---

---

As filed with the Securities and Exchange Commission on June 20, 2002

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20-F

---

|(Mark One) |                                                                                                                                                     
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|           |                                                                                                                                                     
|           | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
      OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                                
|           | OR                                                                                                                                                  
|           | ANNUAL REPORT PURSUANT TO SECTION 13 OR
        15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: March 31, 2003               
|           | OR                                                                                                                                                  
|           | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
      For the transition period from   N/A   to   N/A

Commission file number:    1-10309

CABLE AND WIRELESS PUBLIC LIMITED COMPANY(Exact name of Registrant as specified in its charter)

ENGLAND AND WALES(Jurisdiction of incorporation or organization)

124 Theobalds Road, London WC1X 8RX,
  United Kingdom(Address of principal executive offices)

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

|Title of each
      class                            | Name of each exchange
      on which registered
|---------------------------------------------------- | -----------------------------------------------
|American Depositary Shares                           | New York Stock Exchange                        
|Ordinary Shares of nominal value
      25 pence each | New York Stock Exchange*                       
|

---

Securities registered or to be registered
  pursuant to Section 12(g) of the Act.None
(Title of Class)

Securities for which there is a reporting
  obligation pursuant to Section 15(d) of the Act.None
  (Title of Class)

Indicate the number of outstanding
  shares of each of the issuer’s classes of capital
  or common stock as of the close of the period
  covered by the annual report.2,383,124,694 Ordinary Shares of nominal value 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 for 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           No

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

Item 17Item
  18

---

---



Back to Contents

---







In this report references to the Company
  are to Cable and Wireless plc, and references to the Group, Cable
  & Wireless Group and Cable & Wireless are to the Company,
  its consolidated subsidiaries and associated companies and joint ventures unless
  the context otherwise requires. References to Cable & Wireless Group
  Companies are to any companies within the Cable & Wireless Group.

Cable & Wireless prepares its
  financial information in accordance with UK Generally Accepted Accounting Principles
  (UK GAAP). Unless otherwise indicated, any reference in this report to Financial
  Statements is to the Financial Statements of Cable & Wireless (including
  the Notes to the Financial Statements) included in this report. UK GAAP differs
  from generally accepted accounting principles in the United States (US GAAP).
  The material differences between UK GAAP and US GAAP relevant to Cable &
  Wireless are explained on pages 137 to 143.

Cable & Wireless publishes its
  Financial Statements in pounds sterling (£). On 31 March 2003, the noon
  buying rate in New York City for cable transfers in pounds sterling as certified
  for customs purposes by the Federal Reserve Bank of New York was US$1.58= £1.
  On 3 June 2003 the noon buying rate was US$1.63 = £1. For additional information
  on exchange rates between pounds sterling and the US dollar see exchange rates
  on page 145.

References to a year in this report are, unless otherwise indicated, references to the Companys financial year ending 31 March of such year. In this report, financial and statistical information is, unless otherwise indicated, stated on the basis of the Companys financial year.







---





---



Back to Contents

cautionary statement regarding
  forward-looking statements

---

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains certain forward-looking statements with respect to the financial condition, results of operation and business of Cable & Wireless. Statements that are not historical facts, including statements about Cable & Wireless beliefs and expectations, are forward-looking statements. Words such as believes, anticipates, expects, intends and plans and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These statements are based on current plans, estimates and projections and, therefore, undue reliance should not be placed on them. Forward-looking statements speak only as of the date theyare made, and you should not assume that they have been revised or updated in the light of new information or future events. Written and/or oral forward-looking
    statements may also be made in, amongst others, the periodic reports to the
    Securities and Exchange Commission on Forms 6-K, summary financial statements
    to shareholders, proxy statements, offering circulars and prospectuses, press
    releases and other written materials and in oral statements made by Cable
    & Wireless Directors, officers or employees to third parties, including
    financial analysts. Forward-looking statements involve
    inherent risks and uncertainties. Cable & Wireless cautions investors
    that a number of factors could cause actual results to differ, in some instances
    materially, from those anticipated or implied in any forward-looking statement.
    These factors include: 
    failure to improve the performance and financial position of the Group successfully or to adapt as needed to changing market conditions could adversely affect the Groups business, results of operations and potential for growth; 
      withdrawal from the US
          market may require the expenditure of additional resources, including
          management time and capital resources; 
      transformation initiatives
          can lead to execution risk; 
      Cable & Wireless
          business may be materially adversely affected by changes in regulation
          and government policy in the countries in which it operates; 
      regulation of ISPs could
          adversely affect Cable & Wireless operations; 
      the Groups business
          may be affected by a business downturn; 
      generally unfavourable
          telecommunications market conditions may adversely affect the Groups
          financial condition and results of operations; 
      fluctuations in currency
          exchange rates may adversely affect the Groups reported results;



    the Group may not have or be unable to obtain sufficient insurance to cover all foreseeable risks; 
      the activities of The Groups insurance
        subsidiary may result in material claims;
      future cashflow fluctuations
          may affect the Groups ability to fund working capital requirements; 
      cash generated overseas
          may not all be available for use by the Group; 
      changes in credit ratings
          may impact the Groups future access to cash funding; 
      volatility in the financial
          markets may require the Group to provide further cash funding to its
          pension funds; 
      dependency on a small
          number of personnel; 
      Class Actions may adversely
          impact the Groups financial condition; 
      failure to pay a dividend
          in the future may adversely affect the The Groups share price; 
      the Groups operations
          could suffer from adverse effects of competition and price pressures
          on the demand for products and services; 
      competitors of Cable &
          Wireless may gain competitive advantage by successfully completing a
          restructuring or bankruptcy reorganisation process; 
      continued overcapacity
          and other factors could lead to lower prices for the Groups products
          and services; 
      Cable & Wireless depends
          on the ability to achieve cost-savings to respond to industry and market
          conditions; 
      the Group may not be able
          to adapt adequately to technological changes in communication and information
          technology; 
      the Groups results
          depend on the introduction of appropriate new products and services
          as the industry undergoes rapid changes; 
      exposure to other telecommunications
          operators and the behaviour of other market participants may have a
          detrimental effect on the Groups operations; 
      catastrophic network failure
          may expose the Group to potential liability; 
      the Group may lose revenue
          if unlicensed operators are able to gain access to the Groups
          network undetected; 
      the Group is reliant on
          third parties for certain activities under outsourcing contracts; failure
          of those third parties to provide the contracted services may expose
          the Group to additional cost and liability; 
      the Group is dependent
          on a number of critical IT systems to be able to conduct its business
          and process financial information; and 
      mobile communications
          devices may pose health risks. Trends and factors that are expected to particularly affect Cable & Wireless results are discussed in more detail elsewhere in this Annual Report, including, without limitation, in Business Description and the Operating and Financial Review.


---



---



Back to Contents

---

CONTENTS

|Cautionary
        statement regarding forward-looking statements                |    
|-------------------------------------------------------------------------------- | ---
|Corporate
        Overview                                                       | 4  
|Business
        Description                                                     |    
|     Summary                                                                    | 6  
|     Business
        overview                                                  | 8  
|     Regulatory
        framework                                               | 14 
|     Property                                                                   | 18 
|     Legal
        proceedings                                                  | 19 
|Operating
        & Financial Review                                             |    
|     Overview                                                                   | 24 
|     Group
        operating performance                                        | 26 
|     Review
        by division                                                 | 32 
|     Liquidity
        and capital resources                                    | 36 
|     Cash
        flow                                                          | 39 
|     Disclosures
        about market risk                                      | 39 
|     Five
        year summary                                                  | 41 
|     Critical
        accounting policies                                       | 42 
|     New
        UK accounting standards adopted                                | 43 
|     US
        GAAP reconciliation                                             | 44 
|     Risk
        factors                                                       | 45 
|Corporate
        governance                                                     |    
|     Social,
        environmental and ethical report                           | 53 
|     Directors
        and senior management                                    | 57 
|     Directors
        report                                                  | 59 
|     Directors
        remuneration report                                     | 65 
|Directors
        responsibilities                                              | 79 
|Report
        of independent chartered accountants                              | 80 
|     Consolidated
        profit and loss account                               | 82 
|     Consolidated
        balance sheet                                         | 85 
|     Company
        balance sheet                                              | 86 
|     Consolidated
        cash flow statement                                   | 87 
|     Consolidated
        statement of total recognised gains and losses        | 88 
|     Reconciliation
        of movements in equity shareholders funds          | 89 
|     Accounting
        policies                                                | 90 
|Notes
        to the Financial Statements                                        | 95 
|Shareholder
        information                                                  |    
|     Trading
        market                                                     | 144
|     Dividends                                                                  | 145
|     Exchange
        rate information                                          | 145
|     Exchange
        controls and other limitations affecting security holders | 146
|     Taxation                                                                   | 146
|     Memorandum
        and Articles of Association                             | 148
|     Material
        contracts                                                 | 148
|Cross
        reference guide to Form 20-F                                       | 149
|Glossary                                                                         | 151
|Inside
        back cover                                                        |    
|     Registrar                                                                  | 155
|     Financial
        calendar                                                 | 155
|     ShareGIFT                                                                  | 155
|     Company
        Secretary                                                  | 155
|     American
        Depositary Receipts                                       | 155
|     Investor
        Relations                                                 | 155
|                                                                                 |    

---

Page 3


---



Back to Contents

---

CORPORATE OVERVIEW

The telecommunications industry is currently facing unfavourable market conditions, including, amongst others, a decline in investment in the industry, a decline in demand for certain telecommunications products and services, pricing pressures and over-capacity. These conditions have contributed to a general, and often significant, decline in share prices for telecommunications companies, including Cable & Wireless, which has seen its share price decline by 154p from 223p at 31 March 2002 to 69p at 31 March 2003. These marketconditions have also precipitated restructurings and bankruptcy and insolvency filings by several telecommunications companies. The last year was a turbulent one for Cable & Wireless. The Company started the year optimistic that its diversification into data highways, hosting and internet services (collectively called Global) would position it well for a prosperous future. A deterioration in Cable & Wireless Globals business performance has, however, resulted in fixed asset and goodwill impairment as forecast performance has been revised downwards. In September 2002, fixed assets were impaired by £787 million and goodwill of £2,713 million was written off, principally in the United Kingdom. In November 2002, Cable & Wireless then announced the need to restructure its US operations to reduce the running losses and cashflow drain to which it realised it was exposed. In January 2003, as a consequence of a downgrade by Moodys of the Companys long term debt from Baa2 to Ba1, the Company had to place in escrow £1.5 billion pursuant to a tax
indemnity granted to Deutsche Telekom in connection with the sale of Cable & Wireless stake in One2One. After agreement was reached with the Inland Revenue to settle the Groups outstanding UK Corporation Tax Affairs for the ten years to 31 March 2001, which included the year in which the One2One transaction took place, these funds were released from escrow at the year end. Following the retirements of Sir Ralph Robins and David Nash in January 2003, Richard Lapthorne was appointed Chairman. On 21 January 2003, it was announced that Graham Wallace would be leaving the Company and in April 2003, the Company recruited Francesco Caio as its new Chief Executive and Kevin Loosemore as its new Chief Operating Officer. The transfer of Rob Rowley from Non-executive Director and Chairman of the Audit Committee to Executive Deputy Chairman has brought timely support to the finance function. New Non-Executive Directors appointed in the last six months  Bernard Gray, Graham Howe, Tony Rice and Kasper Rorsted  bring a range of highly relevant skills from their backgrounds in finance and restructuring, telecommunications and IT, government and public sector affairs. The aim of the Company is to deliver sustainable and acceptable returns over time with manageable residual risk. With this in mind the Companys management has announced a number of initiatives:


Develop national businesses The aim of the Group is to create a group of profitable national telecommunications companies with strong positions in their primary markets where they offer both domestic and international services. The Group already has the building blocks, and is making strategic changes and restructuring plans which represent the next steps along the road to achieving this ambition. Consistent with the new national approach, Cable & Wireless will no longer be divided into the Global and Regional business divisions, instead it will be organised on a geographic basis. Restructure the UK business Cable & Wireless is second only to BT in the United Kingdom, which is one of worlds largest telecommunications markets. However, performance has declined and, as a result, the business is being restructured to drive efficiency, improve network services and focus the Company on building market share with target customers. The plans include a reduction in headcount of 1,500. As a consequence of eliminating Cable & Wireless Global, and focusing clearly on the national businesses, Royston Hoggarth has been appointed as Chief Executive of Cable & Wireless UK. Withdraw from US operations The US subsidiaries make losses, consume cash and require significant management attention. Furthermore, their services have limited interaction with the rest of the Group. These businesses may have value to the right owner but they are not sustainable with the current cost structure. A wide-ranging cost control programme has been initiated. The Company intends to withdraw from the US businesses altogether; all options are being explored. In connection with the consideration of a variety of options, Cable & Wireless US subsidiaries have taken some initial steps. Rationalise continental Europe and, in due course, improve results in Japan In continental Europe, the Group provides
    services to other licensed telecommunications operators and to multinational
    corporate customers, some of which are headquartered in the United Kingdom.
    However, it also operates a number of businesses, which provide services to
    smaller corporate customers and act as internet service providers. Cable &
    Wireless has either completed or is in advanced discussion on
    the sale of non-core businesses across continental Europe in order to reduce
    exit costs.


---

Page 4




---



Back to Contents

---

Cable & Wireless IDC provides international voice and data services to companies in Japan and South East Asia. Although it operates in a market dominated by Nippon Telegraph and Telephone Corporation (NTT), it delivers acceptable results and has good prospects. Focus on profit before tax and cash Across the Group the focus will now be on profit before tax and cash. More rigorous cost control and capital management disciplines have been introduced to ensure that the restructuring plans can be accommodated within the Groups existing financial resources. To support these initiatives, Cable
    & Wireless has adopted a simpler organisational structure, eliminating
    the Global and


Regional divisions. Going forward
    the Group will have a country-based structure, with country CEOs responsible
    for profit and loss, cash flow and balance sheet and reporting directly to
    the Chief Operating Officer. This new organisational structure will, the Company
    expects, result in lower overheads, clear accountability and more effective
    transfer of knowledge and skills. The Group faces a number of challenges in implementing its new strategic initiatives, including those linked to turmoil in the industry, global economic challenges, as well the markets in which the Group operates. The Group, however, remains committed to capitalising on its core skills and key customers, to return it to profitability. See Risk Factors for a further discussion of certain of the challenges facing the Group.




---

Page 5




---



Back to Contents

business description

---



BUSINESS DESCRIPTION

This section contains:

Summary
      6Business
        overview
      8Regulatory
        framework
      14


Property
      18Legal
        proceedings
    19




|SUMMARY
|-------

Cable & Wireless is an international
    telecommunications business with annual revenue of £4.4 billion in the
    year to 31 March 2003 and customers in 80 countries. Headquartered in London,
    Cable & Wireless principal operations are in the United Kingdom;
    the Caribbean; the United States; Japan;
    continental Europe; Panama and Macau. Cable & Wireless provides voice,
    data and IP services to business and residential customers and wholesale services
    to carriers, mobile operators and content, application and internet providers. History For over 120 years, Cable &
    Wireless has provided telecommunications services, networks and equipment
    to business and residential customers around the world. Except for some 30
    years as a state-owned company after the Second World War, Cable & Wireless
    has been a publicly owned limited company since its earliest days. In the United Kingdom, Cable & Wireless, through Mercury Communications, was an early competitor in the liberalised telecommunications market. In April 1997, Cable & Wireless Communications plc (CWC) was formed by the merger of Mercury Communications withNynex CableComms, Bell Cablemedia and Videotron. In September 1998, Cable & Wireless
    acquired MCI Telecommunication Corporations internet business in the
    United States and world wide. In the Asia-Pacific region, Cable & Wireless
    acquired International Digital Communications Inc. (now re-named Cable &
    Wireless IDC), one of Japans international telecommunications carriers,
    in June 1999. In October 1999, Cable & Wireless completed the sale of its interest in One2One, its UK mobile phone business, to Deutsche Telekom. One2One was a joint venture with MediaOne Group Inc and the joint venture partners received £6.9 billion in cash. In May 2000, Cable & Wireless
    took full ownership of the corporate, business, IP and wholesale operations
    of CWC (CWC DataCo), while the consumer telephone, internet and cable TV operations
    (CWC ConsumerCo) were acquired by ntl Incorporated. CWC DataCo was integrated
    with Cable &


Wireless other similar operations
    to form Cable & Wireless Global, which brought together the Groups
    operations in the United Kingdom, continental Europe, the United States and
    Japan. At the same time, the Groups other operations were brought together under Cable & Wireless Regional. In August 2000, Cable & Wireless
    disposed of its interest in Cable & Wireless HKT Limited (based in Hong
    Kong) to a subsidiary of PCCW Limited. Cable & Wireless received cash
    and shares in PCCW equivalent to an interest of approximately 20 per cent
    in the enlarged company. PCCW shares were sold in September 2000 for consideration
    of approximately £930 million reducing the holding to approximately
    14 per cent. In June 2003, the Company sold the remaining holding in PCCW
    as part of a market placement for a consideration of approximately £233
    million. In September 2001, Cable & Wireless
    disposed of its interest in Cable & Wireless Optus Limited (based in Australia)
    to a subsidiary of Singapore Telecommunications Limited (SingTel). Cable &
    Wireless received cash and SingTel shares and bonds which were subsequently
    sold. The web services and hosting businesses, Digital Island, Inc. (DI) and selected assets and the majority of business activities of EXDS, Inc (formerly Exodus Communications, Inc) (Exodus) were acquired in 2002. Recent acquisitions and disposals In May 2002, Cable & Wireless
    purchased Guernsey Telecoms Limited from the States of Guernsey for consideration
    of £22.5 million. The Group paid a further £1.3 million for the
    assignment of the rights that the States of Guernsey had in a fibre optic
    cable project which when completed will run from Guernsey to Jersey and France.
    On 30 September 2002, the company was renamed Cable and Wireless Guernsey
    Ltd. The company is a full service provider serving the Bailiwick of Guernsey. In September 2002, the Company sold its US retail voice customer base for an aggregate consideration of £11 million in cash, payable over approximately two years. This disposal




---



---



Back to Contents

business description

---



was part of the restructuring of the Companys US business, announced
  in May 2002. The Company also announced the disposal of certain US retail data
  customers as part of the same restructuring. In November 2002, the Company announced
    that Cable & Wireless would withdraw from domestic business markets in
    the United States and in continental Europe except for multinational and wholesale
    customers. It was also announced that Cable & Wireless established
    businesses in the United Kingdom and Japan would be reshaped to reduce costs
    and produce greater focus on profitability and cash flow. In December 2002, as part of the Initial Public Offering of shares in the Singapore mobile operator MobileOne Ltd, Cable & Wireless sold 60 per cent of its stake in that company, realising a profit of £54 million before minority interests. Organisational structure From mid-2000 Cable & Wireless
    was organised into two business divisions: Cable & Wireless Global and
    Cable & Wireless Regional. Cable & Wireless Global comprised operations
    in the United Kingdom, the United States, Japan and continental Europe and
    concentrated on the provision of services to large and multinational corporates
    and other service providers. Cable & Wireless Regionals operations
    were in the Caribbean, Panama, Macau and Rest of World. Rest of World comprises
    Cable & Wireless Regionals operations in Yemen, Bahrain and the
    Maldives, together with smaller operations in Seychelles, Diego Garcia, Falkland
    Islands, Ascension, St. Helena, Guernsey and Sakhalin in Russia. From June 2003, the Company is organised with a geographical and customer focus and the Global and Regional distinction has been eliminated. Current geographical financial data
    for Cable & Wireless Global included in this business description are
    based on managements estimates of the allocation of turnover and


operating profit or loss attributable
    to a given geographical region that was included within the business of Cable
    & Wireless Global. However, as announced, Cable & Wireless intends
    to focus its business around the key geographical regions in which it operates
    and will track and report results on that basis. Consequently, in the future,
    the geographical breakdown of the Groups results for those portions of its business that used to be part of Cable &
    Wireless Global may not be entirely comparable to the results by geography
    disclosed when Cable & Wireless reported results by Cable & Wireless
    Global (and within Cable & Wireless Global, Wholesale, Enterprise and
    Business Markets) and Cable & Wireless Regional. Capital expenditure Capital expenditure on plant, equipment and property totalled £0.8 billion in 2003 compared with £1.9 billion in 2002 and £3.4 billion in 2001. Cable & Wireless capital expenditure in 2003 included the following third party investments: 
    network build, totalling £310 million, mainly relating to international and pan-regional capacity as well as the UK network; 
      the rollout out of a GSM
          mobile network in the Caribbean and Panama, together with further expansion
          of the TDMA mobile network in the Caribbean, totalling £113 million; 
      Information Technology
          (IT), totalling £134 million, including expenditure on billing
          systems and IT support for capital projects; and 
      network terminating equipment
          and customer premises equipment totalling £134 million. The above numbers include working capital allocations. At 1 April 2003, Cable & Wireless
  was committed to £135 million of capital expenditure as set out in Note
  27 to the Financial Statements. The Group is currently reviewing all capital
  expenditure projects with a view to reducing capital expenditure in 2004 compared
  with 2003.




---

Page 7




---



Back to Contents

business description

---



|BUSINESS
      OVERVIEW
|-----------------------



Products and services Cable & Wireless provides a variety of services including voice, data, IP, mobile and hosting services to its customers in its various national operations.  Voice Cable & Wireless offers domestic and international connectivity via switched and dedicated services to residential, business, corporate and multinational customers. Cable & Wireless also offers leased circuit and facsimile telecommunications services. Cable & Wireless is a supplier of wholesale voice services and interconnect to mobile operators and carriers with customers including incumbent former monopolies, mobile operators and regional telecommunications companies and service providers. Cable & Wireless offers mobile voice and messaging services, principally using GPRS/GSM technology and TDMA technology. As at 31 March 2003, Cable & Wireless subsidiaries and branches provided mobile telecommunications services to 1.6 million customers aroundthe world. Where Cable & Wireless is the
    local incumbent operator (the Caribbean, Panama, Macau and Rest of World),
    business customers are typically served through Cable & Wireless
    own fixed line and mobile network facilities. In other regions, business customers
    are primarily connected to the Cable & Wireless network via third party
    local loops and leased line facilities or directly via fibre or microwave
    links. Data Cable & Wireless has a portfolio of data services including traditional data transport services (frame relay) and national and international switched and dedicated services based on ATM (Asynchronous Transfer Mode, a high speed digital transmission technology).


In addition, Cable & Wireless
    operates a GPRS Roaming Exchange service, GRX, which enables mobile operators
    to offer users secure, high-speed wireless access to data services, such as
    email or corporate intranet access, wherever they are in the world. As at
    31 March 2003, Cable & Wireless has connected 31 mobile operators direct
    to the GRX and links more than 90 mobile operators world wide through interconnect
    agreements. IP Cable & Wireless focuses on
    three IP product sets: IP communications that enable customers to migrate
    from traditional telecommunications services to IP services with improved
    functionality; access solutions; and transit to IP networks and the internet.
    Access solutions include value-added security services such as managed firewalls,
    intrusion detection and response, scanning and analysis (eg email virus protection)
    and authentication and encryption services. In the Caribbean, Panama, Macau and Rest of World, Cable & Wireless also provides residential and business customers with dial-up IP and other internet services, including broad band ADSL (asymmetrical digital subscriber line) solutions. Hosting Cable & Wireless offers a range of integrated managed hosting, intelligent network services, content delivery and other value-added services to business customers. Cable & Wireless US operations generate some 75 per cent of these revenues. Geographic Markets  Cable & Wireless operates in the United Kingdom, the Caribbean, the United States, Japan, continental Europe, Panama, Macau and Rest of World.




---



---



Back to Contents

business description

---



Cable & Wireless provides voice,
    data and IP services to large corporates (Enterprise), SME (Business) and
    residential customers. In addition, in the United Kingdom, the Caribbean,
    the United States, Japan and continental Europe, Cable & Wireless provides
    specialist wholesale services to carriers, mobile operators and content, application
    and internet providers (Wholesale). For a discussion of Cable & Wireless revenue by geographic market for the past 3 years, see Operating and Financial Review  Turnover. United Kingdom   Overview The UK telecommunications market is mature with a considerable number of competitors, significant network capacity and competitive pricing. In the United Kingdom, Cable &
    Wireless is the largest fixed line telecommunications services provider after
    British Telecommunications (BT), the former state-owned monopoly telecommunications
    provider. UK operations provide a full


range of services from international
    and domestic voice and data and IP services to complex web hosting solutions. At 31 March 2003, Cable & Wireless UK provided services to approximately one third of the UK wholesale market and one sixth of the UK retail telecommunications market. Enterprise (Revenue £449 million) Enterprise customers consist of
    large international and national corporate customers to which Cable &
    Wireless provides a range of direct services and outsourced or customised
    solutions. In the United Kingdom, Cable & Wireless provides international
    services to some customers, principally those in the Financial Markets and
    Media sectors. Wholesale (Revenue £725 million) Wholesale operations generate some 40 per cent of Cable & Wireless UKs revenue. The market is highly competitive. Demand from other carriers has fallen as they migrate to their own networks or face lower customer demand and financial difficulties. In the United Kingdom, the primary customers are mobile operators and the companies which developed after de-regulation (other licensed operators), and Cable & Wireless provides interconnect capacity to enable them to offer national and international coverage to theircustomers. Wholesale launched Carrier pre-select
    (CPS) in July 2002  a method of indirect voice access, which enables
    UK residential consumers to select an alternative operator to BT for their
    voice calls in advance, without having to dial additional codes or programming
    on-site equipment. Business (Revenue £554 million) Services to Business customers generated approximately one third of 2003 revenue in the United Kingdom. Business provides direct and telesales services to smaller corporate customers with less complex requirements. At 31 March 2003, it had approximately 1,000 such customers. Business also handles central government agencies and institutions. In addition, approximately 54,000 SME businesses are served by selling the whole range of products and services with and through partners, alliances and third parties. Cable & Wireless formed the ALLnet
    group during the year from the integration of six smaller entities. ALLnet
    provides a single source for hardware installation and maintenance of voice,
    data and cabling systems, together with systems development and integration
    for the information and communications technologies industry in the United
    Kingdom and Ireland.




