.7
|                                                                                                                               | Income/(loss) from Discontinued Operations                                |      |    |       | (2.0  | )     | (0.4  | )      | (3.0  
|                                                                                                                               | Gain/(loss) on sale of Discontinued Operations                            |      |    |       | 50.4  |       | 30.1  |        | (0.9  
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Net income/(loss)                                                                                                              |                                                                           |      |    | 10.3  |       | (61.4 | )     | (199.6 | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Earnings per sharediluted (in pence)                                                                                          |                                                                           |      |    |       |       |       |       |        |       
|                                                                                                                               | Income/(loss) from Continuing Operations                                  |      |    |       | (36.0 | )     | (91.1 | )      | (195.7
|                                                                                                                               | Income/(loss) from Discontinued Operations                                |      |    |       | (1.8  | )     | (0.4  | )      | (3.0  
|                                                                                                                               | Gain/(loss) on sale of Discontinued Operations                            |      |    |       | 47.5  |       | 30.1  |        | (0.9  
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       
|Net income/(loss)                                                                                                              |                                                                           |      |    | 9.7   |       | (61.4 | )     | (199.6 | )     
|                                                                                                                               |                                                                           |      |    |       |       |       |       |        |       

131

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Balance sheets        As at 31 March

|                                                        |                                   |     |  | Group |     | Company |    
|------------------------------------------------------- | --------------------------------- | --- |  | ----- | --- | ------- | ---
|
|
|Fixed assets                                            |                                   |     |  |       |     |         |    
|Goodwill                                                |                                   | 12  |  | 301   |     | 436     |    
|Tangible assets                                         |                                   | 13  |  | 116   |     | 148     |    
|Investments:                                            |                                   | 14  |  |       |     |         |    
|                                                        | Joint ventures                    |     |  |       |     |         |    
|                                                        | Share of gross assets             |     |  |       | 10  |         | 10 
|                                                        | Share of gross liabilities        |     |  |       | (10 | )       | (10
|                                                        |                                   |     |  |       |     |         |    
|                                                        |                                   |     |  |      |     |        |    
|                                                        | Associates                        |     |  |       | 3   |         | 6  
|                                                        | Other investments                 |     |  |       | 5   |         | 3  
|                                                        | Investments in Group companies    |     |  |       |     |         |    
|                                                        |                                   |     |  | 8     |     | 9       |    
|                                                        |                                   |     |  |       |     |         |    
|                                                        |                                   |     |  | 425   |     | 593     |    
|Current assets                                          |                                   |     |  |       |     |         |    
|Stocks and contracts in progress                        |                                   | 15  |  | 162   |     | 174     |    
|Debtors: amounts falling due within one year            |                                   | 16  |  | 391   |     | 388     |    
|                                                        | Of which: Securitised receivables |     |  |       | 15  |         |   
|                                                        | Non-recourse receipts             |     |  |       | (15 | )       |   
|Debtors: amounts falling due after more than one year   |                                   | 16  |  | 1     |     | 5       |    
|Cash at bank and in hand                                |                                   | 17  |  | 334   |     | 519     |    
|                                                        |                                   |     |  |       |     |         |    
|                                                        |                                   |     |  | 888   |     | 1,086   |    
|Creditors: amounts falling due within one year          |                                   | 18  |  | (507  | )   | (577    | )  
|                                                        |                                   |     |  |       |     |         |    
|Net current assets/(liabilities)                        |                                   |     |  | 381   |     | 509     |    
|Total assets less current liabilities                   |                                   |     |  | 806   |     | 1,102   |    
|Creditors: amounts falling due after more than one year |                                   | 18  |  | (28   | )   | (285    | )  
|Provisions for liabilities and charges                  |                                   | 20  |  | (145  | )   | (219    | )  
|                                                        |                                   |     |  |       |     |         |    
|Net assets before retirement benefit deficits           |                                   |     |  | 633   |     | 598     |    
|Retirement benefit scheme deficits                      |                                   | 26  |  | (228  | )   | (246    | )  
|                                                        |                                   |     |  |       |     |         |    
|Net assets after retirement benefit deficits            |                                   |     |  | 405   |     | 352     |    
|                                                        |                                   |     |  |       |     |         |    
|Capital and reserves                                    |                                   |     |  |       |     |         |    
|Called-up share capital                                 |                                   | 21a |  | 52    |     | 50      |    
|Shares to be issued                                     |                                   | 22  |  | 24    |     | 25      |    
|Share premium account                                   |                                   | 22  |  | 4     |     |        |    
|Capital reserve                                         |                                   | 22  |  | 9     |     | 9       |    
|Capital reduction reserve                               |                                   | 22  |  | 186   |     | 283     |    
|Profit and loss account                                 |                                   | 22  |  | 129   |     | (17     | )  
|                                                        |                                   |     |  |       |     |         |    
|Equity shareholders' interests                          |                                   |     |  | 404   |     | 350     |    
|Equity minority interests                               |                                   |     |  | 1     |     | 2       |    
|                                                        |                                   |     |  |       |     |         |    
|                                                        |                                   |     |  | 405   |     | 352     |    
|                                                        |                                   |     |  |       |     |         |    

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Consolidated cash flow statement        For the year ended 31 March

|                                                                            |  | Note |  | 2005 |   | 2004 |   | 2003 |  
|--------------------------------------------------------------------------- |  | ---- |  | ---- | - | ---- | - | ---- | -
|
|Net cash inflow from operating activities before exceptional items          |  | 23a  |  | 23   |   | 151  |   | 8    |  
|Exceptional cash outflow from operating activities                          |  | 4e   |  | (43  | ) | (166 | ) | (329 | )
|Net cash (outflow)/inflow from operating activities after exceptional items |  |      |  |      |   |      |   |      |  
|Continuing Operations                                                       |  |      |  | (8   | ) | (33  | ) | (186 | )
|Discontinued Operations                                                     |  |      |  | (12  | ) | 18   |   | (135 | )
|                                                                            |  |      |  | (20  | ) | (15  | ) | (321 | )
|Returns on investments and servicing of finance                             |  | 23b  |  | (32  | ) | (72  | ) | (164 | )
|Tax paid                                                                    |  | 23c  |  | (7   | ) | (4   | ) | 31   |  
|Capital expenditure and financial investment                                |  | 23d  |  | (32  | ) | 36   |   | (30  | )
|Acquisitions and disposals                                                  |  | 23e  |  | 169  |   | 222  |   | 433  |  
|                                                                            |  |      |  |      |   |      |   |      |  
|Cash inflow before use of liquid resources and financing                    |  |      |  | 78   |   | 167  |   | (51  | )
|Net cash inflow/(outflow) from management of liquid resources               |  | 23f  |  | 23   |   | 103  |   | (159 | )
|Cash element of scheme consideration                                        |  | 23g  |  |     |   | (340 | ) |     |  
|Net cash outflow from financing                                             |  | 23g  |  | (266 | ) | (416 | ) | (40  | )
|                                                                            |  |      |  |      |   |      |   |      |  
|Decrease in cash and net bank balances repayable on demand                  |  |      |  | (165 | ) | (486 | ) | (250 | )
|                                                                            |  |      |  |      |   |      |   |      |  

Reconciliation of net cash flow to movements in net monetary funds/(debt)        For the year ended 31 March

|                                                              |  | Note |  | 2005 |   | 2004   |   | 2003   |  
|------------------------------------------------------------- |  | ---- |  | ---- | - | ------ | - | ------ | -
|
|Decrease in cash and net bank balances repayable on demand    |  |      |  | (165 | ) | (486   | ) | (250   | )
|Net cash inflow from management of liquid resources           |  |      |  | (23  | ) | (103   | ) | 159    |  
|Net cash outflow from decrease in debt and lease financing    |  |      |  | 270  |   | 416    |   | 40     |  
|                                                              |  |      |  |      |   |        |   |        |  
|Change in net monetary funds/(debt) resulting from cash flows |  |      |  | 82   |   | (173   | ) | (51    | )
|Net debt disposed with subsidiaries                           |  |      |  |     |   |       |   | 24     |  
|Other non-cash changes                                        |  |      |  |     |   | 3,956  |   | (364   | )
|Effect of foreign exchange rate changes                       |  |      |  | 1    |   | 48     |   | 109    |  
|                                                              |  |      |  |      |   |        |   |        |  
|Movement in net monetary funds/(debt) in the year             |  |      |  | 83   |   | 3,831  |   | (282   | )
|Net monetary funds/(debt) at 1 April                          |  | 24   |  | 214  |   | (3,617 | ) | (3,335 | )
|                                                              |  |      |  |      |   |        |   |        |  
|Net monetary funds at 31 March                                |  | 24   |  | 297  |   | 214    |   | (3,617 | )
|                                                              |  |      |  |      |   |        |   |        |  

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Consolidated statement of total recognised gains and losses        For the year ended 31 March

|                                                                       |                                                                           | Note |  | 2005 |     | 2004 |      | 2003   |       
|---------------------------------------------------------------------- | ------------------------------------------------------------------------- | ---- |  | ---- | --- | ---- | ---- | ------ | ------
|
|Gains/(losses) on ordinary activities attributable to the shareholders |                                                                           |      |  |      |     |      |      |        |       
|                                                                       | Group                                                                     |      |  |      | 21  |      | (140 | )      | (1,015
|                                                                       | Share of joint ventures                                                   |      |  |      |    |      | (2   | )      | (40   
|                                                                       | Share of associates                                                       |      |  |      |    |      | (11  | )      | (89   
|                                                                       |                                                                           |      |  |      |     |      |      |        |       
|                                                                       |                                                                           |      |  | 21   |     | (153 | )    | (1,144 | )     
|Exchange differences on translation                                    |                                                                           |      |  | 5    |     | (3   | )    | 103    |       
|Actuarial gain/(loss) recognised on retirement benefit schemes         |                                                                           |      |  |      |     |      |      |        |       
|                                                                       | Differences between the expected and actual return on scheme assets       |      |  |      | 67  |      | 130  |        | (178  
|                                                                       | Experience gains on scheme liabilities                                    |      |  |      | 1   |      | 10   |        | 7     
|                                                                       | Changes in assumptions underlying the present value of scheme liabilities |      |  |      | (67 | )    | (44  | )      | (98   
|                                                                       |                                                                           | 26   |  | 1    |     | 96   |      | (269   | )     
|                                                                       |                                                                           |      |  |      |     |      |      |        |       
|Total recognised gains and losses                                      |                                                                           |      |  | 27   |     | (60  | )    | (1,310 | )     
|                                                                       |                                                                           |      |  |      |     |      |      |        |       

Reconciliation of movements in equity shareholders' interests        For the year ended 31 March

|                                               |  | 2005 |  | 2004   |   | 2003   |  
|---------------------------------------------- |  | ---- |  | ------ | - | ------ | -
|
|Total recognised gains and losses              |  | 27   |  | (60    | ) | (1,310 | )
|Shares to be issued                            |  | 21   |  | 25     |   |       |  
|New share capital and share premium            |  | 6    |  | 3,720  |   |       |  
|Group share of associate's shares to be issued |  |     |  |       |   | 3      |  
|                                               |  |      |  |        |   |        |  
|Total movement in the year                     |  | 54   |  | 3,685  |   | (1,307 | )
|                                               |  |      |  |        |   |        |  
|Equity shareholders' interests at 1 April      |  | 350  |  | (3,335 | ) | (2,028 | )
|                                               |  |      |  |        |   |        |  
|Equity shareholders' interests at 31 March     |  | 404  |  | 350    |   | (3,335 | )
|                                               |  |      |  |        |   |        |  

134

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Notes to the accounts

1 Accounting policies

The financial statements have been prepared in accordance with accounting standards in the UK.

The
key Group accounting policies are summarised below to facilitate the interpretation of the financial statements.

Accounting convention

The financial statements are prepared under the historical cost convention, as modified by the valuation of listed current and fixed asset investments.

Basis of consolidation

The financial statements consolidate the accounts of Marconi Corporation plc and all of its subsidiary undertakings (Group companies or subsidiaries) that are
more than 50% owned and controlled. Investments in associates and joint ventures 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 Group has less than a 20% ownership interest are accounted for
under the cost method. All inter-company balances and transactions have been eliminated upon consolidation. All Group companies' accounts have been prepared for the year ended 31 March 2005.

Turnover

Turnover excludes VAT and comprises sales to outside customers. Revenue from product sales of hardware and software is recognised when: persuasive evidence of an
arrangement exists, delivery has occurred or service has been rendered, customer acceptance has occurred, Marconi's price to the buyer is fixed or determinable, and collectability is reasonably
assured. Revenue from services is recognised at the time of performance and acceptance by the customer.

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

Revenue
on long-term contracts is recognised under the percentage-of-completion method of accounting and is calculated based on the ratio of costs
incurred to date compared with the total expected costs for that contract. 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.

Currency translation

The consolidated financial statements are prepared in UK pounds sterling. The functional currency of each of the Group's subsidiaries is the local currency in
which the subsidiary is located. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the rates ruling at that date. These translation differences are dealt with in the
profit and loss account with the exception of certain gains and losses arising under hedging transactions as described below.

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Profits
and losses of overseas subsidiaries, joint ventures and associates and cash flows of overseas subsidiaries are translated at the average rates of exchange during the year.
Non-sterling net assets are translated at year end rates of exchange. Key rates used are as follows:

Average rates

Year-end rates2005

2004

2003

2005

2004

2003US Dollar

1.8504

1.7023

1.5538

1.8896

1.8379

1.5807Euro

1.4632

1.4435

1.5499

1.4540

1.4956

1.4486


The
differences arising from the restatement of profits and losses and the retranslation of the opening net assets to year end rates are taken to reserves.

Acquisitions and disposals

On the acquisition of a business, including an interest in an associated undertaking, fair values are attributed to the Group's share of separate net assets.
Where the cost of acquisition exceeds the fair
values attributable to such net assets, the difference is treated as purchased goodwill capitalised in the balance sheet in the year of acquisition.

The
profit or loss on the disposal or closure of a previously acquired business includes the attributable amount of any purchased goodwill relating to that business not previously
charged to the profit and loss account.

The
results and cash flows relating to a business are included in the consolidated profit and loss account and the consolidated cash flow statement from the date of acquisition or up to
the date of disposal.

Financial instruments

Prior to the financial restructuring in May 2003, the Group used financial instruments, including derivatives (principally interest rate swaps, cancellable
interest rate swaps, currency swaps and forward foreign exchange contracts) to manage interest rate and currency exposures. In February 2005 the Group recommenced hedging of foreign currency
cash flows with forward foreign exchange contracts. The Group is reviewing its interest rate hedging policy and any requirement for interest rate hedging instruments to mitigate interest rate risks.

For
a forward foreign exchange contract to be treated as a hedge the instrument must be related to actual foreign currency assets or liabilities or to a probable commitment. It must
involve the same currency or similar currencies as the hedged item and must also reduce the risk of foreign currency exchange movements on the Group's operations. Gains and losses arising on these
contracts are deferred and recognised in the profit and loss account only when the hedged transaction has itself been reflected in the Group's financial statements.

Hedges of the net investment in overseas subsidiaries

The Group's policy is to finance where possible 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 is implemented by financing in the related currency.

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Exchange
gains or losses arising on the hedging borrowings are dealt with as a movement in reserves to the extent they offset losses or gains on the hedged investment.

Interest rate risk exposure

It is current Group policy that there is no trading in financial instruments or derivatives, and that all financial instruments and derivatives are used solely
for the purpose of hedging identified exposures of the Group.

Prior
to the financial restructuring in May 2003, it was the Group's policy to hedge its exposure to movements in interest rates associated with its borrowing primarily by means
of interest rate swaps. Payments and receipts under interest rate swap agreements, specifically designated for hedging purposes, are recorded in the profit and loss account on an accruals basis. Gains
and losses arising on termination of hedging instruments, where the underlying exposure remains, are recognised in the profit and loss account over the remaining life of the hedging instrument. No
interest rate swaps were transacted between May 2003 and March 2005.

Tangible fixed assets

Property, plant, machinery, fixtures, fittings, tools and equipment are recorded at cost and depreciated on a straight-line basis over their estimated
useful lives from the time they are brought in to use. Freehold land does not bear depreciation where the original cost of purchase was separately identified. Tangible fixed assets are depreciated
using the following rates:

|Freehold buildings                      |  |  Over 25 to 50 years                                     
|--------------------------------------- |  | ----------------------------------------------------------
|Leasehold property                      |  |  Over the period of the lease or 50 years for long leases
|Plant and machinery                     |  |  10% per annum on average                                
|Fixtures, fittings, tools and equipment |  |  10% per annum                                           

Significant
improvements, which substantially extend the useful lives of assets, are capitalised. Maintenance and repairs are expensed as incurred. Upon disposal of an asset, its
accumulated depreciation is deducted from the original cost and any gain or loss is reflected in operating (loss)/income.

Goodwill and other intangible assets

Purchased goodwill is capitalised and amortised on a straight-line basis over its estimated useful economic life. Each acquisition is separately
evaluated for the purposes of determining the useful economic life, up to a maximum of 20 years. The useful economic lives are reviewed annually and revised if necessary.

Impairment

Provision is made for any impairment. The Group evaluates the carrying value of tangible assets and goodwill annually and whenever events or changes in
circumstances indicate that the carrying value of these assets may be impaired. An impairment loss is recognised 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

137

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of
the asset with its fair value, which is usually estimated using discounted cash flows expected to be generated from the assets.

During
the years ended 31 March 2005, 2004 and 2003, tangible fixed assets and goodwill were impaired by £nil.

Leased assets

Assets held under finance leases and other similar contracts, which confer rights and obligations similar to those attached to owned assets, are capitalised as
tangible fixed assets and are depreciated over the shorter of the lease terms or their useful lives. The capital elements of future lease obligations are recorded as liabilities, while the interest
elements are charged to the profit and loss account over the period of the leases to produce a constant rate of charge on the balance of the capital repayments outstanding. Hire purchase transactions
are dealt with similarly except that assets are depreciated over their useful lives.

Rentals
under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis.

Research and development

Expenditure incurred in the year is charged against profit unless specifically chargeable to and receivable from customers under agreed contract terms. No
research and development expenditure is capitalised.

Stock

Stock is stated at the lower of cost and net realisable value. Provision is made for obsolete, slow moving or defective items where appropriate.

Contracts in progress

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. Amounts recoverable on long-term contracts, which are included in debtors, are stated at the net sales value of the
work done less amounts received as progress payments on account. Excess progress payments are included in creditors as payments received in advance. Cumulative costs incurred net of amounts
transferred to cost of sales, less provision for contingencies and anticipated future losses on contracts, are included as long-term contract balances in stock.

Warranties

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 and take the following into consideration:



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Taxation

Taxation on profit on ordinary activities is that which has been paid or becomes payable in respect of the profits for the year, after taking account of
adjustments in respect of prior period liabilities. Deferred taxation is provided in full on timing differences that result in an obligation at the balance sheet date to pay more tax, or a right to
pay less tax, at a future date, at rates expected to apply when they crystallise based on current tax rates and law. Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included in the financial statements. Deferred tax assets are recognised to the extent that it is regarded as more likely than
not that they will be recovered. Deferred tax assets and liabilities are not discounted.

Investments

Joint ventures comprise long-term investments where control is shared under a contractual arrangement. The segmental analysis of turnover, profit and
net assets excludes the Group's share of the results and net assets of joint ventures. Associates consist of long-term investments in which the Group holds a participating interest and
over which it exercises significant influence. Investments in joint ventures and associates are stated at the amount of the Group's share of net assets including goodwill derived from audited or
management accounts made up to the balance sheet date. Loss before taxation includes the Group's share of joint ventures and associates.

Other
unlisted fixed asset investments are stated at cost less provision for impairment in value, unless they have been transferred from associates at net book value. Listed fixed asset
investments are stated at market value with changes in value recognised in the profit and loss account. Current asset investments are stated at the lower of cost and net realisable value except dated
listed securities, which are stated at market value.

Pensions and other post retirement benefits

The operating cost for providing pensions and other post retirement benefits, as calculated periodically by independent actuaries, is therefore charged to the
Group's operating profit or loss in the year that the benefits are earned by employees. The financial returns expected on the pension schemes' assets are recognised in the year in which they arise as
part of finance income and the effect of the unwinding of the discounted value of the pension schemes' liabilities is treated as part of finance costs. The changes in value of the pension schemes'
assets and liabilities are reported as actuarial gains or losses as they arise in the consolidated statement of total recognised gains and losses.

The
pension schemes' surpluses, to the extent they are considered recoverable, or deficits are recognised in full and presented in the balance sheet net of any related deferred tax.

Government grants

Government grants relating to R&D activities are credited to the profit and loss account as the related expenditure is incurred.

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Share options

The costs of awarding shares under employee share plans are charged to the profit and loss account over the period to which the performance criteria relate.

Finance costs

Finance costs of debt are recognised in the profit and loss account over the term of such instruments at a constant rate on the carrying amount.

Debt

Debt is initially stated at the amount of the net proceeds after deduction of issue costs. The carrying amount is increased by the finance cost in respect of the
accounting period and reduced by payments made in the year.

Liquid resources

Liquid resources comprise term deposits with an original maturity of generally less than one year and other readily disposable current asset investments.

Financial statement reclassifications

Certain reclassifications have been made to 2004 and 2003 balances as well as segment information, in order to conform to the 2005 position.

2 Segmental analysis

From the beginning of the financial year, the Group introduced a new management structure, which split our continuing business into three segments; Optical and
Access Networks, Broadband Routing and Switching (BBRS) and Network Services.