---

Page 9




---



Back to Contents

business description

---



Caribbean  Cable & Wireless operates in 15 Caribbean territories. The principal territories are Jamaica, Barbados, Cayman Islands and Trinidad and Tobago. In nearly all of the Caribbean territories in which it operates, Cable & Wireless is the incumbent, fixed and mobile operator providing some or all of the domestic and international telecommunications. In the Caribbean territories where
    Cable & Wireless subsidiaries and branches provide domestic telephone
    services, the total number of telephone lines in service totalled approximately
    860,000 at 31 March 2003, an overall decrease of approximately 20,000 in the
    year. During the same period, the mobile subscribers of these subsidiaries
    and branches increased by approximately 370,000 to 940,000. Cable & Wireless has mobile licences in all of its Caribbean territories with the exception of the British Virgin Islands and Bermuda. The Caribbean operations provide a range of mobile services, including pre- and post-paid subscriptions, short messaging service (SMS) andinternational inbound and outbound roaming. Cable & Wireless is investing
    in a new GSM/GPRS (General Packet Radio Services) network in the Caribbean
    which is expected to be rolled out during 2004, commencing with Jamaica, Barbados
    and the Cayman Islands. GSM/GPRS technology provides higher transmission speeds
    enabling Cable & Wireless to offer new mobile services including internet
    access, multimedia messaging and E-banking. The Caribbean operations also provide a full range of internet services to customers, including dial-up, direct connect, web hosting, web-site design and its ADSL services which provide broadband access.


Many of the Caribbean markets in which Cable & Wireless operates are in transition from long-standing monopoly environments to competitive markets. With the global trend towards liberalisation of telecommunication markets, Cable & Wireless is actively engaged with host
    governments, where they desire to reach agreement to end exclusive licences
    and provide for an orderly transition to a competitive environment. These
    discussions involve negotiating regulatory arrangements to provide for the
    orderly introduction of fair, sustainable competition. The implementation of the liberalisation process is well advanced in many Cable & Wireless host territories. The table below shows the dates of market liberalisation for the principal Caribbean subsidiaries. Territory
    
    
    National
    
    
    International
    
    
    Mobile
    
    
    Data & InternetJamaica
      
      
      Sep-01
      
      
      Mar-03
      
      
      Mar-00
      
      
      Mar-00Barbados
    
    
    2011*
    
    
    2011*
    
    
    2011*
    
    
    Long standingCayman
    
    
    2011*
    
    
    2011*
    
    
    2011*
    
    
    2011* *Indicates discussions about the future of the market are underway. Dates given are relevant to the current licence arrangements. Subsequent to the commencement of the phased liberalisation process in Jamaica, several other Caribbean governments, notably Barbados and some members of the Organisation of Eastern Caribbean States (OECS) have endorsed a broadly similar approach. On 20 May 2002, the leaders of certain
    OECS Countries (Grenada, St Lucia, St Vincent & the Grenadines, St Kitts
    & Nevis and Dominica) and Cable & Wireless signed an agreement which
    paves the way for fully competitive markets in these territories. Under this
    agreement, these markets were fully liberalised with retrospective effect
    from 1 April 2002. Jamaica Jamaica is the largest of the Caribbean operations generating over 40 per cent of the Caribbeans revenue in 2003. Cable & Wireless holds an 82 per cent interest in Cable & Wireless Jamaica Limited, the largest provider of telecommunications services in Jamaica. Cable & Wireless Jamaica provides domestic and international fixed line and mobile telecommunication services to consumers and business customers. In addition to Cable & Wireless Jamaica, there are currently three competitors in the mobile and domestic fixed line sectors, as well as a number of resellers. The Jamaican telecommunications market is dominated by the mobile sector. Cable & Wireless estimates that there are approximately 2.5 times more mobile subscribers in the market than fixed line.




---



---



Back to Contents

business description

---



Barbados Cable & Wireless (Barbados) Limited is 81 per cent owned and provides domestic and international fixed line and mobile telecommunications services to consumers and business customers. There are currently no competitors for mobile services but on 7 March 2003 the Government announced its intention to issue three new mobile licences. There are four other ISPs who offer internet services to end customers over Cable & Wireless network. Cayman Islands Cable and Wireless (Cayman Islands) Limited provides domestic, international and mobile services in the Cayman Islands under an exclusive licence, signed in 1991, which expires in 2011. Negotiations are under way with the government to address the future of this licence. Trinidad and Tobago Cable & Wireless owns 49 per
    cent of Telecommunications Services of Trinidad and Tobago Limited (TSTT).
    The controlling 51 per cent shareholding is owned by National Enterprises
    Limited, a state-owned company. TSTT provides domestic and international fixed
    line and mobile telecommunications services to consumers and business customers. In March 2003, TSTT launched its Mobile GSM/GPRS service, being one of the first islands in the Caribbean to launch a full GSM service. United States


Overview The US business, which includes
    a number of legal entities, including Cable & Wireless USA, Inc. and Cable
    & Wireless Internet Services, operates under the brand name Cable &
    Wireless America, and was formed during 2002. Cable & Wireless America
    serves the Wholesale, Enterprise and Business customer segments with hosting
    and IP services generating nearly three quarters of revenue. The US telecommunications market
    is a mature market with a considerable number of participants and over capacity
    in many areas leading to intense competition. In addition, certain competitors
    in the United States have filed for Chapter 11 protection and may emerge with
    a significantly lower cost base than the Group and so be able to compete more
    effectively. In May 2002, Cable & Wireless
    announced a restructuring of its existing US business and, in line with this
    strategy, announced the disposal of the retail voice and data customer bases
    in September 2002. In response to a further deterioration in trading conditions
    between March and September 2002, Cable & Wireless conducted a further
    business review. In November 2002, a further restructuring of the US business was announced. As part of this restructuring, Cable & Wireless America terminated its international voice and domestic e-messaging businesses in the second half of 2002. During the same period, Cable & WirelessAmerica initiated the migration of customers from data centres to be closed, network rationalisation and consolidation, and headcount reductions. The restructuring anticipated the closure of 11 data centres, and a reduction in headcount of 2,400. Since making the announcement 5 of the data centres have been closed, and a headcount reduction of 1,900 has been achieved. The US business continues to be loss making. In 2003, Cable & Wireless
    America generated revenue of £512 million




---

Page 11




---



Back to Contents

business description

---



and incurred a total operating loss of £1,681 million. As discussed in
  the Corporate Overview, Cable & Wireless has announced its intention to
  withdraw from its US operations. In connection with consideration of
    a variety of options, Cable & Wireless US subsidiaries have taken
    some initial steps. Japan   Overview In Japan, Nippon Telegraph and Telephone Corporation (NTT), the former national incumbent, has approximately 75 per cent of the overall market. Cable & Wireless IDC Inc has about 3 per cent of the remaining market, as the fifth largest provider. Cable & Wireless operations in Japan serve a full range of customers including residential, local and international businesses. They also provide wholesale services to other operators. Business and Residential (Revenue £208 million) In Japan, Cable & Wireless IDC
    sells mostly voice and data products into the small and medium sized business
    market both directly through its own sales force and also through a variety
    of agents and partners to access target customers. Over the last year, this
    particular customer base has been segmented further with larger corporations
    being accessed exclusively through a direct sales force and with smaller


business customers and residential
    customers now being served exclusively through indirect channels and resellers.
    Cable & Wireless IDC has 80,000 residential and 20,000 business customers. Wholesale (Revenue £75 million) Cable & Wireless IDC sells mostly voice products to other operators. This market is in transition as many carriers shift from leased facilities to their own networks. Enterprise (Revenue £40 million) Cable & Wireless IDC, together with operations across the rest of Asia, also provides a full range of services to large nationals and multinationals from voice and data and IP services to complex web hosting solutions. Continental Europe    The principal operations in Continental Europe are in France, Italy, Germany and Spain, together with smaller operations in Belgium, the Netherlands, Sweden, Switzerland and Russia. The continental European operations are currently being refocused on Enterprise
  customers and the existing wholesale business. Operations providing services
  to the




---



---



Back to Contents

business description

---



small and medium sized customer market are being sold or shut down. It is anticipated that the reorganisation will result in a reduction in the European network coverage from 33 to 19 nodes and a reduction in customer numbers from 15,000 to fewer than 1,000. Wholesale revenues of £223 million represent some three quarters of revenue in continental Europe. The main wholesale customers are mobile operators and telecommunications operators. Cable & Wireless Europe intends to substantially withdraw from the business customer sector, which accounted for £62 million in 2003, as it is not a financially attractive segment. Cable & Wireless has completed
    disposals of certain non core businesses and assets that had focused on supporting
    small and medium sized customers in continental Europe. These include the
    sale of a number of operations in Northern Europe (Belgium, Netherlands, Sweden),
    Switzerland and Germany. In addition, Cable & Wireless has reached binding
    agreement subject to completion of certain preconditions on the sale of its
    non-core business in Russia. Cable & Wireless is in advanced discussions
    on the sale of its non-core businesses in France and Spain and expects to
    complete a transaction in France by September or earlier. The impact of these
    transactions, taken together, has been to reduce substantially the potential
    costs of exit from these non-core businesses. Panama  Cable & Wireless owns a 49 per cent interest in, and has management control of, the largest telecommunications company in Panama, Cable & Wireless Panama S.A. The Panamanian government holds 49 per cent of the shares while the remaining 2 per cent are held by thecompanys employees through a trust fund.


During 2002 and 2003, approximately
    40 new licences were issued to operators to commence offering basic voice
    telephony services during 2003. Cable & Wireless Panama is in the process
    of negotiating interconnection agreements with several of these operators.
    At 31 March 2003, competition in fixed line services was largely confined
    to international and national long-distance services. There are two licensees in the mobile
    market in Panama: Cable & Wireless Panama and BSC de Panama SA (Bell South).
    Cable & Wireless was the second entrant into this market. Cable &
    Wireless believes that mobile penetration in Panama is relatively low at approximately
    15 per cent. Cable & Wireless Panama provides a full range of internet services to customers, including dial-up, web hosting, web-site design and broadband access. The internet sector has always been competitive and at 31 March 2003 there were some 70 competitors in the sector. Macau  In Macau, Cable & Wireless
    subsidiary is Companhia de Telecomunicações de Macau S.A.R.L.
    (CTM). CTM is managed and 51 per cent owned by Cable & Wireless. The other
    shareholders of CTM are Portugal Telecom Group, 28 per cent, CITIC
    Pacific Limited, 20 per cent, and Direcção dos Serviços
    de Correios de Macau, 1 per cent. CTM has exclusive rights to operate fixed local and international telecommunications services within, to and from Macau until the end of 2011. In the Macau telecommunications market, mobiles outnumber fixed lines. The mobile market was liberalised in 2001 and two competitors launched services in August 2001. In Macau, CTM offers fixed local and international services and a full range of mobile services including GSM/GPRS and Multi-Media Messaging Services via eight branded retail outlets. CTM also provides a full range of internet services




---

Page 13




---



Back to Contents

business description

---



to customers, including dial-up, web hosting, web-site design and broadband
  access. In 2002, Cable & Wireless was
    granted international services-based telecommunications licences in Hong Kong
    and Singapore and now provides data and internet services to business customers.
    The facilities in Hong Kong started carrying commercial traffic in January
    2002, those in Singapore in April 2002. Macau provides back office and management
    services to these operations. Rest of World  Rest of World comprises Cable & Wireless businesses in Yemen, Bahrain and the Maldives, smaller operations in the Seychelles, Diego Garcia, Falkland Islands, Ascension, St Helena, Guernsey and Sakhalin in Russia, together with Cable & Wireless Regionals head officefunctions. Yemen and the Maldives account for 59 per cent of the Rest of World revenue. Yemen Cable & Wireless provides international
    services to and from the Yemen through the Yemen International Telecommunications
    Company (L.L.C.) (TeleYemen) of which Cable & Wireless owns 51 per cent.
    TeleYemen holds the exclusive licence to provide international services to
    and from the Yemen. TeleYemen also has licences to provide an analogue mobile
    service and is an Internet Service Provider. These licences expire on 31 December
    2003. Cable & Wireless has begun negotiations with the government in respect
    of these licences.


Maldives Cable & Wireless has a 45 per
    cent interest in, and management control of, Dhivehi Raajjeyge Gulhun Private
    Limited (Dhiraagu). The remaining 55 per cent is held by the government of
    the Maldives. Dhiraagu provides domestic and international fixed and mobile
    telecommunication services to consumers and business customers. Internet services
    were liberalised in January 2003. Bahrain Cable & Wireless owns 20 per
    cent of Bahrain Telecommunications Company (Batelco). Batelco provides domestic
    and international fixed line and mobile telecommunication services to consumer
    and business customers. The telecommunications market in Bahrain has begun
    liberalisation and Batelco has begun discussions with the government in respect
    of future licensing arrangements. Infrastructure In the Caribbean, Panama and Macau,
    Cable & Wireless typically operates as the domestic incumbent, owning
    and operating the domestic fixed line networks and associated international
    interconnect facilities. Cable & Wireless also has network reach within
    the domestic markets of the United Kingdom, Japan and the United States. In
    other countries and territories, including Yemen, Cable & Wireless operates
    primarily as an international gateway, without extensive domestic networks. Cable & Wireless is the worlds
    fourth largest international carrier of voice traffic and operates significant
    international submarine cable and satellite systems which are centrally managed
    within the United Kingdom. The IP backbone AS3561, provides seamless IP connectivity
    to the United Kingdom, United States, European and Japan regions. Many of Cable & Wireless
  subsidiaries also own and operate mobile networks, including in the Caribbean
  (TDMA network in Jamaica, GSM/GPRS in Trinidad and Tobago), Panama (TDMA and
  GSM/GPRS), Macau (GSM/GPRS), the Maldives (GSM) and Bahrain (GSM). Cable &
  Wireless companies also operate 45 data centres within the United States, Japan
  and United Kingdom offering a wide selection of web-based and hosting services.




|REGULATORY
      FRAMEWORK
|--------------------------

Cable & Wireless, in common with
    other international telecommunication providers, faces regulatory and market
    access constraints in various countries resulting from restrictive laws, policies
    and licensing requirements. This reflects the perception of telecommunications
    as a public


service, a history of special or exclusive
  rights to provide services and, often, a structured move towards liberalisation
  and the introduction of competition. Generally, specialist telecommunications
  regulation is administered through




---



---



Back to Contents

business description

---



enforcement of conditions contained in operating and service licences held
  by the Group and its subsidiaries. Approximately 60 per cent of Cable & Wireless network services revenues are derived from the United Kingdom, the United States and continental Europe, in each of which the telecommunications sector has been largely liberalised and competition introduced in the services Cable & Wireless provides. Many of the other markets in which
    Cable & Wireless operates are in transition from long-standing monopoly
    environments to competitive markets. With the global trend towards liberalisation
    of telecommunication markets, Cable & Wireless is actively engaged with
    host governments who desire it to reach agreement to end exclusive licences
    and provide for an orderly transition into a fully competitive environment.
    The discussions involve negotiating fair regulatory arrangements to provide
    for equal treatment and opportunity during the transitional period. Nevertheless, some restrictive telecommunications laws and regulations are expected to continue in force, giving rise to residual constraints, risks and uncertainties that will affect Cable & Wireless ability to develop and market its full portfolio of services. A key regulatory issue in many markets
    is the need for rebalancing, the removal of cross-subsidies between
    international services and domestic services by increasing domestic charges
    and reducing international rates. There is further impetus to rebalance in
    the form of external pressure on international settlement rates. The Group believes it materially complies with regulatory obligations and where regulatory compliance issues emerge it intends to take action as necessary to ensure compliance. Licensing Cable & Wireless provides international
    and domestic telecommunications services under exclusive and non-exclusive
    licences in the jurisdictions in which it operates. These licences are either
    held by Cable & Wireless itself or by local operating entities owned either
    wholly or partly, directly or indirectly, by Cable & Wireless. The Group believes it has all licences
    material to the running of its business. It is possible that from time to
    time, as further products and services are deployed or changed, additional
    licences or authorisations will be required. Where the Group identifies the
    need for further licences or authorisations, it intends to acquire such licences.
    The terms of the Groups licences vary, although most remain in effect
    for a fixed period of between 10 and 25 years, or for an indefinite period
    subject to notice of termination after a specified minimum period. Licence
    fees are sometimes


required, either as a fixed annual
    fee or a fee equal to a percentage of the revenue arising from the licence. Following the implementation of
    the European Electronic Communications Directives on 25 July 2003, Member
    States of the European Union will no longer issue individual telecommunications
    licences to companies except in exceptional circumstances such as the allocation
    of spectrum. Therefore, Cable & Wireless expects that substantially all
    telecommunications licences Cable & Wireless holds in European Union Member
    States will be revoked. However, Cable & Wireless will continue to offer
    telecommunications services subject to obligations set forth in general conditions
    as dictated by the Electronic Communications Directive and individual member
    states. Some licences provide that, upon their termination, the government may purchase, or have the option to purchase, the property, plant and equipment of the licensee in that territory. In some cases where the Group owns an operating company jointly with government, thatgovernment has the right to purchase, at specified times, the whole or part of the Groups shareholding in the operating company. Across the world, the trend in telecommunications
    regulation is for governments and regulators to promote liberalisation and
    to replace exclusive licences with non-exclusive licences and rules governing
    competition between operators. Jurisdictions that currently support monopoly
    provision may also decide to promote competition, and Cable & Wireless
    expects that some of the remaining exclusive licences will not be renewed
    on an exclusive basis or that governments will seek to withdraw their exclusivity
    before the licence expires. The Group has committed itself to entering discussions regarding the introduction of competition in any territory where government wishes to do so. There is no guarantee that an agreement to provide either a monopoly or franchised service will remain in effect for the full term of the agreement. Regulation by Jurisdiction The regulatory institutions and
    policies of the jurisdictions in which the Group operates are varied. Regulators
    in markets for the Group include the Office of Telecommunications and Office
    of Fair Trading in the United Kingdom, the Ministry of Public Management,
    Home Affairs, Posts and Telecommunications in Japan, and the Federal Communications
    Commission and Department of Justice in the United States. Cable & Wireless
    USA is also subject to state regulations when it provides intra-state services.
    National regulators and competition authorities in continental Europe are
    also significant. The regulatory framework for member states of the European
    Union is principally




---

Page 15




---



Back to Contents

business description

---



established through directives of the European Parliament and Council developed at the working level by the European Commission. The Groups operations in the Caribbean are regulated by national or regional regulators, some of which are independent statutory bodies like the Office of Utilities Regulation in Jamaica, the Eastern Caribbean Telecommunications Authority, which is the regional regulator for several member countries of the Organisation of Eastern Caribbean States, and the Fair Trading Commission in Barbados. The national regulator, Ente Regulador de los Servicios Publicos, regulates the Groups operations in Panama. United Kingdom The telecommunications market in
    the United Kingdom is regulated under the Telecommunications Act 1984 (UK
    Telecoms Act). The UK Telecoms Act established the Director General of the
    Office of Telecommunications (Oftel) as the independent industry regulator.
    As a member of the European Union, the UK government must also ensure that
    the UK regulatory framework for communications complies with relevant EU directives. As a network operator, Cable &
    Wireless UK has the right to request and receive cost-based interconnection
    for switched voice services and leased line access circuits (Partial Private
    Circuits) from BT on non-discriminatory terms. Such services are subject to
    network charge controls. Oftel is currently formulating a new proposed framework
    for regulating dominant providers of network facilities. However, Cable &
    Wireless expects that the regulation of BT with respect to Partial Private
    Circuits and switched voice interconnect will be broadly
    similar to the regulations in place today. Cable & Wireless has been designated
    as having Market Influence on a number of International Direct
    Dial (IDD) routes from the United Kingdom. In total there are 37 retail IDD
    routes and 38 wholesale IDD routes where Cable & Wireless currently is
    designated with Market Influence status, although these designations are currently
    under review as part of the process for implementing EU directives. Subject
    to consultation, it appears that following the implementation of the package
    of Directives, Cable & Wireless will have a designation of Significant
    Market Power on wholesale IDD services from the United Kingdom to four destinations:
    Andorra, Ascension Island, Montserrat and Turks & Caicos. The British government is reforming
    existing telecommunications and broadcasting legislation and draft legislation
    was introduced to Parliament in November 2002 in the form of a Draft Communications
    Bill. It is proposed that the Bill will update broadcasting and telecommunications
    legislation taking into account the


requirements of the EU Telecommunications
    Directives. It will also layout the powers held by the Office of Communications
    (Ofcom), the new regulator that was created in 2002. The Chairman, Chief Executive
    and various Board Members of Ofcom have now been appointed, although they
    have no power to act until Ofcom formally replaces the existing broadcasting
    and telecommunications regulators in late 2003 or 2004. Europe Cable & Wireless operates under
    separate licences in Austria, Belgium, France, Germany, Greece, Italy, Ireland,
    the Isle of Man, Luxembourg, the Netherlands, Norway, Portugal, Russia, Spain,
    Switzerland, and the United Kingdom. The regulatory framework in member states
    of the European Union is harmonised by EU directives though, in practice,
    there are divergences in regulatory policy and practice between member states. The European Union adopted a new
    package of harmonising directives (Framework, Authorisation, Universal Service,
    Access and Interconnection and Data Protection Directives) in April 2002.
    Member states must implement the directives by 25 July 2003. The package uses
    the concept of significant market power to determine which operators should
    have prior obligations placed on them, on the grounds that such operators
    might exploit that market position to the detriment of competition and therefore
    consumers. One of the markets being reviewed
    is the market for call termination on fixed public telephone networks. It
    is likely that National Regulatory Authorities will decide that all operators
    of public voice telephony networks have significant market power on calls
    terminating on their own networks. If this is the case, Cable & Wireless
    would be designated as having Significant Market Power for calls
    terminating on each of Cable & Wireless national voice networks.
    However, due to this concept being applied to all operators, obligations are
    likely to be minimal and the Group expects there will be little or no competitive
    impact. Japan Cable & Wireless IDC holds a
    Type I (facility holding and service providing) licence and a General Type
    II (service providing) licence. Among the services Cable & Wireless IDC
    provides in Japan are web hosting, international and domestic voice and data
    services, Internet Protocol access, managed corporate services, and wholesale
    services to other carriers in the Asian region. The Japanese legislature is undertaking a reform of Telecommunication Business Law. This reform is likely to abolish the separation of telecommunication business licences between Type I and Type II, and allow a significant




---



---



Back to Contents

business description

---



degree of tariff deregulation, relieving non-dominant operators of the need to file tariffs. This revision may also introduce a degree of tariff deregulation to Nippon Telegraph and Telephone Corporation (NTT), the incumbent telecommunications provider, which could impact Cable & Wireless IDCs pricing competitiveness in certain instances. The legislature is expected to pass the new Telecommunication Business Law in the first half of calendar year 2003, with related implementation ordinances drafted during the second half of 2003. The new Telecommunication Business Law is expected to come into force during calendar year 2004. NTT East and NTT West, which serve the eastern and western areas of Japan respectively, have secured authorisation for regional IP access services within their service areas. These authorisations may increase the degree of competition faced by Cable & Wireless IDC, butalso provide some benefits to the company through the availability of cheaper wholesale data services. Interconnection charges for origination
    and termination of traffic on the networks of NTT East and NTT West impact
    the profitability of Cable & Wireless IDCs voice business. The Ministry
    of Public Management, Home Affairs, Posts and Telecommunications (MPHPT) regulates
    these interconnection charges. Certain interconnection charges used by Cable
    & Wireless IDCs voice services increased by 12 per cent on 1 April
    2003 and there is the possibility of further retrospective increases later
    this year. Current regulatory proceedings could assist Cable & Wireless
    IDC by allowing it to set retail prices for calls-to-mobiles, which prices
    are currently set by the mobile network operators. A MPHPT working group is
    currently studying these arrangements, particularly in relation to calls originated
    on the subscriber lines of NTT East and NTT West. The MPHPT working group
    is due to report during calendar year 2003. Legislation to establish a Universal
    Service Fund was passed in 2001, but the Japanese government has not yet announced
    an intention to impose levies on carriers. There remains, however, a possibility
    that Cable & Wireless IDC will be liable to make payments in future years.
    There is also a proposed cap on contributions at 3 per cent of retail voice
    revenue, thereby limiting overall liability in any given year. United States The principal legislation regulating
    telecommunications services in the United States is the Communications Act
    of 1934 as amended by the Telecommunications Act of 1996 (US Communications
    Act). Title II of the US Communications Act establishes a comprehensive
    regulatory regime for common carriers involved in interstate or


international communications by
    wire. Cable & Wireless USA is licensed under the US Communications Act. Because it offers interstate and international telecommunications services to businesses generally and not just to selected customers, Cable & Wireless USA Inc., for regulated services, is a common carrier subject to Title II regulation. Title II requires common carriers
    to provide telecommunications services upon reasonable request, to provide
    services on rates and terms which are just and reasonable, to obtain the approval
    of the Federal Communications Commission (FCC) for the construction of new
    or the extension of existing international facilities and for the initiation
    and discontinuance of service offerings, and to comply with any applicable
    orders issued by the FCC. The FCC has, by regulation, suspended certain other
    requirements for non-dominant common carriers providing domestic interstate
    telecommunications services. Cable & Wireless USA is deemed a non-dominant
    common carrier in the provision of interstate domestic service. Cable &
    Wireless USA may thus, under the current FCC regulation, construct new interstate
    facilities, offer new services and set interstate prices with minimal FCC
    review, subject only to general FCC reporting requirements. As a common carrier
    of interstate telecommunications services, Cable & Wireless USA is also
    required to contribute to the Federal Universal Service
    Fund. Cable & Wireless USA offers
    international telecommunications services principally on a resale basis. On
    some routes, Cable & Wireless USA is deemed a dominant carrier because
    it is an affiliate of a foreign carrier that is considered by the FCC to be
    dominant in that foreign market. Subsequent to its acquisition of
    selected assets of Exodus, Cable & Wireless began discussions with the
    US government regarding the terms on which the company might file and clear
    review by the Committee on Foreign Investment in the United States (CFIUS).
    Given Cable & Wireless announcement of its intention to exit the
    US business market, the discussions have been discontinued. Other markets During the year, both Panama and Jamaica reached the conclusion of a phased liberalisation process, with the opening of all market sectors to competition in January and March 2003, respectively. Both these processes proceeded as contemplated in agreements struck betweenCable & Wireless and the governments of those territories. Subsequent to the commencement of the phased liberalisation process in Jamaica, several other Caribbean governments, notably Barbados, and some members of the




---

Page 17




---



Back to Contents

business description

---



Organisation of Eastern Caribbean States, have endorsed a broadly similar approach.  Regulation relating to Online Content and Internet Protocol Networks Online Content Governments around the world are
    adopting and proposing legislation and regulations, and courts are creating
    case law, making certain types of online content illegal. A critical issue
    in the development of those legislative and regulatory arrangements is whether
    Cable & Wireless, as a web hosting and internet service provider, might
    be deemed responsible for illegal content or illegal conduct related to legal
    content (eg downloading copyrighted material) operated or controlled by customers
    of Cable & Wireless services. At present, most jurisdictions have taken
    a position that the content provider, not the web hosting provider or internet
    service provider, is responsible for the content that it develops or posts,
    an approach supported by Cable & Wireless. Copyright law in the United
    States and European Union extends protection to digital works distributed
    over the internet and clarifies the hierarchy of liability for infringements
    of copyright. Also, the European Union has adopted a Directive that makes
    it clear that service providers are not liable for hosted content but must
    take appropriate action when notified that illegal content resides on their
    network. In addition, industry self-regulation
    is actively encouraged in the United States and by the European Commission
    and the industry supports a number of successful self-regulatory initiatives
    world wide. For example, many governments have endorsed the Internet Content
    Rating Association as a model for the self-labelling and rating of websites,
    which empowers parents to filter internet content viewed by their children.
    An extensive network of national hotlines for internet users to


report criminal content (mainly
    child pornography) is operating well, co-funded by industry and government. Between countries there is the possibility
    for conflict concerning the definition of illegal internet content. Consequently,
    Cable & Wireless recognises the risks that content legally hosted in one
    jurisdiction may give rise to a breach of national laws when accessed in another
    jurisdiction. The industry as a whole faces this situation and it remains
    one of the key policy issues to be resolved as national governments determine
    the appropriate legal framework for the internet. An increasing number of countries have strengthened national anti-terrorism laws and the protection of national communications infrastructure. Measures include modifications to the framework for legal interception, access to retained or preserved data and, in the case of theUnited Kingdom and some continental European countries, moves to extend retention periods for law enforcement purposes. Internet protocol (IP) networks At present, regulation of IP networks
    is minimal. Some national regulators and international organisations (eg the
    International Telecommunication Union) have been discussing market concentration
    in IP backbone services. Also, there is ongoing debate in international regulatory
    circles about the cost of connectivity from developing countries to the internet
    and the impact that such costs may have on the digital divide.
    In the United States and the European Union, regulators appear to be of the
    view that at this time, there is an acceptable level of market concentration
    in IP backbone services and competition law is an adequate safeguard against
    excessive concentration and the abuse of market power and that, consequently,
    no special regulation of IP networks is required.




|PROPERTY
|--------

The property portfolio of Cable
    & Wireless and its subsidiaries at 31 March 2003 amounted to approximately
    16 million square feet of freehold and leasehold technical and office space,
    located primarily in the United Kingdom and United States, although the spread
    of properties extends across continental Europe, Asia, and the Caribbean.
    Numerically, the bulk of properties are technical and house equipment necessary
    to support Cable & Wireless operations world wide. The vast majority of the existing portfolio is leased. In general, Cable & Wireless technical properties enjoy the protection of telecommunications legislation, which has the aim of ensuring the continuity of Cable & Wireless networks.


Over the last few years, most Cable
    & Wireless companies have initiated major projects with the aim of substantially
    reducing the size of their property portfolios, to match Cable & Wireless
    streamlined headcount and business rationalisation. Project planning is well
    advanced, generally focusing on reducing office space which is easier to dispose
    of because there are fewer constraints than apply to technical properties
    and there is a larger market for office properties. Whilst disposals are being pursued across the Group as part of these projects, acquisition of both office and technical sites still occurs where required.




---



---



Back to Contents

business description

---



|LEGAL
      PROCEEDINGS
|-----------------------

Class
          action litigation against Cable and Wireless plc Between December 2002 and February 2003, ten shareholder class action lawsuits were filed in the United States District Court for the Eastern District of Virginia naming Cable and Wireless plc and several of its officers and directors as defendants. In March 2003, the court consolidated
    all of the cases into one action, styled as In re Cable and Wireless plc Securities
    Litigation, Civil Action No. 02-1860-A. The Court has appointed Ontario Teachers
    Pension Plan Board, an institutional investor located in Canada, and Alex
    Osinski, a U.S. citizen, as co-lead plaintiffs (collectively lead plaintiffs)
    to prosecute on behalf of all plaintiffs. In May 2003, the lead plaintiffs
    filed a consolidated complaint that alleges violations of certain sections
    of the Securities and Exchange Act of 1934 and the rules promulgated thereunder.
    A central allegation is that the defendants made false and misleading statements
    about the Companys financial condition by failing to disclose on a timely
    basis the existence of a tax indemnity and a ratings trigger to place money
    in escrow until any liability which the Company may have had under the tax
    indemnity was finally determined. The indemnity and ratings trigger appear
    in an agreement between the Company and Deutsche Telekom for the sale of the
    Companys interest in the mobile telephone company that operated under
    the name One2One. In addition to the allegations relating
    to the tax indemnity, the consolidated complaint also alleges that the defendants
    made false and misleading statements by: (1) failing to disclose certain lease
    liability commitments and (2) improperly recognising revenue received from
    sales of capacity to other carriers. The plaintiffs seek unspecified money damages in their complaints. Cable & Wireless believes that it has meritorious defences to these claims and intends to vigorously defend itself in this litigation. Dispute with IBM UK Limited Disputes between (1) Cable and Wireless
    plc and IBM United Kingdom Limited, (2) Cable & Wireless USA, Inc. and
    International Business Machines Corporation and (3) IBM Japan Limited and
    Cable & Wireless IDC Incorporated (collectively Cable & Wireless
    and IBM respectively) have arisen out of a Global Framework Agreement
    (GFA) dated 20 December 2000, and related agreements, pursuant


to which IBM agreed to supply to
    Cable & Wireless information technology services. In order to monitor the quality
    of the services provided by IBM, including price and service levels, the GFA
    contains benchmarking provisions, which set out the processes
    and procedures by which the services provided by IBM are to be assessed against
    a pre-determined objective. In February 2002, the parties engaged Compass
    America Inc (Compass) to conduct a benchmark for the 14 month period from
    1 January 2001 to 28 February 2002, the results of which revealed significant
    levels of overcharging by IBM. Disputes arose as to whether the
    GFA obliged IBM to repay to Cable & Wireless the amounts that the benchmark
    established it has been overcharged and as to whether the Compass reports
    were valid both in terms of their substance and conformity with the GFA benchmarking
    requirements. On 4 July 2002, the Company issued proceedings for a declaration
    that it is entitled to compensation from IBM UK for any period of overcharging,
    including past overcharging, and to compensation in respect of overcharging
    as identified by Compass. After an inconclusive Court-ordered
    mediation that took place in December 2002, the Court ordered an expedited
    trial of all matters in issue between the parties. Full pleadings were then
    exchanged. Cable & Wireless seeks a declaration as to the meaning of certain
    overcharging related provisions of the GFA and compensation for overcharging
    by IBM. From January 2001 to the date Cable & Wireless proceedings
    were issued, its claim in respect of overcharging by IBM amounts to approximately
    £115 million in respect of the United Kingdom and approximately US$22
    million in respect of the United States. For each month that IBM refuses to
    reduce its charges a further substantial overcharge arises. IBM UK and IBM
    US seek the declaration in respect of the Compass reports referred to above
    and IBM
    UK has brought counterclaims in respect of work it alleges Cable & Wireless
    should have given to it under the GFA and claims damages to be assessed. IBM
    Japan Limited seeks payment of certain charges allegedly due and payable to
    it by Cable & Wireless IDC Inc. Subsequently, on 21 February 2003, the
    Court directed that Cable & Wireless claim as to the meaning of
    certain overcharging related provisions of the GFA should be heard separately
    from the other claims and counterclaims as a preliminary issue. The preliminary
    issue has been set for trial in September 2003. Cable & Wireless believes that it has meritorious defences to the counter claims asserted by IBM and intends to vigorously defend itself in this litigation.




---

Page 19




---



Back to Contents

business description

---



Claim by APCC Services, Inc. and others On 30 March 2001, a complaint was
    filed in the US District Court for the District of Columbia against Cable
    & Wireless USA, Inc. and was served on Cable & Wireless USA, Inc.
    on 25 June 2001. The complaint was filed by a group of billing and collection
    agents on behalf of hundreds of entities that own and operate public payphones
    throughout the United States. The complaint alleges that Cable & Wireless
    USA, Inc. violated the US Communications Act and the rules, regulations, and
    orders of the Federal Communications Commission by not adequately compensating
    the independent payphone operators for toll free and access code calls that
    were made from the independent payphone operators payphones and carried
    over Cable & Wireless USA, Inc.s network. The complaint seeks approximately
    US$5 million in monetary damages. In August 2001, Cable & Wireless USA,
    Inc. and the plaintiff entered into a tolling agreement whereby the obligations
    of the parties in litigation would be suspended until 1 November 2001, while
    the parties attempted to resolve the dispute informally. Plaintiffs refiled
    their complaint which is now pending in the US District Court for the District
    of Columbia. The parties agreed to a confidential, non-binding, third-party
    neutral evaluation for settlement purposes which is
    currently ongoing. Cable & Wireless USA, Inc. believes that it has meritorious defences to the claims. If the dispute is not resolved through the neutral evaluation process, Cable & Wireless USA, Inc. intends to vigorously defend the action. Litigation against Digital Island, Inc./Cable & Wireless Internet Services, Inc. As described in Business Description - History, in 2002 Cable & Wireless acquired 100 per cent of Digital Island, which is now known as Cable & Wireless Internet Services, Inc. Akamai Technologies, Inc. (Akamai)
    and the Massachusetts Institute of Technology (MIT) filed a patent infringement
    suit against Digital Island on 13 September 2000 in the US District Court
    for the District of Massachusetts, alleging that a version of Digital Islands
    content delivery service infringes a patent owned by MIT and licensed exclusively
    to Akamai. On 20 September 2000, Akamai and MIT filed a further claim alleging
    infringement by Digital Island of a second Akamai patent. On 21 December 2001, a jury invalidated
    three of the claims related to one of the Akamai patents. The jury also found
    that Digital Island infringed one independent claim and three dependent claims
    of this patent. Digital Island was found not to have infringed the other patent.
    On 23 August 2002, the


Court entered a permanent injunction
    prohibiting further infringement of certain of the surviving claims. Cable
    & Wireless has revised its content delivery service (at little cost to
    and with no other effect on its customers) in such a way that Cable &
    Wireless believes that the infringement no longer exists and that the injunction
    is of no effect. Nevertheless, on 17 September 2002, Akamai filed a contempt
    motion with the Court asserting that Cable & Wireless Internet Services,
    Inc. is violating the injunction by continuing to infringe the surviving Akamai
    claims. The Court denied Akamais motion on 1 November 2002. A damages
    trial has not yet been scheduled on the infringed claims. On 22 January 2003, Akamai filed
    a patent infringement suit against Cable & Wireless Internet Services,
    Inc. in the US District Court for the Eastern District of Virginia, alleging
    that the Cable & Wireless content delivery service infringes a recently-issued
    patent owned by Akamai. Upon motion by Cable & Wireless Internet Services,
    Inc. the case was transferred to the District Court for the District of Massachusetts. On 22 April 2003, Akamai filed a patent infringement suit against Cable & Wireless Internet Services, Inc. in the US District Court for the District of Massachusetts, alleging that the Cable & Wireless content delivery service infringes a patent issued to Akamai that same day.Akamai has not yet effected service of the complaint in this case. On 29 August 2002, Teknowledge Corporation
    (Teknowledge) filed a patent infringement suit against Cable & Wireless
    Internet Services, Inc., Akamai, and Inktomi Corporation in the US District
    Court for the District of Delaware, alleging that the content delivery service
    of each defendant infringes a patent owned by Teknowledge. Upon motion by
    Cable & Wireless Internet Services, Inc. the case was transferred to the
    District Court for the Northern District of California. Cable & Wireless Internet Services, Inc. believes that it has meritorious defences to the outstanding claims asserted in these cases and intends to vigorously defend itself in these cases. Class actions against Digital Island, Inc. in connection with its initial public offering In August 2001, Digital Island became
    aware that two purported shareholder class action lawsuits were filed in the
    US District Court for the Southern District of New York naming Digital Island
    as a defendant along with certain of its present and former officers and directors
    and alleging violations of certain sections of the Securities Act 1933 and
    the Securities Exchange Act 1934.




---



---



Back to Contents

business description

---



The actions (which now include a third suit making virtually identical claims and allegations) allege that the Registration Statement and Prospectus through which Digital Island conducted its initial public offering (IPO) in June 1999 was false and misleading because it failedto disclose, amongst other things, that: (i)
    the underwriters of the
          IPO allegedly had solicited and received excessive and undisclosed commissions
          from certain investors in exchange for which the underwriters allocated
          to those investors material portions of the restricted number of Digital
          Island shares issued in connection with the IPO; and (ii)
    the underwriters allegedly
          had entered into agreements with customers whereby the underwriters
          agreed to allocate Digital Island shares to those customers in the IPO
          in exchange for which the customers agreed to purchase additional Digital
          Island shares in the after market at pre-determined prices. On 15 July 2002, Cable & Wireless Internet Services, Inc. moved to dismiss all claims against it. On 19 February 2003, the Court denied the motion to dismiss. Cable & Wireless Internet Services, Inc. is now engaged in settlement discussions with the plaintiffs. Notwithstanding this, Cable & Wireless Internet Services, Inc. believes that it has meritorious defences to these claims and, should the settlement discussions proveunsuccessful, intends to vigorously defend itself in any such litigation. Class action securities litigation against Digital Island, Inc., Cable & Wireless and others Digital Island, Cable and Wireless
    plc, Dali Acquisition Corp. (Dali) (a former subsidiary of Cable & Wireless),
    and certain of the then present and former directors of Digital Island, have
    been named as defendants in six separate putative class action lawsuits alleging
    various claims arising out of Cable & Wireless acquisition of Digital
    Island in August 2001. Three of the lawsuits were filed in the US District
    Court for the District of Delaware and three were filed in the Delaware Court
    of Chancery. The three federal lawsuits were consolidated into a single case,
    and, while the plaintiffs motion to consolidate the three state cases
    was granted on 24 April 2002, the plaintiffs have yet to file a consolidated,
    amended complaint. The federal suit alleged that the
  defendants violated federal securities laws by failing to disclose on a timely
  basis that Digital Island had entered into certain business agreements with
  Bloomberg, L.P., and Major League Baseball. It further alleged that compensation
  agreements with certain officers and/or directors of the company violated the
  federal


securities all-holders
  rule. One state lawsuit alleged violations of Delaware law based upon similar
  allegations. The other two state lawsuits alleged
    various violations of Delaware law against the same corporate defendants and
    the present and former Digital Island directors, including that they failed
    to disclose all material facts relating to Digital Islands relationship
    with Microsoft, and that they failed to obtain a fair price for Digital Island
    shares. On 10 September 2002, a federal
    judge granted the defendants motion to dismiss the federal lawsuits
    with prejudice. Plaintiffs have appealed the decision to the US Circuit Court
    of Appeals for the Third Circuit. Cable & Wireless believes that it and
    its subsidiaries have meritorious defences to the claims asserted in these
    lawsuits, and intends to continue to vigorously defend itself in that litigation
    as well should the plaintiffs pursue those claims. Litigation with Cibertec International, S.A. and Inversiones Kamasu, S.A. Cibertec International, S.A. and
    Inversiones Kamasu, S.A. initiated proceedings against Cable & Wireless
    Panama, S.A. and Cable and Wireless (CALA Management Services) Limited in
    Panama on 29 October 1999. The claim is for approximately US$125 million and
    alleges breach of contract. On 18 November 2002, the Panamanian Circuit Court
    handed down a decision against Cable & Wireless Panama, S.A. awarding
    damages of US$67,255,000, including moral damages and costs. The Court decided
    that Cable & Wireless Panama, S.A. had failed to maintain in sufficient
    confidence certain of the proprietary information of the plaintiffs. Cable & Wireless Panama, S.A. appealed the judgement on 3 December 2002 and intends to pursue this appeal vigorously. Pending the resolution of its appeal, Cable & Wireless Panama, S.A. is not obliged to pay, and has not paid, any of the awards against it. Claim against the Minister of Finance and Economy On 16 December 2002, a complaint
    was filed at the Supreme Court of Justice of Panama against the Minister of
    Finance and Economy in Panama alleging that the Operating Agreement executed
    between Cable and Wireless (CALA Management Services) Limited and INTEL, S.A.
    (now Cable & Wireless Panama, S.A.) as part of the privatisation agreements
    was null and void ab initio, on the grounds that it had not been published
    in the Official Gazette in Panama. On 21 March 2003, the Court admitted the claim against the Minister of Finance and Economy.




---

Page 21




---



Back to Contents

business description

---



Panamanian counsel consider this
    claim to be without merit and none of Cable and Wireless plc, Cable &
    Wireless Panama, S.A. or Cable and Wireless (CALA Management Services) Limited
    are parties to the complaint. However, if the complaint were to be successful
    and the Operating Agreement declared null and void, then the complainants
    could file a complaint against Cable and Wireless (CALA Management Services)
    Limited requiring the return of all management fees collected under the agreement
    since its execution. This would amount to approximately £60 million.
    In the event that this complaint is successful, Cable & Wireless and its
    subsidiaries intend to vigorously pursue any legal recourse available to them. Claim by Caribtel (Caribbean) Limited On 9 May 2003, Caribtel (Caribbean)
    Limited, a telecommunications operator specialising in calling cards, filed
    a suit against Cable & Wireless Jamaica Limited in the Supreme Court of
    Judicature of Jamaica. Caribtel has alleged that Cable & Wireless Jamaica
    Limited wrongfully disconnected Caribtels local access telephone services,
    resulting in a breach of contract and a violation of the Jamaican Fair Competition
    Act and the Telecommunications Act. Caribtel is claiming US$50 million of
    lost income to its pre-paid local access calling card business for the period
    from 25 April 2003 to 25 April 2006. Caribtel has also claimed aggravated
    and/or exemplary damages of Jamaica $300 million (approximately £2.94
    million) and is seeking injunctive relief to have Cable & Wireless Jamaica
    Limited reinstate Caribtels local access telephone service. On 22 May 2003, Caribtel presented
    a petition for injunctive relief before the Supreme Court of Jamaica requesting
    that Cable & Wireless Jamaica Limited be required to reinstate Caribtels
    local access telephone service; be restrained from disconnecting any other
    telecommunications facility currently supplied to Caribtels business
    premises until trial; and be prevented from calling on a prior bank guarantee
    that Caribtel had provided to Cable & Wireless Jamaica Limited in conjunction
    with a settlement agreement entered into between the parties in February 2003
    relating to breaches of contract by Caribtel in December 2002. The injunctions
    were not granted by the court. However, Cable & Wireless Jamaica Limited
    gave an undertaking that it would not disconnect the direct internet access
    facility pending a hearing scheduled for 2 June 2003. Prior to the hearing of 2 June 2003,
    Caribtel approached Cable & Wireless Jamaica Limited with a view to arriving
    at a settlement. The parties entered into negotiations as a result of which
    the matter was taken off the court list by consent of both parties. A new
    court date will be set if the parties are unable to arrive at a settlement.
    Cable & Wireless Jamaica Limited believes that its actions were lawful
    and


that it was entitled to disconnect
    Caribtels services under its contract with Caribtel. If the settlement
    negotiations prove unsuccessful, Cable & Wireless Jamaica Limited will
    continue to defend itself vigorously in this matter. Arbitration between Tilts Communications A/S/Cable and Wireless plc/Sonera OY and Republic of Latvia/Lattelekom SIA In September 2001, Cable and Wireless
    plc was joined as a party to an arbitration in connection with its former
    participation with Sonera OY (Sonera) in the joint venture Tilts Communications
    A/S (Tilts). Through Tilts, Cable and Wireless plc and Sonera purchased a
    49 per cent shareholding in a Latvian telecommunications company, Lattelekom
    SIA (Lattelekom) in 1994. Cable and Wireless plc sold its interest in Tilts
    to Sonera in June 1998. Tilts commenced arbitration proceedings
    in August 2000 against the Republic of Latvia alleging a number of breaches
    of an agreement signed in 1994 by Tilts, Lattelekom and the Republic of Latvia
    (the Umbrella Agreement). Tilts claims a total of approximately
    LVL87.6 million (approximately £95 million) from the Republic of Latvia
    as compensation for, amongst other things, losses sustained as a consequence
    of the shortening of the twenty year exclusivity period granted to Lattelekom
    as the provider of fixed line telecommunications services. The Republic of Latvia has asserted
    nine counterclaims for a total of approximately LVL599.5 million (approximately
    £656 million) against Tilts, alleging that Tilts has failed to comply
    with various obligations it assumed under the Umbrella Agreement including
    (i) to digitalise and otherwise improve Lattelekoms network in accordance
    with its contractual commitments, (ii) to meet certain quality of service
    and network performance commitments, and (iii) to procure that Sonera sell
    its shares in GSM operator Latvijas Mobilais Telefons to Lattelekom. Tilts
    considers that the counterclaims asserted by the Republic of Latvia are unfounded. Cable and Wireless plc was joined
    as a party to the arbitration by the Republic of Latvia because it (and Sonera)
    guaranteed the performance by Tilts of its obligations under the Umbrella
    Agreement to the Republic of Latvia by performance and parental guarantees.
    However, as part of the arrangements relating to Soneras purchase of
    Cable and Wireless plcs shares in Tilts, Sonera provided Cable and Wireless
    plc with an indemnity for any liability incurred by Cable and Wireless plc
    under these guarantees. Provided Sonera honours its obligations under the
    indemnity, Cable and Wireless plc will not be exposed to any liability under
    these guarantees. Cable and Wireless plc has taken legal advice. Based on
    this advice, Cable and Wireless plc




---



---



Back to Contents

business description

---



believes that the indemnity is binding.
    In addition, Sonera provided Cable and Wireless plc with a letter dated 11 December
    2001, confirming that in its view all liabilities, costs and expenses incurred
    by Cable and Wireless plc in connection with the arbitration fell within the
    scope of the indemnity. Following the acquisition of Sonera in 2002, the successor
    entity to Sonera, TeliaSonera, provided Cable and Wireless plc with a further
    letter dated 23 February 2003, acknowledging Soneras obligations
    under the indemnity and


stating that TeliaSoneras
    acquisition of Sonera did not alter the validity of the confirmations given
    by Sonera in its earlier letter of 11 December 2001. Other than the above, there are no pending legal or regulatory proceedings against the Company or any of its subsidiaries, which the Company believes will if determined adversely to the Group have a material adverse effect on the Groups liquidity or results of operation.




---

Page 23




---



Back to Contents

operating
and financial review

---



OPERATING AND FINANCIAL REVIEW

This section contains:

Overview
    
    
    24Group operating performance
    
    
    26Review by division
    
    
    32Liquidity and capital resources
    
    
    36Cash Flow
    
    
    39Disclosures about market risk
    
    
    39


Five
          year summary
      
      
      41Critical
          accounting policies
      
      
      42New
          UK accounting standards adopted
      
      
      43US
          GAAP reconciliation
      
      
      44Risk
          factors
      
      
      45


The following discussion should be read in conjunction with the Financial
    Statements and notes thereto included elsewhere in this Annual Report. These
    financial statements have been prepared in accordance with UK GAAP, which
    differs in significant respects from US GAAP. The principal


differences between UK GAAP and US GAAP, as they relate to Cable & Wireless,
  are described and reconciliations of net income and shareholders equity
  to US GAAP are set out in Note 36 of Notes to the Financial Statements.


|        
|--------
|OVERVIEW
|        

The analysis and commentary included in this Operating and Financial Review
    is based on the Groups structure and reflects the manner in which the
    business was organised and managed during the three years ended 31 March 2003. In June 2003, the Company announced
    that the Group will withdraw from the United States, take steps to radically
    improve the unsatisfactory results in the United Kingdom and build upon its
    strong positions in national telecommunications companies round the world.
    To simplify the management of the business, Cable & Wireless now has a
    country-based structure. Prior to this reorganisation, Cable
    & Wireless was organised into two business divisions: Cable & Wireless
    Global and Cable & Wireless Regional. Cable & Wireless Globals
    main operations and subsidiaries were in the United Kingdom, Europe, the United
    States and Japan delivering IP, data and voice solutions to wholesale (Service
    Provider) and business customers. Business customers were divided into two
    customer segments: Enterprise, comprising major corporate customers, and Business
    Markets, comprising SME and retail voice customers. Cable & Wireless Regional
    comprised operations in the Caribbean, Panama, Macau, the Middle East and
    the Atlantic, Pacific and Indian Oceans providing a range of telecommunications
    services to businesses and consumers. Current geographical financial data for Cable &
    Wireless Global included in this Operating and Financial Review are based
    on managements estimates of the allocation of turnover and operating
    profit or loss attributable to a given geographical region that was included
    within the business of Cable & Wireless Global. However, as announced,
    Cable & Wireless intends to focus its business around the key geographical
    regions in which it operates and will track and


report results on that basis. Consequently, in the future, the geographical
  breakdown of the Groups results for those portions of its business that
  used to be part of Cable & Wireless Global, may not be entirely comparable
  to the results by geography disclosed when Cable & Wireless reported results
  by Cable & Wireless Global (and within Cable & Wireless Global: Wholesale,
  Enterprise and Business Markets) and Cable & Wireless Regional. Trading conditions in the telecommunications
    markets have remained challenging in 2003. In the United Kingdom, continental
    Europe, the United States and Japan, the trading market remains intensely
    competitive, with overcapacity in many areas resulting in downward pricing
    pressure. In the United Kingdom, there has been a significant reduction in
    the volume of national interconnect business as other carriers migrate to
    their own networks. A deterioration in Cable & Wireless
    Globals business performance has resulted in fixed asset and goodwill
    impairment charges as forecast performance has been revised downwards. In
    September 2002, fixed assets were impaired by £787 million and goodwill
    of £2,713 million was written off. This goodwill write off largely related
    to the UK corporate, IP and wholesale businesses acquired as part of the Cable
    & Wireless Communications restructuring in May 2000. In March 2003,
    fixed assets were further impaired by an additional £1,479 million and goodwill by an additional £12 million. These impairment
    charges mean that the Groups depreciation charge will be significantly
    lower in 2004. As part of the Groups reorganisation,
    Cable & Wireless may incur additional costs as the Group implements the
    new strategy and determines the steps necessary to reorganise the business.
    Cable & Wireless cannot predetermine what these




---



---



Back to Contents

operating and financial review

---

costs are likely to be. It is possible,
  however, given the scope of the intended reorganisation, that further significant
  exceptional charges could be incurred in 2004. In Cable & Wireless Regional, liberalisation in many of the markets has increased competition, particularly in mobile, international and local data and IP services. During 2003, the phased liberalisation processes in Panama and Jamaica concluded with the opening of all market sectors to competition in January and March 2003 respectively.


The following sections set out,
    for each of the three years ended 31 March 2003, turnover, operating costs
    and operating profit or loss of the Group and of the divisions Cable &
    Wireless Global and Cable & Wireless Regional. The analysis of turnover
    between Cable & Wireless Global and Cable & Wireless Regional is provided
    as an indication of the sources of growth of the Groups businesses.
    The Groups operations are all considered to fall into one class of business,
    namely telecommunications.