Optical
and Access Networks comprises the activities of the Group's Optical Networks and Access Networks businesses, which now also includes our pay phones and interactive systems
activities previously reported under Other Network Equipment. Optical and Access Networks comprise the design and supply of communications systems that transmit and switch voice, data and video
traffic predominantly via public networks. BBRS comprises the equipment and services activities of the Group's North American based business which designs and supplies routing and switching products
for the transmission of voice, data and video in both public and private networks. Network Services comprises the activities of our Installation, Commissioning and Maintenance (IC&M) and Value Added
Services (VAS) businesses. Network Services generally comprises activities that supply a broad range of communications support services to telecommunications operators as well as selected large
enterprises and government agencies.

The
previous structure had been adopted to comply with the requirements of the Group's Loan Notes which required segmentation along certain geographic lines. Comparative information for
the years ended 31 March 2004 and 2003 has been restated to reflect the new segments.

Operating
profit by segment includes depreciation charges of £39 million (2004: £73 million; 2003: £135 million), of which
£23 million related to Optical and Access Networks (2004: £38 million; 2003: £64 million), £6 million related to BBRS (2004:
£10 million; 2003; £13 million) and £5 million related

140

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to
Network Services (2004: £7 million; 2003: £15 million). The remaining balance in 2004 and 2003 relates to Discontinued Operations.

The
operating net assets of Optical and Access Networks and Network Services cannot be separately identified as the same assets are generally used to generate sales in each of these
segments. The results of these segments are separately reportable. Central costs include £25 million of share option and related payroll costs (2004:
£31 million). Other consists of previous non-core businesses sold in the year ended 31 March 2004.

Operating
net assets/(liabilities) include tangible fixed assets, stocks, debtors, creditors (excluding borrowings and taxation) and provisions for liabilities and charges.

Analysis of segment operating profit/(loss) (before goodwill amortisation and operating exceptional items), turnover and operating net assets/(liabilities) by class of business

|                                      |  | Segment operating profit/(loss) |   | Turnover |   | Operating net
assets/(liabilities) |  
|------------------------------------- |  | ------------------------------- | - | -------- | - | ---------------------------------- | -
|
|
|Optical and Access Networks           |  | 20                              |   | (80      | ) | (226                               | )
|                                      |  |                                 |   |          |   |                                    |  
|Network Services                      |  | 15                              |   | 21       |   | 55                                 |  
|BBRS                                  |  | 25                              |   | 44       |   | (13                                | )
|Central costs                         |  | (57                             | ) | (66      | ) | (56                                | )
|Other                                 |  |                                |   | (5       | ) | (43                                | )
|                                      |  |                                 |   |          |   |                                    |  
|Continuing Operations                 |  | 3                               |   | (86      | ) | (283                               | )
|Discontinued Operations               |  | (2                              | ) | 24       |   | (25                                | )
|                                      |  |                                 |   |          |   |                                    |  
|                                      |  | 1                               |   | (62      | ) | (308                               | )
|                                      |  |                                 |   |          |   |                                    |  
|Goodwill amortisation                 |  | (91                             | ) | (98      | ) | (104                               | )
|Operating exceptional items (note 4a) |  | (9                              | ) | (81      | ) | (317                               | )
|                                      |  |                                 |   |          |   |                                    |  
|Group operating loss                  |  | (99                             | ) | (241     | ) | (729                               | )
|Joint ventures                        |  |                                |   | (2       | ) | (40                                | )
|Associates                            |  |                                |   | (11      | ) | (89                                | )
|                                      |  |                                 |   |          |   |                                    |  
|Total operating loss                  |  | (99                             | ) | (254     | ) | (858                               | )
|                                      |  |                                 |   |          |   |                                    |  

141

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Analysis of operating profit/(loss) (before goodwill amortisation and operating exceptional items), turnover and operating net assets/(liabilities) by territory
of origin

|                             |  | Operating profit/(loss) |   | Turnover |   | Operating net assets/(liabilities) |  
|---------------------------- |  | ----------------------- | - | -------- | - | ---------------------------------- | -
|
|
|UK (including central costs) |  | (16                     | ) | (41      | ) | (105                               | )
|Other EMEA                   |  | 4                       |   | (60      | ) | (129                               | )
|NA                           |  | 24                      |   | 24       |   | (23                                | )
|CALA                         |  | 3                       |   | (1       | ) | 3                                  |  
|APAC                         |  | (12                     | ) | (8       | ) | (29                                | )
|                             |  |                         |   |          |   |                                    |  
|Continuing Operations        |  | 3                       |   | (86      | ) | (283                               | )
|Discontinued Operations      |  | (2                      | ) | 24       |   | (25                                | )
|                             |  |                         |   |          |   |                                    |  
|                             |  | 1                       |   | (62      | ) | (308                               | )
|                             |  |                         |   |          |   |                                    |  
|Goodwill amortisation        |  | (91                     | ) | (98      | ) | (104                               | )
|Operating exceptional items  |  | (9                      | ) | (81      | ) | (317                               | )
|                             |  |                         |   |          |   |                                    |  
|Group operating loss         |  | (99                     | ) | (241     | ) | (729                               | )
|Joint ventures               |  |                        |   | (2       | ) | (40                                | )
|Associates                   |  |                        |   | (11      | ) | (89                                | )
|                             |  |                         |   |          |   |                                    |  
|Total operating loss         |  | (99                     | ) | (254     | ) | (858                               | )
|                             |  |                         |   |          |   |                                    |  

In the years ended 31 March 2005, 2004 and 2003, intrasegment revenues were £nil.

Separate
components of goodwill are identified and amortised over the appropriate useful economic life. The remaining goodwill on the balance sheet would be amortised under UK GAAP over
an average period of approximately four years.

142

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Analysis of turnover by product area

|                            |  | 2005  |  | 2004  |  | 2003 
|--------------------------- |  | ----- |  | ----- |  | -----
|
|Optical Networks            |  | 329   |  | 330   |  | 439  
|Access Networks             |  | 330   |  | 282   |  | 315  
|                            |  |       |  |       |  |      
|Optical and Access Networks |  | 659   |  | 612   |  | 754  
|                            |  |       |  |       |  |      
|IC&M                        |  | 207   |  | 182   |  | 210  
|VAS                         |  | 264   |  | 265   |  | 375  
|                            |  |       |  |       |  |      
|Network Services            |  | 471   |  | 447   |  | 585  
|                            |  |       |  |       |  |      
|BBRS equipment              |  | 89    |  | 130   |  | 142  
|BBRS services               |  | 51    |  | 55    |  | 77   
|                            |  |       |  |       |  |      
|BBRS                        |  | 140   |  | 185   |  | 219  
|                            |  |       |  |       |  |      
|Other(1)                    |  |      |  |      |  | 40   
|                            |  |       |  |       |  |      
|Continuing Operations       |  | 1,270 |  | 1,244 |  | 1,598
|Discontinued Operations     |  | 67    |  | 314   |  | 404  
|                            |  |       |  |       |  |      
|Group                       |  | 1,337 |  | 1,558 |  | 2,002
|                            |  |       |  |       |  |      

---

Sales
by Group companies to joint ventures and associates amounted to £22 million (2004: £21 million). Purchases from joint ventures and associates
amounted to £2 million (2004: £1 million).

Analysis of turnover by class of business

|                            |  | To customers in the UK |  | To customers overseas
|--------------------------- |  | ---------------------- |  | ---------------------
|
|
|Optical and Access Networks |  | 206                    |  | 156                  
|Network Services            |  | 261                    |  | 258                  
|BBRS                        |  | 2                      |  | 2                    
|Other(1)                    |  |                       |  |                     
|                            |  |                        |  |                      
|Continuing Operations       |  | 469                    |  | 416                  
|Discontinued Operations     |  |                       |  |                     
|                            |  |                        |  |                      
|                            |  | 469                    |  | 416                  
|                            |  |                        |  |                      

---

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Analysis of turnover by territory of destination

|           |  | 2005  |  | 2004  |  | 2003 
|---------- |  | ----- |  | ----- |  | -----
|
|UK         |  | 469   |  | 416   |  | 512  
|Other EMEA |  | 552   |  | 521   |  | 708  
|NA         |  | 195   |  | 470   |  | 548  
|CALA       |  | 45    |  | 44    |  | 72   
|APAC       |  | 76    |  | 107   |  | 162  
|           |  |       |  |       |  |      
|           |  | 1,337 |  | 1,558 |  | 2,002
|           |  |       |  |       |  |      

Analysis of total assets by class of business:

|                            |  | Year ended 31 March
|--------------------------- |  | -------------------
|
|
|Optical and Access Networks |  | 516                
|Network Services            |  | 68                 
|BBRS                        |  | 64                 
|Other                       |  |                   
|                            |  |                    
|Continuing Operations       |  | 648                
|Discontinued Operations     |  |                   
|                            |  |                    
|                            |  | 648                
|Goodwill                    |  | 301                
|Investments                 |  | 8                  
|Tax                         |  | 22                 
|Cash                        |  | 334                
|                            |  |                    
|                            |  | 1,313              
|                            |  |                    

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Analysis of total assets by territory of origin:

|                              |  | Year ended 31 March
|----------------------------- |  | -------------------
|
|
|UK (including central assets) |  | 172                
|Other EMEA                    |  | 342                
|North America                 |  | 71                 
|CALA                          |  | 8                  
|APAC                          |  | 55                 
|                              |  |                    
|                              |  | 648                
|Goodwill                      |  | 301                
|Investments                   |  | 8                  
|Tax                           |  | 22                 
|Cash                          |  | 334                
|                              |  |                    
|Total                         |  | 1,313              
|                              |  |                    

The
geographical split of tangible fixed assets and goodwill is as follows:

|        |  | Year ended March 31,
|------- |  | --------------------
|
|
|UK      |  | 222                 
|US      |  | 47                  
|Italy   |  | 23                  
|Germany |  | 76                  
|Other   |  | 49                  
|        |  |                     
|Total   |  | 417                 
|        |  |                     

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

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3 Group operating (loss)/profit (excluding joint ventures)

|                                  |                               | Year ended 31 March 2005 |     
|--------------------------------- | ----------------------------- | ------------------------ | ----
|
|
|Turnover                          |                               | 1,270                    |     
|Cost of sales                     |                               | (857                     | )   
|                                  |                               |                          |     
|Gross profit                      |                               | 413                      |     
|Selling and distribution expenses |                               | (142                     | )   
|                                  | Administrative expensesother |                          | (87 
|                                  | Research and development      |                          | (182
|                                  | Goodwill amortisation         |                          | (89 
|Administrative expensestotal     |                               | (358                     | )   
|Other operating income            |                               | 1                        |     
|                                  |                               |                          |     
|Operating loss                    |                               | (86                      | )   
|                                  |                               |                          |     

|
|

|                                  |                               | Year ended 31 March 2004 |     
|--------------------------------- | ----------------------------- | ------------------------ | ----
|
|
|Turnover                          |                               | 1,244                    |     
|Cost of sales                     |                               | (893                     | )   
|                                  |                               |                          |     
|Gross profit                      |                               | 351                      |     
|Selling and distribution expenses |                               | (172                     | )   
|                                  | Administrative expensesother |                          | (94 
|                                  | Research and development      |                          | (176
|                                  | Goodwill amortisation         |                          | (87 
|Administrative expensestotal     |                               | (357                     | )   
|Other operating income            |                               | 5                        |     
|                                  |                               |                          |     
|Operating (loss)/profit           |                               | (173                     | )   
|                                  |                               |                          |     

146

---



|
|

|                                  |                               | Year ended 31 March 2003 |     
|--------------------------------- | ----------------------------- | ------------------------ | ----
|
|
|Turnover                          |                               | 1,598                    |     
|Cost of sales                     |                               | (1,263                   | )   
|                                  |                               |                          |     
|Gross profit                      |                               | 335                      |     
|Selling and distribution expenses |                               | (228                     | )   
|                                  | Administrative expensesother |                          | (104
|                                  | Research and development      |                          | (286
|                                  | Goodwill amortisation         |                          | (83 
|Administrative expensestotal     |                               | (473                     | )   
|Other operating (expense)/income  |                               | (1                       | )   
|                                  |                               |                          |     
|Operating loss                    |                               | (367                     | )   
|                                  |                               |                          |     

In
the year ended 31 March 2005, share option and related payroll costs of £25 million (2004: £31 million; 2003: £nil) are
included within selling and distribution expenses, administrative expenses and R&D costs.

After
exceptional items, cost of sales for Continuing Operations are £852 million (2004: £884 million; 2003: £1,285 million) and for
Discontinued Operations are £58 million (2004: £242 million; 2003: £330 million). Operating expenses for Continuing Operations are
£514 million (2004: £614 million; 2003: £947 million) and for Discontinued Operations are £13 million (2004:
£64 million; 2003: £170 million). Exceptional items are shown in further detail in note 4.

The
Group disposed of its Outside Plant and Power (OPP) business in the year ended 31 March 2005, its North American Access (NAA) business during the year ended 31 March
2004 and the Strategic Communications business during the year ended 31 March 2003. It is these activities which are shown as Discontinued Operations in the table above. Further information on
disposals is provided in note 25a.

147

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4 Exceptional items

These
items have been analysed as follows:

a Operating exceptional items

|                                                           |  |       |  | 2005 |   | 2004 |   | 2003 |  
|---------------------------------------------------------- |  | ----- |  | ---- | - | ---- | - | ---- | -
|
|Restructuring credits/(costs)included in cost of sales    |  | (i)   |  | 5    |   | 9    |   | (21  | )
|                                                           |  |       |  |      |   |      |   |      |  
|Restructuring costs                                        |  | (ii)  |  | (16  | ) | (89  | ) | (277 | )
|Decrease/(increase) in provision for litigation settlement |  | (iii) |  | 2    |   | (5   | ) |     |  
|Releases in respect of doubtful debts                      |  | (iv)  |  |     |   | 4    |   | 10   |  
|Impairment of tangible fixed assets:                       |  | (v)   |  |     |   |     |   | (36  | )
|Systems implementation costs                               |  | (vi)  |  |     |   |     |   | 7    |  
|                                                           |  |       |  |      |   |      |   |      |  
|Included in administrative expenses                        |  |       |  | (14  | ) | (90  | ) | (296 | )
|                                                           |  |       |  |      |   |      |   |      |  
|Group operating exceptional items                          |  |       |  | (9   | ) | (81  | ) | (317 | )
|Shared joint ventures' operating exceptional items         |  | (vii) |  |     |   |     |   | (32  | )
|                                                           |  |       |  |      |   |      |   |      |  
|Total operating exceptional items (excluding associates)   |  |       |  | (9   | ) | (81  | ) | (349 | )
|                                                           |  |       |  |      |   |      |   |      |  



148

---



|                                             |  | 2005 |   | 2004 |   | 2003 |  
|-------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Analysis by segment                          |  |      |   |      |   |      |  
|Optical and Access Networks/Network Services |  | (11  | ) | (76  | ) | (241 | )
|BBRS                                         |  | 2    |   |     |   | (39  | )
|Other                                        |  |     |   |     |   | 13   |  
|                                             |  |      |   |      |   |      |  
|Continuing Operations                        |  | (9   | ) | (76  | ) | (267 | )
|Discontinued Operations                      |  |     |   | (5   | ) | (50  | )
|                                             |  |      |   |      |   |      |  
|                                             |  | (9   | ) | (81  | ) | (317 | )
|                                             |  |      |   |      |   |      |  
|Analysis by territory of origin              |  |      |   |      |   |      |  
|UK                                           |  | 2    |   | (22  | ) | 21   |  
|Other EMEA                                   |  | (11  | ) | (25  | ) | (235 | )
|NA                                           |  | 2    |   | (25  | ) | (82  | )
|CALA                                         |  | (1   | ) | (5   | ) | (13  | )
|APAC                                         |  | (1   | ) | (4   | ) | (8   | )
|                                             |  |      |   |      |   |      |  
|                                             |  | (9   | ) | (81  | ) | (317 | )
|                                             |  |      |   |      |   |      |  

149

---



b Non-operating exceptional items

|                                                                          |  | 2005 |  | 2004 |  | 2003 |  
|------------------------------------------------------------------------- |  | ---- |  | ---- |  | ---- | -
|
|Gain/(loss) on disposal of Discontinued Operations                        |  | 103  |  | 75   |  | (5   | )
|Gain on disposal of joint ventures and associates                         |  |     |  | 77   |  |     |  
|Gain on disposal of fixed assets and investments in Continuing Operations |  |     |  | 25   |  | 26   |  
|Merger/demerger receipts                                                  |  |     |  |     |  | 123  |  
|Group share of associates' non-operating exceptional items                |  |     |  |     |  | (3   | )
|                                                                          |  |      |  |      |  |      |  
|Included in non-operating exceptional items                               |  | 103  |  | 177  |  | 141  |  
|                                                                          |  |      |  |      |  |      |  

In
the year ended 31 March 2005, the gain of £103 million related to the disposal of OPP. The tax charge associated with this gain is
£4 million.

In
the year ended 31 March 2004, the gain on disposal of Discontinued Operations of £75 million related to the disposal of the NAA business
(£66 million) and the recognition of deferred consideration of £9 million on the disposal of the Strategic Communications business sold in the year ended
31 March 2003. The £77 million gain on disposals of joint ventures and associates related to the gain on disposal of Easynet Group plc (£76 million)
and Confirmant Limited (£1 million). The £25 million gain on disposal of fixed assets and investments in Continuing Operations was comprised of a gain on disposal
of Marconi Mobile Access S.p.A. (also known as UMTS) of £9 million and other fixed asset investments of £22 million, partially offset by a pension settlement loss
of £6 million arising on the disposal of our interest in GDA.

In
the year ended 31 March 2003, the loss on disposal of Discontinued Operations resulted from the sale of Strategic Communications (£41 million) offset by the
release of provisions related to the disposal of the Group's Systems businesses (Medical, Commerce and Data Systems). A curtailment gain of £28 million in respect of pension
liabilities was recognised following the sale of the Group's 50% share of GDA in March 2002. The balance mainly related to gains on property disposals. Merger/demerger receipts of
£123 million related to the release of a provision due to the settlement of the ESOP derivative.

c Amounts written off investments

The change in value of the Group's investments is accounted for in line with the Group accounting policy whereby listed investments are marked to their market
value at the end of each reporting year and unlisted investments are held at the lower of cost and recoverable value.

d Gain on waiver of balance payable to M (2003) plc group

As part of the Group's financial restructuring in May 2003, Marconi Corporation plc and its subsidiaries entered into an agreement with M (2003) plc and
its direct subsidiaries to reassign and waive balances between the M (2003) plc group and the Marconi Corporation plc Group.

150

---



e Exceptional cash flows

|                                      |                                                                                              | 2005 |     | 2004 |      | 2003 |     
|------------------------------------- | -------------------------------------------------------------------------------------------- | ---- | --- | ---- | ---- | ---- | ----
|
|Operating                             |                                                                                              |      |     |      |      |      |     
|                                      | Restructuring                                                                                |      | (28 | )    | (122 | )    | (284
|                                      | Litigation settlement                                                                        |      | (12 | )    |     |      |    
|                                      | ESOP settlement                                                                              |      |    |      | (35  | )    |    
|                                      | Systems implementation costs                                                                 |      |    |      |     |      | (17 
|                                      |                                                                                              |      |     |      |      |      |     
|Continuing Operations                 |                                                                                              | (40  | )   | (157 | )    | (301 | )   
|Discontinued Operationsrestructuring |                                                                                              | (3   | )   | (9   | )    | (28  | )   
|                                      |                                                                                              |      |     |      |      |      |     
|                                      |                                                                                              | (43  | )   | (166 | )    | (329 | )   
|                                      |                                                                                              |      |     |      |      |      |     
|Non-operating and financing           |                                                                                              |      |     |      |      |      |     
|                                      | Scheme consideration                                                                         |      |    |      | (340 | )    |    
|                                      | Disposal of tangible fixed assets                                                            |      |    |      | 26   |      | 28  
|                                      | Net proceeds on disposal of interests in subsidiary companies, joint ventures and associates |      | 169 |      | 222  |      | 433 
|                                      |                                                                                              |      |     |      |      |      |     
|                                      |                                                                                              | 169  |     | (92  | )    | 461  |     
|                                      |                                                                                              |      |     |      |      |      |     

Non-operating
exceptional cash flows from the disposals of tangible fixed assets are included in note 23(d). Non-operating exceptional cash flows from the
sales of interests in subsidiary companies and associates are included in note 23(e).

5 Net interest payable

|                     |                                                                                           | 2005 |     | 2004 |     | 2003 |     
|-------------------- | ----------------------------------------------------------------------------------------- | ---- | --- | ---- | --- | ---- | ----
|
|Interest receivable  |                                                                                           |      |     |      |     |      |     
|                     | Loans and deposits                                                                        |      | 10  |      | 17  |      | 28  
|                     | Income from listed fixed assest investments                                               |      |    |      |    |      | 1   
|                     | Other                                                                                     |      | 1   |      |    |      | 17  
|                     |                                                                                           |      |     |      |     |      |     
|                     |                                                                                           | 11   |     | 17   |     | 46   |     
|Interest payable     |                                                                                           |      |     |      |     |      |     
|                     | Bank loans, loan notes and overdrafts (2004: less interest accrual release of £3 million) |      | (11 | )    | (52 | )    | (288
|                     |                                                                                           |      |     |      |     |      |     
|Net interest payable |                                                                                           |     |     | (35  | )   | (242 | )   
|                     |                                                                                           |      |     |      |     |      |     

151

---



6 Net finance expenditure

|                                                                 |  | 2005 |   | 2004 |   | 2003 |  
|---------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Interest on pension scheme liabilities (note 26)                 |  | (143 | ) | (145 | ) | (163 | )
|Expected return on pension scheme assets (note 26)               |  | 141  |   | 138  |   | 157  |  
|                                                                 |  |      |   |      |   |      |  
|                                                                 |  | (2   | ) | (7   | ) | (6   | )
|Premium on redemption of Loan Notes                              |  | (28  | ) | (41  | ) |     |  
|Exceptional write off of capitalised losses on swaps             |  |     |   | (46  | ) |     |  
|Net gain/(loss) on cash and unhedged foreign exchange borrowings |  |     |   | 12   |   | (11  | )
|Swap and bond amortisation                                       |  |     |   |     |   | 5    |  
|Other                                                            |  | (1   | ) |     |   | (2   | )
|                                                                 |  |      |   |      |   |      |  
|Net finance expenditure                                          |  | (31  | ) | (82  | ) | (14  | )
|                                                                 |  |      |   |      |   |      |  

7 Tax

a Tax credit on loss on ordinary activities

|                                     |                                                                              | 2005 |     | 2004 |     | 2003 |     
|------------------------------------ | ---------------------------------------------------------------------------- | ---- | --- | ---- | --- | ---- | ----
|
|Current taxation                     |                                                                              |      |     |      |     |      |     
|                                     | Corporation tax 30% (2004: 30%)                                              |      |    |      |    |      |    
|                                     | UK overprovision in respect of prior years                                   |      | (26 | )    | (20 | )    | (155
|                                     | Overseas tax (2004 includes £8 million tax charge on disposal of businesses) |      | 3   |      | 12  |      |    
|                                     | Overseas tax overprovision in respect of prior years                         |      | (25 | )    | (3  | )    | (30 
|                                     | Joint ventures and associates                                                |      |    |      | (2  | )    |    
|                                     |                                                                              |      |     |      |     |      |     
|                                     |                                                                              | (48  | )   | (13  | )   | (185 | )   
|Deferred taxationtiming differences |                                                                              |     |     | (6   | )   |     |     
|                                     |                                                                              |      |     |      |     |      |     
|                                     |                                                                              | (48  | )   | (19  | )   | (185 | )   
|                                     |                                                                              |      |     |      |     |      |     

In
the year ended 31 March 2005, the Group's tax credit on ordinary activities was £48 million (2004: £19 million credit; 2003:
£185 million credit) due primarily to the release of tax provisions of £33 million in respect of prior years following progress in resolving historic US and UK
tax issues and a credit of £18 million for US and UK tax refunds.

In
the year ended 31 March 2004 a non-operating net tax credit of £12 million arose due to the release of tax provisions of £20 million in
respect of prior years following the Company's scheme of arrangement offset by a tax charge of £8 million on the disposal of NAA.

152

---



b Reconciliation of current taxation credit for the year

|                                                                                   |  | 2005 |   | 2004 |   | 2003   |  
|---------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ------ | -
|
|Loss on ordinary activities before taxation                                        |  | (27  | ) | (171 | ) | (1,328 | )
|                                                                                   |  |      |   |      |   |        |  
|Tax credit on loss at a weighted average standard rate of 34% (2004 and 2003: 34%) |  | (9   | ) | (58  | ) | (452   | )
|Non deductible goodwill amortisation and other similar items                       |  | 47   |   | 52   |   | 51     |  
|Non taxable operating and non-operating exceptional items                          |  | 11   |   | (56  | ) | 158    |  
|Tax losses and other deferred tax items not recognised in current tax              |  | (46  | ) | 70   |   | 243    |  
|Overprovision in respect of prior years                                            |  | (51  | ) | (21  | ) | (185   | )
|                                                                                   |  |      |   |      |   |        |  
|Current tax credit for the year                                                    |  | (48  | ) | (13  | ) | (185   | )
|                                                                                   |  |      |   |      |   |        |  

c Factors that may affect future tax charges

Deferred tax assets totalling £817 million (2004: £659 million; 2003: £594 million) have not been
recognised in respect of operating losses, pension scheme deficits and exceptional expenditure as the Group is not sufficiently certain that it will be able to recover those assets within a relatively
short period of time.

The
Group will incur ongoing tax cash costs where losses are unavailable to cover any historic tax audit adjustments and/or future taxable profits.

8 Equity minority interests

Equity minority interests represent the share of profits less losses on ordinary activities attributable to the interests of equity shareholders in subsidiaries
which are not wholly owned by the Group.

9 Equity dividends

The directors do not propose a dividend for the year ended 31 March 2005. No dividends were declared for the years ended 31 March 2004 or
2003.

10 Profit/(loss) per share

Basic profit/(loss) per share is calculated by reference to a weighted average of 204.5 million ordinary shares (2004: 249.0 million ordinary
shares; 2003: 573.3 million ordinary shares) in issue during the year.

In
2005 the effect of share options is dilutive. The undiluted weighted average number of shares has been adjusted by 12.4 million in respect of outstanding share options to give
a diluted weighted average of 216.9 million ordinary shares. This gives a diluted profit per share of 9.7p. The effect of share options is anti-dilutive in 2004 and 2003 and has
therefore been excluded from the calculation of the diluted weighted average number of shares.

153

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11 Employees

a Directors' remuneration

Details of the directors' remuneration specified for audit by the UK Listing Authority are given in the Report to shareholders by the Board on directors'
remuneration.

b Average monthly number of employees by sector

|                            |  | 2005 |  | 2004
|--------------------------- |  | ---- |  | ----
|
|Optical and Access Networks |  | 5    |  | 7   
|Network Services            |  | 4    |  | 4   
|BBRS                        |  | 1    |  | 1   
|                            |  |      |  |     
|Continuing Operations       |  | 10   |  | 12  
|Discontinued Operations     |  | 1    |  | 3   
|                            |  |      |  |     
|Group                       |  | 11   |  | 15  
|                            |  |      |  |     

c Staff costs

|                      |  | 2005 |  | 2004 |  | 2003
|--------------------- |  | ---- |  | ---- |  | ----
|
|Wages and salaries    |  | 368  |  | 483  |  | 717 
|Social security costs |  | 50   |  | 55   |  | 87  
|Other pension costs   |  | 22   |  | 22   |  | 43  
|                      |  |      |  |      |  |     
|                      |  | 440  |  | 560  |  | 847 
|                      |  |      |  |      |  |     
|UK                    |  | 217  |  | 228  |  | 372 
|Other EMEA            |  | 160  |  | 180  |  | 272 
|NA                    |  | 51   |  | 130  |  | 180 
|CALA                  |  | 2    |  | 8    |  | 7   
|APAC                  |  | 10   |  | 14   |  | 16  
|                      |  |      |  |      |  |     
|                      |  | 440  |  | 560  |  | 847 
|                      |  |      |  |      |  |     

Included
within the staff costs for the year ended 31 March 2005 was £25 million (2004: £31 million; 2003: £nil) related
to ongoing remuneration costs for employees of the Group that participate in Marconi Corporation plc share option plans.

Other
pension costs includes only items charged to operating expenses and excludes amounts charged to non-operating exceptional items and net finance expenditure, and items
included in the statement of total recognised gains and losses.

154

---



12 Goodwill

|                                |                                    |        |     
|------------------------------- | ---------------------------------- | ------ | ----
|
|Cost at 1 April 2003            |                                    | 5,987  |     
|                                | Disposals                          |        | (506
|                                | Exchange rate adjustment           |        | (563
|                                |                                    |        |     
|Cost at 31 March 2004           |                                    | 4,918  |     
|                                | Disposals (note 25a)               |        | (496
|                                | Exchange rate adjustment           |        | (63 
|                                |                                    |        |     
|Cost at 31 March 2005           |                                    | 4,359  |     
|                                |                                    |        |     
|Amortisation at 1 April 2003    |                                    | (5,390 | )   
|                                | Disposals                          |        | 460 
|                                | Charged to profit and loss account |        | (98 
|                                | Exchange rate adjustment           |        | 546 
|                                |                                    |        |     
|Amortisation at 31 March 2004   |                                    | (4,482 | )   
|                                | Disposals (note 25a)               |        | 452 
|                                | Charged to profit and loss account |        | (91 
|                                | Exchange rate adjustment           |        | 63  
|                                |                                    |        |     
|Amortisation at 31 March 2005   |                                    | (4,058 | )   
|                                |                                    |        |     
|Net book value at 31 March 2005 |                                    | 301    |     
|                                |                                    |        |     
|Net book value at 31 March 2004 |                                    | 436    |     
|                                |                                    |        |     

Goodwill
amortisation for the year ended 31 March 2005 was £91 million (2004: £98 million;
2003: £104 million).

13 Tangible fixed assets

|                                   |  |     |   | Leasehold property |  |    |   |      |   |      |   |   | 
|---------------------------------- |  | --- | - | ------------------ |  | -- | - | ---- | - | ---- | - | - | 
|
|
|
|Cost at 1 April 2004               |  | 101 |   | 2                  |  | 7  |   | 204  |   | 360  |   |  | 
|Additions                          |  |    |   |                   |  |   |   | 12   |   | 16   |   | 7 | 
|Disposals                          |  |    |   |                   |  | (1 | ) | (19  | ) | (28  | ) |  | 
|Businesses disposed (note 25a)     |  | (16 | ) |                   |  |   |   | (14  | ) | (48  | ) |  | 
|Exchange rate adjustment           |  |    |   |                   |  |   |   | 1    |   | 1    |   |  | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 
|Cost at 31 March 2005              |  | 85  |   | 2                  |  | 6  |   | 184  |   | 301  |   | 7 | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 
|Depreciation at 1 April 2004       |  | (29 | ) |                   |  | (1 | ) | (167 | ) | (329 | ) |  | 
|Charged to profit and loss account |  | (4  | ) |                   |  | (1 | ) | (19  | ) | (15  | ) |  | 
|Disposals                          |  |    |   |                   |  |   |   | 16   |   | 28   |   |  | 
|Businesses disposed (note 25a)     |  | 7   |   |                   |  |   |   | 7    |   | 40   |   |  | 
|Exchange rate adjustment           |  |    |   |                   |  |   |   | (1   | ) | (1   | ) |  | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 
|Depreciation at 31 March 2005      |  | (26 | ) |                   |  | (2 | ) | (164 | ) | (277 | ) |  | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 
|Net book value at 31 March 2005    |  | 59  |   | 2                  |  | 4  |   | 20   |   | 24   |   | 7 | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 
|Net book value at 31 March 2004    |  | 72  |   | 2                  |  | 6  |   | 37   |   | 31   |   |  | 
|                                   |  |     |   |                    |  |    |   |      |   |      |   |   | 

155

---



The net book value of tangible fixed assets of the Group includes an amount of £2 million (2004: £3 million)
in respect of assets held under finance leases, on which the depreciation charge for the year was £1 million (2004: £1 million).

Assets
in the course of construction relate to direct costs associated with various computer software projects.

The
depreciation charge for the year ended 31 March 2005 was £39 million (2004: £73 million; 2003: £135 million).

14 Fixed asset investments

|                                   |  | Share of
net assets |  
|---------------------------------- |  | ------------------- | -
|
|At 1 April 2003                    |  | 3                   |  
|Disposals                          |  | (3                  | )
|                                   |  |                     |  
|At 31 March 2004 and 31 March 2005 |  |                    |  
|                                   |  |                     |  

The
Group retains an investment in a joint venture, Plessey Holdings Limited. This entity no longer trades but contains a number of environmental exposures in North America. Plessey
Holdings Limited is taking remedial action against these exposures, which are funded from its own cash balances. The Group consolidates its share of its assets and liabilities, being
£10 million each.

|                              |  | Share of
net assets |   | Goodwill
net book
value |   | Total |  
|----------------------------- |  | ------------------- | - | ----------------------- | - | ----- | -
|
|At 1 April 2003               |  | 15                  |   | 29                      |   | 44    |  
|Profit less losses retained   |  | (6                  | ) |                        |   | (6    | )
|Goodwill amortisation         |  |                    |   | (5                      | ) | (5    | )
|Disposals                     |  | (3                  | ) | (24                     | ) | (27   | )
|                              |  |                     |   |                         |   |       |  
|At 31 March 2004              |  | 6                   |   |                        |   | 6     |  
|Transfer to other investments |  | (2                  | ) |                        |   | (2    | )
|Exchange rate adjustment      |  | (1                  | ) |                        |   | (1    | )
|                              |  |                     |   |                         |   |       |  
|At 31 March 2005              |  | 3                   |   |                        |   | 3     |  
|                              |  |                     |   |                         |   |       |  

The
transfer to other investments relates to investments that have been evaluated during the year and are not deemed to be associates, as the Group no longer has significant influence
over them.

|Other investments        |  | Cost or
valuation |  | Provisions |   | Total
|------------------------ |  | ----------------- |  | ---------- | - | -----
|
|At 1 April 2004          |  | 116               |  | (113       | ) | 3    
|Transfer from associates |  | 2                 |  |           |   | 2    
|                         |  |                   |  |            |   |      
|At 31 March 2005         |  | 118               |  | (113       | ) | 5    
|                         |  |                   |  |            |   |      

The
Group has no listed fixed asset investments.

156

---



|Principal subsidiaries         |  | Voting rights |   | Country of incorporation
|------------------------------ |  | ------------- | - | ------------------------
|Marconi Communications Limited |  | 100           | % | England                 
|Marconi Communications S.p.A.  |  | 100           | % | Italy                   
|Marconi Communications, Inc    |  | 100           | % | USA                     
|Marconi Communications GmbH    |  | 100           | % | Germany                 

|                         |  | Loans to Group undertakings |   | Shares in Group undertakings |   | Shares in joint ventures and associates |  |        |   |    |   |     |  
|------------------------ |  | --------------------------- | - | ---------------------------- | - | --------------------------------------- |  | ------ | - | -- | - | --- | -
|
|
|
|
|At 1 April 2004          |  | 870                         |   | (90                          | ) | 6,918                                   |  | (5,249 | ) | 32 |   | (32 | )
|Additions                |  |                            |   |                             |   | 28                                      |  |       |   |   |   |    |  
|Disposals                |  |                            |   |                             |   |                                        |  |       |   | (1 | ) | 1   |  
|Movements in Group loans |  | 15                          |   |                             |   |                                        |  |       |   |   |   |    |  
|Provisions               |  |                            |   | (6                           | ) |                                        |  | (15    | ) |   |   |    |  
|Exchange rate adjustment |  | (4                          | ) | (2                           | ) |                                        |  |       |   |   |   |    |  
|                         |  |                             |   |                              |   |                                         |  |        |   |    |   |     |  
|At 31 March 2005         |  | 881                         |   | (98                          | ) | 6,946                                   |  | (5,264 | ) | 31 |   | (31 | )
|                         |  |                             |   |                              |   |                                         |  |        |   |    |   |     |  

15 Stocks and contracts in progress

|                                       |  | Group |  | Company
|-------------------------------------- |  | ----- |  | -------
|
|
|Raw materials and bought in components |  | 37    |  | 59     
|Work in progress                       |  | 33    |  | 41     
|Finished goods                         |  | 89    |  | 69     
|Long-term contract work in progress    |  | 3     |  | 6      
|Payments on account                    |  |      |  | (1     
|                                       |  |       |  |        
|                                       |  | 162   |  | 174    
|                                       |  |       |  |        

157

---



16 Debtors

|                                              |  |                         |  | Group |   | Company
|--------------------------------------------- |  | ----------------------- |  | ----- | - | -------
|
|
|Amounts falling due within one year:          |  |                         |  |       |   |        
|Trade debtors                                 |  | 307                     |  | 309   |   |       
|Of which:                                     |  | Securitised receivables |  | 15    |   |       
|                                              |  | Non-recourse receipts   |  | (15   | ) |       
|Amounts owed by associates                    |  | 17                      |  | 17    |   | 1      
|Amounts owed by Group companies               |  |                        |  |      |   | 67     
|Other debtors                                 |  | 30                      |  | 36    |   |       
|Current tax                                   |  | 22                      |  |      |   | 14     
|Prepayments and accrued income                |  | 15                      |  | 26    |   |       
|                                              |  |                         |  |       |   |        
|                                              |  |                         |  | 391   |   | 388    
|Amounts falling due after more than one year: |  |                         |  |       |   |        
|Trade debtors                                 |  |                        |  | 4     |   |       
|Prepayments and accrued income                |  | 1                       |  | 1     |   |       
|                                              |  |                         |  |       |   |        
|                                              |  |                         |  | 1     |   | 5      
|                                              |  |                         |  |       |   |        
|                                              |  |                         |  | 392   |   | 393    
|                                              |  |                         |  |       |   |        

Amounts
owed by associates relate to trading balances.

The
Group has assigned certain trade debts as security against the advance of cash from a third party provider. All debts remain outstanding at 31 March 2005 and interest
of £55,000 was recognised in the year. The Group is not obliged to, nor does it intend to, support any credit-related losses arising from the assigned debts against which cash has been
advanced. The transaction documents stipulate that, in the event of default in payment by a debtor, the providers of the facility may only seek payment from the Group of the capped finance charge
under the arrangement and that recourse to the Group is not available.

The
Group has available to it uncommitted customer receivables financing facilities totalling €79 million (£54 million). Whilst the facilities
do not have formal expiry dates, €19 million (£13 million) is due for review in December 2005 and €60 million
(£41 million) is due for review in March 2006.

17 Cash at bank and in hand

|                                                      |  | Group |  | Company
|----------------------------------------------------- |  | ----- |  | -------
|
|
|Cash and bank deposits repayable on demand (note 28b) |  | 239   |  | 406    
|Other cash deposits (note 28b)                        |  | 95    |  | 113    
|                                                      |  |       |  |        
|Cash at bank and in hand                              |  | 334   |  | 519    
|                                                      |  |       |  |        

158

---



Included
in the amounts above is restricted cash of:

|                                                  |  | Group |  | Company
|------------------------------------------------- |  | ----- |  | -------
|
|
|Cash security for loans                           |  | 8     |  | 11     
|Collateral against bonding facilities             |  | 78    |  | 85     
|Held by captive insurance company                 |  | 17    |  | 18     
|Mandatory redemption escrow accounts              |  |      |  | 10     
|                                                  |  |       |  |        
|Restricted cash                                   |  | 103   |  | 124    
|Cash held at subsidiary level and cash in transit |  | 64    |  | 74     
|Available treasury deposits                       |  | 167   |  | 321    
|                                                  |  |       |  |        
|Cash at bank and in hand                          |  | 334   |  | 519    
|                                                  |  |       |  |        

Cash
security for loans of £8 million (2004: £11 million) relates to cash deposited against secured loans in Italy.

18 Creditors

|                                              |                     | Group |    | Company
|--------------------------------------------- | ------------------- | ----- | -- | -------
|
|
|Amounts falling due within one year:          |                     |       |    |        
|Loan Notes (note 19)                          |                     |      |    | 8      
|Bank loans and overdrafts (note 19)           |                     |       |    |        
|                                              | Repayable on demand |       | 10 |        
|                                              | Other               |       | 4  |        
|Obligations under finance leases              |                     | 1     |    |       
|                                              |                     |       |    |        
|                                              |                     | 15    |    | 26     
|Payments received in advance                  |                     | 49    |    | 56     
|Trade creditors                               |                     | 187   |    | 155    
|Amounts owed to Group companies               |                     |      |    |       
|Current taxation                              |                     | 55    |    | 104    
|Other taxation and social security            |                     | 23    |    | 25     
|Other creditors                               |                     | 64    |    | 77     
|Accruals and deferred income                  |                     | 114   |    | 134    
|                                              |                     |       |    |        
|                                              |                     | 507   |    | 577    
|                                              |                     |       |    |        
|Amounts falling due after more than one year: |                     |       |    |        
|Loan Notes (note 19)                          |                     |      |    | 257    
|Bank loans (note 19)                          |                     | 21    |    | 20     
|Obligations under finance leases              |                     | 1     |    | 2      
|                                              |                     |       |    |        
|                                              |                     | 22    |    | 279    
|Accruals and deferred income                  |                     | 6     |    | 6      
|                                              |                     |       |    |        
|                                              |                     | 28    |    | 285    
|                                              |                     |       |    |        

159

---





19 Borrowings

|                                               |                                  | Group                      |    | Company |    
|---------------------------------------------- | -------------------------------- | -------------------------- | -- | ------- | ---
|
|
|Loan Notes                                     |                                  |                           |    | 265     |    
|Bank loans and overdrafts                      |                                  |                            |    |         |    
|                                               | Repayable on demand              |                            | 10 |         | 14 
|                                               | Other                            |                            | 25 |         | 24 
|Obligations under finance leases               |                                  | 2                          |    | 2       |    
|                                               |                                  |                            |    |         |    
|                                               |                                  | 37                         |    | 305     |    
|Less amounts falling due within one year       |                                  | (15                        | )  | (26     | )  
|                                               |                                  |                            |    |         |    
|                                               |                                  | 22                         |    | 279     |    
|                                               |                                  |                            |    |         |    
|Analysis of repayments of long-term borrowings |                                  |                            |    |         |    
|                                               | Loan Notes                       |                            |    |         |    
|                                               |                                  | Between two and five years |    |        |    
|                                               | Bank loans                       |                            |    |         |    
|                                               |                                  | Between one and two years  |    | 4       |    
|                                               |                                  | Between two and five years |    | 7       |    
|                                               |                                  | In more than five years    |    | 10      |    
|                                               | Obligations under finance leases |                            |    |         |    
|                                               |                                  | Between one and two years  |    | 1       |    
|                                               |                                  | Between two and five years |    |        |    
|                                               |                                  |                            |    |         |    
|                                               |                                  | 22                         |    | 279     |    
|                                               |                                  |                            |    |         |    
|                                               | Loan Notes                       |                            |   |         | 257
|                                               |                                  |                            |    |         |    

Maturity

Further analysis of the maturity of the Group's debt is given in note 28b.