---

Page 25



---



Back to Contents

operating and financial review



---



|GROUP
      OPERATING PERFORMANCE
|---------------------------------

|                                                                                |  |  |        |   |  |        |   |  |        |  
|------------------------------------------------------------------------------- |  |  | ------ | - |  | ------ | - |  | ------ | -
|                                                                                |  |  | 2003   |   |  | 2002   | 1 |  | 2001   | 1
|                                                                                |  |  | £m     |   |  | £m     |   |  | £m     |  
|                                                                                | 
|Turnover                                                                        |  |  |        |   |  |        |   |  |        |  
|Continuing
        operations                                                   |  |  | 4,247  |   |  | 4,703  |   |  | 4,688  |  
|Discontinued
        operations2                                                |  |  | 144    |   |  | 1,045  |   |  | 3,163  |  
|                                                                                | 
|Group
        turnover                                                          |  |  | 4,391  |   |  | 5,748  |   |  | 7,851  |  
|                                                                                |  |  |        |   |  |        |   |  |        |  
|Outpayments                                                                     |  |  | (1,675 | ) |  | (2,301 | ) |  | (2,803 | )
|Network
        costs                                                           |  |  | (778   | ) |  | (947   | ) |  | (1,187 | )
|Staff
        costs                                                             |  |  | (915   | ) |  | (988   | ) |  | (1,263 | )
|Property                                                                        |  |  | (289   | ) |  | (275   | ) |  | (309   | )
|Administration                                                                  |  |  | (400   | ) |  | (502   | ) |  | (632   | )
|                                                                                |  |  |        |   |  |        |   |  |        |  
|Operating
        costs before depreciation, amortisation and exceptional items |  |  | (4,057 | ) |  | (5,013 | ) |  | (6,194 | )
|Depreciation
        (before exceptional items)                                 |  |  | (735   | ) |  | (1,072 | ) |  | (1,126 | )
|Amortisation
        (before exceptional items)                                 |  |  | (126   | ) |  | (562   | ) |  | (469   | )
|Share
        of operating profits in joint ventures and associates             |  |  | 75     |   |  | 115    |   |  | 114    |  
|                                                                                | 
|Operating
        (loss)/profit before exceptionals                             |  |  | (452   | ) |  | (784   | ) |  | 176    |  
|Exceptional
        operating costs:                                            |  |  |        |   |  |        |   |  |        |  
|
        depreciation                                                          |  |  | (2,381 | ) |  | (1,909 | ) |  | (444   | )
|
        amortisation                                                          |  |  | (2,725 | ) |  | (2,007 | ) |  |       |  
|
        other operating costs                                                 |  |  | (442   | ) |  | (210   | ) |  |       |  
|                                                                                | 
|Total
        operating loss                                                    |  |  | (6,000 | ) |  | (4,910 | ) |  | (268   | )
|                                                                                | 
|of
        which: continuing operations                                         |  |  | (5,824 | ) |  | (4,444 | ) |  | (242   | )
|discontinued
        operations                                                 |  |  | (176   | ) |  | (466   | ) |  | (26    | )
|                                                                                | 
|(Loss)/profit
        on sale or termination of operations                      |  |  | (147   | ) |  | 1,057  |   |  | 4,311  |  
|Fundamental
        reorganisation costs                                        |  |  |       |   |  |       |   |  | (530   | )
|(Losses)
        less profits on disposal of fixed assets                       |  |  | 62     |   |  | (7     | ) |  | 46     |  
|Exceptional
        write down of investments                                   |  |  | (390   | ) |  | (904   | ) |  | (43    | )
|                                                                                | 
|(Loss)/profit
        on ordinary activities before interest                    |  |  | (6,475 | ) |  | (4,764 | ) |  | 3,516  |  
|Net
        interest                                                            |  |  | 102    |   |  | 215    |   |  |       |  
|                                                                                | 
|(Loss)/profit
        on ordinary activities before taxation                    |  |  | (6,373 | ) |  | (4,549 | ) |  | 3,516  |  
|Tax
        on (loss)/profit on ordinary activities                             |  |  | (36    | ) |  | (311   | ) |  | (520   | )
|                                                                                | 
|(Loss)/profit
        on ordinary activities after taxation                     |  |  | (6,409 | ) |  | (4,860 | ) |  | 2,996  |  
|Equity
        minority interests                                               |  |  | (124   | ) |  | (94    | ) |  | (258   | )
|                                                                                | 
|(Loss)/profit
        for the financial year                                    |  |  | (6,533 | ) |  | (4,954 | ) |  | 2,738  |  
|                                                                                | 

|1 | On 27 March 2003, the Urgent Issues Task Force of the ASB issued UITF Abstract 36, Contracts for sales of capacity. UITF 36 is applicable for accounting periods ending on or after 30 June 2003 although early adoption is encouraged. The Company has adopted UITF 36 for the year ended 31 March 2003 and adjusted 2002 and 2001 comparative figures to reflect the required retrospective application of the UITF to those periods. The impact of adopting UITF 36 is set out in Note 4 to the Financial Statements. Cable & Wireless revised accounting policy for Capacity Sales is set out in New UK Accounting Standards Adopted.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | In May 2002, Cable &
        Wireless announced its intention to restructure its US business and, as
        part of this restructuring, announced the disposal of the US retail voice
        and data customer bases in September 2002. Under FRS 3 - Reporting
        Financial Performance, these businesses have been classified as
        discontinued. Comparatives for the years ended 31 March 2002 and 31 March
        2001 have been adjusted accordingly. In November 2002, Cable & Wireless
        announced its withdrawal from the US and continental Europe domestic markets
        apart from the provision of services to multinational Enterprise and wholesale
        customers. The results of these operations are included within continuing
        operations as the restructuring does not meet all of the FRS3 criteria
        for discontinued operations.



---



---



Back to Contents

operating and financial review

---

Year ended 31
          March 2003 compared with year ended 31 March 2002 Cable & Wireless recorded a total operating loss of £6,000 million in 2003, compared with £4,910 million in 2002. Exceptional costs of £5,548 million were charged in 2003 reflecting the difficult trading conditions in the telecommunications sector, particularly the markets in which Cable & Wireless Global operates. Goodwill of £2,713 million was written off at 30 September 2002 and fixed assets were impaired by a further £787 million. Additional impairment charges of £1,491 million were recognised at 31 March 2003 as the Groups assessment of future performance was again revised downwards, together with a £115 million writedown of redundant fixed assets. Operating losses before exceptionals at £452 million in 2003 were £332 million lower than in 2002. There was a £773 million reduction in the charge for depreciation and amortisation before exceptionals reflecting the lower fixed asset base following asset impairments in March and September 2002. Operating profit in continuing operations, before depreciation, amortisation and exceptionals, deteriorated. The UK operating profit before depreciation, amortisation and exceptionals, at £110 million in 2003 was £217 million lower than 2002 reflecting a 23 per cent decrease in wholesale revenues and a change in mix towards lower margin products, together with reduced revenues from business customers. US operating losses in the continuing business, before depreciation, amortisation and exceptionals, were £56 million higher than in 2002 at £211 million in 2003. Cable & Wireless Regionals operating profit before exceptional items and including joint ventures and associates at £505 million in 2003 was £15 million lower than 2002. At constant exchange rates operating profit before exceptional items increased by approximately 5 per cent. Year ended 31 March 2002 compared with year ended 31 March 2001 Cable & Wireless recorded an operating loss of £4,910 million in 2002 compared with £268 million in 2001. The 2002 operating loss included the write down of certain fixed assets of £1,909 million and goodwill of £2,007 million to their recoverable values, and costs relating mainly to the withdrawal from certain products and businesses of £210 million. The 2001 operating loss included a fixed asset impairment charge of £444 million against certain network assets employed in the Groups switched circuit voice business. The 2002 loss before tax was £4,549
  million compared with a profit of £3,516 million in 2001. The loss before
  tax in 2002 included a £904 million write down of investments


held in ntl, CMGI and PCCW Limited.
    This write down was offset by a profit on the sale of Optus of £1,057
    million. Profit before tax in 2001 included a £4,311 million profit
    on the disposal of the HKT and ConsumerCo businesses, a charge of £530
    million for the fundamental reorganisation of the Groups activities
    and a charge of £43 million for the write down of certain fixed asset
    investments. In 2002, there was an operating loss before exceptional items of £784 million compared with an operating profit before exceptional items of £176 million in 2001. Excluding exceptional items, Cable & Wireless Global recorded operating losses of £1,092 million in 2002 reflecting intense competition in the market and continued investment spend. In addition, the new DI and Exodus businesses recorded an operating loss before exceptional items of £195 million. Cable & Wireless Regionals operating profit before exceptional items increased by £35 million, or 7 per cent, from £485 million in 2001 to £520 million in 2002. Group turnover 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mCable & Wireless Global
    
    
    2,867
    
    
    3,271
    
    
    3,362Cable & Wireless Regional
    
    
    1,411
    
    
    1,466
    
    
    1,433Intra-Group turnover
    
    
    (31
    )
    
    (34
    )
    
    (107
    )Continuing operations
    
    
    4,247
    
    
    4,703
    
    
    4,688Discontinued operations
    
    
    144
    
    
    1,045
    
    
    3,163Group turnover
    
    
    4,391
    
    
    5,748
    
    
    7,851 Year ended 31 March 2003 compared with year ended 31 March 2002 Group turnover at £4,391 million in 2003 was £1,357 million, or 24 per cent, lower than in 2002 primarily due to discontinued operations in Australia and the United States. Turnover from continuing operations was £456 million, or 10 per cent, lower in 2003 compared with 2002, reflecting excess capacity and downward pricing pressure in Cable & Wireless Globals trading environment. Turnover in Cable & Wireless Global at £2,867 million was £404 million lower in 2003 compared with 2002. UK revenues were £347 million lower in 2003 compared with 2002. Reductions in wholesale and business revenues, of £215 million and £187 million lower than 2002 respectively, were only partly offset by a £55 million increase in Enterprise.




---

Page 27




---



Back to Contents

operating and financial review

---

The reduction in UK wholesale revenues reflected in part the migration of national
  interconnect business to carriers own networks and a change in the mix
  of international voice traffic, from mobile to fixed, which generates lower
  revenue per minute. The reduction in UK Business revenues compared with 2002 reflected continued pricing pressure and the impact of a 2002 management decision to focus on high margin services with growth potential. The increase in Enterprise revenues was partly due to a focus on higher value managed services and away from more commoditised products, together with new contract wins and increased business with existing clients. Cable & Wireless Regional reported a £55 million, or 4 per cent, decrease in revenues in 2003 compared with 2002. Many of Cable & Wireless Regionals revenues and costs arise in currencies that are linked to the US dollar. As a consequence, the results were affected by a 8 per cent devaluation in the US dollar against sterling and a 14 per cent devaluation in the Jamaica dollar. At constant exchange rates, Cable & Wireless Regionals revenue increased by 5 per cent in 2003 compared with 2002. The increase reflected the inclusion of Cable & Wireless Guernsey for the 10 months since its acquisition, together with underlying revenue growth. Revenue growth was driven by further increases in mobile revenues and continued demand for IP and data services, underpinned by growth in domestic voice business. Year ended 31 March
        2002 compared with 31 March 2001 Group turnover was £5,748 million in 2002 compared with £7,851 million in 2001. The reduction in group turnover during these periods primarily relates to the disposal of HKT and the disposal of CWC ConsumerCo. Turnover of £4,703 million from continuing businesses in 2002 was broadly in line with 2001. Turnover from Cable & Wireless Global at £3,271 million was £91 million lower in 2002 compared with 2001: decreases in Business Markets, £133 million, and Service Providers, £163 million, were only partly offset by a £38 million increase in Enterprise revenue and £167 million of revenue from the new DI and Exodus businesses. The decreased revenues from Business Markets and Service Providers reflected weak market conditions and a decision by Cable & Wireless to move away from lower margin business. Cable & Wireless Regional turnover at £1,466
    million was £33 million higher in 2002 than 2001. A £62 million


decrease due to the disposal of the Mitratel business in Indonesia in 2002,
  was more than offset by increases in other regions. The underlying growth in
  2002 reflected the continuing success of the business in rebalancing away from
  international towards domestic revenue, growth in the mobile and IP and data
  markets and the development of new businesses. Operating
          costs before depreciation, amortisation and exceptional items  2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mOutpayments
      
      
      1,675
      
      
      2,301
      
      
      2,803Network
          costs1
      
      
      778
      
      
      947
      
      
      1,187Staff
          costs
      
      
      915
      
      
      988
      
      
      1,263Property
      
      
      289
      
      
      275
      
      
      309Administration
      
      
      400
      
      
      502
      
      
      632Total
      
      
      4,057
      
      
      5,013
      
      
      6,194of
          which:Cable
          & Wireless Global
      
      
      2,987
      
      
      3,072
      
      
      3,023Cable
          & Wireless Regional
      
      
      821
      
      
      837
      
      
      834Other
      
      
      10
      
      
      16
      
      
      (126
      )Discontinued
          operations
      
      
      239
      
      
      1,088
      
      
      2,463Total
      
      
      4,057
      
      
      5,013
      
      
      6,194 1  Network costs
          include customer acquisition costs and the cost of goods sold. Year ended 31
          March 2003 compared with year ended 31 March 2002 Operating costs before depreciation,
    amortisation and exceptional items at £4,057 million in 2003 were £956
    million or 19 per cent lower than in 2002. Excluding discontinued operations, costs before
    depreciation, amortisation and exceptional items of £3,818 million in
    2003 were £107 million lower than in 2002. Lower outpayments




---



---



Back to Contents

operating and financial review

---

and network costs were partly offset by increases in all other categories largely due to the inclusion of a full years costs for the DI and Exodus businesses. 2002 included the results of DI for nine and a half months and Exodus for two months. Outpayments and network costs for continuing operations were £2,274 million in 2003, £342 million or 13 per cent lower than in 2002, principally reflecting a £345 million reduction in such costs for Cable & Wireless Global. This reduction was largely due to lower volumes of voice traffic in the United Kingdom, reduced traffic in the United States and the benefit of network streamlining in the United Kingdom, Japan and the United States. Cable & Wireless Regionals outpayments and network costs at £443 million in 2003 were in line with 2002. At constant exchange rates, there was an underlying increase in outpayments and network costs of 13 per cent mainly due to increased volumes and third party terminations, particularly in mobile and in fixed to mobile traffic, network expansion and customer acquisition costs, including mobile handset subsidies. Staff costs for continuing operations were £47 million, or 6 per cent, higher in 2003 compared with 2002. In Cable & Wireless Global, increased costs in the United States due to the inclusion of a full years results for DI and Exodus offset the benefit of reductions elsewhere due to lower headcount. Year end headcount in Cable & Wireless Global was 10,749 at 31 March 2003 compared with 12,543 at 31 March 2002. Staff costs in Cable & Wireless Regional were £11 million lower in 2003 compared with 2002, or 3 per cent higher at constant exchange rates. There was an 11 per cent reduction in headcount, from 11,465 to 10,193, the full benefit of which will be recognised in future years. Property costs for continuing operations at £278 million were £65 million higher in 2003 compared with 2002. Property costs in Cable & Wireless Global were £64 million higher, mainly reflecting the inclusion of a full years costs for the DI and Exodus businesses. Administration and other costs for continuing operations were £123 million higher in 2003 compared with 2002. This increase reflected the inclusion of a full years costs for the DI and Exodus businesses together with the effect in 2002 of a release of bad debt provisions raised in prior years. Year ended 31 March 2002 compared with year ended 31 March 2001 Operating costs before depreciation, amortisation
    and exceptional items were £1,181 million, or 19 per cent, lower in
    2002 than 2001. Excluding discontinued operations, there


was an underlying increase
  in operating costs before depreciation, amortisation and exceptional items of £194 million, or 5 per cent, during 2002 compared with 2001, of which
  £241 million was due to the acquisition of DI and Exodus businesses. Outpayment and network costs in continuing operations were £2,616 million in 2002, £38 million higher than in 2001. In Cable & Wireless Global, a £71 million increase in outpayments and network costs in 2002 compared with 2001 relating to the new DI and Exodus businesses, was more than offset by a 7 per cent reduction in the rest of Cable & Wireless Global mainly reflecting lower volumes of voice traffic. In Cable & Wireless Regional, outpayments and network costs were £47 million higher in 2002 than in 2001, up 9 per cent in constant currency terms principally due to rapid growth in the competitive mobile markets in Jamaica and Macau. Staff costs for continuing operations were £16 million higher in 2002 compared with 2001 and included £110 million in respect of the new DI and Exodus businesses. Staff costs in the rest of Cable & Wireless Global were £75 million lower where a staff reduction programme reduced headcount by over 8,000 from a peak of 18,600 in December 2000. Staff costs in Cable & Wireless Regional were £10 million lower in 2002 compared with 2001, again reflecting headcount reductions and the impact of the disposal of Mitratel Indonesia. Depreciation before exceptional items 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mCable
          & Wireless Global
      
      
      547
      
      
      725
      
      
      469Cable
          & Wireless Regional
      
      
      161
      
      
      185
      
      
      175Other
      
      
      3
      
      
      2
      
      
      5Discontinued
          businesses
      
      
      24
      
      
      160
      
      
      477Total
      
      
      735
      
      
      1,072
      
      
      1,126 Year ended 31 March 2003 compared with year ended 31 March 2002 Depreciation before exceptional items at £735 million in 2003 was £337 million lower than in 2002. The £201 million decrease in depreciation before exceptional items in continuing operations in 2003 compared with 2002 reflected the impact of a lower fixed base following asset impairments in March and September 2002.




---

Page 29



---



Back to Contents

operating and financial review

---

Year ended 31
          March 2002 compared with year ended 31 March 2001 Depreciation before exceptional items at £1,072 million in 2002 was £54 million lower than in 2001. The increase in depreciation before exceptional items in continuing businesses of £263 million was primarily due to a £256 million increase in Cable & Wireless Global of which £35 million related to the new DI and Exodus businesses. The underlying increase of £221 million reflected the impact of 2001 capital expenditure, including the roll out of the global IP backbone. Goodwill amortisation before exceptional items 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mCable & Wireless Global
    
    
    127
    
    
    560
    
    
    267Cable & Wireless Regional
    
    
    (1
    )
    
    1
    
    
    1Other
    
    
    
    
    
    
    
    
    2Discontinued businesses
    
    
    
    
    
    1
    
    
    199Total
    
    
    126
    
    
    562
    
    
    469 Year ended 31 March
          2003 compared with year ended 31 March 2002 Goodwill amortisation of £126 million in 2003 was £436 million lower than in 2002. The reduction reflected lower goodwill carried on the balance sheet in 2003 following the impairments booked in March and September 2002. As a result of these impairments, substantiallyall goodwill of the Group had been fully written off by the year end. Year ended 31 March 2002 compared with year ended 31 March 2001 Goodwill amortisation before exceptionals at £562 million was £93 million higher than in 2001. The increase was largely due to the acquisition of the DI and Exodus businesses, £59 million, and a full years charge for 2001 acquisitions. Share
          of operating profits in joint ventures and associates.2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mCable
          & Wireless Global
      
      
      
      
      
      (6
      )
      
      11Cable
          & Wireless Regional
      
      
      75
      
      
      77
      
      
      62Discontinued
          businesses
      
      
      
      
      
      44
      
      
      41Total
      
      
      75
      
      
      115
      
      
      114


Year ended 31
          March 2003 compared with year ended 31 March 2002 Cable & Wireless Regional recorded a £2 million reduction in the share of operating profits in joint ventures and associates. At constant exchange rates, there was underlying growth of 4 per cent compared with 2002. In December 2002, as part of the Initial Public Offering of shares in the Groups Singapore associate, Mobile One Limited, Cable & Wireless sold 60 per cent of its stake in that company, realising a profit of £54 million before minority interests. The remaining Cable & Wireless shareholding in Mobile One is now classified as a trade investment. Year ended 31 March 2002 compared with year ended 31 March 2001 Cable & Wireless share of operating profits in joint ventures and associates was £115 million in 2002, compared with £114 million in 2001. A reduction due to a number of disposals, including (by virtue of the sale of Cable & Wireless interest in Optus) Southern Cross (a submarine cable system linking Australia, New Zealand, Fiji, Hawaii and the US Mainland), were offset by increased profits in 2002 from the Groups interests in the Caribbean, Singapore and Bahrain. Exceptional operating costs 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mDepreciation
      
      
      2,381
      
      
      1,909
      
      
      444Amortisation
      
      
      2,725
      
      
      2,007
      
      
      Other
      
      
      442
      
      
      210
      
      
      Total
      
      
      5,548
      
      
      4,126
      
      
      444Cable
          & Wireless Global
      
      
      5,454
      
      
      3,629
      
      
      353Cable
          & Wireless Regional
      
      
      35
      
      
      191
      
      
      Other
      
      
      2
      
      
      
      
      
      Discontinued
          businesses
      
      
      57
      
      
      306
      
      
      91Total
      
      
      5,548
      
      
      4,126
      
      
      444 Year ended 31 March 2003 compared with year ended 31 March 2002 Difficult trading conditions in Cable & Wireless Globals markets led to further fixed asset and goodwill impairment charges in 2003 as forecast revenues were revised downwards and the Groups cost of capital increased.






---





---



Back to Contents

operating and financial review

---

In September 2002, fixed assets were impaired by £787 million and the remaining goodwill of the Group was substantially written off. These impairments arose as estimates of future revenues were revised downwards. The goodwill write-off largely related to CWC DataCo acquired as part of the Cable & Wireless Communications restructuring in May 2000. At 31 March 2003, a further fixed asset impairment charge of £1,594 million arose. Continued problems in the market led to revenue forecasts being further reduced. Other exceptional operating costs of £442 million mainly related to the costs of exiting and restructuring primarily in the US business. Year ended 31 March 2002 compared with year ended 31 March 2001 Fixed assets in Cable & Wireless Global were written down by £1,631 million in 2002, principally relating to redundant cables and network assets. Cable & Wireless Regional wrote down £191 million of fixed assets, mainly relating to TDMA mobile network assets. In 2001, Cable & Wireless Global recorded an impairment charge of £353 million relating to network and assets in its switched circuit voice business. Exceptional goodwill amortisation in 2002 represents a £2,007 million impairment charge to eliminate unamortised goodwill on the US MCI acquisition, £697 million, and the European IP acquisitions, £190 million, together with the partial writedown of goodwill on the CWC DataCo acquisition, £996 million, and the Cable & Wireless IDC acquisition, £124 million. The other exceptional operating costs in 2002 mainly related to the costs of exiting certain products and businesses. Exceptional (loss)/profit on disposal or termination of operations 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £m(Loss)/profit
          on disposal or termination of operations
      
      
      (147
      )
      
      1,057
      
      
      4,311 In 2003, a loss on disposal of operations
    of £231 million which relates to the termination of the US voice retail
    business was partly offset by a release of accrued costs relating to disposals
    in previous years. Profit on disposals of operations
    in 2002 represented a £1,057 million profit on the sale of the Groups
    52.5 per cent investment in Optus. In 2001, Cable & Wireless




recorded a net profit of £4,311
    million on the sale of its interests in HKT and CWC ConsumerCo. Early redemption
    penalties on the sale of CWC ConsumerCo of £110 million are reported
    in net interest. Fundamental
        reorganisation provisions The fundamental reorganisation charge booked in the year ended 31 March 2001 of £530 million included provisions of £239 million in respect of the consequences of the announcement made in March 2001 regarding the intention to cut staff numbers by at least 4,000 heads in Cable & Wireless Global and 2,485 heads in Cable & Wireless Regional and reduce operating costs. The provision at 31 March 2001 included redundancy provisions of £138 million and provisions for exiting surplus properties of £68 million. Taxation 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £m(Loss)/profit
        on ordinary activities before taxation
    (6,373
    )
    
    (4,549
    )
    
    3,516Tax
        on (loss)/profit on ordinary activities
    (36
    )
    
    (311
    )
    
    (520
    )Effective
        tax rate
    (0.6
    )%
    
    (6.8
    )%
    
    14.8
    % Year ended 31 March 2003 compared with year ended 31 March 2002 A tax charge of £36 million arose in 2003 on the loss before tax of £6,373 million. The Group continued to generate tax losses in 2003 for which no immediate benefit was recognised as realisation of the benefit is not considered probable. These tax losses have been carried forward to future periods. The negative tax rate of 0.6 per cent in 2003 is lower than the negative tax rate of 6.8 per cent for 2002, primarily because the tax charge on exceptional items is lower than 2002 due to there being no material disposals of investments in 2003. The tax charge on exceptional items in 2002 could not be reduced by surplus tax losses, as they arose in different jurisdictions. As with 2002, in the United Kingdom, tax relief is denied on certain costs and provisions, including the amortisation and write-down of goodwill and fixed asset write-downs. Year ended 31 March 2002 compared with year ended 31 March 2001 Cable & Wireless recorded a tax charge of £311
  million in 2002 despite incurring pre-tax losses of £4,549 million. The
  movement in the effective tax rate from 14.8 per cent in




---

Page 31

---



Back to Contents

operating and financial review

---

2001 to negative 6.8 per cent in 2002 is primarily because, in the United Kingdom, tax relief is denied on certain costs and provisions, including the amortisation and write-down of goodwill and fixed asset write-downs, which were incurred


in 2002. In addition,
    the Group has carried tax losses forward to future periods, for which no immediate
    tax benefit was recognised as realisation of the benefit is not considered
    probable.


|                  
|------------------
|REVIEW BY DIVISION
|                  

This section provides a discussion
  of Cable & Wireless results by division. Operating (loss)/profit by division 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mCable
        & Wireless Global
    (6,248
    )
    
    (4,721
    )
    
    (739
    )Cable
        & Wireless Regional
    470
    
    
    329
    
    
    485Other
    (46
    )
    
    (52
    )
    
    12Discontinued
    (176
    )
    
    (466
    )
    
    (26
    )(6,000
    )
    
    (4,910
    )
    
    (268
    ) Cable & Wireless Global Cable & Wireless Global comprises Cable & Wireless operations and subsidiaries in the United Kingdom, the United States, Japan/Asia and continental Europe.  2003
    
    
    2002
    
    
    2001Cable
        & Wireless Global
    £m
    
    
    £m
    
    
    £mTurnover
    2,867
    
    
    3,271
    
    
    3,362CostsOutpayments
    (1,380
    )
    
    (1,661
    )
    
    (1,817
    )Network
        costs
    (482
    )
    
    (546
    )
    
    (472
    )Staff
        costs
    (630
    )
    
    (571
    )
    
    (536
    )Property
    (229
    )
    
    (165
    )
    
    (152
    )Administration
    (266
    )
    
    (129
    )
    
    (46
    )(2,987
    )
    
    (3,072
    )
    
    (3,023
    )Depreciation
        before exceptionals
    (547
    )
    
    (725
    )
    
    (469
    )Amortisation
        before exceptionals
    (127
    )
    
    (560
    )
    
    (267
    )Joint
        Ventures and associates
    
    
    
    (6
    )
    
    11Operating
        loss before exceptionals
    (794
    )
    
    (1,092
    )
    
    (386
    )Exceptional
        items: depreciation
    (2,324
    )
    
    (1,631
    )
    
    (353
    ) amortisation
    (2,723
    )
    
    (1,794
    )
    
     other
        operating costs
    (407
    )
    
    (204
    )
    
    Operating
        loss
    (6,248
    )
    
    (4,721
    )
    
    (739
    )


2003
    
    
    2002
    
    
    2001Cable
        & Wireless Global
    £m
    
    
    £m
    
    
    £mOf
        which:United
        Kingdom
    (3,935
    )
    
    (2,135
    )
    
    (698
    )United
        States
    (1,681
    )
    
    (1,880
    )
    
    2Continental
        Europe
    (367
    )
    
    (543
    )
    
    (164
    )Japan
    (265
    )
    
    (163
    )
    
    121Operating
        loss
    (6,248
    )
    
    (4,721
    )
    
    (739
    ) Year ended 31 March 2003 compared with year ended 31 March 2002 Operating losses were £1,527 million higher in 2003 compared with 2002. UK operating losses rose by £1,800 million as further fixed asset and goodwill impairment charges were recognised. UK operating losses before exceptional items at £365 million in 2003 were £51 million higher than in 2002. The benefit of reduced charges for depreciation and goodwill amortisation in 2003, following asset impairments in March and September 2002, were offset by a £217 million reduction in the UK business operating profit before exceptionals, depreciation and amortisation to £110 million in 2003. This reduction was largely due to a poor business performance, particularly in the wholesale markets. Cable & Wireless Americas operating losses at £1,681 million in 2003 were £199 million lower than in 2002. At constant exchange rates there was an underlying decrease of 4 per cent. Decreased charges in 2003 for asset impairments and the benefit of reduced charges for depreciation and amortisation more than offset higher losses in underlying business. In Continental Europe, operating losses at £367 million in 2003 were £176 million or 32 per cent lower than in 2002. This decrease was largely due to the non-recurrence of a £190 million goodwill impairment charge in 2002. In Japan, operating losses at £265 million in 2003 were £102 million or 63 per cent higher than in 2002 mainly due to increased charges for asset impairment and lower revenues, particularly in wholesale.