160

---



20 Provisions for liabilities and charges

|Group            |                          | Restructuring |     | Warranties |     | Contracts
and
commitments |     | Litigation
and
indemnities |     | Other |     | Total |     
|---------------- | ------------------------ | ------------- | --- | ---------- | --- | ------------------------- | --- | -------------------------- | --- | ----- | --- | ----- | ----
|
|At 1 April 2003  |                          | 64            |     | 44         |     | 45                        |     | 91                         |     | 56    |     | 300   |     
|                 | Disposals                |               |    |            | (5  | )                         |    |                            |    |       | (3  | )     | (8  
|                 | Charged                  |               | 55  |            | 29  |                           | 18  |                            | 12  |       | 15  |       | 129 
|                 | Released                 |               | (13 | )          | (2  | )                         | (3  | )                          | (6  | )     | (1  | )     | (25 
|                 | Utilised                 |               | (62 | )          | (32 | )                         | (10 | )                          | (10 | )     | (51 | )     | (165
|                 | Exchange rate adjustment |               | (3  | )          | (2  | )                         | (2  | )                          | (5  | )     |    |       | (12 
|                 |                          |               |     |            |     |                           |     |                            |     |       |     |       |     
|At 31 March 2004 |                          | 41            |     | 32         |     | 48                        |     | 82                         |     | 16    |     | 219   |     
|                 | Disposals                |               |    |            | (1  | )                         |    |                            |    |       |    |       | (1  
|                 | Charged                  |               | 24  |            | 14  |                           | 7   |                            | 13  |       | 5   |       | 63  
|                 | Released                 |               | (8  | )          | (2  | )                         | (11 | )                          | (3  | )     | (2  | )     | (26 
|                 | Utilised                 |               | (33 | )          | (16 | )                         | (29 | )                          | (25 | )     | (6  | )     | (109
|                 | Exchange rate adjustment |               |    |            | (1  | )                         | 1   |                            | (1  | )     |    |       | (1  
|                 |                          |               |     |            |     |                           |     |                            |     |       |     |       |     
|At 31 March 2005 |                          | 24            |     | 26         |     | 16                        |     | 66                         |     | 13    |     | 145   |     
|                 |                          |               |     |            |     |                           |     |                            |     |       |     |       |     

Restructuring
mainly comprises expected costs for termination of employee contracts (£15 million) and costs for properties no longer occupied, onerous lease contracts
and future scheme administration costs (in total £9 million). The associated outflows are generally expected to occur over the next year with vacant property costs being incurred
over the next three years.

Warranties
and contracts mainly comprise the expected costs of maintenance under guarantees, other work in respect of products delivered and losses on contract work in progress in excess
of related accumulated cost. The associated outflows are generally expected to occur over the lives of the products.

Contracts
and commitments comprise liquidated damages, onerous supply contracts and losses on contract work in progress in excess of related accumulated costs. The associated outflows
are generally expected to occur over the lives of the contracts, which are long term in nature.

Litigation
and indemnities comprise expected employee related claims, environmental liabilities mainly in North America, other litigation, captive insurance balances and merger and
acquisition balances held against warranties provided on the disposal of businesses. Employee related claims relate to industrial diseases. The Group's exposure to these claims, which has been
assessed by actuaries, amounts to £18 million (2004: £19 million) after discounting at a rate of 4.5%, in line with long-term government bond yields
at 31 March 2005.

161

---



Other
provisions mainly comprise payroll taxes on share options and other post-retirement agreements.

|Company          |          | Restructuring |    | Litigation and
indemnities |    | Total |   
|---------------- | -------- | ------------- | -- | -------------------------- | -- | ----- | --
|
|At 1 April 2004  |          | 8             |    | 26                         |    | 34    |   
|                 | Charged  |               |   |                            | 3  |       | 3 
|                 | Released |               | (4 | )                          | (1 | )     | (5
|                 | Utilised |               | (1 | )                          | (1 | )     | (2
|                 |          |               |    |                            |    |       |   
|At 31 March 2005 |          | 3             |    | 27                         |    | 30    |   
|                 |          |               |    |                            |    |       |   

21 Equity shareholders' interests

a Share capital

|                                                    |                         | Number of shares |           | £          
|--------------------------------------------------- | ----------------------- | ---------------- | --------- | -----------
|Ordinary shares of 25p each                         |                         |                  |           |            
|Allotted, called up and fully paid at 1 April 2004  |                         | 200,022,311      |           | 50,005,578 
|Shares issued:                                      |                         |                  |           |            
|                                                    | Warrants exercised      |                  | 6,809     |            
|                                                    | Share options exercised |                  | 8,711,819 |            
|                                                    |                         |                  |           |            
|Allotted, called up and fully paid at 31 March 2005 |                         | 208,740,939      |           | 52,185,235 
|Unissued at 31 March 2005                           |                         | 418,008,914      |           | 104,502,228
|                                                    |                         |                  |           |            
|Authorised at 31 March 2005                         |                         | 626,749,853      |           | 156,687,463
|                                                    |                         |                  |           |            

b Warrants

At the time of the Group's financial restructuring in May 2003, the Company issued warrants to holders of shares in M (2003) plc to subscribe for
additional ordinary shares of 5p each in the Company. In total 49.8 million warrants, exercisable up until May 2007, were issued at an exercise price of £1.50 each. As a
result of the subsequent one for five share consolidation, five warrants must now be exercised per 25p ordinary share, giving an aggregate subscription price of £7.50 per share.

At
31 March 2005, 49.6 million warrants remained outstanding (2004: 49.7 million warrants outstanding).

162

---



c Share options

At 31 March 2005 the following share options were outstanding in respect of the Company's ordinary shares:

|                 |                          | Number of shares
under option |     | Subscription
price per
share |       | Exercise
period
|---------------- | ------------------------ | ----------------------------- | --- | ---------------------------- | ----- | ---------------
|
|Management plan  |                          |                               |     |                              |       |                
|                 | Granted 24 June 2003     |                               | 8.5 |                              | Nil   |                
|                 | Granted 1 September 2003 |                               | 0.6 |                              | Nil   |                
|                 | Granted 13 February 2004 |                               | 1.1 |                              | Nil   |                
|                 |                          |                               |     |                              |       |                
|Employee plan    |                          |                               |     |                              |       |                
|                 | Granted 30 June 2003     |                               | 4.4 |                              | £3.08 |                
|                 | Granted 1 September 2003 |                               | 0.2 |                              | £4.29 |                
|                 | Granted 13 February 2004 |                               |    |                              | £7.17 |                
|                 | Granted 1 December 2004  |                               | 0.7 |                              | £5.72 |                
|                 | Granted 6 December 2004  |                               | 0.1 |                              | £5.67 |                
|                 |                          |                               |     |                              |       |                
|Sharesave scheme |                          |                               |     |                              |       |                
|                 | Granted 3 February       |                               | 1.7 |                              | £5.06 |                
|                 |                          |                               |     |                              |       |                

The
movement in share options during the year can be analysed as follows:

|                 |  | Number of
shares under
option at
1 April
2004 |  | Number of
options
granted |  | Number of
options
forfeited |   | Number of
options
exercised |   | Number of
shares under
option at
31 March
2005
|---------------- |  | --------------------------------------------- |  | ------------------------- |  | --------------------------- | - | --------------------------- | - | ----------------------------------------------
|
|Management plan  |  | 17.6                                          |  |                          |  |                            |   | (7.4                        | ) | 10.2                                          
|Employee plan    |  | 6.1                                           |  | 0.8                       |  | (0.2                        | ) | (1.3                        | ) | 5.4                                           
|Sharesave scheme |  |                                              |  | 1.7                       |  |                            |   |                            |   | 1.7                                           
|                 |  |                                               |  |                           |  |                             |   |                             |   |                                               
|Total            |  | 23.7                                          |  | 2.5                       |  | (0.2                        | ) | (8.7                        | ) | 17.3                                          
|                 |  |                                               |  |                           |  |                             |   |                             |   |                                               

The
subscription price per share, in respect of options granted under the Employee Plan on 30 June 2003, is a mean average as the rules regarding exercise price differ between
Italy and the rest of the world.

Both
plans have five performance targets, each having a period in which the options over shares will vest. The first four performance targets have now been met.

The
overall impact on the Group's profit and loss account over the life of the plans through to the financial year ending 31 March 2007, assuming the final performance
target is also met, will be approximately £59 million before payroll taxes. We expect the remaining charge under UK GAAP, before payroll taxes, to be £9 million
in the year ended 31 March 2006 and £2 million in the year ended 31 March 2007. The £59 million charge is a non-cash item.

During
the year, the aggregate gain on share options exercised by the directors amounted to £13,806,480 (2004: £nil).

163

---



22 Reserves

|Group            |                                              | Shares to
be issued |     | Share
premium
account |        | Capital
reserve |   | Capital
reduction
reserve |     | Profit and
loss account |       | Total  |      
|---------------- | -------------------------------------------- | ------------------- | --- | --------------------- | ------ | --------------- | - | ------------------------- | --- | ----------------------- | ----- | ------ | -----
|
|At 1 April 2003  |                                              |                    |     | 700                   |        | 9               |   |                          |     | (4,187                  | )     | (3,478 | )    
|                 | Cancellation of old share capital            |                     |    |                       |       |                 |  |                           |    |                         | 143   |        | 143  
|                 | Arising on new shares issued                 |                     |    |                       | 3,670  |                 |  |                           |    |                         |      |        | 3,670
|                 | Loss retained for the year                   |                     |    |                       |       |                 |  |                           |    |                         | (153  | )      | (153 
|                 | Exchange differences                         |                     |    |                       |       |                 |  |                           |    |                         | (3    | )      | (3   
|                 | Added in the year                            |                     | 25  |                       |       |                 |  |                           |    |                         |      |        | 25   
|                 | Actuarial gain on retirement benefit schemes |                     |    |                       |       |                 |  |                           |    |                         | 96    |        | 96   
|                 | Transfer on capital reduction                |                     |    |                       | (4,370 | )               |  |                           | 343 |                         | 4,027 |        |     
|                 | Losses transferred                           |                     |    |                       |       |                 |  |                           | (60 | )                       | 60    |        |     
|                 |                                              |                     |     |                       |        |                 |   |                           |     |                         |       |        |      
|At 31 March 2004 |                                              | 25                  |     |                      |        | 9               |   | 283                       |     | (17                     | )     | 300    |      
|                 | Profit retained for the year                 |                     |    |                       |       |                 |  |                           |    |                         | 21    |        | 21   
|                 | Exchange differences                         |                     |    |                       |       |                 |  |                           |    |                         | 5     |        | 5    
|                 | Shares issued                                |                     |    |                       | 4      |                 |  |                           |    |                         |      |        | 4    
|                 | Added in the year                            |                     | 23  |                       |       |                 |  |                           |    |                         |      |        | 23   
|                 | Share options exercised                      |                     | (24 | )                     |       |                 |  |                           |    |                         | 22    |        | (2   
|                 | Actuarial gain on retirement benefit schemes |                     |    |                       |       |                 |  |                           |    |                         | 1     |        | 1    
|                 | Losses transferred                           |                     |    |                       |       |                 |  |                           | (97 | )                       | 97    |        |     
|                 |                                              |                     |     |                       |        |                 |   |                           |     |                         |       |        |      
|At 31 March 2005 |                                              | 24                  |     | 4                     |        | 9               |   | 186                       |     | 129                     |       | 352    |      
|                 |                                              |                     |     |                       |        |                 |   |                           |     |                         |       |        |      

On
21 May 2003, the high court approved a reduction of share capital and the share premium account. These balances were being credited to the Company's profit and loss reserve.
The high court determined that any surplus over the deficit at 31 March 2003 was to be held as non-distributable reserves that would be transferred to the profit and loss reserve as
losses are incurred or when all

164

---



creditors
as at 21 May 2003 have been satisfied. Company losses of £97 million have been transferred in the year (2004: £60 million).

|Company          |                                   | Shares to
be issued |     | Share
premium
account |        | Capital
reserve |   | Capital
reduction
reserve |     | Profit and
loss account |       | Total  |      
|---------------- | --------------------------------- | ------------------- | --- | --------------------- | ------ | --------------- | - | ------------------------- | --- | ----------------------- | ----- | ------ | -----
|
|At 1 April 2003  |                                   |                    |     | 700                   |        | 9               |   |                          |     | (4,170                  | )     | (3,461 | )    
|                 | Cancellation of old share capital |                     |    |                       |       |                 |  |                           |    |                         | 143   |        | 143  
|                 | Arising on new shares issued      |                     |    |                       | 3,670  |                 |  |                           |    |                         |      |        | 3,670
|                 | Loss retained for the year        |                     |    |                       |       |                 |  |                           |    |                         | (103  | )      | (103 
|                 | Added in the year                 |                     | 25  |                       |       |                 |  |                           |    |                         |      |        | 25   
|                 | Transfer on capital reduction     |                     |    |                       | (4,370 | )               |  |                           | 343 |                         | 4,027 |        |     
|                 | Losses transferred                |                     |    |                       |       |                 |  |                           | (60 | )                       | 60    |        |     
|                 |                                   |                     |     |                       |        |                 |   |                           |     |                         |       |        |      
|At 31 March 2004 |                                   | 25                  |     |                      |        | 9               |   | 283                       |     | (43                     | )     | 274    |      
|                 | Loss retained for the year        |                     |    |                       |       |                 |  |                           |    |                         | (69   | )      | (69  
|                 | Shares issued                     |                     |    |                       | 4      |                 |  |                           |    |                         |      |        | 4    
|                 | Added in the year                 |                     | 23  |                       |       |                 |  |                           |    |                         |      |        | 23   
|                 | Shares options exercised          |                     | (24 | )                     |       |                 |  |                           |    |                         | 22    |        | (2   
|                 | Losses transferred                |                     |    |                       |       |                 |  |                           | (97 | )                       | 97    |        |     
|                 |                                   |                     |     |                       |        |                 |   |                           |     |                         |       |        |      
|At 31 March 2005 |                                   | 24                  |     | 4                     |        | 9               |   | 186                       |     | 7                       |       | 230    |      
|                 |                                   |                     |     |                       |        |                 |   |                           |     |                         |       |        |      

23 Cash flow

a Net cash inflow/(outflow) from operating activities

|Year ended 31 March 2005                      |  | Continuing |   | Discontinued |   | Total |  
|--------------------------------------------- |  | ---------- | - | ------------ | - | ----- | -
|
|Group operating loss after exceptional items  |  | (95        | ) | (4           | ) | (99   | )
|Operating exceptional items (note 4a)         |  | 9          |   |             |   | 9     |  
|                                              |  |            |   |              |   |       |  
|Group operating loss before exceptional items |  | (86        | ) | (4           | ) | (90   | )
|Depreciation charge                           |  | 37         |   | 2            |   | 39    |  
|Goodwill amortisation                         |  | 89         |   | 2            |   | 91    |  
|Shares to be issued related to share options  |  | 23         |   |             |   | 23    |  
|Increase in stock                             |  | (22        | ) |             |   | (22   | )
|(Increase)/decrease in debtors                |  | (21        | ) | 6            |   | (15   | )
|Increase/(decrease) in creditors              |  | 34         |   | (13          | ) | 21    |  
|Decrease in provisions                        |  | (22        | ) | (2           | ) | (24   | )
|                                              |  |            |   |              |   |       |  
|                                              |  | 32         |   | (9           | ) | 23    |  
|                                              |  |            |   |              |   |       |  

165

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|Year ended 31 March 2004                               |  | Continuing |   | Discontinued |   | Total |  
|------------------------------------------------------ |  | ---------- | - | ------------ | - | ----- | -
|
|Group operating (loss)/profit after exceptional items  |  | (249       | ) | 8            |   | (241  | )
|Operating exceptional items (note 4a)                  |  | 76         |   | 5            |   | 81    |  
|                                                       |  |            |   |              |   |       |  
|Group operating (loss)/profit before exceptional items |  | (173       | ) | 13           |   | (160  | )
|Depreciation charge                                    |  | 63         |   | 10           |   | 73    |  
|Goodwill amortisation                                  |  | 87         |   | 11           |   | 98    |  
|Shares to be issued related to share options           |  | 25         |   |             |   | 25    |  
|Decrease/(increase) in stock                           |  | 54         |   | (5           | ) | 49    |  
|Decrease/(increase) in debtors                         |  | 151        |   | (3           | ) | 148   |  
|(Decrease)/increase in creditors                       |  | (81        | ) | 7            |   | (74   | )
|Decrease in provisions                                 |  | (2         | ) | (6           | ) | (8    | )
|                                                       |  |            |   |              |   |       |  
|                                                       |  | 124        |   | 27           |   | 151   |  
|                                                       |  |            |   |              |   |       |  

|Year ended 31 March 2003                               |  | Continuing |   | Discontinued |   | Total |  
|------------------------------------------------------ |  | ---------- | - | ------------ | - | ----- | -
|
|Group operating (loss)/profit after exceptional items  |  | (634       | ) | (95          | ) | (729  | )
|Operating exceptional items (note 4a)                  |  | 267        |   | 50           |   | 317   |  
|                                                       |  |            |   |              |   |       |  
|Group operating (loss)/profit before exceptional items |  | (367       | ) | (45          | ) | (412  | )
|Depreciation charge                                    |  | 117        |   | 18           |   | 135   |  
|Goodwill amortisation                                  |  | 83         |   | 21           |   | 104   |  
|Decrease/(increase) in stock                           |  | 228        |   | 5            |   | 233   |  
|Decrease/(increase) in debtors                         |  | 94         |   | 85           |   | 179   |  
|(Decrease)/increase in creditors                       |  | (115       | ) | (116         | ) | (231  | )
|Decrease in provisions                                 |  | 6          |   | (6           | ) |      |  
|                                                       |  |            |   |              |   |       |  
|                                                       |  | 46         |   | (38          | ) | 8     |  
|                                                       |  |            |   |              |   |       |  

b Returns on investments and servicing of finance

|                                            |  | 2005 |   | 2004 |   | 2003 |  
|------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Income from loans, deposits and investments |  | 11   |   | 17   |   | 45   |  
|Interest paid                               |  | (15  | ) | (48  | ) | (209 | )
|Premium on redemption of Loan Notes         |  | (28  | ) | (41  | ) |     |  
|                                            |  |      |   |      |   |      |  
|                                            |  | (32  | ) | (72  | ) | (164 | )
|                                            |  |      |   |      |   |      |  

Of
the above amounts, Continuing Operations account for an outflow of £32 million (2004: £72 million; 2003: £162 million) and Discontinued
Operations and outflow of £nil (2004: £nil; 2003: £2 million).

166

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c Tax paid

|                          |  | 2005 |   | 2004 |   | 2003 |  
|------------------------- |  | ---- | - | ---- | - | ---- | -
|
|UK corporation tax repaid |  |     |   |     |   | 52   |  
|Overseas tax paid         |  | (7   | ) | (4   | ) | (21  | )
|                          |  |      |   |      |   |      |  
|                          |  | (7   | ) | (4   | ) | 31   |  
|                          |  |      |   |      |   |      |  

All
the above amounts relate to Continuing Operations. Tax paid in respect of previous business disposals is included in note 23e.

d Capital expenditure and financial investments

|                                     |  | 2005 |   | 2004 |   | 2003 |  
|------------------------------------ |  | ---- | - | ---- | - | ---- | -
|
|Purchases of tangible fixed assets   |  | (35  | ) | (29  | ) | (43  | )
|Purchases of fixed asset investments |  |     |   |     |   | (20  | )
|Sales of tangible fixed assets       |  | 3    |   | 41   |   | 30   |  
|Sales of fixed asset investments     |  |     |   | 24   |   | 3    |  
|                                     |  |      |   |      |   |      |  
|                                     |  | (32  | ) | 36   |   | (30  | )
|                                     |  |      |   |      |   |      |  

Sales
of tangible fixed assets in 2004 included an amount of £26 million relating to information technology assets. In 2003, sales included
£26 million of property disposals and £2 million of car fleet disposals.

Of
the above amounts, Continuing Operations account for an outflow of £32 million (2004: £35 million inflow; 2003: £24 million
outflow) and Discontinued Operations a cash flow of £nil (2004: £1 million inflow; 2003: £6 million outflow).

e Acquisitions and disposals

|                                                    |  | 2005 |   | 2004 |   | 2003 |  
|--------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Investments in subsidiary companies                 |  |     |   | (6   | ) | (3   | )
|Sales of interests in subsidiary companies          |  | 184  |   | 136  |   | 377  |  
|Sales of interests in joint ventures and associates |  | (15  | ) | 98   |   | 46   |  
|Net cash disposed with subsidiary companies         |  |     |   | (6   | ) | 13   |  
|                                                    |  |      |   |      |   |      |  
|                                                    |  | 169  |   | 222  |   | 433  |  
|                                                    |  |      |   |      |   |      |  

Sales
of interests in subsidiary companies are shown net of proceeds, transaction costs and related tax cash flows.