---

Page 32





---



Back to Contents

operating and
  financial review

---

Year ended 31 March
        2002 compared with year ended 31 March 2001 Operating losses at £4,721 million in 2002 were £3,982 million higher than in 2001, of which £1,278 million was attributable to increased fixed asset impairment charges and £1,794 million to goodwill write-downs. Fixed asset impairment charges in 2002 mainly related to the write-down of cables and fibres where the Groups ownership is in excess of predicted future traffic levels and a write-down of the global network based upon net recoverable values. In the United Kingdom, operating losses at £2,135 million in 2002 were £1,437 million higher than in 2001. A £997 million charge for goodwill impairment was recognised in 2002 relating to the CWC DataCo acquisition and fixed asset impairment charges were £311 million higher in 2002 than in 2001. Cable & Wireless America recorded operating losses in 2002 of £1,880 million compared with an operating profit of £2 million in 2001. The loss in 2002 was primarily attributable to fixed asset and goodwill impairment charges of £1,206 million and losses of £239 million for the newly acquired DI and Exodus businesses. In Continental Europe, operating losses at £543 million in 2002 were £379 million higher than in 2001, of which £401 million related to fixed asset and goodwill impairment charges in 2002. Japan recorded operating losses of £163 million in 2002 compared with an operating profit of £121 million in 2001. Operating losses in 2002 included £157 million related to fixed asset and goodwill impairment charges. Turnover 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mUnited
        Kingdom
    1,728
    
    
    2,075
    
    
    2,158United
        States
    512
    
    
    530
    
    
    503Europe
    304
    
    
    305
    
    
    251Japan
        & Asia
    323
    
    
    361
    
    
    450Total
    2,867
    
    
    3,271
    
    
    3,362


Year ended 31 March 2003 compared with year ended 31 March 2002 Turnover was 12 per cent lower in 2003 compared with 2002 as a result of weak market conditions in the wholesale market and the impact of a deliberate decision by Cable & Wireless in 2002 to withdraw from the provision of lower margin products to Business customers. Revenue in the Enterprise segment grew by 21 per cent in 2003, including the benefit of new contract wins and expansion of contracts with existing customers. Year ended 31 March 2002 compared with year ended 31 March 2001 Turnover at £3,271 million in
    2002 was £91 million or 3 per cent lower than in 2001 with decreases
    in Service Provider and Business revenues of £163 million and £133
    million respectively, only partly offset by a £38 million increase in
    Enterprise revenues and £167 million of revenues from the new DI and
    Exodus businesses. The decrease in Service




---

Page 33

---



Back to Contents

operating and financial review

---

Provider revenues mainly reflected lower voice revenues, due
  to declining prices, customer bankruptcies and a decision to move away from
  lower margin business. Operating costs
          before depreciation, amortisation and exceptional items 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mUnited
          Kingdom
      1,618
      
      
      1,748
      
      
      1,974United
          States
      723
      
      
      685
      
      
      469Europe
      345
      
      
      331
      
      
      324Japan
          & Asia
      301
      
      
      308
      
      
      256Total
      2,987
      
      
      3,072
      
      
      3,023 Year ended 31 March 2003 compared with year ended 31 March 2002 Operating costs before depreciation,
    amortisation and exceptional items in Cable & Wireless Global were £85
    million lower in 2003 compared with 2002. A £345 million reduction in
    outpayments and network costs was offset by increases in all other cost categories
    largely due to the inclusion of a full years costs for the DI and Exodus
    businesses. The reduction in outpayments and network costs was mainly attributable
    to lower volumes of voice traffic in the United Kingdom, reduced traffic in
    the United States and network streamlining in the United Kingdom, Japan and
    the United States. Year ended 31 March
          2002 compared with year ended 31 March 2001 Operating costs before depreciation, amortisation and exceptionals at £3,072 million in 2002 were £49 million or 2 per cent higher than in 2001. An increase of £241 million due to the newly acquired DI and Exodus businesses was partly offset by lower outpayments and network costs in the rest of Cable & Wireless Global, mainly reflecting lower volumes of voice traffic, and lower staff costs as headcount was reduced. Cable & Wireless Regional The largest businesses within Cable & Wireless Regional are in the Caribbean, Panama and Macau. Cable & Wireless Regional also operates in the Middle East, South East Asia and in the Pacific, Indian and Atlantic Oceans, which together with head office functions are referred to as Rest of World.


2003
    
    
    2002
    
    
    2001Cable
        & Wireless Regional
    £m
    
    
    £m
    
    
    £mTurnover
    1,411
    
    
    1,466
    
    
    1,433CostsOutpayments
    (203
    )
    
    (208
    )
    
    (259
    )Network
        costs1
    (240
    )
    
    (235
    )
    
    (137
    )Staff
        costs
    (206
    )
    
    (217
    )
    
    (227
    )Property
    (49
    )
    
    (48
    )
    
    (51
    )Administration
    (123
    )
    
    (129
    )
    
    (160
    )(821
    )
    
    (837
    )
    
    (834
    )Depreciation
        before exceptionals
    (161
    )
    
    (185
    )
    
    (175
    )Amortisation
        before exceptionals
    1
    
    
    (1
    )
    
    (1
    )Joint
        Ventures and associates
    75
    
    
    77
    
    
    62Operating
        profit before exceptionals
    505
    
    
    520
    
    
    485Exceptional
        items:
        depreciation
    
    
    
    (191
    )
    
    
        other operating costs
    (35
    )
    
    
    
    
    Operating
        profit
    470
    
    
    329
    
    
    485of
        which:Caribbean
    234
    
    
    118
    
    
    275Panama
    77
    
    
    62
    
    
    83Macau
    42
    
    
    38
    
    
    33Rest
        of World
    117
    
    
    111
    
    
    94Total
    470
    
    
    329
    
    
    485 1
    Network costs include customer acquisition costs and the cost of goods sold Year ended 31 March
          2003 compared with year ended 31 March 2002 Cable & Wireless Regionals operating profit at £470 million in 2003 was £141 million or 43 per cent higher than in 2002 largely due to exceptional asset impairment charges in 2002. Many of the territories in which Cable & Wireless Regional operates have currencies that are linked directly or indirectly to the US dollar. As a consequence, an 8 per cent strengthening of sterling against the US dollar and a 14 per cent strengthening against the Jamaica dollar had a significant effect on Cable & Wireless Regionals reported results. At constant exchange rates operating profit in 2003 was 62 per cent higher than in 2002. In the Caribbean, operating profit
at £234 million in 2003 was £116 million or 98 per cent higher than
2002. This increase was largely attributable to the non-recurrence of a £172
million impairment charge to write down network and


---

Page 34

---



Back to Contents

operating and financial review

---

TDMA mobile assets in 2002, partly offset by £20 million of exceptional costs relating to reorganisation and redundancy incurred in 2003. Operating profit before exceptional items in the  Caribbean at £254 million in 2003 was £36 million or 12 per cent lower than in 2002. At constant exchange rates 2003 operating profit before exceptional items in the Caribbean was 5 per cent  lower. A 7 per cent increase in costs at constant exchange rates was partly offset by a 1 per cent increase in revenues and a reduced depreciation charge. In Panama, operating profit at £77 million in 2003 was £15 million or 24 per cent higher than in 2002. At constant exchange rates there was a 34 per cent increase in operating profit in 2003 compared with 2002. This increase was largely attributable to lower outpayments,  headcount savings and reduced depreciation and exceptional charges. Macaus operating profit at £42 million in 2003 was £4 million or 11 per cent higher than in 2002. At constant exchange rates there was a 16 per cent increase in operating profit. This increase reflected a good performance in data and IP, driven by growing demand for  broadband services and other value added internet services, together with the launch of services in Singapore and Hong Kong. Rest of World delivered operating profit of £117 million in 2003, £6 million or 5 per cent higher than in 2002. At constant exchange rates, operating profit in 2003 was 13 per cent higher than in 2002. A good performance in the Maldives and Bahrain and the inclusion of 10  months activity for Cable & Wireless Guernsey were offset by mixed performances in Yemen and the smaller territories. Year ended 31 March
          2002 compared with year end 31 March 2001 Cable & Wireless Regionals operating profit at £329 million in 2002 was £156 million or 32 per cent lower than in 2001. This decrease was mainly attributable to a £191 million impairment charge in 2002 to write off network and TDMA mobile assets. In the Caribbean, operating profit at £118 million in 2002 was £157 million lower than in 2001, primarily due to a £172 million impairment charge in 2002 to write down network and TDMA mobile assets. Before exceptional items, operating profit in 2002 was £15 million  higher than in 2001 up 5 per cent in underlying constant currency terms. The softening of margins in Jamaica reflecting rapid growth in mobile was offset by strong performance in the rest of the Caribbean particularly in Trinidad and Tobago and Barbados.


In Panama, operating profit at £62 million in 2002 was £21 million or 25 per cent lower than in 2001. This decrease was primarily due to an exceptional impairment charge of £19 million in 2002 to write off TDMA and network assets. Macaus operating profit at £38 million in 2002 was £5 million or 15 per cent higher than in 2001 mainly due to good revenue growth, headcount savings and reduced depreciation. Rest of World delivered operating profit of £111 million in 2002, £17 million or 18 per cent higher than in 2001. Strong performances in Yemen, the Seychelles, Maldives and Bahrain more than offset the impact of disposals. Turnover Cable
          & Wireless Regional
      
      
      2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mCaribbean
      
      
      783
      
      
      858
      
      
      779Panama
      
      
      279
      
      
      296
      
      
      302Macau
      
      
      150
      
      
      145
      
      
      130Rest
          of World
      
      
      199
      
      
      167
      
      
      222Total
      
      
      1,411
      
      
      1,466
      
      
      1,433 Year ended 31 March 2003 compared with year ended 31 March 2002 Turnover at £1,411 million in 2003 was £55 million or 4 per cent lower than in 2002. At constant exchange rates, turnover in 2003 was 5 per cent higher than in 2002 partly due to the inclusion of 10 months results for Cable & Wireless Guernsey. At constant exchange rates,  mobile revenues were 26 per cent higher in 2003 than 2002 reflecting increased customer bases across all geographies. IP and data services increased, particularly in Macau where the launch of Asia Cities was combined with strong demand for broadband services and other  value added IP products. International voice revenues were 5 per cent lower at constant exchange rates largely due to declining tariffs and settlement rates. Part of the reduction in tariffs reflected tariff rebalancing, the removal of cross subsidies between international services and domestic services.  There was a 5 per cent increase in domestic voice revenues which reflected the impact of rebalancing and market growth, particularly in fixed to mobile traffic. The number of fixed lines increased by 3 per cent.




---

Page 35



---



Back to Contents

operating and financial review

---

Year ended 31 March 2002 compared with year ended 31 March 2001 Turnover at £1,466 million in 2002 was £33 million or 2 per cent higher than in 2001. Excluding Mitratel Indonesia, which was disposed of in May 2001, Cable & Wireless Regional revenue increased by 8 per cent in the year ended 31 March 2002 to £1,459 million from £1,357 million in the prior year. At constant exchange rates, turnover, excluding Mitratel, was  6 per cent higher in 2003 than 2002. This growth reflects the continuing success of the business in rebalancing away from international and towards domestic revenue, growth in the mobile and  IP and data markets, and the development of new businesses. Operating costs before depreciation, amortisation and exceptional items 2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mCaribbean
    
    
    485
    
    
    504
    
    
    448Panama
    
    
    143
    
    
    163
    
    
    172Macau
    
    
    90
    
    
    87
    
    
    76Rest of World
    
    
    103
    
    
    83
    
    
    138Total
    
    
    821
    
    
    837
    
    
    834 Year ended 31 March 2003 compared with year ended 31 March 2002 Operating costs before depreciation,
  amortisation and exceptional items were £821 million in 2003, £16
  million or 2 per cent lower than in 2002. At constant exchange rates, operating
  costs were 8 per cent higher in 2003 than 2002 primarily due to increased outpayments
  and network costs. The growth in outpayments and network costs was mainly attributable
  to the revenue growth against a background of liberalisation leading to increased
  traffic volumes, customer numbers and terminations on third party networks.
  In


addition, customer acquisition costs, including mobile handset
  subsidies also rose. Year ended 31 March 2002 compared with year ended 31 March 2001 Operating costs before depreciation and amortisation at £837 million in 2002 were broadly in line with 2001. Excluding Mitratel Indonesia, there was a 4 per cent increase at constant exchange rates primarily due to increased customer acquisition and network costs reflecting  growth in the mobile, IP and data businesses. At constant exchange rates, staff costs in 2002 were 2 per cent lower than in 2001 as the restructuring programme to reduce headcount by 2,500 was largely completed. Joint ventures and associates Cable & Wireless Regional has equity holdings giving it significant influence in the operations and management of a number of telecommunication operators world wide. These are accounted for as Joint Ventures and Associates. Share
          of operating profit of
        Joint
          Ventures and Associates
      
      
      2003£m
      
      
      2002£m
      
      
      2001£mTSTT
          (Trinidad and Tobago)
      
      
      34
      
      
      34
      
      
      28Batelco
          (Bahrain)
      
      
      23
      
      
      21
      
      
      19MobileOne
          (Singapore)
      
      
      12
      
      
      16
      
      
      9Other
      
      
      6
      
      
      6
      
      
      6Total
      
      
      75
      
      
      77
      
      
      62 In December 2002, as part of the Initial Public Offering of shares in the Groups Singapore associate, Mobile One Limited, Cable & Wireless sold 60 per cent of its stake in that company, realising a profit of £54 million before minority interests. The remaining Cable & Wireless shareholding in Mobile One is now classified as a trade investment.




|LIQUIDITY
      AND CAPITAL RESOURCES
|-------------------------------------

|               
|---------------
|Treasury policy

The Groups treasury operations are managed on the basis of objectives, policies and authorities approved by Cable and Wireless plcs Board of Directors. The key responsibilities of the treasury function include funding, investment of surplus cash and the management of interest rate and foreign currency risk. To the extent that subsidiary operating companies undertake treasury transactions, these are governed by policies adopted


by the local board of directors, which are substantially consistent with Group policy. Cable & Wireless uses derivatives
    and financial instruments including forward foreign exchange contracts, interest
    rate swaps, cross currency swaps and options in the management of financial
    exposures. Derivatives are not used for trading or speculative purposes. All
    derivative transactions and positions are monitored and reported to the Board.




---

Page 36



---



Back to Contents

operating and financial review

---

Investment of surplus cash At 31 March 2003, Cable & Wireless had gross cash (including treasury instruments held as current asset investments) of £3,165 million (2002: £4,888 million and 2001: £5,809 million). This surplus cash is a significant component of the Groups overall liquidity and capital resources. Approximately 90 per cent of the Groups cash is held centrally and is predominantly invested in short-term bank deposits up to 1 year and AAA-rated money market funds. In certain circumstances, it has been efficient to use surplus funds to repurchase bonds. A total of US$800 million of the US$1,504 million zero coupon exchangeable bonds was bought back at an average of 97 per cent of face value. In addition, a total of US$19 million of the  US$400 million bond has also been bought back. The Group also purchased £75 million of Credit Linked Notes issued by an AA-rated bank and referenced to the Companys £200 million bond which matures in 2012. This transaction has a similar economic effect to repurchasing the bonds for the period of the investment.  Further information on these transactions is given in Note 26 to the Accounts. Approximately 10 per cent of the Groups cash is held in foreign subsidiaries some of whom operate in jurisdictions which may, and do, restrict the ability to repatriate cash to the parent company. In addition, some of the Groups cash is required as cash collateral. 2003
      
      
      2002£m
      
      
      £mRestricted
          Jurisdictions
      
      
      49
      
      
      45Cash
          Collateral
      
      
      30
      
      
      3Total
          Restricted Cash
      
      
      79
      
      
      48 Funding At 31 March 2003, Cable & Wireless had gross debt of £1,546 million (2002: £2,259 million and 2001: £2,931 million). The Groups debt comprises both bank debt and publicly quoted bonds of which £825 million matures during the financial year to 31 March 2004. Cable & Wireless debt has an average maturity of 4.7 years. Excluding the £825 million maturing in the next year, the average  maturity increases to 9.0 years. Approximately 70 per cent of the Groups debt is represented by public bonds denominated in Sterling and US


Dollars. Two Sterling denominated bonds of £200 million each mature in 2012 and 2019 respectively. With respect to the US dollar denominated bonds, a US$1,504  million bond matured in June 2003 and a US$400 million bond will mature in December 2003. During the year ended 31 March 2003, Cable & Wireless purchased US$600 million of the principal amount of the US$1,504 million bond (31 March 2002: US$200 million). The remainder of the Group debt represents primarily amortising loans with the exception of a loan of £121 million maturing in 2006. The US$1,504 million bond represented zero coupon exchangeable bonds, which were exchangeable into ordinary shares of PCCW. The bonds were issued on 9 April 2001 at 100 per cent of their US$1,504 million principal amount. The bonds were redeemed at their principal  amount on 9 June 2003. On 16 June 2003, the Company announced that it was offering £258 million Senior Unsecured Convertible Bonds, due 2010, with a cash coupon of 4 per cent per annum, and an initial conversion price of 145 pence per share; the bond will be redeemed at par. It is anticipated  that this offering will complete prior to 25 July 2003, subject to the satisfaction of certain conditions. The funding will be used to strengthen the Companys balance sheet and increase its financial flexibility. Cable & Wireless believes that its capital resources are sufficient to meet its current and planned requirements for at least the next 12 months. The Groups ability to meet long-term capital requirements beyond this 12-month period will depend on many factors both inside and  outside of its control. Cable & Wireless cannot be certain that additional financing, if required, will be available on terms favourable to the Group, if at all. Borrowing facilities The total amount of the Groups undrawn committed facilities as at 31 March 2003 was £30 million. This facility matures on 30 June 2003. Credit ratings The Companys long-term credit rating was downgraded during the year to below investment grade. Credit ratings at 3 June 2003 are detailed in the table below. The rating from Moodys is under review at the date of filing for a possible downgrade.




---

Page 37



---



Back to Contents

operating and financial review

---

Cable and Wireless plcs debt ratingsStandard & Poors
    
    
    BBMoodys
    
    
    Ba1Fitch
    
    
    BB+ The ratings downgrade has no impact on the interest cost of existing debt. However the downgrade may limit future access to the debt capital markets and may both increase the future cost of funding and impact adversely the terms on which debt may be available. In addition,  cash collateral or guarantees may be required to support any future credit terms. Escrow account On 6 December 2002, following a
    decision by Moodys to downgrade the long term rating of the Company
    from Baa2 to Ba1, the Group disclosed that a ratings trigger clause
    became operative. The clause was contained in the tax indemnity which formed
    part of the agreement with Deutsche Telekom for the disposal of the Groups
    50 per cent interest in One2One. This disposal was completed on 1 October
    1999 for a total cash consideration of £3.45 billion. Cable & Wireless
    provided Deutsche Telekom with an indemnity in the event of the Inland Revenue
    assessing tax liabilities against the companies sold by Cable & Wireless
    to Deutsche Telekom. As a result of the downgrade, the Company paid £1.5
    billion into escrow on 13 January 2003. Following the agreement reached with
    the Inland Revenue to settle the Groups outstanding UK Corporation Tax
    affairs for the ten years to 31 March 2001, the monies held in escrow were
    released by 31 March 2003 and the funds received on 1 April 2003. Other loans and contractual obligations under leases Cable & Wireless loans and contractual obligations under finance and operating leases are analysed in Notes 22 and 26 to the Financial Statements. None of the above funding arrangements and facilities have covenants that are expected to restrict normal business activities.  Operating
        lease commitments In the normal course of its business,
    Cable & Wireless and its subsidiaries enter into operating leases, relating
    to property, customer terminating equipment and other operational commitments.
    Minimum lease terms range from 1 year to 50 years. The effect such obligations
    are expected to have on liquidity and cash flow in future periods is summarised
    below. Payments
          due
        by
          period
      
      
      Total
      
      
      Less than 1 year
      
      
      1-2 years
      
      
      2-3 years
      
      
      3-4 years
      
      
      4-5 years
      
      
      After 5 years£m
      
      
      £m
      
      
      £m
      
      
      £m
      
      
      £m
      
      
      £m
      
      
      £mOperating lease payments (undiscounted)
      
      
      1,612
      
      
      245
      
      
      182
      
      
      160
      
      
      140
      
      
      132
      
      
      753


In addition, under certain property operating leases Cable & Wireless and its subsidiaries could be required to make payments to lessors at the end of the lease to restore the condition of the properties. These amounts will not be known until the leases expire. The actual  amounts paid may be reduced in the event that Cable & Wireless is able to exit the contracts prior to the minimum lease term expiring. In November 2002, Cable & Wireless disclosed estimated gross property and other lease costs in the region of £2.2 billion as at 30 September 2002. Since announcing this amount, the Group has continued to review its property portfolio. The outcome of that review, together  with the impact of lease exits achieved and payments made by 31 March 2003 reduce this figure to £1.6 billion. This is analysed in the table below. Property
          and
        other
          lease costs
      
      
      US
      
      
      Continental
        Europe
      
      
      UK
      
      
      Japan
      
      
      Regional
      
      
      Total£m
      
      
      £m
      
      
      £m
      
      
      £m
      
      
      £m
      
      
      £mTotal
          estimated full term payments at 30 September 2002
      
      
      937
      
      
      130
      
      
      950
      
      
      135
      
      
      87
      
      
      2,239Reclassification1
      
      
      34
      
      
      (34
      )
      
      
      
      
      
      
      
      
      
      
      Property
          rates taxes2
      
      
      
      
      
      
      
      
      (128
      )
      
      
      
      
      
      
      
      (128
      )Impact
          of minimum break clause3
      
      
      
      
      
      
      
      
      (203
      )
      
      (32
      )
      
      
      
      
      (235
      )Lease
          payments extinguished in period4
      
      
      (61
      )
      
      (7
      )
      
      (33
      )
      
      (1
      )
      
      
      
      
      (102
      )Lease
          payments made in period
      
      
      (60
      )
      
      (28
      )
      
      (39
      )
      
      (23
      )
      
      (12
      )
      
      (162
      )Total
          at 31 March 2003
      
      
      850
      
      
      61
      
      
      547
      
      
      79
      
      
      75
      
      
      1,612Of
          which:Provided
          in balance sheet at
          31 March 2003
      
      
      348
      
      
      19
      
      
      36
      
      
      2
      
      
      
      
      
      405Guaranteed
          by Cable and Wireless plc
      
      
      71
      
      
      13
      
      
      30
      
      
      
      
      
      
      
      
      114 1
      A property located in
          Europe but managed by the US business has been reclassified from Continental
          Europe to United States in the table. 2
      Certain property rates
          taxes were included in the estimated property lease commitments for
          the United Kingdom at 30 September 2002. 3
      Estimated minimum lease
          commitments in respect of UK and Japan leases have been reduced significantly
          following a detailed review of break clauses within the lease agreements
          entered into by the Group. 4
      Payments extinguished
          in the period represent ongoing lease commitments that have been avoided
          by exiting the leases. Cable & Wireless other contractual
  obligations at the end of 2003 include capital expenditure commitments and other
  financial commitments. Details are set out in Note 27 to the Financial Statements.
  Details on derivatives are given in Note 26.