167

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f Net cash inflow/(outflow) from management of liquid resources

|                                                                 |  | 2005 |   | 2004 |   | 2003 |  
|---------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|Deposits made with banks and similar financial institutions      |  | (247 | ) | (410 | ) | (167 | )
|Deposits withdrawn from banks and similar financial institutions |  | 270  |   | 513  |   | 8    |  
|                                                                 |  |      |   |      |   |      |  
|                                                                 |  | 23   |   | 103  |   | (159 | )
|                                                                 |  |      |   |      |   |      |  

g Net cash outflow from financing

|                                                                   |  | 2005 |   | 2004 |   | 2003 |  
|------------------------------------------------------------------ |  | ---- | - | ---- | - | ---- | -
|
|Issue of ordinary shares                                           |  | 4    |   |     |   |     |  
|Decrease in bank loans                                             |  |     |   | (5   | ) | (63  | )
|Decrease in Loan Notes                                             |  | (270 | ) | (410 | ) |     |  
|Capital element of finance lease payments                          |  |     |   | (1   | ) | (1   | )
|Scheme consideration                                               |  |     |   | (340 | ) |     |  
|Increase in loans to M (2003) plc and subsidiaries of M (2003) plc |  |     |   |     |   | 24   |  
|                                                                   |  |      |   |      |   |      |  
|                                                                   |  | (266 | ) | (756 | ) | (40  | )
|                                                                   |  |      |   |      |   |      |  

24 Analysis of net monetary funds

|                                              |                | At 1 April
2004 |      | Cash flow |     | Other
non-cash
changes |    | Exchange
rate
adjustment |    | At 31 March
2005 |    
|--------------------------------------------- | -------------- | --------------- | ---- | --------- | --- | ---------------------- | -- | ------------------------ | -- | ---------------- | ---
|
|Cash at bank and in hand                      |                | 406             |      | (169      | )   |                       |    | 2                        |    | 239              |    
|Loans repayable on demand                     |                | (14             | )    | 4         |     |                       |    |                         |    | (10              | )  
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    
|                                              |                |                 |      | (165      | )   |                        |    |                          |    |                  |    
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    
|Liquid resources                              |                | 113             |      | (23       | )   |                       |    | 5                        |    | 95               |    
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    
|Amounts falling due within one year:          |                |                 |      |           |     |                        |    |                          |    |                  |    
|                                              | Bank loans     |                 | (4   | )         | 4   |                        | (4 | )                        |   |                  | (4 
|                                              | Loan Notes     |                 | (8   | )         | 8   |                        |   |                          |   |                  |   
|                                              | Finance leases |                 |     |           |    |                        | (1 | )                        |   |                  | (1 
|Amounts falling due after more than one year: |                |                 |      |           |     |                        |    |                          |    |                  |    
|                                              | Bank loans     |                 | (20  | )         | (4  | )                      | 4  |                          | (1 | )                | (21
|                                              | Loan Notes     |                 | (257 | )         | 262 |                        |   |                          | (5 | )                |   
|                                              | Finance leases |                 | (2   | )         |    |                        | 1  |                          |   |                  | (1 
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    
|                                              |                |                 |      | 270       |     |                        |    |                          |    |                  |    
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    
|                                              |                | 214             |      | 82        |     |                       |    | 1                        |    | 297              |    
|                                              |                |                 |      |           |     |                        |    |                          |    |                  |    

168

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25 Acquisitions and disposals

a Sales of interests in subsidiaries

|                                             |  | Total
2005 |   | Total
2004 |   | Total
2003 |  
|-------------------------------------------- |  | ---------- | - | ---------- | - | ---------- | -
|
|Net assets sold                              |  |            |   |            |   |            |  
|Tangible fixed assets                        |  | 24         |   | 7          |   | 75         |  
|Stock                                        |  | 29         |   | 6          |   | 249        |  
|Debtors                                      |  | 25         |   | 12         |   | 318        |  
|Net cash                                     |  |           |   | 6          |   | (13        | )
|Borrowings (excluding overdrafts)            |  |           |   |           |   | (22        | )
|Taxation                                     |  |           |   |           |   | (4         | )
|Creditors and provisions                     |  | (21        | ) | (21        | ) | (246       | )
|Finance lease creditors                      |  |           |   |           |   | (2         | )
|Minority interests                           |  |           |   | (1         | ) | (11        | )
|Retirement benefit deficit                   |  | (16        | ) |           |   | (38        | )
|Goodwill                                     |  | 44         |   | 46         |   | 122        |  
|                                             |  |            |   |            |   |            |  
|                                             |  | 85         |   | 55         |   | 428        |  
|                                             |  |            |   |            |   |            |  
|Cash consideration received                  |  | 204        |   | 139        |   | 394        |  
|Deferred consideration and transaction costs |  | (16        | ) | (8         | ) | (1         | )
|                                             |  |            |   |            |   |            |  
|Profit on disposal                           |  | 103        |   | 76         |   | (35        | )
|                                             |  |            |   |            |   |            |  

OPP
was disposed of on 16 August 2004, on which we incurred additional tax costs of £4 million.

In
the year ended 31 March 2004, NAA was disposed of on 23 February 2004 and Marconi Mobile Access S.p.A (also known as UMTS) was disposed of on
17 July 2003. The Group incurred additional tax costs of £8 million upon the disposal of NAA in the year ended 31 March 2004. Following the review of
historic US tax attributes, the Group has received a refund of £4 million in the year ended 31 March 2005.

Marconi
Mobile Holdings S.p.A., the holding company for the Group's Strategic Communications business, was disposed of on 2 August 2002 and the Marconi Applied Technologies Group
was disposed of on 12 July 2002. In addition, £17 million was paid out to settle completion accounts adjustments for the disposals made during the year ended 31 March 2002 of
Medical Systems, Data Systems, Commerce Systems and Marconi Optical Components.

b Sales of interests in joint ventures and associates

In the year ended 31 March 2004, the Group's investment in Easynet Group plc, an associated undertaking, was sold in two tranches on
4 July 2003 and 11 September 2003, for a combined total of £94 million cash consideration giving rise to a profit of £76 million.

The
Group's investment in Confirmant Limited, a joint venture, was sold on 12 November 2003. £4 million cash consideration was received and a profit of
£1 million was recognised in the year ended 31 March 2004.

169

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26 Post retirement benefits

Marconi operates defined benefit pension plans in the UK, USA, Germany and Italy, and post-retirement benefit plans in the USA. The most significant
plan is the G.E.C. 1972 Plan (the UK Plan) in the UK. A full actuarial valuation for the UK Plan was carried out as at 5 April 2002 and a valuation for accounting purposes was carried out as at
31 March 2005 by independent qualified actuaries. A further full actuarial valuation is being carried out as at 5 April 2005, the results of which will be available in the second half of
the year ending 31 March 2006.

For
the US plans, full valuations were carried out at 1 January 2003 and 1 January 2004 and updated as applicable to 31 March 2005 by independent qualified
actuaries.

For
the German and Italian unfunded plans, valuations were carried out for accounting purposes at 31 March 2005 by independent qualified actuaries.

The
contributions made to the plans in the year totalled £17 million (2004: £21 million; 2003: £20 million). Benefit payments in the
accounting period totalled £9 million (2004: £17 million; 2003: £17 million). For the unfunded pension plans and the post retirement medical plans,
payments are made when the benefits are provided.

Company
contributions to the UK Plan are 8.2% of pensionable pay. In the USA, on 25 March 2003, the Group signed a funding agreement with the Pension Benefit Guaranty Corporation
(PBGC) for the US defined benefit schemes. This agreement was amended on 17 February 2004. Under this agreement, Marconi was required to contribute $2.25 million at the end of each
calendar quarter to its US defined benefit plans, in addition to the annual normal cost associated with the continuation of benefits. Effective from 13 August 2004, the quarterly contribution
was reduced to $1.75 million due to the transfer of the Reltec Retirement liability to Emerson. Additionally, proceeds from any disposal of US businesses shall be used to fund the scheme
deficits.

The
Group operates defined contribution schemes in addition to the defined benefit schemes listed. Contributions to these schemes amounted to £3 million (2004:
£5 million; 2003: £7 million).

170

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The
major assumptions used by the actuaries to determine the liabilities on a FRS 17 basis for the significant defined benefit plans are set out below:

|                                         |  | At 31 March 2005 |  | At 31 March 2004                            |  | At 31 March 2003
|---------------------------------------- |  | ---------------- |  | ------------------------------------------- |  | ----------------
|
|
|Rate of general increase in salaries     |  | 4.25             |  | 4.12                                        |  | 4.75            
|Rate of increase in pensions in payment  |  | 2.75             |  | 1.50                                        |  | 2.75            
|Rate of increase for deferred pensioners |  | 2.75             |  | N/A                                         |  | 2.75            
|Rate of credited interest                |  | 2.50             |  | N/A                                         |  | 3.00            
|Discount rate applied to liabilities     |  | 5.50             |  | 5.11                                        |  | 5.50            
|Inflation assumption                     |  | 2.75             |  | 2.12                                        |  | 2.75            
|                                         |  |                  |  |                                             |  |                 
|Expected healthcare trend rates          |  | N/A              |  | 11.0                                        |  | N/A             
|                                         |  |                  |  | pre and post 65, reducing to 6.0 after 2012 |  |                 
|                                         |  |                  |  |                                             |  |                 
|Expected prescription drug trend rates   |  | N/A              |  | 13.0                                        |  | N/A             
|                                         |  |                  |  | reducing to 6.0 after 2012                  |  |                 
|                                         |  |                  |  |                                             |  |                 

The
UK Plan provides benefits to members on the best of three bases. One of the bases is a money purchase underpin in which a discretionary level of credited interest is applied to a
percentage of members' contributions. The discretionary level of credited interest has been treated as a constructive obligation.

Pension plans

The assets in the UK Plan and the expected rates of return were:

|                                                    |  | Long-term
expected
rate of
return |  | Value at
31 March
2005 |   | Long-term
expected
rate of
return |  | Value at
31 March
2004 |   | Long-term
expected
rate of
return |  | Value at
31 March
2003 |  
|--------------------------------------------------- |  | --------------------------------- |  | ---------------------- | - | --------------------------------- |  | ---------------------- | - | --------------------------------- |  | ---------------------- | -
|
|Equities                                            |  | 8.00                              |  | 719                    |   | 8.25                              |  | 638                    |   | 8.25                              |  | 497                    |  
|Bonds                                               |  | 4.76                              |  | 1,503                  |   | 4.84                              |  | 1,536                  |   | 4.84                              |  | 1,702                  |  
|Property                                            |  | 6.50                              |  | 114                    |   | 6.70                              |  | 101                    |   | 6.75                              |  | 111                    |  
|Cash                                                |  | 3.75                              |  | 51                     |   | 3.75                              |  | 43                     |   | 4.00                              |  | 30                     |  
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  
|Total market value of assets                        |  |                                   |  | 2,387                  |   |                                   |  | 2,318                  |   |                                   |  | 2,340                  |  
|Present value of plan liabilities                   |  |                                   |  | (2,496                 | ) |                                   |  | (2,436                 | ) |                                   |  | (2,535                 | )
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  
|Net pension liability before and after deferred tax |  |                                   |  | (109                   | ) |                                   |  | (118                   | ) |                                   |  | (195                   | )
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  

171

---



The
assets in the overseas plans and the expected rates of return were:

|                                                    |  | Long-term
expected
rate of
return |  | Value at
31 March
2005 |   | Long-term
expected
rate of
return |  | Value at
31 March
2004 |   | Long-term
expected
rate of
return |  | Value at
31 March
2003 |  
|--------------------------------------------------- |  | --------------------------------- |  | ---------------------- | - | --------------------------------- |  | ---------------------- | - | --------------------------------- |  | ---------------------- | -
|
|Equities                                            |  | 8.75                              |  | 53                     |   | 8.75                              |  | 68                     |   | 10.00                             |  | 65                     |  
|Bonds                                               |  | 5.00                              |  | 46                     |   | 5.00                              |  | 57                     |   | 6.00                              |  | 59                     |  
|Other                                               |  | 6.50                              |  | 7                      |   | 6.50                              |  | 7                      |   | 9.00                              |  | 10                     |  
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  
|Total market value of assets                        |  |                                   |  | 106                    |   |                                   |  | 132                    |   |                                   |  | 134                    |  
|Present value of plan liabilities                   |  |                                   |  | (211                   | ) |                                   |  | (238                   | ) |                                   |  | (263                   | )
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  
|Net pension liability before and after deferred tax |  |                                   |  | (105                   | ) |                                   |  | (106                   | ) |                                   |  | (129                   | )
|                                                    |  |                                   |  |                        |   |                                   |  |                        |   |                                   |  |                        |  

|                                                                                          |  | Value at
31 March
2005 |   | Value at
31 March
2004 |   | Value at
31 March
2003 |  
|----------------------------------------------------------------------------------------- |  | ---------------------- | - | ---------------------- | - | ---------------------- | -
|
|Other post retirement benefits                                                            |  |                        |   |                        |   |                        |  
|Present value of plan liabilities and net pension liability before and after deferred tax |  | (14                    | ) | (22                    | ) | (29                    | )
|                                                                                          |  |                        |   |                        |   |                        |  

Analysis of the amount charged to operating loss

|                     |  | 2005 |   | 2004 |   | 2003 | 
|-------------------- |  | ---- | - | ---- | - | ---- | 
|
|
|Current service cost |  | (17  | ) | (5   | ) |     | 
|Past service cost    |  |     |   |     |   |     | 
|                     |  |      |   |      |   |      | 
|Total service cost   |  | (17  | ) | (5   | ) |     | 
|                     |  |      |   |      |   |      | 

172

---



Analysis of other amounts charged to the profit and loss account

|                                                  |  | 2005 |  | 2004 |  | 2003
|------------------------------------------------- |  | ---- |  | ---- |  | ----
|
|
|Gain/(loss) on settlements                        |  |     |  | 11   |  | 4   
|Gain/(loss) on curtailments                       |  |     |  | 1    |  |    
|                                                  |  |      |  |      |  |     
|Net gain/(loss)charged to profit and loss account |  |     |  | 12   |  | 4   
|                                                  |  |      |  |      |  |     

Of the amounts above £16 million was credited to non-operating exceptional items and £nil to operating
profit (2004: £8 million charged to non-operating exceptional items and £nil to operating loss; 2003: £57 million credited to non-operating
exceptional items and £3 million credited to operating loss).

Analysis of the amount credited to other finance (expenditure)/income

|                                         |  | 2005 |   | 2004 |   | 2003 |  
|---------------------------------------- |  | ---- | - | ---- | - | ---- | -
|
|
|Expected return on pension scheme assets |  | 132  |   | 9    |   |     |  
|Interest on pension scheme liabilities   |  | (130 | ) | (12  | ) | (1   | )
|                                         |  |      |   |      |   |      |  
|Total finance income/(expenditure)       |  | 2    |   | (3   | ) | (1   | )
|                                         |  |      |   |      |   |      |  
|Net (expenditure)/income                 |  | (15  | ) | 4    |   | 3    |  
|                                         |  |      |   |      |   |      |  

The net (expenditure)/income represents the operating charge plus curtailment and settlement gains and losses plus finance income/(expenditure).

173

---



Analysis of amount recognised in the consolidated statement of total recognised gains and losses (STRGL)

|                                                                                         |  | 2005 |   | 2004 |   | 2003 | 
|---------------------------------------------------------------------------------------- |  | ---- | - | ---- | - | ---- | 
|
|
|Expected return less actual return on pension scheme assets gains/(losses)               |  | 71   |   | (4   | ) |     | 
|Experience gains and (losses) arising on scheme liabilities                              |  |     |   | (1   | ) | 2    | 
|Changes in assumptions underlying the present value of scheme liabilities (losses)/gains |  | (57  | ) | (10  | ) |     | 
|                                                                                         |  |      |   |      |   |      | 
|Actuarial gain/(loss) recognised in STRGL                                                |  | 14   |   | (15  | ) | 2    | 
|                                                                                         |  |      |   |      |   |      | 

The main element of the amount recognised in the STRGL in all three years has resulted from the difference between the actual rate of return and
expected rate of return on the plans' assets. In the year ended 31 March 2005, actual investment returns in the UK Plan exceeded expected returns across all classes of assets, resulting
in a substantial asset gain. In the year ended 31 March 2004, asset gains were experienced for both the UK and US funded plans, primarily due to the recovery of equity markets.

The
second largest impact on the STRGL in all three years has been the losses resulting from changes in assumptions underlying the present value of the plans' liabilities.

At
31 March 2005, revisions to the UK Plan mortality assumption have led to a STRGL loss of £102 million. This revision recognised observed improvements in
longevity in line with the most recent available plan data, plus an allowance for likely improvements in the future. In the UK Plan, the trustees have discretion to credit interest (bonuses) to
pension awards. During the year, our credited interest assumption has been reduced from 3.0% to 2.5% to align with actual expected awards, providing a STRGL gain. A further STRGL gain was recognised
from a reduction in our salary growth assumption.

At
31 March 2004, in the UK Plan, the reduction of our credited interest assumption provided a gain. Offsetting this gain was a loss resulting from revised mortality assumptions,
recognising observed improvements in longevity at that date.

At
31 March 2005, due to movements in Eurobond rates during the year, the German and Italian Plan discount rates were reduced. The German Plan discount rate was reduced from 5.50%
at

174

---



31 March 2004
to 4.50% at 31 March 2005. The Italian Plan discount rate was reduced from 5.00% at 31 March 2004 to 4.00% at 31 March 2005. Both
of these changes resulted in STRGL losses.

At
31 March 2004, due to movements in AA corporate bond rates in the UK and US, the UK discount rate was increased from 5.25% to 5.50% leading to a gain, and the US discount rate
was decreased from 6.25% to 5.75% leading to a loss.

Movement in deficit during the year

|                    |                                    | 2005 |     | 2004 |    
|------------------- | ---------------------------------- | ---- | --- | ---- | ---
|
|
|Deficit at 1 April  |                                    | (118 | )   | (106 | )  
|Movement in year:   |                                    |      |     |      |    
|                    | Current service cost               |      | (17 | )    | (5 
|                    | Contributions and benefit payments |      | 10  |      | 14 
|                    | Settlement gain/(loss)             |      |    |      | 11 
|                    | Curtailment gain                   |      |    |      | 1  
|                    | Other finance income/(charge)      |      | 2   |      | (3 
|                    | Actuarial gain/(loss)              |      | 14  |      | (15
|                    | Foreign exchange                   |      |    |      | (2 
|                    |                                    |      |     |      |    
|Deficit at 31 March |                                    | (109 | )   | (105 | )  
|                    |                                    |      |     |      |    

The
net deficit before deferred taxation is analysed by jurisdiction as follows:

|                        |  | 2005 |   | 2004 |  
|----------------------- |  | ---- | - | ---- | -
|
|
|Surpluses               |  |     |   | 3    |  
|Deficits                |  | (109 | ) | (108 | )
|                        |  |      |   |      |  
|Net deficit at 31 March |  | (109 | ) | (105 | )
|                        |  |      |   |      |  

175

---





History of experience gains and losses

|                                                                                   |                                                       | 2005 |       | 2004 |       | 2003 |       | 2002 |       | 2001 |     
|---------------------------------------------------------------------------------- | ----------------------------------------------------- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----- | ---- | ----
|Difference between the expected and actual return on scheme assets gains/(losses): |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Amount (£ million)                                    |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      | 71    |      | 115   |      | (147  | )    | (218  | )    | (139
|                                                                                   | Rest of the world pension plans                       |      | (4    | )    | 15    |      | (31   | )    | (59   | )    | (47 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Total                                                 |      | 67    |      | 130   |      | (178  | )    | (277  | )    | (186
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Percentage of scheme assets                           |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      | 3.0   |      | 5.0   |      | (6.3  | )    | (8.7  | )    | (5.2
|                                                                                   | Rest of the world pension plans                       |      | (0.2  | )    | 11.4  |      | (23.1 | )    | (33.1 | )    | (8.7
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Overall                                               |      | 2.7   |      | 5.3   |      | (7.2  | )    | (10.3 | )    | (5.8
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|Experience gains and (losses) on scheme liabilities:                               |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Amount (£ million)                                    |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      |      |      | 9     |      | 4     |      | 20    |      | (41 
|                                                                                   | Rest of the world pension plans                       |      | (1    | )    | (2    | )    | (3    | )    | (10   | )    | (9  
|                                                                                   | Post retirement medical plans                         |      | 2     |      | 3     |      | 6     |      | (1    | )    | (1  
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Total                                                 |      | 1     |      | 10    |      | 7     |      | 9     |      | (51 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Percentage of the present value of scheme liabilities |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      |      |      | (0.4  | )    | (0.2  | )    | (0.8  | )    | 1.7 
|                                                                                   | Rest of the world pension plans                       |      | 0.5   |      | 0.8   |      | 1.1   |      | 3.9   |      | 1.7 
|                                                                                   | Post retirement medical plans                         |      | (14.3 | )    | (13.6 | )    | (20.7 | )    | 2.6   |      | 2.0 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Overall                                               |      |      |      | (0.4  | )    | (0.3  | )    | (0.3  | )    | 1.7 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|Total amount recognised in STRGL:                                                  |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Amount (£ million)                                    |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      | 14    |      | 91    |      | (209  | )    | (250  | )    | (14 
|                                                                                   | Rest of the world pension plans                       |      | (15   | )    | 3     |      | (58   | )    | (98   | )    | (57 
|                                                                                   | Post retirement medical plans                         |      | 2     |      | 2     |      | (2    | )    | (3    | )    | (2  
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Total                                                 |      | 1     |      | 96    |      | (269  | )    | (351  | )    | (73 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Percentage of the present value of scheme liabilities |      |       |      |       |      |       |      |       |      |     
|                                                                                   | UK Plan                                               |      | (0.6  | )    | (3.7  | )    | 8.2   |      | 10.0  |      | 0.6 
|                                                                                   | Rest of the world pension plans                       |      | 7.1   |      | (1.3  | )    | 22.1  |      | 37.8  |      | 10.9
|                                                                                   | Post retirement medical plans                         |      | (14.3 | )    | (9.1  | )    | 6.9   |      | 7.9   |      | 4.0 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     
|                                                                                   | Overall                                               |      |      |      | (3.6  | )    | 9.5   |      | 12.5  |      | 2.4 
|                                                                                   |                                                       |      |       |      |       |      |       |      |       |      |     

176

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27 Other information

a Contingent liabilities

|                                   |  | Group |  | Company
|---------------------------------- |  | ----- |  | -------
|
|
|Contingent liabilities at year end |  | 20    |  | 20     
|                                   |  |       |  |        

Litigation

Contingent liabilities relate mainly to obligations arising from legal proceedings, which in the opinion of the directors, are not expected to have a materially
adverse effect on the Group. The Group is engaged in a number of legal proceedings relating to patent and other claims under contracts. The Group is vigorously defending these cases, the estimated
cost of which is disclosed above, and the directors currently believe that the claims are unlikely to be settled for amounts resulting in material cash or other asset outflows.