---

Page 38

---



Back to Contents

operating and financial review

---



|               
|---------------
|CASH
      FLOW
|               

Summary
          consolidated cash
        flow
          statement
      
      
      2003
        £m
      
      
      2002£m
      
      
      2001£mNet
          cash inflows from operating activities
      
      
      95
      
      
      94
      
      
      1,287Return
          on investments and servicing of finance
      
      
      65
      
      
      159
      
      
      (212
      )Taxation
          paid
      
      
      (438
      )
      
      (139
      )
      
      (310
      )Capital
          expenditure
      
      
      (810
      )
      
      (1,868
      )
      
      (3,293
      )Financial
          investment
      
      
      595
      
      
      194
      
      
      (771
      )Acquisitions
          and disposals
      
      
      110
      
      
      1,845
      
      
      4,932Equity
          dividends paid
      
      
      (119
      )
      
      (669
      )
      
      (395
      )Movement
          in liquid resources (movement in      short
          term deposits)
      
      
      (1,040
      )
      
      2,586
      
      
      129Net
          financing repaid
      
      
      (578
      )
      
      (567
      )
      
      (944
      )(Decrease)/Increase
          in cash in the year
      
      
      (2,120
      )
      
      1,635
      
      
      423 There was a net decrease in cash of
    £2,120 million in 2003, largely due to a £1,040 million increase
    in liquid resources and capital expenditure of £810 million. Operating activities generated net cash of £95 million in 2003 despite operating losses of £6,000 million as these included significant non-cash item charges for depreciation


and amortisation, £861 million, and exceptional asset impairment charges, £5,106 million. Tax paid in 2003 includes £380 million with respect to settlement of the Groups UK tax affairs for the ten years ended 31 March 2001. Details of the settlement are given in Note 12 to the Accounts. Capital expenditure of £810 million in 2003 included network build of £310 million and the rollout of a GSM mobile network in the Caribbean and Panama and expansion of the TDMA network in the Caribbean £113 million, together with expenditure on billing systems, IT  support for capital projects and network terminating and customer premises equipment. Financial investments generated net cash of £595 million in 2003 of which £600 million related to the proceeds on disposal of a portfolio of preference shares. Liquid resources increased by £1,040 million in 2003. At 31 March 2003 liquid resources included the £1.5 billion placed into escrow that was released by 31 March 2003 and the funds received on 1 April 2003. Net financing repaid of £578 million in 2003 included long term debt repayments of £649 million partly offset by long term debt issued of £88 million. See also Description of the Business  Capital Expenditure.


|                                   
|-----------------------------------
|DISCLOSURES
      ABOUT MARKET RISK
|                                   

Credit risk Cash deposits and other financial instruments give rise to credit risk, which represents the loss that would be recognised if a counterparty failed to perform as contracted. The counterparties to the Groups financial instruments are major international institutions and the credit  rating of these counterparties is monitored on a regular basis in accordance with guidelines established by the Board. Interest rate risk The Group is exposed to movements of interest rates on its debt, surplus cash balances and derivative instruments. The treasury function seeks to reduce volatility by fixing a proportion of interest rates in advance. Taking account of such actions, a 50 basis point increase in interest rates to which the Group is exposed would increase


net interest income by £9 million. A 50 basis point reduction in interest rates would reduce net interest income by the same amount. Exchange rate risk The Group is exposed to movements in exchange rates in relation to foreign currency payments, dividend income from foreign subsidiaries, reported profits of foreign subsidiaries and the net asset carrying value of foreign investments. Cable & Wireless trades in 80 countries and much of its revenue is from international traffic flows settled in major currencies, principally US dollars. In addition, many of the currencies of the countries in which Cable & Wireless operates are linked, directly or indirectly, to  the US dollar. The Group manages its exposure to movements in exchange rates on a net basis and uses forward foreign exchange




---

Page 39



---



Back to Contents

operating and financial review

---

contracts and other derivative and
    financial instruments to reduce the exposure. As part of the overall policy of managing the exposure arising from foreign exchange movements relating to the carrying value of foreign investments, the Group may, from time to time, elect to match certain foreign currency liabilities against foreign investments. During the year the Group reversed a previous decision to match foreign currency liabilities totalling £486 million. These liabilities were re-denominated into Sterling. There was no cost to the Group from this transaction. Currently there are no foreign currency liabilities  matched against foreign investments.


No foreign currency exposure arose from the US$1,504 million PCCW zero coupon exchangeable bond since this was matched by US dollar cash investments. In broad terms, based on the 2003 mix of profits, the impact of a unilateral 1 per cent weakening of sterling would have been to increase the operating loss by £32 million. Overseas subsidiaries generally finance themselves in their domestic currency. However, in Jamaica it is impractical to implement this policy due to limited availability of local currency funding. Consequently Cable & Wireless Jamaica is predominantly funded with US dollar  denominated bank debt.




---

Page 40



---



Back to Contents

operating and financial review



---



|                       
|-----------------------
|FIVE
      YEAR SUMMARY
|                       

|                                               |  |                                           | 2003   |    |  | 2002   | 5  |  | 2001   | 5 |  | 2000   |   |  | 1999   |  
|---------------------------------------------- |  | ----------------------------------------- | ------ | -- |  | ------ | -- |  | ------ | - |  | ------ | - |  | ------ | -
|                                               |  |                                           | £m     |    |  | £m     |    |  | £m     |   |  | £m     |   |  | £m     |  
|                                               |  | (in £m except per share and per ADR data) |       
|                                               | 
|PROFIT AND LOSS ACCOUNT YEAR ENDING 31 MARCH   |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Amounts in accordance with UK GAAP1            |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Group turnover                                 |  |                                           | 4,391  |    |  | 5,748  |    |  | 7,851  |   |  | 9,201  |   |  | 7,944  |  
|Group operating (loss)/profit                  |  |                                           | (6,075 | )  |  | (5,025 | )  |  | (382   | ) |  | (350   | ) |  | 1,648  |  
|(Loss)/profit before taxation                  |  |                                           | (6,373 | )  |  | (4,549 | )  |  | 3,516  |   |  | 4,089  |   |  | 1,822  |  
|(Loss)/profit after taxation                   |  |                                           | (6,409 | )  |  | (4,860 | )  |  | 2,996  |   |  | 3,768  |   |  | 1,465  |  
|Minority interests                             |  |                                           | (124   | )  |  | (94    | )  |  | (258   | ) |  | 150    |   |  | (555   | )
|(Loss)/profit for the financial year           |  |                                           | (6,533 | )  |  | (4,954 | )  |  | 2,738  |   |  | 3,918  |   |  | 910    |  
|Basic (loss)/earnings per share (EPS)          |  |                                           | (280.4 | )p |  | (181.2 | )p |  | 100.3  | p |  | 161.6  | p |  | 38.2   | p
|Basic (loss)/earnings per ADR2                 |  |                                           | (841.2 | )p |  | (543.6 | )p |  | 300.9  | p |  | 484.8  | p |  | 114.6  | p
|Diluted EPS                                    |  |                                           | (280.4 | )p |  | (181.2 | )p |  | 99.2   | p |  | 158.7  | p |  | 37.4   | p
|Diluted (loss)/earnings per ADR2               |  |                                           | (841.2 | )p |  | (543.6 | )p |  | 297.6  | p |  | 476.1  | p |  | 112.2  | p
|Dividends per share3                           |  |                                           | 1.6    | p  |  | 16.5   | p  |  | 16.5   | p |  | 15.0   | p |  | 13.5   | p
|Dividends per ADR2                             |  |                                           | 4.8    | p  |  | 49.5   | p  |  | 49.5   | p |  | 45.0   | p |  | 40.5   | p
|                                               |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Amounts in accordance with US GAAP1            |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Net (loss)/income                              |  |                                           | (6,214 | )  |  | (5,371 | )  |  | 2,716  |   |  | 3,538  |   |  | 670    |  
|Basic EPS                                      |  |                                           | (266.7 | )p |  | (196.5 | )p |  | 99.5   | p |  | 145.9  | p |  | 28.2   | p
|Basic (loss)/earnings per ADR2                 |  |                                           | (800.1 | )p |  | (589.5 | )p |  | 298.5  | p |  | 437.7  | p |  | 84.6   | p
|Diluted EPS                                    |  |                                           | (266.7 | )p |  | (196.5 | )p |  | 98.4   | p |  | 143.2  | p |  | 27.7   | p
|Diluted (loss)/earnings per ADR2               |  |                                           | (800.1 | )p |  | (589.5 | )p |  | 295.2  | p |  | 429.6  | p |  | 83.1   | p
|                                               |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Income from Continuing Operations              |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Group turnover                                 |  |                                           | 4,247  |    |  | 4,703  |    |  | 4,688  |   |  | 4,600  |   |  | 3,957  |  
|Group operating (loss)/profit                  |  |                                           | (5,899 | )  |  | (4,515 | )  |  | (315   | ) |  | (618   | ) |  | 580    |  
|                                               |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|BALANCE SHEET DATA AS AT 31 MARCH              |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Amounts in accordance with UK GAAP1            |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Current assets4                                |  |                                           | 4,906  |    |  | 7,890  |    |  | 10,480 |   |  | 7,087  |   |  | 3,913  |  
|Total assets                                   |  |                                           | 7,362  |    |  | 16,197 |    |  | 24,267 |   |  | 21,528 |   |  | 17,487 |  
|Net assets                                     |  |                                           | 2,520  |    |  | 9,357  |    |  | 16,383 |   |  | 10,775 |   |  | 7,453  |  
|Loans and obligations under finance leases:    |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
| amounts falling due within one year          |  |                                           | 825    |    |  | 237    |    |  | 567    |   |  | 761    |   |  | 1,102  |  
| amounts falling due after more than one year |  |                                           | 721    |    |  | 2,022  |    |  | 2,364  |   |  | 5,484  |   |  | 4,801  |  
|Other creditors falling due within one year    |  |                                           | 2,450  |    |  | 3,734  |    |  | 4,069  |   |  | 3,784  |   |  | 3,012  |  
|Creditors and provisions                       |  |                                           | 4,842  |    |  | 6,840  |    |  | 7,884  |   |  | 10,403 |   |  | 9,490  |  
|Equity shareholders funds                     |  |                                           | 2,149  |    |  | 8,958  |    |  | 15,252 |   |  | 7,746  |   |  | 4,027  |  
|Called up share capital and reserves           |  |                                           | 2,446  |    |  | 2,445  |    |  | 5,570  |   |  | 2,199  |   |  | 2,087  |  
|Number of shares issued (million of shares)    |  |                                           | 2,383  |    |  | 2,382  |    |  | 2,801  |   |  | 2,440  |   |  | 2,411  |  
|                                               |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Amounts in accordance with US GAAP1            |  |                                           |        |    |  |        |    |  |        |   |  |        |   |  |        |  
|Shareholders equity                           |  |                                           | 2,125  |    |  | 9,158  |    |  | 16,190 |   |  | 9,840  |   |  | 6,624  |  
|                                               | 

|1 | The Financial Statements
        are prepared in accordance with UK GAAP, which differs in significant
        respects from US GAAP. See note 36 Summary of differences between
        United Kingdom and United States GAAP to the Financial Statements.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                              

|2 | ADR (American Depositary
        Receipt) amounts have been computed on the basis that one ADR represents
        three Ordinary Shares of 25p each in the Company (Ordinary Shares).
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                        

|3 | Dividends per share and
        per ADR are based on interim and final dividends paid per Ordinary Share
        before deduction of withholding taxes. See Shareholder Information
         Taxation.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                          

|4 | Current assets exclude debtors
        due after more than one year.
|- | --------------------------------------------------------------------
|  |                                                                     

|5 | The results for 2002 and
        2001 and balance sheet for 2002 have been adjusted to reflect the change
        in accounting policy for capacity sales in light of the adoption of UITF
        Abstract 36 Contracts for sales of capacity and related consequential
        effects.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

Page 41



---



Back to Contents

operating and financial review

---



|CRITICAL
      ACCOUNTING POLICIES
|----------------------------------

In the preparation of Cable &
  Wireless consolidated financial statements a number of estimates and assumptions
  are made relating to the reporting of results of operations and financial condition.
  Results may differ significantly from those estimates under different assumptions
  and conditions. Cable & Wireless believes that the following discussion
  addresses its most critical accounting policies, which are those that are most
  important to the presentation of its consolidated financial condition and results.
  These policies require managements most
  difficult, subjective and complex judgements, often as a result of the need
  to make estimates about the effect of matters that are inherently uncertain. Valuation of fixed assets and goodwill Cable & Wireless assesses the impairment of fixed assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that are considered important which could trigger an impairment review include the following: 
    significant under-performance relative to expected historical or projected future operating results; 
      significant changes in
          the use of its assets or the strategy for its overall business; 
      significant negative industry
          or economic trends; and 
      significant decline in
          its stock price for a sustained period and its market capitalisation
          relative to net book value. Cable & Wireless determines any
    impairment by comparing the carrying values of each of Cable & Wireless
    income generating units to their recoverable amounts (the higher of net realinsable
    value and the present value of the future cash flows obtainable as a result
    of a
    assets continued use). During 2003, Cable & Wireless impaired tangible
    fixed assets by £2,381 million (2002: £1,909 million) and goodwill
    by £2,725 million (2002: £2,007 million). The impairment represented
    the amount by which the carrying value exceeded the present
    value of the future cash flows. Future cash flows were determined
    with reference to Cable & Wireless five year plan using a growth
    rate of 2.5 per cent in the period beyond Cable & Wireless five
    year plan (based on a nominal increase in GDP for the countries in


which Cable & Wireless operates),
    and a
    discount rate of 14 per cent which represents the estimated weighted
    average cost of capital for Cable & Wireless. Changes to the assumptions
    used by management to determine the level of impairment required, such as
    the discount rate or growth rate used, could significantly
    affect Cable & Wireless results. Depreciation and amortisation of fixed assets Cable & Wireless assigns useful lives to fixed assets based on periodic studies of actual asset lives and the intended use for those assets. Changes in circumstances such as technological advances, prospective economic utilisation and physical condition of the assets concerned could result in the actual useful lives differing from initial estimates. Where Cable & Wireless determines that the useful life of property and equipment should be shortened, Cable & Wireless depreciates the net book value in excess of the residual value over the revised remaining useful life, thereby increasing depreciation expense. Any change in asset lives would be reported in Cable & Wireless financial statements when the change in estimate is determined. There have been no material changes in asset lives during the periods presented. Revenue recognition Turnover, which excludes value added tax, represents the amount receivable in respect of telecommunications services provided to customers and is accounted for on the accruals basis. Revenue is recognised monthly as services are provided. Revenue in respect of services invoiced in advance is deferred and recognised on provision of the service. Revenue in respect of unbilled services is accrued. Interconnection with other operators In Cable & Wireless normal
  course of business it interconnects its networks with other telecommunications
  operators. In certain instances it uses estimates to determine the amount of
  income receivable from or payments to these other operators. The prices at which
  these
  services are charged are sometimes regulated and may be subject to retrospective
  adjustment. Estimates are used in assessing the likely effect of these adjustments.




---



---



Back to Contents

operating and financial review

---

Exceptional items Under UK GAAP, the Company classified the following income/(costs) as exceptional items: 2003
      
      
      2002
      
      
      2001£m
      
      
      £m
      
      
      £mExceptional
          operating costs
      
      
      (442
      )
      
      (210
      )
      
      Exceptional
          depreciation
      
      
      (2,381
      )
      
      (1,909
      )
      
      (444
      )Exceptional
          amortisation
      
      
      (2,725
      )
      
      (2,007
      )
      
      Exceptional
          profits less (losses) on sale or termination of operations
      
      
      (147
      )
      
      1,057
      
      
      4,311Exceptional
          costs of fundamental reorganisation
      
      
      
      
      
      
      
      
      (530
      )Exceptional
          write down of investments
      
      
      (390
      )
      
      (904
      )
      
      (43
      )Exceptional
          finance charges
      
      
      
      
      
      
      
      
      (110
      )Exceptional
          profits on disposal of fixed assets
      
      
      62
      
      
      
      
      
      42 Judgement is required to classify such items as exceptional items. The Company is guided by FRS 3 Reporting Financial Performance which provides that material items which derive from events or transactions that fall within the ordinary activities are disclosed as exceptional items by virtue of their size or incidence such that the financial statements give a true and fair view. Exceptional depreciation and amortisation arise from the impairment review discussed above. Exceptional operating costs In the year ended 31 March 2003 exceptional items included in other operating costs related principally to provisions for ongoing obligations associated with US businesses from which Cable & Wireless withdrew, impaired assets and redundancy and reorganisation costs incurred during the year. These provisions are based on various assumptions, including future severance costs, sublease or disposal costs and contractual termination costs. Such estimates are judgmental and may change based on actual experience.


Provisions The Company complies with FRS 12 Provisions, contingent liabilities and contingent assets. A provision is recognised when there is a constructive obligation in respect of a past event. Provisions were recognised for tax, pensions, redundancy costs, property costs and onerous contracts during 31 March 2003. Managements judgement is required to quantify such provisions. Pensions The regular cost of providing benefits under defined benefit schemes is charged to operating profit over the expected remaining service lives of the members of the schemes so as to achieve a constant percentage of pensionable pay. Variations from the regular cost arising from periodic actuarial valuations of the principal defined benefit schemes are allocated to operating profit over the expected remaining service lives of the members. The expected cost of providing these defined benefit pensions will depend on an assessment of such factors as: 
the life expectancy of the members;
the length of service;
the rate of salary progression;
the rate of return earned on
        assets in the future; and
    the rate used to discount future pension liabilities. The assumptions used by Cable & Wireless are set out in Note 8 to the accounts and are estimates chosen from a range of possible actuarial assumptions which may not necessarily be borne out in practice. Changes to these assumptions could materially impact the size of the unfunded defined benefit scheme liability of £578 million, calculated under FRS 17, Retirement Benefits, disclosed in Note 8. Restructuring charges In the year ended 31 March 2001, restructuring
  charges were recorded as a result of additional actions to reorganise, re-size
  and reduce operating costs and create greater efficiency in various areas. These
  charges, for both severance and exit costs, required the use of estimates.
  Actual restructuring results did not differ materially from those estimated.


|NEW
      UK ACCOUNTING STANDARDS ADOPTED
|-----------------------------------------

|Capacity Sales
|--------------
|              

As disclosed in prior years, the Group
  sells network capacity to third parties pursuant to indefeasible rights-of-use
  agreements (IRUs). In prior periods, in accordance with UK accounting standards,
  where substantially all of the risks and


rewards of ownership were transferred
    to the purchaser over the economic life of the asset, these transactions were
    accounted for as sales and recognised in turnover at fair value at the time
    of delivery and acceptance.


---

Page 43






---



Back to Contents

operating
  and financial review

---



On 27 March 2003, the Urgent Issues
  Task Force of the UK Accounting Standards Board issued UITF 36, Contracts for
  sales of capacity. The abstract is applicable for accounting periods ending
  on or after 30 June 2003, although early adoption is encouraged, and application
  is retrospective. The Group has adopted UITF 36 for the year ended 31 March
  2003. As a result of the adoption of the
    new abstract, revenues or gains in respect of capacity sales to carriers from
    whom capacity or other services were also acquired are no longer recognised
    as the transactions are not considered to meet all the conditions required
    under the new abstract, in particular the requirement for the capacity provided
    or received to have a readily ascertainable market value as set out in FRS
    10, Goodwill and intangible assets. The Groups cash sales to carriers
    with no related purchase are largely unaffected by


the conditions of the new abstract
    and will continue to be recognised at the time of delivery and acceptance. The Groups new accounting policy in respect of capacity sales is set out in the Groups statement of accounting policies on page 90. The impact of adoption on the reported results of the Group is set out in Note 4 to the Financial Statements, including the impact on prior periods as the abstract applies retrospectively. Under US GAAP, cash capacity sales
    entered into after 30 June 1999 are required to be accounted for as operating
    leases unless title under the lease is transferred to the lessee. Accordingly
    in reconciling the Groups results to US GAAP an adjustment is made to
    defer all revenue in respect of cash capacity sales recognised in accordance
    with UK GAAP and instead to recognise revenue over the period of the contract
    (see Note 36).


|US
      GAAP RECONCILIATION
|----------------------------



The Company prepares its consolidated
  financial statements in accordance with UK GAAP, which differs in significant
  respects from US GAAP, see Note 36 Summary of differences between United
  Kingdom and United States GAAP. A comparison of net profit/(loss) and
  shareholders equity of Cable & Wireless when applying UK
  and US GAAP is provided in the table below: Net (loss)/profitUK GAAP
    *
    
    US GAAP£m
    
    
    £mYear ended 31 March 2003
    
    
    (6,533
    )
    
    (6,214
    )Year ended 31 March 2002
    
    
    (4,954
    )
    
    (5,371
    )Year ended 31 March 2001
    
    
    2,738
    
    
    2,716  Shareholders
      EquityUK GAAP
    *
    
    US GAAP£m
    
    
    £mAs
        at 31 March 2003
    
    
    2,149
    
    
    2,125As
        at 31 March 2002
    
    
    8,958
    
    
    9,158 *
    Adjusted to reflect adoption of UITF 36.  US accounting
        standards issued but not yet adopted In June 2001, the FASB issued FASB
    Statement No. 143, Accounting for Asset Retirement Obligations. The standard
    is effective for fiscal years beginning after 15 June 2002, with earlier
    application encouraged. This standard requires entities to record the fair
    value of a liability for an asset


retirement obligation in the period
    in which it is incurred. When the liability is initially recorded, the entity
    capitalises a cost by increasing the carrying amount of the related long-lived
    asset. Over time, the liability is accreted to its present value each
    period, and the capitalised cost is depreciated over the useful life of the
    related asset. Upon settlement of the liability, an entity either settles
    the obligation for its recorded amount or incurs a gain or loss upon settlement.
    Management has not determined the effect of the adoption of FASB Statement
    No. 143. In December 2002, the FASB issued
  SFAS No. 148, Accounting of Stock-Based Compensation  Transition and Disclosure
   an amendment of FASB Statement No. 123. This statement amends SFAS No.
  123 to provide alternative methods of transition for a voluntary change
  to the fair value based method on accounting for stock-based employee compensation.
  In addition, SFAS No. 148 requires prominent disclosures about the method of
  accounting for stock-based employee compensation and the effect of the method
  used on reported results. As
  Cable & Wireless continues to apply the provisions of APB No.
  25, Accounting for Stock Issued to Employees, the adoption of SFAS No. 148 will
  not impact reported net income or shareholders equity. In April 2003, the FASB issued SFAS
  No.149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities.
  SFAS 149 amends and clarifies accounting for derivative instruments, including
  certain derivative instruments embedded in other contracts, and for hedging
  activities under SFAS 133. SFAS 149 is effective for contracts entered into
  or modified after 30 June 2003 and for hedging relationships designated after
  30 June 2003.


---



---



Back to Contents

operating and financial review

---

Management has not determined the effect of the
  adoption of SFAS 149. In May 2003, the FASB issued SFAS
    No. 150, Accounting for Certain Financial Instruments with characteristics
    of both Liabilities and Equity. SFAS 150 improves the accounting for certain
    financial instruments that, under previous


guidance, issuers could account
    for as equity. SFAS 150 requires these instruments be classified as liabilities
    in the balance sheet. SFAS 150 is effective from 15 June 2003. SFAS 150 is
    not expected to have an impact on the consolidated financial statements.




|RISK
      FACTORS
|------------------

In addition to the other information
  contained in this Annual Report, investors in Cable & Wireless
  should consider carefully the risks described below. The Groups financial
  condition or results of operations could be materially adversely affected should
  any of these risks arise. The risks described below are not the only risks facing
  the Group. Additional risks not currently known to the Group or risks that the
  Group currently regards as immaterial could also have a material adverse effect
  on the Groups financial condition or results of
  operations. Failure to improve the performance and financial position of the Group successfully or to adapt as needed to changing market conditions could adversely affect the Groups business, results of operations and potential for growth. In June 2003, Cable & Wireless announced that it would withdraw from the United States, take steps to radically improve the unsatisfactory operating results in the United Kingdom and build upon its strong positions in national telecommunications companies around the world. Cable & Wireless cannot assure its shareholders that it will be successful in implementing the strategy as currently planned, that the planned strategy will prove to be successful in an otherwise difficult market or that the Group will achieve all of its strategic goals. Failure in any of these regards could adversely affect the Groups profitability and its strategic and competitive positions. In addition, as part of this strategy,
    Cable & Wireless is undertaking a reorganisation of its businesses
    to improve its position in a rapidly changing market place. Cable & Wireless
    plans for the implementation of this reorganisation are incomplete in many
    respects, and the success of the reorganisation will depend in part on factors
    that are beyond the Groups control. Delay in implementation of the reorganisation
    may lead to the management not being able to concentrate on developing their
    businesses with certainty, or to pursue opportunities in their respective
    marketplaces. It may lead to staff retention problems, or staff resistance,
    such as industrial action or non-compliance with Group policies. Furthermore,
    as Cable & Wireless refines the plans for its reorganisation,
    the Group may encounter significant obstacles that it has not yet


anticipated and that prevent it
    from fully implementing the reorganisation or fully achieving its strategic
    goals. As a result, the Group cannot assure shareholders that the goals of
    its strategy or reorganisation plan will be fully achieved. Cable & Wireless
    also cannot assure shareholders that completion of the reorganisation plan
    will result in the success of its strategy. Withdrawal from the US market may require the expenditure of additional resources, including management time and capital resources. In June 2003, Cable & Wireless
  announced its intention to withdraw from the US market. Cable & Wireless
  is currently considering the options it will pursue in exiting this market,
  but has yet to identify a specific approach that it intends to take. It is possible
  that these options may be subject to regulatory or other approval. Among the
  approaches Cable & Wireless is currently considering is a sale
  of its businesses in the United States. Cable & Wireless, however,
  may not be able to identify potential purchasers for all of the US businesses
  or complete any sale of the US businesses in a timely manner, on a cost effective
  basis, at the optimum price, or at all. In addition, Cable & Wireless
  is also considering a number of alternative options and, if Cable & Wireless
  cannot find a suitable purchaser for its US businesses or if it determines that
  an alternative will be preferable, the Group may choose to wind-down its US
  operations or exit this market through some other means. Any approach Cable & Wireless
  takes is likely to require a considerable amount of managements attention,
  may not ultimately be cash generative and may in fact require that it incurs
  additional costs. It may also lead to customer retention issues, which in turn
  may affect the expected financial performance of the business detrimentally.
  As a result, the steps Cable & Wireless may take to exit the US
  market could in the shorter term impact on operating profit and liquidity while
  it incurs any necessary costs associated with exiting this market. Transformation initiatives
          can lead to execution risk. The Group has been in rapid transition
  in the past few years, acquiring and disposing of a number of businesses, as
  well




---

Page 45




---



Back to Contents

operating and financial review

---



as implementing a number of reorganisation initiatives.
  In June 2003 Cable & Wireless announced its intention, over time,
  to expand its investment in national telecommunications operations.
  This may include acquiring further entities and businesses. The Group has in the past and expects
    in the future to dedicate significant resources to integrate any businesses
    that it has or will acquire and to effect any rationalisation of its operations.
    Implementation is complex, time-consuming and expensive and, without proper
    planning and execution, could significantly disrupt the Groups business.
    The challenges involved include: 
    combining service and product offerings and preventing customers and distributors from deferring purchasing decisions or switching to other suppliers due to uncertainty about the direction of our product offerings and our willingness to support and service existing products, which could result in incurring additional obligations in order to address customer uncertainty; 
      demonstrating to customers
          and distributors that the transaction or organisational changes will
          not result in adverse changes in service standards or business focus
          and helping customers conduct business easily; 
      consolidating and rationalising
          corporate and subsidiary IT infrastructure, including implementing information
          management and system processes that enable increased customer satisfaction,
          improved productivity, lower costs, more direct sales and improved inventory
          management; 
      consolidating administrative
          infrastructure, including IT systems, and maintaining adequate controls
          throughout the integration; 
      coordinating sales and
          marketing efforts to communicate the Groups strategy effectively; 
      preserving distribution,
          marketing or other important relationships and resolving potential conflicts
          that may arise; 
      minimising the diversion
          of management attention from ongoing business concerns; 
      coordinating and combining
          operations, subsidiaries, relationships and facilities, which may be
          subject to additional constraints imposed by local laws and regulations
          and also may result in contract terminations or renegotiations and labour
          and tax law implications; and 
      managing integration issues
          shortly after or pending the completion of other independent reorganisations.