Guarantees

At 31 March 2005, the Group had provided third parties with a total of £137 million of guarantees, performance bonds and
indemnities, the exercise of which is considered to be remote. At 31 March 2005, the value of total collateral against these various guarantees was £78 million. In
addition, the Group estimates that £59 million of the providers had varying conditional and unconditional rights to call for cash collateral.

b Capital expenditure

|                                   |  | Group |  | Company
|---------------------------------- |  | ----- |  | -------
|
|
|Commitments contracted at year end |  | 6     |  | 4      
|                                   |  |       |  |        

c Operating leases

|                     |                    | Group |    | Company
|-------------------- | ------------------ | ----- | -- | -------
|
|
|Charges in the year: |                    |       |    |        
|                     | Land and buildings |       | 16 |        
|                     | Other items        |       | 8  |        
|                     |                    |       |    |        
|                     |                    | 24    |    | 40     
|                     |                    |       |    |        

177

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Amounts
payable under operating leases which fall due in the next financial year

|                                     |                            | Group |   | Company
|------------------------------------ | -------------------------- | ----- | - | -------
|
|
|Land and buildings, leases expiring: |                            |       |   |        
|                                     | Within one year            |       | 2 |        
|                                     | Between two and five years |       | 5 |        
|                                     | After five years           |       | 5 |        
|Other items, leases expiring:        |                            |       |   |        
|                                     | Within one year            |       |  |        
|                                     | Between two and five years |       | 4 |        
|                                     |                            |       |   |        
|                                     |                            | 16    |   | 32     
|                                     |                            |       |   |        

d Fees paid to auditors

|                                       |  | Group |  | Company
|-------------------------------------- |  | ----- |  | -------
|
|
|Audit services                         |  | 2     |  | 2      
|Audit-related services                 |  |      |  |       
|Tax services and other compliance work |  | 1     |  | 2      
|Business support and other services    |  |      |  | 1      
|                                       |  |       |  |        
|                                       |  | 3     |  | 5      
|                                       |  |       |  |        

Audit
fees are £1.8 million (2004: £2.3 million). The cost of reporting quarterly in both UK and US Generally Accepted Accounting Principles is
borne by the Company.

Tax
services and other compliance work include fees of £0.6 million (2004: £1.6 million) dealing with tax computations, submissions, appeals,
restructuring and £0.2 million (2004: £0.6 million) for expatriate services. Expatriate services have now been transitioned to another professional services firm.

Business
support and other services include fees for operational internal audit of £0.2 million (2004: £0.6 million) and
£0.2 million (2004: £0.2 million) for Sarbanes-Oxley, project work and technical advice. All internal audit work was transitioned to another professional services
firm during the year.

All
non-audit services performed by the auditors are pre-approved by the Audit Committee, following a competitive tender process where appropriate, in accordance
with our auditors' independence policy.

All
the Group amounts shown above were charged to administrative expenditure.

28 Financial instruments

a Treasury policies and organisation

The Group's treasury activities are coordinated by its central treasury function, which operates in accordance with policies and procedures approved by the Board.
It does not operate as a profit centre.

178

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The
treasury function advises operational management on treasury matters and undertakes all derivative transactions. All treasury-related transactions undertaken by operating businesses are required
to be carried out in accordance with guidelines laid down by the treasury function and must comply with the Group risk management policies.

Short-term
debtors and creditors have been excluded from all disclosures within this note with the exception of the currency related risk profile disclosures.

The
main risks faced by the Group in the financial markets in the years ended 31 March 2005 and 2004 were liquidity risk, interest rate risk, foreign currency risk and
counter-party risk. The Board reviews and agrees policies for managing each of these, which are summarised below.

Financial instruments

Prior to the Group's financial restructuring in May 2003, the Group used financial instruments, including derivatives (principally interest rate swaps,
cancellable interest rate swaps, currency swaps and forward foreign exchange contracts) to manage interest rate and currency risk exposures. In February 2005 the Group recommenced hedging of
foreign currency cash flows with forward foreign exchange contracts. The Group is reviewing its interest rate hedging policy and any requirement for interest rate hedging instruments to mitigate
interest rate risks.

It
is the Group's policy that there is no trading in financial instruments, and that all financial instruments are used solely for the purpose of financing or hedging identified
exposures of the Group.

Liquidity risk

The Group funded its activities mainly through cash generated from its operational activities and proceeds of disposals. The Senior Notes were repaid in full in
September 2004 (£265 million outstanding as at 31 March 2004).

The
Group's gross borrowings as at 31 March 2005 were £37 million (2004: £305 million) and cash and liquid resources were
£334 million (2004: £519 million), resulting in net cash of £297 million at 31 March 2005 (2004: £214 million).

In
the years ended 31 March 2005 and 2004, the Group had local borrowing facilities in Italy and China. The Group has not sought to increase or add to its bank facilities given
its net cash and liquid resources position of £297 million as at 31 March 2005.

As
disclosed in note 16, the Group has uncommitted receivables financing facilities for €79 million (£54 million) of which
€22 million (£15 million) was drawn as at 31 March 2005. The facilities do not have formal expiry dates, however, €19 million
(£13 million) of these facilities is due for review in December 2005 and the remaining €60 million (£41 million) is due for review
in March 2006.

179

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The following table sets out the breakdown of restricted and free cash balances.

|                                                      |  | 31 March
2005 |  | 31 March
2004
|----------------------------------------------------- |  | ------------- |  | -------------
|
|Cash collateral for performance bonds and guarantees  |  | 78            |  | 85           
|Captive insurance company                             |  | 17            |  | 18           
|Collateral for secured loans                          |  | 8             |  | 11           
|Mandatory Redemption Escrow Account (MREA)            |  |              |  | 10           
|                                                      |  |               |  |              
|Total restricted cash                                 |  | 103           |  | 124          
|Cash held at subsidiary level and cash in transit     |  | 64            |  | 74           
|Available treasury deposits                           |  | 167           |  | 321          
|                                                      |  |               |  |              
|Cash at bank and in hand (including liquid resources) |  | 334           |  | 519          
|                                                      |  |               |  |              

The
Group continues to be required to place cash collateral, in whole or in part, against any provision of performance bonding facilities or letters of credit. As at 31
March 2005, £78 million of cash collateral was outstanding (2004: £85 million) to secure £137 million of bonding (2004:
£141 million).

Interest rate risk

The Group repaid its fixed-rate US Dollar denominated debt (the Loan Notes) in full on 1 September 2004 and subsequently the Group's interest
charge exposure was limited to floating-rate interest on RMB 153 million of loans in China (£10 million), €3 million
(£2 million) of leases in Italy and €7 million (£5 million) of debt in Italy. €29 million
(£20 million) of debt in Italy was at fixed-rate interest. All the Italian borrowings are at rates sponsored by the Italian government.

The
Group's cash and liquid resources of £334 million (2004: £519 million) are all at floating rate.

A
one-percentage point decrease in market interest rates would have decreased profit before taxation by £3 million in the year ended 31 March 2005.
The average rate of interest achieved on invested cash was approximately 2.7% per annum (2004: 2.0%; 2003: 2.7%).

Counter-party risk

All deposits and foreign exchange forward contracts are made with creditworthy and authorised counter-parties. The Group's counter-party risk to foreign currency
hedging is weighted at 12.5% of gross exposure up to three months and added to deposit exposure weighted at 100%. Exposure to any single financial counter-party is limited by policy as a proportion of
the central treasury function's free cash deposits to a maximum of 25%.

Customer financing risks

The Group has not issued any new customer finance commitments during the year ended 31 March 2005. At 31 March 2005, the Group had a net exposure to
customer financing of approximately £1 million.

180

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In
addition, the Group uses export credit agencies to assist in managing political and credit risks on major contracts, and makes use of export credit insurance in respect of small to
medium-sized contracts when considered appropriate.

Contract bonding facilities

The Group provides third parties with guarantees, performance bonds and indemnities, the exercise of which is considered to be remote. At 31 March 2005 the
amount outstanding was £137 million (2004: £141 million). Marconi Bonding Limited, a Group subsidiary, has available to it a committed bonding facility for
£35 million until November 2007. Under the terms of the facility, Marconi Bonding Limited provides 50% cash collateral to the bonding provider; the provider has unconditional rights
to call for the balance, up to 100% cash collateral, at any time. This facility replaces a facility for £50 million which was due to expire in November 2005 and which required 100%
cash collateral to be placed with the provider.

A
maturity profile of all bonds and guarantees outstanding is set out below:

|Expiring 31 March |  | Bonds
outstanding
at 31 March
2005 |  | Bonds
outstanding
at 31 March
2004
|----------------- |  | ---------------------------------- |  | ----------------------------------
|
|2005 or earlier   |  |                                   |  | 51                                
|2006              |  | 54                                 |  | 8                                 
|2007              |  | 57                                 |  | 58                                
|2008              |  | 7                                  |  | 6                                 
|Thereafter        |  | 9                                  |  | 11                                
|No expiry date    |  | 10                                 |  | 7                                 
|                  |  |                                    |  |                                   
|Total             |  | 137                                |  | 141                               
|                  |  |                                    |  |                                   

At
31 March 2005 the value of total cash collateral against these various guarantees was £78 million. The Group estimates that as at
31 March 2005, £59 million of the providers had varying conditional and unconditional rights to call for cash collateral.

Insurance risk management

The Group manages centrally the purchase of global insurance policies in respect of major insurable risks, including property (material damage/business
interruption), directors' and officers' and public liability. The Group maintains the types of property and liability insurance which the directors regard as appropriate given the nature of the risks
run in the course of its business, and for amounts which they consider adequate. When considering the appropriateness of insurance cover, the directors make assessments of insurable risks using both
in-house professionals and the advice of insurance brokers. The directors have determined what they believe to be the appropriate level of cover having regard, among other things, to the
Group's loss record, the industry in which it operates, its risk tolerance level, the cost of cover relative to the risk, customer and legal requirements and any relevant and available information on
the levels of cover typically purchased by other comparable companies which operate in the Group's industry.

181

---



The
use of global policies and centrally appointed brokers allows the Group to improve internal control and optimise the overall level of retained risk. Risk management and insurance
spend are concentrated on those insurable risks which are considered potentially catastrophic to the Group as a whole. The Group continues to work with its insurers and advisors to improve its loss
prevention and mitigation process.

Foreign exchange risk

The Group is exposed to movements in foreign exchange rates against Sterling for both trading transactions and the translation of net assets and the profit and
loss accounts of overseas subsidiaries. The main trading currencies of the Group are the US Dollar, Sterling and the Euro.

In
September 2004, the Group redeemed the remainder of its US Dollar-denominated debt (£265 million).

The
Group's cash and liquid resources were £334 million (2004: £519 million) of which £138 million (2004:
£111 million) was denominated in Sterling, £35 million (2004: £262 million) in US Dollars, £128 million (2004:
£110 million) in Euro and the balance of £33 million (2004: £36 million) in other currencies.

As
at 31 March 2005, the Group held approximately €78 million (£54 million) and $31 million (£17 million) of
foreign-currency denominated cash within the UK, as a combination of collateral against bonding facilities and to meet foreign currency working capital requirements. This cash is not treated as a
hedge for accounting purposes, and gains and losses on retranslation of the cash into Sterling are taken to net finance income/(expenditure).

The
Group has overseas subsidiaries that earn profits or incur losses in their local currencies. It is not the Group's policy to hedge the exposures arising from the translation of these
overseas results into Sterling. The Group's sales and profitability are sensitive to exchange rate fluctuations.

The
table below demonstrates the sensitivity of the Group's profits to exchange rates:

|                               |  | Reduction in Group
reported Sterling
operating profit/(loss)
before goodwill,
amortisation and
exceptional items
2005 |  
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- | -
|
|10% reduction in the value of: |  |                                                                                                                       |  
|US Dollar                      |  | 2.2                                                                                                                   |  
|Euro-trade currencies          |  | 0.4                                                                                                                   |  
|Other                          |  | (0.9                                                                                                                  | )
|                               |  |                                                                                                                       |  
|Total                          |  | 1.7                                                                                                                   |  
|                               |  |                                                                                                                       |  

182

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b Currency and interest rate risk profile of financial assets and liabilities

Financial assets

The currency and interest rate profile of the Group's financial assets at 31 March 2005 and 31 March 2004 were:

|31 March 2005    |                                                        | Total |     | Floating
rate |     | Non-interest
bearing |   | Non-interest
bearing
weighted
average
period
Years
|---------------- | ------------------------------------------------------ | ----- | --- | ------------- | --- | -------------------- | - | --------------------------------------------------
|
|Sterling         |                                                        | 138   |     | 138           |     |                     |   |                                                  
|US Dollar        |                                                        | 35    |     | 35            |     |                     |   |                                                  
|Euro             |                                                        | 128   |     | 128           |     |                     |   |                                                  
|Other            |                                                        | 33    |     | 33            |     |                     |   |                                                  
|                 |                                                        |       |     |               |     |                      |   |                                                   
|Total            |                                                        | 334   |     | 334           |     |                     |   |                                                  
|                 |                                                        |       |     |               |     |                      |   |                                                   
|Analysed between |                                                        |       |     |               |     |                      |   |                                                   
|                 | Cash at bank and in hand (note 17)                     |       | 239 |               | 239 |                      |  |                                                   
|                 | Other cash deposits (note 17)                          |       | 95  |               | 95  |                      |  |                                                   
|                 | Long-term debtors and amounts recoverable on contracts |       |    |               |    |                      |  |                                                   
|                 |                                                        |       |     |               |     |                      |   |                                                   
|                 |                                                        | 334   |     | 334           |     |                     |   |                                                   
|                 |                                                        |       |     |               |     |                      |   |                                                   

|
|

|31 March 2004    |                                                        | Total |     | Floating
rate |     | Non-interest
bearing |   | Non-interest
bearing
weighted
average
period
Years
|---------------- | ------------------------------------------------------ | ----- | --- | ------------- | --- | -------------------- | - | --------------------------------------------------
|
|Sterling         |                                                        | 111   |     | 111           |     |                     |   |                                                  
|US Dollar        |                                                        | 265   |     | 262           |     | 3                    |   | 1.4                                               
|Euro             |                                                        | 111   |     | 110           |     | 1                    |   | 2.9                                               
|Other            |                                                        | 36    |     | 36            |     |                     |   |                                                  
|                 |                                                        |       |     |               |     |                      |   |                                                   
|Total            |                                                        | 523   |     | 519           |     | 4                    |   | 1.6                                               
|                 |                                                        |       |     |               |     |                      |   |                                                   
|Analysed between |                                                        |       |     |               |     |                      |   |                                                   
|                 | Cash at bank and in hand (note 17)                     |       | 406 |               | 406 |                      |  |                                                   
|                 | Other cash deposits (note 17)                          |       | 113 |               | 113 |                      |  |                                                   
|                 | Long-term debtors and amounts recoverable on contracts |       | 4   |               |    |                      | 4 |                                                   
|                 |                                                        |       |     |               |     |                      |   |                                                   
|                 |                                                        | 523   |     | 519           |     | 4                    |   |                                                   
|                 |                                                        |       |     |               |     |                      |   |                                                   

183

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Financial liabilities

The currency and interest rate profile of the Group's financial liabilities at 31 March 2005 and 31 March 2004 were:

|31 March 2005                             |                                                     | Total |    | Floating-
rate |    | Fixed-rate |    | Fixed-rate
average
interest rate |  | Weighted
period
|----------------------------------------- | --------------------------------------------------- | ----- | -- | -------------- | -- | ---------- | -- | -------------------------------- |  | ---------------
|
|Euro                                      |                                                     | 27    |    | 7              |    | 20         |    | 2.7                              |  | 4.6            
|Other                                     |                                                     | 10    |    | 10             |    |           |    |                                 |  |               
|                                          |                                                     |       |    |                |    |            |    |                                  |  |                
|Total                                     |                                                     | 37    |    | 17             |    | 20         |    | 2.7                              |  | 4.6            
|                                          |                                                     |       |    |                |    |            |    |                                  |  |                
|Analysed as                               |                                                     |       |    |                |    |            |    |                                  |  |                
|                                          | Borrowings (note 19)                                |       | 37 |                | 17 |            | 20 |                                  |  |                
|                                          |                                                     |       |    |                |    |            |    |                                  |  |                
|Maturity profile of financial liabilities |                                                     |       |    |                |    |            |    |                                  |  |                
|                                          | In one year or less, or on demand                   |       | 15 |                |    |            |    |                                  |  |                
|                                          | In more than one year, but no more than two years   |       | 5  |                |    |            |    |                                  |  |                
|                                          | In more than two years, but no more than five years |       | 7  |                |    |            |    |                                  |  |                
|                                          | In more than five years                             |       | 10 |                |    |            |    |                                  |  |                
|                                          |                                                     |       |    |                |    |            |    |                                  |  |                
|                                          |                                                     | 37    |    |                |    |            |    |                                  |  |                
|                                          |                                                     |       |    |                |    |            |    |                                  |  |                

|31 March 2004                             |                                                     | Total |     | Floating-
rate |    | Fixed-rate |     | Fixed-rate
average
interest rate |  | Weighted
period
|----------------------------------------- | --------------------------------------------------- | ----- | --- | -------------- | -- | ---------- | --- | -------------------------------- |  | ---------------
|
|Sterling                                  |                                                     |      |     |               |    |           |     |                                 |  |               
|US Dollar                                 |                                                     | 265   |     |               |    | 265        |     | 8.0                              |  | 4.0            
|Euro                                      |                                                     | 26    |     | 3              |    | 23         |     | 4.6                              |  | 4.6            
|Other                                     |                                                     | 14    |     | 14             |    |           |     |                                 |  |               
|                                          |                                                     |       |     |                |    |            |     |                                  |  |                
|Total                                     |                                                     | 305   |     | 17             |    | 288        |     | 7.7                              |  | 4.0            
|                                          |                                                     |       |     |                |    |            |     |                                  |  |                
|Analysed as                               |                                                     |       |     |                |    |            |     |                                  |  |                
|                                          | Borrowings (note 19)                                |       | 305 |                | 17 |            | 288 |                                  |  |                
|                                          |                                                     |       |     |                |    |            |     |                                  |  |                
|Maturity profile of financial liabilities |                                                     |       |     |                |    |            |     |                                  |  |                
|                                          | In one year or less, or on demand                   |       | 26  |                |    |            |     |                                  |  |                
|                                          | In more than one year, but no more than two years   |       | 5   |                |    |            |     |                                  |  |                
|                                          | In more than two years, but no more than five years |       | 267 |                |    |            |     |                                  |  |                
|                                          | In more than five years                             |       | 7   |                |    |            |     |                                  |  |                
|                                          |                                                     |       |     |                |    |            |     |                                  |  |                
|                                          |                                                     | 305   |     |                |    |            |     |                                  |  |                
|                                          |                                                     |       |     |                |    |            |     |                                  |  |                

Floating-rate
borrowings and assets bear interest based on relevant national LIBOR equivalents.

184

---



In
addition to the above, in December 2004 the Group entered into an arrangement to assign certain Euro-denominated trade debts as security against the advance of cash
from a third party provider. Debts outstanding at 31 March 2005 were €22 million (£15 million) (2004: £nil).
€15 million (£10 million) of trade debts assigned expire within three months of 31 March 2005 and the average rate payable, including fees, is 3.7%
(refer to note 16).

c Currency profile

At 31 March 2005 and 31 March 2004 (after taking into account the effects of forward foreign exchange contracts held at 31 March 2005) the
Group's currency exposures, excluding borrowings treated as hedges, were:

Functional currency of Group operation

|          |  | Net foreign currency monetary
assets/(liabilities) |  |   
|--------- |  | -------------------------------------------------- |  | --
|
|
|Sterling  |  |                                                   |  | 14
|US Dollar |  |                                                   |  |  
|Euro      |  | 2                                                  |  | 9 
|Other     |  | 1                                                  |  | 2 
|          |  |                                                    |  |   
|Total     |  | 3                                                  |  | 25
|          |  |                                                    |  |   

|          |  | Net foreign currency monetary
assets/(liabilities) |  |     |  
|--------- |  | -------------------------------------------------- |  | --- | -
|
|
|Sterling  |  |                                                   |  | (87 | )
|US Dollar |  |                                                   |  |    |  
|Euro      |  | 2                                                  |  | (6  | )
|Other     |  | 5                                                  |  | 1   |  
|          |  |                                                    |  |     |  
|Total     |  | 7                                                  |  | (92 | )
|          |  |                                                    |  |     |  

The
Group's net monetary debt and net assets by currency at 31 March 2005 and 31 March 2004 were:

|31 March 2005 |  | Net
assets
before net
monetary
funds/(debt) |   | Net
monetary
funds |  | Net assets/
(liabilities) |  
|------------- |  | ------------------------------------------- | - | ------------------ |  | ------------------------- | -
|
|Sterling      |  | 48                                          |   | 209                |  | 257                       |  
|US Dollar     |  | (19                                         | ) | 28                 |  | 9                         |  
|Euro          |  | 92                                          |   | 48                 |  | 140                       |  
|Other         |  | (13                                         | ) | 12                 |  | (1                        | )
|              |  |                                             |   |                    |  |                           |  
|Total         |  | 108                                         |   | 297                |  | 405                       |  
|              |  |                                             |   |                    |  |                           |  

185

---



|31 March 2004 |  | Net
assets
before net
monetary
funds/(debt) |  | Net
monetary
funds |  | Net assets/
(liabilities)
|------------- |  | ------------------------------------------- |  | ------------------ |  | -------------------------
|
|Sterling      |  | 53                                          |  | 86                 |  | 139                      
|US Dollar     |  | 7                                           |  | 77                 |  | 84                       
|Euro          |  | 76                                          |  | 34                 |  | 110                      
|Other         |  | 2                                           |  | 17                 |  | 19                       
|              |  |                                             |  |                    |  |                          
|Total         |  | 138                                         |  | 214                |  | 352                      
|              |  |                                             |  |                    |  |                          

d Fair values of finance assets and liabilities

The book values and fair values of the Group's financial assets and liabilities at 31 March 2005 and 31 March 2004 were:

|                                                                             |  | Book value |   | Fair value |  
|---------------------------------------------------------------------------- |  | ---------- | - | ---------- | -
|
|
|Short-term financial liabilities and current portion of long-term borrowings |  | (15        | ) | (26        | )
|Long-term borrowings and long-term financial liabilities                     |  | (22        | ) | (279       | )
|Financial assets                                                             |  | 334        |   | 523        |  
|                                                                             |  |            |   |            |  

The
fair values of the traded outstanding long-term borrowings have been determined by references available from the markets on which the instruments are traded. Fair values
for foreign exchange contracts are immaterial.

e Gain and losses on hedges

In February 2005, the Group recommenced hedging of foreign currency cash flow exposures with maturity of three months or less from forecast date. As at
31 March 2005, gross exposures totalling £22 million (2004: £nil) were hedged with forward foreign exchange contracts that were deemed to be 100% effective.
Unrealised gains and losses were considered to be immaterial.

The
Group has overseas subsidiaries that earn profits or incur losses in their local currencies. It is not the Group's policy to hedge the exposures arising from the translation of these
overseas results into Sterling.

29 Post balance sheet events

On 28 April 2005, BT announced that Marconi had not been selected as a preferred supplier for its 21CN project. Consequently Marconi has recognised the
need to refocus its business and, in the first quarter of fiscal 2006, has undertaken a process of consultation with trade union and employee representatives on a proposed headcount reduction of up to
800 jobs in the UK, as announced on 6 May 2005.

186

---



In
the year ending 31 March 2006, the Group expects the restructuring plan to achieve headcount and associated cost savings of approximately £36 million. In
addition, the Group has identified further business cost reduction and efficiency gains from other initiatives, some of which were commenced in the year ended 31 March 2005. The restructuring
cash costs are expected to be approximately £55 million including cash related to existing restructuring provisions. Of these cash costs, the Group expects to incur approximately
£45 million in the year ending 31 March 2006.

30 US GAAP supplementary information

(a) Reconciliation of UK GAAP to US GAAP:

The consolidated financial statements of Marconi Corporation plc have been prepared in accordance with UK accounting principles (UK GAAP), which
differs in certain respects from generally accepted accounting principles in the United States of America (US GAAP). The effect of applying US GAAP to net income/(loss), shareholders'
equity and cash flow is set out below, followed by an explanation of the principal differences between UK GAAP and US GAAP, that affect net income/(loss) and shareholders' equity.

187

---



Effect on net income/(loss) of differences between UK GAAP and US GAAP

The following table is a reconciliation of net income/(loss) as reported in the Group's consolidated profit and loss account under UK GAAP to net income as
adjusted for the effects of the application of US GAAP for the three years ended 31 March 2005, 2004 and 2003.

|                                                      |                                                                      | Year ended 31 March                              |    
|----------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------ | ---
|
|
|Retained profit/(loss) in accordance with UK GAAP     |                                                                      | 21                                               |    
|Continuing Operations                                 |                                                                      |                                                  |    
|                                                      | (1)Share option plans                                                |                                                  | (6 
|                                                      | (2)Pension and other post retirement benefits                        |                                                  | (3 
|                                                      | (3)Goodwill and intangible asset amortisation and impairment charges |                                                  | 46 
|                                                      | (4)Restructuring costs                                               |                                                  | (11
|                                                      | (5)Provision for industrial disease claims                           |                                                  | (21
|                                                      | (6)Derivatives and debt discount                                     |                                                  | (12
|                                                      | (7)Net interest expense                                              |                                                  | 7  
|                                                      | (8)Gain on sale of associates                                        |                                                  |   
|                                                      | (8)Share of associates operating loss                                |                                                  |   
|                                                      | Loss on sale of investments                                          |                                                  |   
|                                                      | Adjustments related to the financial restructuring:                  |                                                  |    
|                                                      |                                                                      | (9)Gain on settlement of equity forward contract |    
|                                                      |                                                                      | (10)Gain on extinguishment of liabilities        |    
|                                                      |                                                                      | (11)Gain on waiver of related party payable      |    
|                                                      |                                                                      | (12)Foreign exchange transaction gains           |    
|                                                      |                                                                      | (13)Write-off of capitalised losses on swaps     |    
|                                                      |                                                                      | Gain on waiver of related party receivable       |    
|                                                      | Other, net                                                           |                                                  |   
|Discontinued Operations                               |                                                                      |                                                  |    
|                                                      | Gain on sale of Discontinued Operations                              |                                                  | 101
|                                                      | GAAP differences related to Discontinued Operations                  |                                                  | (5 
|Taxation adjustments                                  |                                                                      |                                                  |    
|                                                      | Tax effect of adjustments related to Continuing Operations           |                                                  |   
|                                                      | Tax effect of adjustments related to Discontinued Operations         |                                                  |   
|                                                      |                                                                      |                                                  |    
|Net income in accordance with US GAAP                 |                                                                      | 117                                              |    
|                                                      |                                                                      |                                                  |    
|Earnings per sharebasic in accordance with US GAAP   |                                                                      |                                                  |    
|(Loss)/Income from Continuing Operations              |                                                                      | (0.38                                            | )  
|Loss from Discontinued Operations                     |                                                                      | (0.06                                            | )  
|Gain on sale of Discontinued Operations               |                                                                      | 1.01                                             |    
|                                                      |                                                                      |                                                  |    
|Net income/(loss)                                     |                                                                      | 0.57                                             |    
|                                                      |                                                                      |                                                  |    
|Earnings per sharediluted in accordance with US GAAP |                                                                      |                                                  |    
|(Loss)/Income from Continuing Operations              |                                                                      | (0.38                                            | )  
|Loss from Discontinued Operations                     |                                                                      | (0.06                                            | )  
|Gain on sale of Discontinued Operations               |                                                                      | 1.01                                             |    
|                                                      |                                                                      |                                                  |    
|Net income/(loss)                                     |                                                                      | 0.57                                             |    
|                                                      |                                                                      |                                                  |    

188

---





Asset purchase obligations

An information technology outsourcing agreement was signed with Computer Sciences Corporation International Systems Management Inc. (CSC) in
May 2003. Under the terms of the agreement, property, plant and equipment with an approximate book value of £17 million and 420 employees were transferred to CSC in exchange
for cash proceeds of £26 million. In addition to the transfer of employees and assets, the Group novated existing service and maintenance contracts to CSC.

The
IT service contract is for a period of ten years with a right to terminate without cause, but subject to a number of penalties, after two years and contains an obligation for the
Group to purchase at fair value the assets with which CSC is providing the service at such time that the contract ceases. This obligation to purchase the assets cannot be quantified until such time
that notice to terminate has been given and a contract cessation date is known. Consequently, this obligation has not been quantified at 31 March 2005.

Sale of OPP

In connection with the sale of OPP, which was completed on 13 August, 2004, the Group provided certain indemnities to the purchaser, Emerson Electric Co.
(Emerson). Under the terms of the asset purchase and sale agreement (the Agreement), the Group indemnified Emerson for any losses arising from any inaccuracy or breach of any representation, warranty
or covenant made by the Group in the Agreement or in any document delivered by the Group in connection with the Agreement. In addition, the Group provided indemnities to Emerson in respect of assets,
liabilities and obligations that were not transferred to Emerson under the Agreement. The Group and Emerson are engaged in continuing negotiations regarding several issues relating to the Agreement.
Until such negotiations are concluded, the Group is unable to perform a valuation exercise to determine the fair value of the aforementioned indemnities. Therefore, the Group has not attributed any
value to the obligations.

Purchase commitments

In the ordinary course of business the Group enters into contracts for capital expenditures as set out below:

|            |  | Capital expenditure commitments
|----------- |  | -------------------------------
|
|
|At 31 March |  | 6                              
|            |  |                                

Leases

The Group leases certain facilities and equipment under operating leases, many of which contain renewal options and escalation clauses. Total rental expense for
the year ended 31 March 2005 was £21 million (2004: £37 million; 2003: £34 million).

222

---



At
31 March 2005, minimum future rental commitments under operating leases having non-cancellable lease terms in excess of one year are as follows:

|                              |       | Land and
buildings |    | Other
items |    | Total
|----------------------------- | ----- | ------------------ | -- | ----------- | -- | -----
|
|For the year ending 31 March: |       |                    |    |             |    |      
|2006                          |       | 9                  |    | 4           |    | 13   
|2007                          |       | 6                  |    | 6           |    | 12   
|2008                          |       | 4                  |    | 5           |    | 9    
|2009                          |       | 3                  |    | 1           |    | 4    
|2010                          |       | 1                  |    |            |    | 1    
|Thereafter                    |       | 15                 |    |            |    | 15   
|                              |       |                    |    |             |    |      
|                              | Total |                    | 38 |             | 16 |      
|                              |       |                    |    |             |    |      

(l) Employee stock option plans

Marconi Corporation plc Senior Management Share Option Plan

Under the Marconi Corporation plc Senior Management Share Option Plan announced at the time of the financial restructuring, participants selected by the
remuneration committee may be granted performance-related awards entitling them to be granted a right to call for a number of ordinary shares of the Group without payment based on the attainment of
certain performance criteria. The initial options under this scheme were approved on 24 June 2003 and are exercisable in five tranches, each of which is subject to different performance
conditions. The options have a ten-year term and may be satisfied using newly issued or existing Marconi Corporation plc shares. The Group applies variable plan accounting for grants under
this plan and recognises compensation cost over the vesting period when achievement of the performance conditions becomes probable. The performance targets for the first three tranches are linked to
the repayment of the Group's debt and for the last two tranches are linked to achieving market capitalisation targets. For those tranches subject to market capitalisation targets, no compensation cost
will be recognised until the targets are achieved. The market capitalisation target for the fourth tranche of options was reached in November 2003 and compensation cost has now been accrued for
the fourth tranche. As at 31 March 2005, nil cost options over 17,740,000 shares (after a one for five share consolidation that occurred in September 2003) have been granted under this
plan.

Marconi Corporation plc Employee Share Option Plan

Under the Marconi Corporation plc Employee Share Option Plan, participants selected by the remuneration committee may be granted performance-related awards
entitling them to be granted a right to call for a number of ordinary shares of the Group based on the attainment of certain performance criteria. The exercise price of options granted under this plan
will be determined by the remuneration committee but will be based on the market value of a Marconi Corporation plc Share at the date of the grant. The initial options under this scheme were approved
on 30 June 2003 and are exercisable in five tranches, each of which will be subject to the same performance conditions as the Marconi Corporation plc Senior Management Share Option Plan. The
options have a ten-year term and may be satisfied using newly issued or existing Marconi Corporation plc shares. The Group applies variable plan accounting for grants under this plan and
recognises compensation cost over the vesting

223

---



period
when achievement of the performance conditions becomes probable. The market capitalisation target for the fourth tranche of options was reached in November 2003 and compensation cost has
now been accrued for the fourth tranche. As at 31 March 2005, options over 6,870,000 shares (after a one for five share consolidation that occurred in September 2003) have been granted
under this plan.

Stock
options outstanding at 31 March 2005 in respect of the above plans were as follows:

|                          |           | Shares     |            | Weighted average
exercise price
|------------------------- | --------- | ---------- | ---------- | -------------------------------
|Outstanding 1 April 2003  |           |           |            |                                
|                          |           |            |            |                                
|                          | Granted   |            | 23,860,000 |                                
|                          | Lapsed    |            | (210,000   | )                              
|                          | Exercised |            |           |                                
|                          |           |            |            |                                
|Outstanding 31 March 2004 |           | 23,650,000 |            | £                              
|                          | Granted   |            | 750,000    |                                
|                          | Lapsed    |            | (170,696   | )                              
|                          | Exercised |            | (8,709,819 | )                              
|                          |           |            |            |                                
|Outstanding 31 March 2005 |           | 15,519,485 |            | £                              
|                          |           |            |            |                                

All
options granted under the Marconi Corporation plc Employee Share Option Plan, were granted with an exercise price equal to the market value of the shares at the date of the grant
(17,740,000 share options). Options granted under the Marconi Corporation plc Senior Management Share Option Plan were granted with an exercise price of £Nil (6,870,000 share options).

Additional
information regarding all options outstanding as of 31 March 2005 is noted in the table below:

|Range of exercise prices (£) |       | Total number
outstanding |            | Weighted
average
exercise
price (£) |      | Weighted
average
remaining
contractual
life (years) |     | Number
Exercisable |           | Weighted
average
exercise
price of
exercisable
options (£)
|---------------------------- | ----- | ------------------------ | ---------- | ----------------------------------- | ---- | --------------------------------------------------- | --- | ------------------ | --------- | ----------------------------------------------------------
|Nil to £2.50                 |       | 10,135,000               |            |                                     | Nil  |                                                     | 8.0 |                    | 786,000   |                                                           
|£2.50 to £5.00               |       | 4,589,485                |            | £                                   | 3.11 |                                                     | 8.3 |                    | 1,163,648 |                                                           
|£5.00 to £7.70               |       | 795,000                  |            | £                                   | 5.80 |                                                     | 9.6 |                    | 17,996    |                                                           
|                             |       |                          |            |                                     |      |                                                     |     |                    |           |                                                           
|                             | Total |                          | 15,519,485 |                                     | £    | 1.22                                                |     |                    |           | 1,967,644                                                 
|                             |       |                          |            |                                     |      |                                                     |     |                    |           |                                                           

224

---



(m) Fair values of financial instruments

The carrying amounts and fair values of material financial instruments at 31 March 2005 and 2004 are as follows:

|                                 |  | 2005 |  | 2004
|-------------------------------- |  | ---- |  | ----
|
|
|Marketable securities            |  | 5    |  | 5   
|Total long-term debt*            |  | 21   |  | 21  
|Obligations under capital leases |  | 2    |  | 2   
|                                 |  |      |  |     

---

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

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

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

Marketable securities and long-term debt

The fair value of marketable securities and traded long-term debt has been determined by traded market prices. Non-traded debt is held at par value.

Obligations under capital leases

The fair value of obligations under capital leases has been determined by discounting projected future cash flows.

(n) Valuation and qualifying accounts

|Description                     |  | 31 March
2004 |  | Change to
opening
reserve |   | Disposals |   | Additions/
(release) |   | Effect of
exchange rate
changes |   | Utilisation |   | 31 March
2005
|------------------------------- |  | ------------- |  | ------------------------- | - | --------- | - | -------------------- | - | ------------------------------- | - | ----------- | - | -------------
|
|Allowance for doubtful accounts |  | 40            |  | (1                        | ) |          |   | (4                   | ) |                                |   | (5          | ) | 30           
|Warranty reserve(1)             |  | 31            |  |                          |   | (1        | ) | 13                   |   | (1                              | ) | (16         | ) | 26           
|                                |  |               |  |                           |   |           |   |                      |   |                                 |   |             |   |              
|Total                           |  | 71            |  | (1                        | ) | (1        | ) | 9                    |   | (1                              | ) | (21         | ) | 56           
|                                |  |               |  |                           |   |           |   |                      |   |                                 |   |             |   |              

225

---



|Description                     |  | 31 March 2003 |  | Change to
opening
reserve |  | Additions/
(release) |   | Effect of
exchange rate
changes |   | Utilisation |   | 31 March
2004
|------------------------------- |  | ------------- |  | ------------------------- |  | -------------------- | - | ------------------------------- | - | ----------- | - | -------------
|
|Allowance for doubtful accounts |  | 78            |  |                          |  | (4                   | ) | (4                              | ) | (30         | ) | 40           
|Warranty reserve(1)             |  | 43            |  | 1                         |  | 21                   |   | (2                              | ) | (32         | ) | 31           
|                                |  |               |  |                           |  |                      |   |                                 |   |             |   |              
|Total                           |  | 121           |  | 1                         |  | 17                   |   | (6                              | ) | (62         | ) | 71           
|                                |  |               |  |                           |  |                      |   |                                 |   |             |   |              

|Description                     |  | 31 March 2002 |  | Change to
opening
reserve |  | Additions/
release |   | Effect of
exchange rate
changes |   | Utilisation |   | 31 March 2003
|------------------------------- |  | ------------- |  | ------------------------- |  | ------------------ | - | ------------------------------- | - | ----------- | - | -------------
|
|Allowance for doubtful accounts |  | 167           |  |                          |  | (10                | ) | (7                              | ) | (72         | ) | 78           
|Warranty reserve(1)             |  | 29            |  | 12                        |  | 37                 |   | (1                              | ) | (34         | ) | 43           
|                                |  |               |  |                           |  |                    |   |                                 |   |             |   |              
|Total                           |  | 196           |  | 12                        |  | 27                 |   | (8                              | ) | (106        | ) | 121          
|                                |  |               |  |                           |  |                    |   |                                 |   |             |   |              

---

In
light of the declining market and economic trends the Group was experiencing, a provision against bad and doubtful debts of £150 million was charged during the year
ended 31 March 2002. Of this amount, £10 million was reassessed and released to the profit and loss account in the year ended 31 March 2003.

(o) Earnings per share

The following table reconciles net income/(loss) available for ordinary shareholders and the weighted average ordinary shares outstanding for basic earnings per
ordinary share for the periods:

|                                                       |  | 31 March | 
|------------------------------------------------------ |  | -------- | 
|
|
|Net income/(loss)                                      |  | 117      | 
|Weighted average ordinary shares outstanding*          |  | 204.5    | 
|Dilutive impact of stock option plans                  |  | 1.8      | 
|Weighted average diluted ordinary shares outstanding** |  | 205.7    | 
|Basic earnings/(loss) per ordinary share               |  | 0.57     | 
|Diluted earnings/(loss) per ordinary share             |  | 0.57     | 

---

Under
US GAAP the difference on diluted earnings per share arises as the treasury method requires that compensation costs attributable to future services that have not yet been
recognised be included in the calculation.

226

---



(p) Income taxes

The geographic analysis of (loss)/income from Continuing Operations before income taxes, minority interests and cumulative changes in accounting principles under
US GAAP is as follows:

|                   |  | 31 March |  
|------------------ |  | -------- | -
|
|
|United Kingdom     |  | (127     | )
|Non-United Kingdom |  | 1        |  
|                   |  |          |  
|Total              |  | (126     | )
|                   |  |          |  

Income
tax benefit/(provision) under US GAAP includes:

|                       |                    | 31 March |   
|---------------------- | ------------------ | -------- | --
|
|
|Current income taxes:  |                    |          |   
|                       | United Kingdom     |          | 26
|                       | Non-United Kingdom |          | 22
|                       |                    |          |   
|Total current taxes    |                    | 48       |   
|                       |                    |          |   
|Deferred income taxes: |                    |          |   
|                       | United Kingdom     |          |  
|                       | Non-United Kingdom |          |  
|                       |                    |          |   
|Total deferred taxes   |                    |         |   
|                       |                    |          |   
|Total income taxes     |                    | 48       |   
|                       |                    |          |   

The
net tax on Discontinued Operations and on the disposal of Discontinued Operations is £nil.