Regulatory
          risk Cable & Wireless business may be materially adversely affected by changes in regulation and government policy in the countries in which it operates. The Group operates in some highly regulated markets in which its flexibility to manage its business is limited. Regulatory decisions and changes in the regulatory environment or in government policy may materially adversely affect its business, particularly in those markets in which it is classified as a dominant carrier. In some jurisdictions, the Group is currently required to offer competitors access to its networks, supply subscribers with various telecommunications services at regulated rates or on regulated terms and/or contribute to universal services funds. In other jurisdictions, the Group is itself dependent upon customer access, interconnection services and leased lines supplied under regulated terms and conditions by local or national incumbent telecommunications operators. Future regulation may impact the terms of interconnection agreements with other network operators and other similar agreements; impose market-access barriers; set price caps
or regulate prices directly; impose limitations or investment obligations on construction of new facilities and impose other restrictions on the scope of the Groups operations. The number of regulatory measures may also significantly increase, or become significantly more onerous as the jurisdictions in which the Group operates reform their telecommunications and related laws. Complying with new or more onerous regulations and restrictions may be costly for the Group, and may adversely impact the results of the Groups operations and business condition. The Groups ability to provide telecommunications services depends in most countries on receiving and maintaining government licences and authorisations. Failure to acquire and retain necessary regulatory approvals could impair its results of operations. Furthermore, regulatory regimes in some countries in which the Group operates are often less well established than in other countries where competition in the telecommunications sector has been established for longer. As a result, its business in these countries, especially where it maintains a large, dominant or exclusive market share, could be subject to unexpected political, economic or legal developments that impact telecommunications regulations and lead to the Group being unable to acquire or retain the regulatory approvals necessary to its business. Any such development could have a material adverse effect on its results of operations either in that jurisdiction or in aggregate.




---

Page 46

---



Back to Contents

operating and financial review

---



Regulation of
          ISPs could adversely affect Cable & Wireless
          operations Governmental and regulatory agencies have yet
    to promulgate comprehensive regulations specific to Internet Protocol (IP)
    networks. Therefore, the Group accepts that risks could exist arising from
    future changes to the legal framework that could impose greater burdens on
    it (for example, increased costs or restrictions on the ability to provide
    services). In addition, the Groups ability to adapt to multiple national
    regulatory regimes may be limited, and uncertainty regarding the regulations
    applicable to some services may prevent or delay its expansion in certain
    markets. If a jurisdiction in which the Group operates adopts measures which affect the regulation of the internet and/or other aspects of the industry, it could experience both decreased demand for its products and increased costs of selling such products. Changes in laws or regulations governing the internet, internet commerce and/or other aspects of the industry could have a material adverse effect on the Groups business. Economic risks The Groups business may be affected by a business downturn. A significant percentage of the Groups revenue is generated by providing business customers with telecommunications, IP, voice, data, managed hosting services and content delivery. A continued slowdown in capital spending by service providers and other customers may affect revenues more than currently expected. Moreover, the existing economic and geopolitical uncertainties and their potential impact on customer demand, has created uncertainty as to market demand. As a result, revenues and operating results for a particular period can be difficult to predict. In addition, there can be no certainty as to the severity or duration of the current industry adjustment and the downturn in the business environment. The Groups revenues and operating results have been and may continue to be materially and adversely affected by the continued reductions in demand from its customers. In addition, a business downturn, fear of terrorist attacks or the impact of SARS may reduce the number of international tourists. This may depress local economies in some areas where the Group has businesses (for example in the Caribbean and Macau) and consequently adversely impact the financial results of the Groups operations.


Generally unfavourable telecommunications market conditions may adversely affect the Groups financial condition and results of operations. The telecommunications industry is currently facing unfavourable market conditions, including amongst other factors, the decline in investment in the industry, decline in demand for certain telecommunications products and services, pricing pressures and over-capacity. These conditions, amongst other factors have led to a general decline in share prices for telecommunications companies, including Cable & Wireless. These market conditions have precipitated bankruptcy and insolvency filings by several telecommunications companies. In some cases the Group has outstanding debts with these companies and may not be able to collect all the debts due. Some telecommunications markets in which the Group operates are in very early stages of development. If unfavourable market conditions prevent some or all of these markets from developing, or if they develop more slowly than Cable & Wireless anticipates, then the Groups results of operations could be materially adversely affected. Fluctuations in currency exchange rates may adversely affect the Groups reported results. A significant percentage of Cable & Wireless 2002 and 2003 revenues were generated outside the United Kingdom. Accordingly, the value of those investments and associated revenues will be affected by fluctuation of the pound sterling against the currency in which the investments, financing and revenue is denominated, as reflected in the Groups pound sterling denominated financial statements. The Group carries out foreign exchange hedging operations to manage its exposure in respect of material transactions. To the extent that this hedging activity does not cover the exposure then the Groups results of operations and financial condition may be negatively impacted by currency exchange rate movements. The Group may not have or may be unable to obtain sufficient insurance to cover all foreseeable risks. As a result of restrictions in global insurance capacity
  following the events of 11 September 2001, insurers have imposed certain limitations
  on the availability of insurance. These limitations affect the ability of the
  Group to insure adequately against certain catastrophic risks in
  the manner previously undertaken. Whilst the Group continues to purchase such
  insurance coverage as is prudent and is commercially available to it, in certain
  circumstances a particularly severe loss may exceed the limits of available
  insurance. For example, it cannot fully
  insure against the risk of a catastrophic hurricane destroying Group assets
  concentrated in multiple locations in the Caribbean. If a




---

Page 47




---



Back to Contents

operating and financial review

---



severe loss were to be incurred, it could have a material
  adverse impact on the Groups business, results of operations and financial
  condition. The activities of the Groups
          insurance subsidiary may result in material claims Pender Insurance Limited (Pender) is the Cable & Wireless Groups wholly owned insurance subsidiary. It was established in the Isle of Man in 1990 to provide insurance to the Cable & Wireless Group and is regulated by the Isle of Man Insurance and Pensions Authority. It provided cover for various types of potential claims against or losses incurred by the Cable & Wireless Group. The cover included, for example, catastrophe cover, property damage, business interruption, professional indemnity and directors and officers liability. Pender is managed by Willis Corroon Management (Isle of Man) Limited and directed by an independent board. It is also advised by other insurance and reinsurance brokers and service providers in the placing of its cover. Some of its operations were carried out by Cable & Wireless Group personnel under contract to Pender. During calendar year 1997, Pender
    began to write policies for other companies connected with the telecommunications
    industry on a shared limits basis. Pender off-laid some of its exposure under
    these policies to the insurance market by way of reinsurance. However, Pender
    retained some exposure itself. Notwithstanding the reinsurance, Pender remains
    legally liable for all its policies. As at 31 March 2003, Pender had 43 policyholders, including Cable & Wireless. Cable & Wireless and certain of the other policyholders established a mutual insurance company for new business from 1 April 2003. On the basis of advice from its insurance brokers, the Cable & Wireless Group decided itself to purchase insurance from the mutual insurance company for the period commencing 1 April 2003. From 1 April 2003, Pender began running off its old insurance claims and has not taken on any new business for non-Cable & Wireless Group companies since then. Certain of Penders pre-existing policies with third parties are still current. The mutual insurance company provides some reinsurance for a number of these policies. The adverse factors affecting the telecommunications industry, particularly as a result of US securities class actions, have led recently to a significant increase in the seriousness of insurance claims against Pender, testing policy terms and limits. Pender is resisting such insurance claims vigorously, in conjunction where appropriate with its reinsurers, but, as certain of the insurance claims have not yet been fully quantified or substantiated by the claimants, it is not currently practicable to estimate their financial effects.


In the event that Pender is unable
    to resist these insurance claims successfully and, in those cases where reinsurance
    exists, its reinsurance cover were to prove inadequate, Pender may be subject
    to significant liabilities which its assets may not be sufficient to meet.
    Moreover, there can be no assurance that these arrangements will not have
    a material adverse effect on the Cable & Wireless Group. Future cashflow fluctuations may affect the Groups ability to fund working capital requirements. The Groups cashflows are expected to continue to be subject to fluctuations, depending on such factors as timing and size of capital expenditure, cost of property disposals, levels of sales, timing of collection of receivables and supplier terms and conditions. Cable & Wireless continues to have ongoing discussions with its banks and other financial institutions to explore additional financing opportunities and credit and support arrangements. The Group believes that its cash on hand and its secured financing facilities will be sufficient to fund its current business model and future strategy for at least the next 12 months. However, future revenues and cashflows may be materially less than expected and Cable & Wireless may seek further funding. Cash generated overseas may not all be available for use by the Group. Cable & Wireless currently is able to repatriate most of its surplus cash generated overseas but there is a risk that governments could apply severe restrictions and this could result in the Group seeking further financing. Changes in Credit Ratings may impact the Groups future access to cash funding Cable & Wireless currently has a range of financing arrangements in place. Any change in Cable & Wireless credit ratings could impact Cable & Wireless interest rates, ability to raise debt, access to the commercial paper market and ability to engage in alternative financing arrangements. Any inability to access adequate financing at an acceptable cost could adversely impact the Groups ability to implement its strategy. Volatility in the financial markets may require the Group to provide further cash funding to its pension funds. Cable & Wireless currently maintains
  various defined benefit plans which cover various categories of employees and
  retirees. The Groups obligations to make contributions to fund benefit
  obligations under these plans are based on actuarial valuations, which themselves
  are
  based on certain assumptions about the long-term operation of the plans, including
  employee turnover and retirement rates, the




---



---



Back to Contents

operating and financial review

---



performance of the financial markets and interest rates. If the actual operation of the plans differs from the assumptions, additional contributions may be required. The equity markets can be, and recently have been, volatile, and therefore the estimate of future contribution requirements can change significantly in a short period of time. Similarly, changes in interest rates may also impact funding requirements. In a low interest rate environment, the likelihood of required contributions in the future increases. If the Group is required to make significant contributions to fund the defined benefit plans, the reported results could be materially and adversely affected and the cashflow available for other uses may be significantly reduced. Dependency on a small number of personnel A small number of key executive officers manage the businesses. In addition, the Groups future success will depend in a large part on its continued ability to attract and retain highly skilled and qualified personnel. The loss of key personnel or an inability to attract personnel of suitable calibre could have a material adverse effect on the business of Cable & Wireless. Class Actions may adversely impact the Groups financial condition A number of class actions have been filed against the Group in the United States alleging violations of certain sections of the US Securities and Exchange Act of 1934. In March 2003, the Court consolidated these cases into one action. Cable & Wireless believes it has meritorious defences to these claims and intends to defend itself vigorously but, if the action is upheld by the US courts, it could adversely impact on the Groups financial condition. In addition, Cable & Wireless is from time to time involved in other litigation, which if decided adversely to the Group could, individually or in the aggregate, adversely impact its financial condition or reputation. Further details of the class action litigation in the United States and other material legal proceedings are set out in Business Description  Legal Proceedings. Failure to pay a
          dividend in the future may adversely affect the Group's share price Cable & Wireless has
    announced that there will be no final dividend for 2003 and no interim dividend
    declared for 2004. Failure to pay a dividend may in the future dversely affect
    the Groups share price.


Competitive position risks  external competitive pressures The Groups operations could suffer from adverse effects of competition and price pressures on the demand for products and services. The Group faces competition and downward pressure on prices in many areas and markets of its business. The Groups competitors may be able to expand their network infrastructures and service offerings more quickly than the Group. In addition, some competitors have entered and will likely continue to enter into joint ventures or alliances to provide additional services against which the Group may be unable to compete. The Group also believes the sector may experience consolidation in the near future, which could result, amongst other things, in further competition that would make it more difficult for Cable & Wireless to compete effectively. As the markets for some of the Groups services expand in certain locations, additional competition may emerge and existing competitors may commit more resources to the markets in which it participates. For example, governments in various countries in which the Group provides telecommunications services, in some cases on an exclusive basis and in others where it until recently provided services on an exclusive basis, have begun liberalising the telecommunications industry by introducing regulated competitive markets for some products and services in place of exclusive licences. The Group may lose market share to some of the competitors entering the market as a result of this transformation and its operating results and revenues may be adversely affected. Competitors of Cable & Wireless may gain competitive advantage by successfully completing a restructuring or bankruptcy reorganisation process. Certain of the Groups competitors in the United States have filed for bankruptcy or Chapter 11 protection. There is a possibility that such competitors will emerge from their restructuring with a significantly lower cost base than Cable & Wireless and be able to compete more effectively than the Group. This could result in the Group losing market share which could in turn negatively impact the Groups financial condition and results of operations. In addition, given its own recent losses, the Group may lose customers to competitors if the customers have significant concerns over the future financial strengths and strategy of the Group.




---

Page 49




---



Back to Contents

operating and financial review



---





Continued overcapacity and other factors could lead to lower prices for the Groups products and services. The transatlantic, pan-European and US markets are all currently experiencing considerable levels of overcapacity. Overcapacity coupled with lower than expected levels of demand growth contributed to a severe price decline in these markets. This in turn resulted in many network operators becoming financially distressed and filing for bankruptcy or Chapter 11 protection. This could compel the Group to lower prices to prevent erosion of its market share or to continue attracting new customers. If the Group is forced to lower its prices the financial condition and results of operations may be adversely affected. In addition, if the Group is unable tosufficiently reduce its costs, for example because it is obliged to honour existing contracts containing commercial terms which are onerous in the context of current market conditions, this too may materially adversely affect the Groups business, financial condition and results of operations. In addition, the Group may lose business to its competitors if they offer contract terms to customers which the Group is unable to match. If the current overcapacity situation is not resolved or worsens, prices may continue to decline in the affected regions and such price decline could have a material adverse effect on the Groups operations. Competitive position risks  internal competitive pressures Cable & Wireless depends on the ability to achieve cost-savings to respond to industry and market conditions. The Group continues to restructure its business to realign resources and achieve desired cost savings. The Group has based its restructuring efforts on certain assumptions regarding the cost structure of its business and the nature, severity and duration of the industry downturn which may or may not be correct. The Group must be able to successfully implement its work plan and refine, expand or extend it if necessary, if it is to reduce its cost structure appropriately to respond to changing market conditions. The restructuring efforts may not be sufficient to achieve profitability and meet the changes in industry and market conditions. While restructuring, the Group has made, and will continue to make, judgements as to whether it should further reduce its workforce or exit, or dispose of, certain businesses. These workforce reductions may impair its ability to achieve its current or future business objectives.


Costs incurred in connection with restructuring efforts may be higher than estimated. Any decision by management to further limit investment or exit, or dispose of, businesses may result in the recording of additional charges or adversely impact the Groups ability to meet its current or future business objectives. As a result, the costs actually incurred in connection with the restructuring efforts may be higher than originally planned and may not lead to the anticipated cost savings and a return to profitability. Changes in future technology The Group may not be able to adapt adequately to technological changes in communication and information technology. The telecommunications industry is subject to rapid and significant changes in technology. The development of new technologies could render its current services obsolete and non-competitive and require the Group to write-down the book values of investments it has made in existing technologies. The Groups business plan contemplates the introduction of services using new technologies and it may have to make substantial additional investments in new technologies in order to remain competitive. New technologies that it chooses to acquire may not prove to be successful, and the cost of implementation for emerging and future technologies could be significant and constitute a negative return on the investment. In addition, Cable & Wireless may not receive the necessary licences to provide services based on new technologies in jurisdictions in which it operates. It may also be forced to change its product and service offerings or pay higher costs
if the third-party technology that it employs changes or if the price of such technology increases. As a result, the Group could lose customers, fail to attract new customers or incur substantial costs to maintain its customer base. Any such occurrence could have a material adverse effect on the Groups financial results. The Groups results depend on the introduction of appropriate new products and services as the industry undergoes rapid changes. All sectors in which Cable & Wireless operates are characterised by changing customer demand for new products and services as new technologies become available. If the new products and services that the Group develops and implements do not meet the demands of its existing and target customers, then the Group may not be able to recover its costs in developing such new products and services and it may lose market share. This could result in a material adverse effect on the Groups financial results.






---

Page 50


---



Back to Contents

operating and financial review

---



Service delivery Exposure to other telecommunications operators and the behaviour of other market participants may have a detrimental effect on the Groups operations. The Groups operations in some countries are dependent upon access to networks that it does not own or entirely control, including networks controlled by current or former government-owned public telecommunications operators. Cable & Wireless operations depend on these network operators to provide interconnection services for the origination and/or termination of some of its telecommunications services. The Group has experienced interconnection capacity shortages in the past, and it may do so again if it is unable to obtain and maintain the necessary interconnection and other transmission services in a timely fashion and on acceptable commercial terms in each country in which it intends to introduce or continue to offer its telecommunications services. The Group may also be subject to the constraints, including financial constraints, of the relevant network operator, which may be unable to provide any or all of the capacity that the Group requests. If it cannot obtain the capacity it requires to adequately serve all of its existing customers or to connect all of its potential new customers, the Group may lose them to its competitors. All of this could adversely affect the Groups business, financial condition and results of operations. As part of the development of the Cable & Wireless network, some Group companies have acquired Indefeasible Rights of Use (IRUs) from a number of carriers including Global Crossing, Level 3, Qwest, WorldCom and Flag Financial Corporation. An IRU gives the purchaser a guaranteed right to use the network asset (cable, fibre or wavelength) over a contractual period. A number of the IRU providers have filed for Chapter 11 (or similar bankruptcy protection) or are in financial difficulty. The risk to the Group is that such a company may not be obliged or may be unable to continue to honour its agreement to grant the exclusive right of use to the Group (even if that grant is already effected) or to maintain the asset in which the IRU resides. If this occurs then there can be no assurance that Cable & Wireless will be able to find alternative providers and that the provision of network will be on the same terms as before. As a
result, the business, financial condition or results of operations of the Group may be adversely affected. Catastrophic network failure may expose the Group to potential liability. The Groups network uses a collection
    of communications equipment, software, operating protocols and proprietary
    applications for the high-speed transportation of large


quantities of data between multiple
    locations. The Group also operates national and international voice networks.
    Catastrophic network failure or a major network interruption may occur as
    a result of natural disasters, a loss of a major element of the network, security
    breaches, terrorist action or computer viruses. These failures or interruptions
    could cause delays or service interruptions and could expose the Group to
    claims from customers or could require expensive repairs or modifications,
    any of which could have a material adverse effect on the Groups business. The Group may lose revenue if unlicensed operators are able to gain access to the Groups network undetected. In certain markets where the Group operates it suffers from revenue leakage where operators gain illegal access to its network. The Group takes considerable action to identify and prevent such occurrences, but the level of actions available to it may be limited by local regulation. To the extent that the Groups efforts are not wholly successful, it may lose revenue and the Groups financial performance be adversely impacted. Other risks The Group is reliant on third parties for certain activities under outsourcing contracts. Failure of those third parties to provide the contracted services may expose the Group to additional cost and liability. The Group has outsourced a number of support activities to third parties, including the provision of certain IT services in the United Kingdom and United States. In the event that the outsourcing company fails to deliver the contracted services, the Group may incur additional costs as it attempts to find an alternate supplier and its financial results might be adversely impacted. On 6 June 2003, the Group gave notice of termination under its outsourcing contract with IBM (see Business Description  Legal Proceedings). In the event that transferring the activities outsourced to IBM to an alternative supplier (or to the Group itself) is more difficult than the Group anticipates it may incur additional costs and its financial results and operations might be adversely impacted. The Group is dependent on a number of critical IT systems to be able to conduct its business and process financial information. In carrying out its business, the Group is dependent
  on the availability and reliability of a number of IT systems. In the event
  that any of these systems fail and disaster recovery and business continuity
  plans are ineffective, the Group may be exposed to additional costs and liabilities. In addition, many of these IT systems, such as billing, are legacy
  systems that operate on different platforms. The Group may




---

Page 51



---



Back to Contents

operating
  and financial review

---



be exposed to additional costs and liabilities in endeavouring
  to upgrade or integrate systems and may sustain costs or liabilities as a result
  of the inefficiencies posed by having multiple systems
  that in some instances cannot be readily reconciled. Mobile communications
        devices may pose health risks. Media reports have suggested that
    radio frequency emissions from mobile telephone handsets and transmission
    facilities may pose various health risks, including cancer, and may interfere
    with various electronic medical devices, including hearing aids and pacemakers.
    Research and studies into the health risks posed by mobile telephone handsets
    and transmission facilities are ongoing. Cable & Wireless provides
    mobile services principally in the Caribbean, Panama and Macau and also provides
    national and international network capacity to mobile operators. Cable & Wireless
    continues to monitor scientific and medical research and studies, media, legal,
    regulatory and


other developments, as well as the
    public perception of risk arising from the use of mobile telephone handsets.
    Scientific research on mobile telephone handsets and health has been reviewed
    by a number of independent expert scientific panels. None of these panels
    has concluded that the use of mobile telephone handsets is harmful to health. Nonetheless, increased speculation
    regarding health risks associated with mobile telephone handsets and transmission
    facilities or any subsequent substantiation of such risks could have a material
    adverse effect on the Groups business including through: 
      a reduction in the number
          of actual and potential customers;
      reduced usage per customer;
      exposure to potential
          litigation or other liability;
      regulatory intervention
          and new legislation; or
      exposure to adverse publicity
          and damage to reputation.






---

Page 52



---



Back to Contents



corporate
  governance

---



CORPORATE GOVERNANCE

This section contains:

Social, environmental and ethical report
      
      
      53Directors and senior management
    
    
    57


Directors report
    
    
    59Directors Remuneration Report
    
    
    65




|SOCIAL,
      ENVIRONMENTAL AND ETHICAL REPORT
|----------------------------------------------

Cable & Wireless recognises the importance of building sound relationships with all its stakeholders and is committed to approaching social, ethical and environment matters in the same way as it approaches core business activities. The Board therefore sets standards ofbehaviour that go beyond minimum legal standards. Board Review of Social, Environmental and Ethical Issues The Board of Cable and Wireless
    plc takes regular account of the significance of social, environmental and
    ethical matters to the business of the Company. The Board identifies and assesses
    whether there are any potential significant risks to the Companys short
    and long term value arising from social, environment and ethical matters,
    as well as opportunities to enhance value that may arise from an appropriate
    response. Specifically the Board: 
appointed the Chief Executive
          Regional (Robert Lerwill) to be responsible for social, environmental
          and ethical matters for the year ended 31 March 2003;
arranged for the co-ordination
          and management of social, environmental and ethical matters to be carried
          out by the Companys Public Policy Council which meets quarterly.
          Members of the Public Policy Council at 31 March 2003 were Robert Lerwill
          (Chief Executive Regional); Tom Phillips (Group Director Public Policy);
          David Prince (Group Finance Director); Adrian Chamberlain (Group Director,
          Strategy and Business Development); and Dan Fitz (Group General Counsel);
          and
    receives a report on social, environmental and ethical matters at least annually and more frequently if required. ETHICS POLICY Cable & Wireless has a Group-wide Ethics Policy, which was adopted by the Board. The Ethics Policy focuses on nine key areas: Employees Employees are the Companys most valuable resource. Selection and development must be based on merit.