The
differences between the Group's income tax benefit, and the statutory income tax rate in the UK are as follows:

|                                                                |  | 31 March |  
|--------------------------------------------------------------- |  | -------- | -
|
|
|Taxes computed at the statutory rate: (30% 2005, 2004 and 2003) |  | (38      | )
|Non-UK tax rate differences                                     |  |         |  
|Non-deductible/(non-taxable) items                              |  | 24       |  
|Prior period adjustments to NOLS and tax attributes             |  | (24      | )
|Valuation allowances on losses and other assets                 |  | 38       |  
|Overprovision in prior years                                    |  | (51      | )
|Other, net                                                      |  | 3        |  
|                                                                |  |          |  
|Income tax benefit                                              |  | (48      | )
|                                                                |  |          |  
|Effective tax rate                                              |  | 38.1     | %
|                                                                |  |          |  

227

---



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

|                             |                                         | 31 March |    
|---------------------------- | --------------------------------------- | -------- | ---
|
|
|Net deferred tax assets      |                                         |          |    
|                             | Net operating losses                    |          | 714
|                             | Provisions and other expenses           |          | 43 
|                             | Derivatives                             |          |   
|                             | Pension and post-retirement benefits    |          | 49 
|                             |                                         |          |    
|Sub total                    |                                         | 806      |    
|Valuation allowance          |                                         | (800     | )  
|                             |                                         |          |    
|Sub total                    |                                         | 6        |    
|                             |                                         |          |    
|Net deferred tax liabilities |                                         |          |    
|                             | Provisions                              |          | (3 
|                             | Intangible assets (other than goodwill) |          | (3 
|                             |                                         |          |    
|Sub total                    |                                         | (6       | )  
|                             |                                         |          |    
|Total                        |                                         |         |    
|                             |                                         |          |    

Deferred
tax assets totalling £800 million (2004: £762 million) have not been recognised in respect of operating losses, pension scheme deficits,
and exceptional expenditure due to the fact that it is more likely than not that those assets will not be realised.

Most
of the increase in unrecognised deferred tax assets over the £762 million disclosed at 31 March 2004 is due to the accessibility of US tax losses and
attributes. The Group announced at the time of the financial restructuring that its US tax losses in existence at 19 May 2003 would be forfeit. The Group has since conducted a detailed
technical review and undertaken extensive valuation work with external advisors. The Group has concluded as a result of this work, and the external advisors have confirmed, that a large part of the
pre-refinancing US tax attributes are accessible.

As
of 31 March 2005, approximately £2.3 billion of net operating losses were available to be carried forward. A full valuation allowance has been recorded
against the deferred tax asset in relation to such losses in 2005, 2004 and 2003 due to the fact that it is more likely than not that those assets will not be realised. If unused,
£571 million will expire between 2007 and 2024. The remainder of £1.7 billion does not expire.

The
distribution of tax assets is as follows:

|        |  | (£ million)
|------- |  | -----------
|UK      |  | 402        
|US      |  | 196        
|Italy   |  | 129        
|Germany |  | 49         
|Brazil  |  | 14         
|Other   |  | 10         
|        |  |            
|        |  | 800        
|        |  |            

228

---



No
deferred tax has been provided on the undistributed earnings of foreign subsidiaries as they are all considered to be permanently reinvested. It is not practicable to estimate the
amount of additional taxes payable if these earnings were remitted.

The
net tax credit was mainly due to the release of tax provisions of £33 million in respect of prior years following progress to resolve historic US and UK tax issues
and audits, and a credit of £18 million for US and UK tax refunds.

There
is ongoing tax litigation with the Indian tax authorities. Marconi has sought leave to appeal against the High Court decision to the Indian Supreme Court and is currently waiting
to hear the outcome of its application for a Supreme Court hearing. A potential cash outflow of £6 million for tax and related interest is at risk. For further details see
note 30(k) on page 217.

(q) Related party transactions

The Group and its subsidiaries have made sales and purchases during fiscal 2005, 2004 and 2003 with equity investments, joint ventures and associates, which are
not consolidated. All transactions are in the ordinary course of business. The primary transactions between the Group and related parties are summarised as follows:

|                         |  | Year ended 31 March 2005
|------------------------ |  | ------------------------
|
|
|Statement of operations: |  |                         
|Net sales                |  |                        
|Purchases                |  |                        
|Balance sheet:           |  |                         
|Trade receivables        |  |                        
|Trade payables           |  |                        
|Other receivables        |  |                        
|Other payables           |  |                        

|                         |  | Year ended 31 March 2004
|------------------------ |  | ------------------------
|
|
|Statement of operations: |  |                         
|Net sales                |  |                        
|Purchases                |  |                        
|Balance sheet:           |  |                         
|Trade receivables        |  |                        
|Trade payables           |  |                        
|Other receivables        |  |                        
|Other payables           |  |                        

229

---



|                         |  | Year ended 31 March 2003
|------------------------ |  | ------------------------
|
|
|Statement of operations: |  |                         
|Net sales                |  |                        
|Purchases                |  |                        
|Balance sheet:           |  |                         
|Trade receivables        |  |                        
|Trade payables           |  |                        
|Other receivables        |  |                        
|Other payables           |  | 403                     

All
the contracts and other arrangements are with Atlantic Telecommunications Limited, GaMMa, Alstom and the Group's joint ventures and associates described above, which management
believe have been on arm's-length terms. We may enter into arrangements with these companies in the future, which management believe will be on arm's-length terms.

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GLOSSARY OF TERMS

|3G (Third Generation)                       |  | third-generation protocols in mobile telephony that support the much higher data rates needed for broadband and bandwidth-hungry applications such as full-motion video, videoconferencing and full internet
access.
|------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Access Networks                             |  | our fixed wireless access, Access Hub and narrowband access product activities.                                                                                                                                     
|ADSL (Asymmetric Digital Subscriber Line)   |  | a technology that allows broadband data to be sent over existing copper telephone lines.                                                                                                                            
|APAC                                        |  | Asia Pacific.                                                                                                                                                                                                       
|ASTN (Automatic Switched Transport Network) |  | a technology that uses the GMPLS signalling protocol to set up and monitor edge-to-edge transport connections and restore faults automatically.                                                                     
|ATM (Asynchronous Transfer Mode)            |  | a transfer mode in which the information is organised into fixed-length cells instead of variable length packets.                                                                                                   
|AXH (Access Hub)                            |  | our Access Hub platform.                                                                                                                                                                                            
|AXR (Access Radio)                          |  | our Access Radio platform.                                                                                                                                                                                          
|BBRS                                        |  | our Broadband Routing and Switching business.                                                                                                                                                                       
|BXR-48000 (Broadband Switch Router)         |  | our high-end switch-router platform.                                                                                                                                                                                
|CALA                                        |  | Central and Latin America.                                                                                                                                                                                          
|CPE (Customer Premises
Equipment)           |  | equipment located at the customer's end of a telecommunication line, to provide an interconnect point.                                                                                                              
|CDMA (Code Division Multiple Access)        |  | a form of wireless multiplexing, in which data can be sent over multiple frequencies simultaneously, optimizing the use of available bandwidth.                                                                     
|Combined Code                               |  | the Combined Code on Corporate Governance appended to the Listing Rules.                                                                                                                                            
|(the) Company                               |  | Marconi Corporation plc.                                                                                                                                                                                            
|Core                                        |  | the designation given to the central portion of a network where all types of traffic come together in order to be transmitted to their intended destinations.                                                       
|CWDM (Coarse Wave Division Multiplexing)    |  | a type of multiplexing that uses lasers to overlay optical light channels in a pipe.                                                                                                                                
|DSL (Digital Subscriber Line)               |  | a high speed method to move data over a phone line.                                                                                                                                                                 
|                                            |  |                                                                                                                                                                                                                     

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|DSLAM (Digital Subscriber Line Access Multiplexer)    |  | equipment located at the network end of the customer access connection, providing Digital Subscriber Line (broadband) capabilities.                                                                                                          
|----------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|DWDM (Dense Wave Division Multiplexing)               |  | a type of multiplexing that uses up to 160 different colours (also known as lambdas or channels) to provide high-capacity bandwidth across an optical fibre network.                                                                         
|Edge                                                  |  | the designation given to the outer limits of a network where end users typically enter the network in order to gain access to services and information.                                                                                      
|EMEA                                                  |  | Europe, the Middle East and Africa.                                                                                                                                                                                                          
|Ethernet                                              |  | the most widely installed local area network technology (using coaxial or suitable grades of twisted pair copper cable) that is now being deployed at higher speeds (using fibre-optic connectivity) in
metropolitan-scale networks.         
|Ethernet line cards                                   |  | a type of line card used in optical switches that allows traffic and services to be passed to end users via an Ethernet connection.                                                                                                          
|ETSI (European Telecommunications Standard Institute) |  | an independent, non-profit organisation, whose mission is to produce telecommunications standards for today and for the future.                                                                                                              
|FTTC (Fibre to the Curb) or FTTH (Fibre to the Home)  |  | the installation and use of optical fibre cable directly to the curbs near homes or any business environment as a replacement for 'plain old telephone service' (POTS).                                                                      
|Gbit/s                                                |  | Gigabits per second, data rate nomenclature for billions (109) of bits per second.                                                                                                                                                           
|GDA                                                   |  | General Domestic Appliances Holdings Limited which was sold in March 2002.                                                                                                                                                                   
|GMPLS (Generalised Multiprotocol Label Switching)     |  | a proposed industry standard to simplify the creation and management of IP services over optical networks.                                                                                                                                   
|(the) Group                                           |  | the Company together with its subsidiary undertakings.                                                                                                                                                                                       
|GSM (Global System for Mobile communications)         |  | the de facto 2G wireless telephone standard in Europe. It was designed to support voice, data, text messaging and cross-border roaming. GSM is a time division multiplex (TDM) system, implemented on 900,
1800 and 1900 MHz frequency bands.
|Hiper Access                                          |  | an ETSI wireless standard for broadband wireless access.                                                                                                                                                                                     
|IC&M                                                  |  | our Installation, Commissioning and Maintenance business.                                                                                                                                                                                    
|IEEE                                                  |  | Institute of Electrical and Electronics Engineers, Inc.                                                                                                                                                                                      
|IFRS                                                  |  | International Financial Reporting Standards.                                                                                                                                                                                                 
|                                                      |  |                                                                                                                                                                                                                                              

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|Impact SoftSwitch                        |  | our softswitch product.                                                                                                                                                                                  
|---------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|IMS                                      |  | Interactive Multi-Media Sub-Systems.                                                                                                                                                                     
|IP (Internet Protocol)                   |  | a connectionless, best-effort packet switching protocol that offers a common layer over dissimilar networks.                                                                                             
|Junior Notes                             |  | the guaranteed junior secured notes due 2008 issued by the Company as a part of the Restructuring.                                                                                                       
|LAN (Local Area Network)                 |  | a data network intended to serve an area of only a few square kilometres or less.                                                                                                                        
|LIBOR                                    |  | the London Inter-bank Offered Rate.                                                                                                                                                                      
|Listing Rules                            |  | the Listing Rules issued in the UK by the Financial Services Authority.                                                                                                                                  
|Loan Notes                               |  | the Junior Notes and the Senior Notes together, unless the context dictates otherwise.                                                                                                                   
|M (2003) plc                             |  | the company formerly known as Marconi plc, that was the ultimate parent company of the Marconi Group until the effective date of the Restructuring.                                                      
|MAN (Metropolitan Area Network)          |  | a network designed to carry data over an area larger than a campus, such as an entire city and its outlying area.                                                                                        
|Mbit/s                                   |  | Megabits per second, data rate nomenclature for millions (106) of bits per second.                                                                                                                       
|MDMS (Marconi Digital Multipoint System) |  | our broadband radio access platform delivering toll-quality voice, leased lines and Ethernet-based data traffic to multi-dwelling, small and medium enterprises.                                         
|MDRS (Marconi Digital Radio System)      |  | our point-to-point wireless system for short-haul or long-haul access, feeder and backhaul applications operating over a frequency range of 4 to 38 GHz.                                                 
|Metro                                    |  | a network designed to carry data over an area larger than a campus, such as an entire city and its outlying area.                                                                                        
|MPLS (Multiple Protocol Label Switching) |  | a way of making the best of IP and ATM technologies into one to create multiservice networks that carry any type of traffic.                                                                             
|MSAN (Multi-Service Access Node)         |  | equipment located at the edge of the network that supports a wide range of customer access interfaces and protocols, designed to replace the functionality of individual access platforms such as
DSLAMs.
|NA                                       |  | North America.                                                                                                                                                                                           
|NAA                                      |  | our former North American Access business, which was sold in February 2004.                                                                                                                              
|Network Services                         |  | our network services businesses, mainly comprising our IC&M and VAS businesses.                                                                                                                          
|OCS (Optical Core Switch)                |  | the generic industry designation that we use to describe our family of Core optical switches.                                                                                                            
|                                         |  |                                                                                                                                                                                                          

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|OPP                                      |  | our former Outside Plant and Power business, which was sold in August 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Optical Networks                         |  | our SDH and DWDM transmission equipment, and our network management systems business.                                                                                                                                                                                                                                                                                                                                                                                                                             
|OTN (Optical Transport Network)          |  | a series of proposed industry standards to boost network bandwidth by building more network functionality into optical networks.                                                                                                                                                                                                                                                                                                                                                                                  
|PBX (Private Branch Exchange)            |  | a private telephone exchange that transmits calls internally and to and from the public telephone network.                                                                                                                                                                                                                                                                                                                                                                                                        
|PSTN (Public Switched Telephone Network) |  | the international telephone system based on copper wires carrying analog voice data.                                                                                                                                                                                                                                                                                                                                                                                                                              
|Restructuring, financial
restructuring   |  | the financial restructuring of the Group that took effect on 19 May 2003 pursuant to the schemes of arrangement of the Company and M (2003) plc.                                                                                                                                                                                                                                                                                                                                                                  
|R&D                                      |  | research and development.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|SDH (Synchronous Digital Hierarchy)      |  | a transport technology using optical signals. Using a mesh/ring network topology, SDH transmits data using a point-to-point method that ensures reliability if a link is broken.                                                                                                                                                                                                                                                                                                                                  
|Senior Notes                             |  | the guaranteed senior secured notes due 2008 issued by the Company as a part of the Restructuring.                                                                                                                                                                                                                                                                                                                                                                                                                
|ServiceOn                                |  | our portfolio of carrier-class, open-standard network management products.                                                                                                                                                                                                                                                                                                                                                                                                                                        
|SIP (Session Initiation Protocol)        |  | an open standard for establishing and managing multiparty, mixed-media communications sessions over converged networks.                                                                                                                                                                                                                                                                                                                                                                                           
|Softswitch                               |  | software-based, carrier-class servers that control voice phone calls across circuit and packet-switched networks. The attraction softswitches hold is that they cost about a tenth of regular local phone
switches, take up much less space, and have open interfaces that enable third-party vendors to write complex services to the switches' control. They also enable completion of calls between circuit-switched and packet networks, enabling carriers to
use a single network for voice and data traffic.
|Strategic Communications                 |  | our former Strategic Communications business, which was sold in August 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|STRGL                                    |  | our consolidated statement of total recognised gains and losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Tbit/s                                   |  | Terabits per second, data rate nomenclature for trillions (1012) of bits per second.                                                                                                                                                                                                                                                                                                                                                                                                                              
|TDM (Time Division Multiplexing)         |  | a method of traditional digital multiplexing in which a signal occupies a fixed, repetitive time slot within a higher-rate signal.                                                                                                                                                                                                                                                                                                                                                                                
|                                         |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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|UK GAAP                                                 |  | generally accepted accounting principles applicable in the UK, including Financial Reporting Standards and Statements of Standard Accounting Practice issued by the Accounting Standards Board, consistently
applied and as in effect from time to time.             
|------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|US GAAP                                                 |  | generally accepted accounting principles applicable in the US.                                                                                                                                                                                                       
|VAS                                                     |  | our Value Added Services business.                                                                                                                                                                                                                                   
|VDSL (Very high bit rate Digital Subscriber Line)       |  | a DSL-based transmission method that sends data in the 13 Mbit/s55 Mbit/s range over short distances, usually between 1,000 and 4,500 feet (3001,500 metres), of twisted pair copper wire.
The shorter the distance, the faster the connection rate.               
|ViPr (Virtual Presence)                                 |  | our desktop video telephony platform that offers multi-party videoconferencing over IP networks.                                                                                                                                                                     
|VoIP (Voice over Internet Protocol)                     |  | a means to transport voice, video and data over a packet wide-area IP network. This does not mean using the public internet. Data is broken into packets and may be transported using different routes to be
assembled into their correct order at the receiving end.
|VPN (Virtual Private Network)                           |  | a private voice communications network built on public switching and transport facilities rather than dedicated leased facilities such as T1.                                                                                                                        
|VTOA (Voice & Telephony Over ATM)                       |  | a single, integrated infrastructure that can manage and deliver all types of subscriber signals (audio, data, voice, and video) as well as switched and dedicated services reliably and
efficiently.                                                                 
|WDM (Wavelength Division Multiplexing)                  |  | a type of multiplexing developed for use on optical fibre, that modulates each of several data streams onto a different part of the light spectrum.                                                                                                                  
|WiMAX (Worldwide Interoperability for Microwave Access) |  | the industry standard that defines point-to-point broadband wireless access.                                                                                                                                                                                         
|xDSL (x Digital Subscriber Line)                        |  | a generic way to refer to all the different variations of DSL which can include symmetrical, asymmetrical, DSL Lite, etc.                                                                                                                                            

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EXHIBITS

|1.1  | (1) | Memorandum and Articles of Association and Bylaws of Marconi Corporation plc (as amended on May 19, 2003).                                                                                                                                                                                                                                                                                                                                                                                             
|---- | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1  | (2) | Deposit Agreement dated as of March 31, 2003 between Marconi Corporation plc and The Bank of New York, as depositary, and owners and beneficial holders of American Depositary Receipts.                                                                                                                                                                                                                                                                                                               
|2.2  | (2) | American Depositary Receipt of Marconi Corporation plc (included in Exhibit 2.1).                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.1  | (3) | Asset Purchase and Sale agreement dated February 20, 2004, between Marconi Communications, Inc., Marconi Intellectual Property (Ringfence) Inc., Marconi Corporation plc, Advanced Fibre Communications, Inc. and Advance Fibre
Communications North America, Inc., together with exhibits and disclosure schedules.                                                                                                                                                                                   
|4.2  | (2) | 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.                                                                                                                                                                                                                                              
|4.3  | (2) | Memorandum of Understanding dated March 25, 2003 between the Marconi Corporation plc, M (2003) plc and the United States Pension Benefit Guaranty Corporation.                                                                                                                                                                                                                                                                                                                                         
|4.4  | (2) | Instrument by way of Deed Poll dated May 18, 2003 executed by Marconi Corporation.                                                                                                                                                                                                                                                                                                                                                                                                                     
|4.5  | (4) | Master Services Agreement dated May 23, 2003 between CSC International Systems Management Inc, Marconi Corporation plc and Marconi Communications Limited.                                                                                                                                                                                                                                                                                                                                             
|4.6  | (5) | Asset Transfer Agreement dated May 23, 2003 between Marconi Corporation plc and CSC International Systems Management Inc.                                                                                                                                                                                                                                                                                                                                                                              
|4.7  | (2) | Performance Bonding Facility dated March 27, 2003 relating to a new £50 million committed revolving facility between Marconi Bonding Limited (MBL), as applicant, Marconi Corporation, HSBC Bank plc, as agent and security trustee, the
original issuing banks named therein, the original banks name therein and the original indemnifying subsidiaries named therein and the Security Over Cash Agreement dated March 27, 2003 between MBL and HSBC Bank plc.                                       
|4.8  | (6) | Availability Period Extension Letter & Consent from HSBC Bank plc, as agent and security trustee, dated September 27, 2004 to Performance Bonding Facility dated March 27, 2003 relating to a £50 million committed revolving facility between
Marconi Bonding Limited (MBL), as applicant, Marconi Corporation plc, HSBC Bank plc, as agent and security trustee, the original issuing banks named therein, the original banks named therein and the original indemnifying subsidiaries named
therein.
|4.9  | (6) | Performance Bonding Facility dated June 29, 2005 relating to a £35 million committed multicurrency revolving facility between Marconi Bonding Limited (MBL), as applicant, Marconi Corporation plc, HSBC Bank plc, as agent and security trustee,
the original issuing banks named therein, the original banks named therein and the original indemnifying subsidiaries named therein.                                                                                                                 
|4.10 | (2) | Performance bond letters executed by Marconi Corporation plc.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.11 | (6) | Patent Licence Agreement dated June 25, 2004 between Marconi Communications Inc., Marconi Corporation plc and Telcordia Technologies, Inc.                                                                                                                                                                                                                                                                                                                                                             
|     |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

236

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|4.12 | (6)* | Asset Purchase and Sale agreement dated July 6, 2004, between Marconi Corporation plc, Marconi Communications, Inc., Marconi Intellectual Property (Ringfence) Inc., Marconi Communications Canada Inc., Marconi Communications de Mexico S.A. de C.V.,
Marconi Communications Exportel, S.A. de C.V., Administrativa Marconi Communications S.A. de C.V., Marconi Polska SP ZOO, Marconi Colombia, S.A., Emersub XCII, Inc., Emerson Electric Canada Limited, Emerson Mexico Corporate Services, S. de R.L. de
C.V. and Emerson Electric Co., together with exhibits and disclosure schedules.
|---- | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8.1  | (6)  | List of principal subsidiaries of Marconi Corporation plc (incorporated by reference to Note 14 of the Notes to the Consolidated Financial Statements included in this annual report).                                                                                                                                                                                                                                                                                                                                                                                                         
|12.1 | (6)  | Certification pursuant to Exchange Act Rule 13a-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|12.2 | (6)  | Certification pursuant to Exchange Act Rule 13a-14(a).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|13.1 | (6)  | Certification pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|13.2 | (6)  | Certification pursuant to Exchange Act Rule 13a-14(b) and 18 U.S.C. 1350.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|15.1 | (6)  | Consent of Independent Registered Public Accounting FirmDeloitte & Touche LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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SIGNATURES

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

| |  | MARCONI CORPORATION PLC
| |  | -----------------------
| |  | By:                    
| |  |                        
| |  |                        
| |  |                        

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