Customers Everybody must play their part in providing quality and efficient service to customers. Health, Safety and Environment The Company cares for the health and safety of those affected by its actions and for the environment in general. Competition The Company engages in fair competition and acts in accordance with the law. Representation Employees must act in a professional manner. All dealings by the Company are to be fair, honest and legal, without taint of corruption. Conflict of Interest Employees must ensure that their actions are not affected by conflicts of interests. This covers interests in businesses outside Cable & Wireless, the receipt or giving of gifts of hospitality and insider dealing. Information The Company respects intellectual property rights and confidential information. Records The Company will keep honest, complete and accurate records. Property All property (including computer software and records) must be cared for responsibly and in accordance with the law. The Ethics Policy contains notification
    procedures setting out a variety of routes for employees to raise ethical
    issues through their line manager or alternatively via human resources, internal
    audit, the company secretarys office or the law department. The intention
    is that issues are generally dealt with at local business unit level but employees
    are also able to raise issues with the Chairman or Chief Executive of




---

Page 53




---



Back to Contents

corporate
  governance

---



Cable and Wireless plc or through other contacts at head office named in the Ethics Policy. There is an annual audit of all business
  units to review implementation of the Ethics Policy and obtain confirmation
  from business units Chief Executives and Chief Financial Officers that
  the Ethics Policy is being complied with. Compliance with the Ethics Policy
  is also reviewed through the normal internal audit programme, Operational Risk
  Reviews of the business units and the corporate governance review programme. Internet Acceptable Use Policy For the majority of its customers,
  Cable & Wireless has an Internet Acceptable Use Policy designed to protect
  and limit exposure to legal action. The Policy confirms that Cable & Wireless
  customers are solely responsible for their content and messages. It contains
  a list of activities which customers are prohibited from undertaking such as
  those which violate the law or threaten the integrity of any network or computer
  system. Cable & Wireless encourages customers to self-rate their content
  using a rating such as that provided by the Internet Content Rating Association
  (ICRA). COMMUNITY INVOLVEMENT Cable & Wireless is committed
  to making a positive social contribution to the communities in which it operates.
  Cable & Wireless has developed a community investment programme designed
  to support local communities and respond to their needs. Cable & Wireless
  recognises the positive role that the Internet and information communications
  technologies can play in facilitating personal, social and economic development. Cable & Wireless develops projects in partnership with charitable, not-for-profit and community based organisations. Preference is given to projects that focus on education and training and those which demonstrate substantial grass roots impact. This approach makes it easier to monitor progress and measure results. Importantly, it also offers valuable opportunities for Cable & Wireless employees to make an active contribution. Community Contributions In 2003, Cable & Wireless total world wide community contribution was £5.6 million. Of this, £1.3 million was spent in the United Kingdom. In line with its business activities, the Cable & Wireless community investment programme focuses social investment in the following three key areas to make a real and substantial difference to local communities:



addressing the digital
        divide;
internet safety and security;
        and
    encouraging positive use of the internet. Addressing the Digital Divide Growth in internet has brought huge advantages to those who use the web, both at home and at work. Cable & Wireless companies therefore
  work to ensure that the benefits of the internet can be extended to communities
  and individuals that find themselves without the necessary skills and infrastructure
  required to access the web. For example Cable & Wireless provides free internet
  access to schools in many Caribbean countries. Supporting School Based Internet Access in Jamaica To address the widening digital divide
  in Jamaica, Cable & Wireless recently announced a three-year commitment
  to provide free internet access to the islands 980 primary and secondary
  schools. Following the success of similar programmes in Barbados and St Lucia,
  the initiative aims to create opportunities for as many of Jamaicas children
  as possible, enabling them to participate fully in the digital age. Reducing the Digital Divide in Panama In early 2003, Cable & Wireless
  established the Cable & Wireless Panama Foundation. The Foundation helps
  reduce the digital divide in Panama by providing opportunities for the countrys
  least privileged citizens to access the latest information and communication
  technologies. This charitable foundation is the first of its kind for Cable
  & Wireless and will channel contributions, including internet access and
  telephone lines, directly to local community organisations. Already, the companys
  Centre for New Technologies has provided hands-on IT experience and internet
  access for young people from disadvantaged local communities. The Foundation
  also aims to help support projects which help to restore national heritage and
  initiatives to promote local art and culture. Internet Safety and Security The internet has transformed the way many children and young people communicate, learn and interact. With a wealth of content, the internet can be a positive resource, offering exciting opportunities at home and in the classroom. Yet the web can also have hidden dangers. Cable & Wireless companies are committed to working with industry partners in the countries in which they operate to protect children from unsuitable internet content and, at the same time, raise awareness and understanding of internet




---



---



Back to Contents

corporate
  governance

---



safety issues, encouraging individuals from all generations to stay safe online. Raising In-school Awareness As part of this commitment, Cable
  & Wireless works in partnership with the Childrens internet charity,
  Childnet International to ensure that young people are aware of how to stay
  safe on-line. With additional backing from the UK Department for Education and
  Skills, Childnet has developed Kidsmart, a schools-based internet safety education
  programme, designed to help primary school pupils, teachers and parents understand
  internet safety issues. Promoting Internet Content Labelling Cable & Wireless works in conjunction
  with the Internet Content Rating Association (ICRA) to empower members of the
  public to protect children and young people from potentially harmful internet
  content. ICRA offers a self-labelling system to enable website owners to rate
  their own content and label their websites accordingly. To complement this process,
  ICRA has also developed an easy-to-use software tool which filters websites
  with ICRA labelling which allows parents to set viewing preferences and protect
  their children online. Encouraging Positive Use of the Internet Cable & Wireless works in partnership with a range of charities and not-for-profit organisations to develop creative and innovative internet content and to encourage individuals to use the internet as a tool for education, communication and learning. Supporting Young People Run in partnership with the childrens
  internet charity, Childnet International, the Cable & Wireless Childnet
  Awards highlight inspirational web projects created by and with the involvement
  of young people. Cable & Wireless has been closely associated with the initiative
  since its inception six years ago, enjoying support from many employees who
  promote the programme across the business. The sixth annual international awards,
    which drew over 300 entries from 50 countries, were held in London in April


2003. The winners, drawn from Canada,
    Italy, United Kingdom, Sierra Leone, Australia, Egypt and the United States,
    illustrate just how powerful the internet can be when used in a positive way. Supporting Older People In a new initiative, Cable & Wireless
  has teamed up with Age Concern, Microsoft and UK Online to encourage older people
  to use the internet for the first time. Age Concerns Silver Surfers
  Festival offered free internet sample and demonstration sessions at Age
  Concern centres across the United Kingdom. A specialist information pack was
  distributed as part of the festival, highlighting how the internet can enrich
  the lives of older people. Providing Employment Related Information Technology Training Since 1982, Cable & Wireless has
  worked in partnership with Camden IteC to offer employment related training
  to disadvantaged communities close to Cable & Wireless corporate headquarters
  in the London Borough of Camden. Information Technology (IT) skills are now
  intrinsically linked to employability, yet many people continue to enter the
  workplace without IT skills or hands-on employment related experience. Support
  from Cable & Wireless helps Camden IteC to extend its local reach via a
  designated UK Online learning centre and an online learning programme, which
  enables members of the local community to access training opportunities via
  remote learning. Technology as a Lifeline Cable & Wireless works in partnership
  with the international humanitarian organisation, Télécoms sans
  Frontières (TSF), to provide emergency telecommunication assistance in
  disaster areas world wide. Using specialist equipment, TSF technicians are able
  to set up satellite based telecommunications equipment in almost any location
  to provide telephone, data and internet services in emergency situations. For
  local people, this technology can be a lifeline which allows them to contact
  close relatives and friends to say, Im alive. For international
  and local relief agencies the technology plays a similarly critical role by
  helping to ensure the successful co-ordination of relief work.




---

Page 55




---



Back to Contents

corporate
  governance

---



ENVIRONMENTAL POLICY In 1996, Cable & Wireless produced its first Environmental Policy and published an Environmental Review. Every year since 1999, Cable & Wireless has produced an Environmental Report detailing its performance across its world wide operations. Environment Management System Cable & Wireless has a worldwide,
  environment management system based on the international environment management
  standard, ISO 14001. Through this environment management system, Cable &
  Wireless aims to minimise harm to the environment, to prevent pollution and
  to use best practice environment management solutions wherever possible. Cable
  & Wireless businesses use a risk assessment approach to manage environment
  matters, identify and assess key environmental hazards arising from business
  activities and manage them appropriately. Cable & Wireless aims to engender a culture of environmental responsibility throughout the business and to enlist the support and commitment of employees, suppliers and business partners. The environment management system
  also includes an annual environmental data survey across the business. This
  survey provides data to incorporate in Cable & Wireless annual Environmental
  Report. The fifth such report, covering Cable & Wireless programme
  in 2003, will be available on the environmental website link on the Cable &
  Wireless website. Cable & Wireless has set targets
  for all majority-owned operations relating to minimising ozone-depleting gases
  and greenhouse gas emissions, pollution prevention, waste management, protection
  of landscape and biodiversity and the implementation and development of environment
  management systems. In addition, Cable & Wireless
  encourages Group businesses to set their own environment targets and to report
  their progress at the end of each year. Targets and performance are detailed
  on the website along with details of progress and new commitments for the coming
  year. Cable & Wireless also carries out environment audits of its subsidiary
  businesses. Mobile Phone Safety Issues As a provider of mobile phone services, Cable & Wireless has pro-actively monitored and managed issues related to alleged mobile phone effects for many years. Cable & Wireless believes that
    the safety of customers, employees and the general public is of paramount


importance. The Group continues
    to track scientific and medical research, media, legal, regulatory and other
    developments as well as the public perception of risk arising from the use
    of mobile phones. The scientific research on mobile phones and health has
    been reviewed by a number of independent expert scientific panels. None of
    these panels has concluded that the use of mobile phones is harmful to health. Global e-Sustainability Initiative Given that the Groups partners
  and suppliers generally pursue the same social and environment goals, Cable
  & Wireless is developing a series of environment key performance indicators
  for the industry as a whole by participating in the European Telecommunications
  Network Operators Environment Charter Group and the Globale-Sustainability Initiative. Global e-Sustainability Initiative activities include producing a set of sustainability reporting guidelines for the telecommunications industry, based on guidelines developed under the Global Reporting Initiative. Cable & Wireless believes that
  all members of the telecommunications industry  whether network service
  providers, suppliers or manufacturers  have a responsibility for sustainability.
  Cable & Wireless is working with its partners in the industry to identify
  best practice (economic, ecological and social) so that all can learn without
  compromising competitive advantage. Employment Policies Cable & Wireless operates throughout
  the world and has employment policies that meet local conditions and requirements.
  There are policies that address health, safety and environment, business ethics,
  diversity, disability, performance management, harassment and employee relations
  issues. Both formal and informal channels
  for employee consultation and communication have been in place for many years
  and Cable & Wireless regularly consults employees and their representatives
  on matters affecting both them and their future interests. The Group values
  the involvement of its employees and continues to keep them informed. Cable
  & Wireless aims to pay market competitive rates and does not employ child
  labour. Employees are free to join employee representative bodies or trade unions
  or not as they wish. Training and development opportunities are open to all
  employees. The Group gives particular attention to the employment of disabled people. Applicants who are disabled and those who




---



---



Back to Contents

corporate
  governance

---



become disabled during employment are offered the widest range of training and opportunities appropriate to their skills. The Cable & Wireless Group Health
  & Safety policy sets out to ensure, so far as reasonably practicable, the
  health and safety of everyone involved in, or affected by its business activities.
  This is achieved by the management team of each Cable & Wireless business
  having responsibility for the operation of the Health and Safety Management
  System and a health and safety culture that enrols the support and commitment
  of employees, suppliers and business partners. Cable & Wireless aims for
  best practice health and safety management solutions and will ensure compliance
  with appropriate legal requirements.


Group businesses adopt a continuous risk assessment approach to the management of health and safety matters, ensuring that potential hazards arising from work activities are identified, assessed and managed in proportion to the risks that they present. In the United Kingdom, Cable & Wireless was awarded its fifth consecutive Royal Society for the Prevention of Accidents Gold Award in 2002. The Cable & Wireless Health and Safety Report will be published on the Companys website in July 2003.


|DIRECTORS
      AND SENIOR MANAGEMENT
|-------------------------------------

The following are the Companys directors and senior management as at the date of this report. Richard D Lapthorne Chairman and Non-executive Director Richard D Lapthorne was appointed
  to the Board as a Non-executive Director and Chairman on 10 January 2003. He
  is a member of the Remuneration, Audit and Nominations Committees. Richard Lapthorne
  is Non-executive Chairman of Morse PLC, Avecia plc, Tunstall Holdings Ltd, TI
  Automotive Limited, Oasis International Leasing in Abu Dhabi, Vice Chairman
  of JP Morgan Investment Bank and the former Chairman of Amersham plc. Richard
  Lapthorne joined the Board of Amersham International plc in 1988 as a Non-executive
  Director and became Chairman of Amersham plc in 1999. He was Finance Director
  of British Aerospace plc from July 1992 and was appointed Vice Chairman in April
  1998 before retiring in September 1999. During his time at BAe, Richard Lapthorne
  was a key member of the management team responsible for transforming the company
  into Europes leading aerospace and defence company. He was awarded the
  CBE for services to British aerospace industry in 1997. He was Finance Director
  of Courtaulds plc from 1986 to 1992, having previously been Group Financial
  Controller. Age 60. Robert O Rowley Executive Director; Executive Deputy Chairman Robert O Rowley was appointed a Non-executive
  Director on 2 September 2002 and became Chairman of the Audit Committee on 1
  January 2003. Following a restructuring of the Board on 21 January 2003, he
  relinquished his Chairmanship of the Audit Committee and was appointed as Executive
  Deputy Chairman and, for an interim period, has responsibility for the Groups
  Finance and Legal functions.


Robert Rowley is a Non-executive Director
  of Prudential plc, where he is Chairman of the Audit Committee, and of Taylor
  Nelson Sofres. He was on the Board of Reuters from 1990, serving as Finance
  Director of Reuters Group from 1990 until 2000, then as Chief Executive of Reuterspace
  until he retired in 2001. Age 53. Sir Winfried F W Bischoff Non-executive Deputy Chairman; Chairman, Remuneration Committee Sir Winfried F W Bischoff was appointed
  a Non-executive Director in 1991 and Deputy Chairman in 1995. He is also Chairman
  of the Remuneration Committee and a member of the Audit and Nominations Committees.
  Sir Winfried is Chairman of Citigroup, Europe, and a member of the Management
  Committee of Citigroup Inc. Sir Winfried joined Schroders plc in 1966 and on
  completion of the merger of Schroders investment banking business with
  that of Salomon Smith Barney in May 2000, he assumed his current position. Sir
  Winfried is a Non-executive Director of Land Securities plc, The McGraw-Hill
  Companies Inc., IFIL  Finanziaria di Partecipazioni SpA, Eli Lilly and
  Company and Siemens Holdings plc. Age 62. Francesco Caio Executive Director; Chief Executive Officer Francesco Caio was appointed to the
Board as Chief Executive Officer on 4 April 2003. Francesco Caio founded Netscalibur,
the European business telecommunications and internet service provider, in 2000.
Prior to that, from 1997 to 2000 he was Chief Executive Officer of Merloni Elettrodomestici,
one of Europes leading household appliance companies. In 1996 he was Chief
Executive Officer of Olivetti having previously headed the telecommunications
and multimedia divisions. He also led




---

Page 57




---



Back to Contents

corporate
  governance

---



the creation and launch of Omnitel Pronto, Italys second largest mobile
company before its acquisition by Mannesmann, and was its first CEO from 1994
to 1996. Francesco Caio has also worked with McKinsey in London. Francesco Caio
is a Non-executive Director of Merloni Electrodomestici and Netscalibur Italia
and was a board member of Motorola between November 2000 and May 2003. Age 45. Kevin Loosemore Executive Director; Chief Operating Officer Kevin Loosemore was appointed to the
  Board as Chief Operating Officer on 2 April 2003. Kevin Loosemore was appointed
  Corporate Vice President and General Manager, EMEA, Global Telecommunications
  Solutions Sector, Motorola in June 2001, becoming President EMEA in September
  2001 and President, Motorola Professional Services Group, developing wireless
  and communications solutions for this market. Kevin Loosemore was previously
  CEO of IBM UK from 2000 to 2001 and from 1997 to 1999 Managing Director for
  De La Rue Card Systems. He began his career with IBM in 1981, remaining with
  them until 1997. Kevin Loosemore is a Non-executive Director of The Big Food
  Group plc. Age 44. Adrian Chamberlain Executive Director; Group Director, Strategy and Business Development Adrian Chamberlain was appointed to
  the Board on 15 May 2002 as Group Director, Strategy and Corporate Development
  having previously been on secondment to Cable & Wireless Optus in Australia
  as Managing Director Consumer & Multimedia. Prior to that he was Chief Executive
  of the Consumer Division of Cable & Wireless Communications plc. On 10 December
  2002 Adrian Chamberlain was appointed Chief Executive Officer Global Services
  and Europe/Asia and on 3 June 2003 he was appointed Group Director, Strategy
  and Business Development. Adrian Chamberlains career prior to joining
  Cable & Wireless in 1995 included strategy and business development roles
  with the Boston Consulting Group and BT. Age 46. Bernard P Gray Non-executive Director Bernard P Gray was appointed a Non-executive Director on 21 January 2003 and is a member of the Remuneration, Audit and Nominations Committees. Bernard Gray is Chief Executive of
    CMP Information, the UK headquartered publishing and events division of United


Business Media. Prior to taking
    his current role in 2001, he was Director of Group Strategy for UBM. Previous
    roles have included a period as Special Advisor to the Secretary of State
    for Defence during the UKs Strategic Defence Review, and almost ten
    years with the Financial Times Group, including two years on the Lex column.
    Bernard Gray began his career working in capital markets in London and New
    York. Age 42. Graham E Howe Non-executive Director Graham E Howe was appointed a Non-executive
  Director on 27 May 2003. He is a member of the Audit, Remuneration and Nominations
  Committees. Graham Howe was most recently Deputy Chief Executive Officer and
  Chief Operating Officer of Orange S.A., having joined them in 1992 as one of
  the founding Directors. Before that, his experience in the telecommunications
  sector included senior positions at Hutchison Telecom, First Pacific Company
  and Touche Ross Management Consultants. Age 42. Kasper B Rorsted Non-executive Director Kasper B Rorsted was appointed a Non-executive
  Director on 27 May 2003. He is a member of the Audit, Remuneration and Nominations
  Committees. Kasper Rorsted is Senior Vice President and General Manager, EMEA
  for Hewlett Packard holding this role since the merger of Hewlett Packard and
  Compaq in May 2002. He was previously with Compaq as Vice President and General
  Manager for EMEA having held various other senior management positions since
  1995. He has previous experience with Oracle, Digital and Ericsson. Age 41. Dr Janet P Morgan Non-executive Director Janet P Morgan was appointed a Non-executive
  Director in 1988. She is a member of the Audit, Remuneration, Nominations and
  Community Investment Committees. Janet Morgan is also a Non-executive Director
  of the Scottish American Investment Company plc, the Nuclear Generation Decommissioning
  Fund Ltd., the Scottish Oriental Smaller Companies Investment Trust plc, NMT
  Group plc, BPB plc and Stagecoach plc. Age 57. David N Prince Executive Director, Finance David N Prince was appointed Group Finance Director and a member of the Board on 1 July 2002. David Prince




---



---



Back to Contents

corporate
  governance

---



originally joined Cable & Wireless
    in 1981, undertaking a variety of senior finance and commercial roles before
    being appointed Finance Director of Cable & Wireless HKT in 1994. He was
    appointed Deputy Chief Executive and Finance Director of HKT in 1999 and became
    Group Chief Financial Officer of PCCW (formerly Pacific Century CyberWorks
    Limited) following the merger of PCCW and HKT in 2000. David Prince stepped
    down from his role with PCCW in May 2002. Age 51. W Anthony Rice Non-executive Director; Chairman, Audit Committee W Anthony Rice was appointed a Non-executive
    Director and Chairman of the Audit Committee on 21 January 2003.


He is also a member of the Remuneration
    and Nominations Committees. Tony Rice is Chief Executive of Tunstall Holdings
    Ltd and his career has largely been spent with British Aerospace plc, including
    a period as Group Treasurer during the restructuring in the 1990s. Tony Rice
    was involved in the financing and flotation of Orange plc and is a Non-executive
    Director of Telewest plc and Atlantic Coast Airlines. Age 51. Kenneth K Claydon Company Secretary Ken Claydon has been with Cable & Wireless for 40 years and was appointed as Company Secretary in 1991. Age 59.


|DIRECTORS
      REPORT
|-----------------------

To be presented to the Seventy Fourth Annual General Meeting (AGM) to be held at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London, SW1P 3EE on Friday 25 July 2003 at 11.30 a.m. Principal activities and business review Cable & Wireless is an international
  telecommunications company. It operates in the United Kingdom, the Caribbean,
  the United States, Japan, continental Europe, Panama and Macau. Cable &
  Wireless provides voice, data and IP services to business and residential customers
  and wholesale services to carriers, mobile operators and content, application
  and internet providers. Cable & Wireless provides voice, data and IP services to major corporates, SME and residential customers. In addition, Cable & Wireless provides specialist wholesale services to carriers, mobile operators and content, application and internet providers. Details of the Groups performance during the year are contained in the Operating and Financial Review on pages 24 to 52. Overseas trading branches of the Company exist in Ascension Islands, Diego Garcia, Falkland Islands, Singapore and St. Helena. Share capital Details of shares issued during the year are shown in Note 24 to the accounts.


At the Companys Annual General
  Meeting held on 12 July 2002, a special resolution was approved by shareholders
  authorising the Company to purchase up to 14.99 per cent of the Companys
  issued share capital as at 14 May 2002 (357 million Ordinary Shares). This authority
  has not been used and will expire on conclusion of the Annual General Meeting
  to be held on 25 July 2003. Acquisitions and disposals Details of acquisitions and disposals in the year are set out in Business Description  Recent acquisitions and disposals. Results and dividends The Groups loss for the year after taxation and minority interests amounted to £6,533 million. An interim dividend of 1.6 pence per Ordinary Share was paid on 3 March 2003. The following has been paid as a dividend for the year ended 31 March 2003: £mOrdinary dividendsInterim paid
    
    
    37 To give greater financial flexibility
  during the current transitional period, the Board decided in June 2003 to suspend
  dividends for 12 months. Thus no final dividend will be proposed for 2003 and
  no interim dividend declared for 2004. However, the Board intends to pay a final
  dividend for 2004. The level of this payment will be determined by reference
  to progress made against the restructuring plan and the resultant financial
  performance of the Group.




---

Page 59




---



Back to Contents

corporate
  governance

---



Directors The following served as Directors during the year under review: Sir Winfried Bischoff
    Adrian Chamberlain (appointed 15 May 2002)
    Bernard P Gray (appointed 21 January 2003)
    Richard D Lapthorne (appointed 10 January 2003)
    Robert E Lerwill (resigned 3 June 2003)
    Dr Janet P Morgan
    David P Nash (resigned 31 December 2002)
    David N Prince (appointed 1 July 2002)
    Donald B Reed (resigned 31 January 2003)
    W Anthony Rice (appointed 21 January 2003)
    Sir Ralph Robins (resigned 28 February 2003)
    Robert O Rowley (appointed 2 September 2002)
    The Hon. Raymond Seitz (resigned 31 January 2003)
    Graham M Wallace (resigned 4 April 2003) Since the year end, Kevin Loosemore was appointed on 2 April 2003, Francesco Caio was appointed on 4 April 2003, and Graham E Howe and Kasper B Rorsted were appointed on 27 May 2003. Biographical details for the current Directors are set out on pages 57 to 59. In accordance with the Companys
    Articles, Sir Winfried Bischoff will be retiring at the 2003 AGM of the Company
    and will not be offering himself for re-election. In accordance with the Articles,
    Richard D Lapthorne, Francesco Caio, Kevin Loosemore, Robert O Rowley, W Anthony
    Rice, Bernard P Gray, Graham E Howe and Kasper B Rorsted, having been appointed
    Directors since the 2002 AGM, will retire at the 2003 AGM, and being eligible,
    will offer themselves for election. The unexpired portion of the service contracts
    for Kevin Loosemore, Francesco Caio and Robert O Rowley is disclosed on pages
    69 and 71. Disclosable interests The Directors have no interest in
    the Ordinary Shares of the Companys subsidiaries. The beneficial interests
    of the Directors and their immediate families in the Ordinary Shares of the
    Company are shown in the Directors Remuneration Report on page 72. Employment policies Details of employment policies are set out in Social, Environmental and Ethical Report  Employment Policies.


Charitable and political donations and community responsibility During the year, £1.3 million
  was donated for charitable purposes in the United Kingdom. World-wide, including
  the United Kingdom, the total expenditure on donations and sponsorship for the
  benefit of the community amounted to £5.6 million. The Company has made
  no political donations in the United Kingdom. It is not proposed to change the
  Companys policy of not making contributions to any political party. However
  as a precautionary measure in light of the wide definitions in The Political
  Parties, Elections and Referendums Act 2000, a resolution to permit the Company
  to make political donations and incur political expenditure up to an aggregate
  limit of £0.2 million will be proposed at the 2003 AGM. Full details of
  this are given in the Chairmans letter accompanying the Notice of AGM. As authorised by US federal law, Cable
  & Wireless sponsors a political action committee (Cable & Wireless USA
  PAC) supported solely by contributions from employees. This provides an opportunity
  for employees to make voluntary contributions to support candidates and public
  officials whose views are consistent with the Companys long term legislative
  and regulatory goals regarding telecommunications and electronic commerce industries.
  The Company has established policies and procedures to ensure that employee
  contributions to the Cable & Wireless USA PAC are strictly voluntary. Contributions
  may not be solicited or secured through the use of job discrimination or financial
  reprisal, or the threat thereof, or as a condition of employment. The Cable
  & Wireless USA PAC is not affiliated with any political party or with any
  specific candidate for election. Payments to suppliers In the United Kingdom, the Group agrees
  payment terms with its suppliers when it enters into binding purchase contracts.
  The Group seeks to abide by the payment terms agreed with suppliers whenever
  it is satisfied that the supplier has provided the goods or services in accordance
  with the agreed terms and conditions. The Group seeks to treat all its suppliers
  fairly and has a standard which deals specifically with the payment of suppliers. The Company had 70 days purchases (2002  58 days purchases) outstanding at 31 March 2003 based on the average daily amount invoiced by suppliers during the year ended 31 March 2003. Substantial shareholdings Except for the holdings of Ordinary Shares listed below, the Directors are not aware of any person holding 3 per cent or more of the Ordinary Share capital of the Company as at




---



---



Back to Contents

corporate
  governance

---



3 June 2003, the latest practicable date prior to the issue of this report. 2003
      
      
      Number of
        Cable &
        Wireless Ordinary
        Shares
      
      
      Percentage
        of 
        Issued Ordinary
        Share capitalShareholderFMR
          Corporation & Fidelity International Ltd
      
      
      93,127,830
      
      
      3.91Franklin
          Resources, Inc
      
      
      108,105,460
      
      
      4.54Legal
          & General Investment Management
      
      
      80,687,822
      
      
      3.39 2002
    
    
    Number of Cable &Wireless OrdinaryShares
    
    
    Percentage of
Issued OrdinaryShare capitalShareholderFranklin Resources, Inc
    
    
    237,485,398
    
    
    9.97Verizon Inc (Bell Atlantic Corporation)
    
    
    128,378,147
    
    
    5.39Legal & General Investment Management
    
    
    78,079,443
    
    
    3.28Prudential Plc
    
    
    74,004,717
    
    
    3.11 2001
    
    
    Number of Cable &Wireless OrdinaryShares
    
    
    Percentage of
Issued OrdinaryShare capitalShareholderBell Atlantic Corporation
    
    
    128,378,147
    
    
    4.58M&G Investment Management Limited
    
    
    95,604,901
    
    
    3.41Morley Fund Management Limited
    
    
    93,405,596
    
    
    3.33Schroder Investment Management Limited
    
    
    87,162,287
    
    
    3.11 Related Party Transactions Transactions with joint ventures and associated companies All transactions with joint ventures
    and associates arise in the normal course of business. The aggregate transactions
    recorded by Cable & Wireless with joint ventures and


associates, which are considered
    to be material, are disclosed below and in Notes 17, 20 and 22 to the Financial
    Statements. For the
          year ended 31 March
    
    
      2003
        £m
    
    
      2002
        £m
    
    
      2001
        £mTurnover
    
    
    2
    
    
    7
    
    
    36Outpayments
    
    
    4
    
    
    6
    
    
    7Other operating expenses payable
    
    
    
    
    
    2
    
    
    15Dividends received
    
    
    28
    
    
    26
    
    
    81Purchase of fixed assets
    
    
    
    
    
    4
    
    
    97 Loans to joint ventures and associated
  companies, amounts owed by joint ventures and associated companies and owed
  to joint ventures and associated companies are set out in Notes to the Consolidated
  Financial Statements contained herein. The largest loan amount outstanding since
  1 April 2002 was £10 million. The amount outstanding at 3 June 2003 was
  £nil. The interest rate on the loan is nil. Transactions with Directors Except as disclosed in the Directors
  Remuneration Report, and as of 3 June 2003, neither the Company nor any of its
  subsidiaries was a party to any material transactions, or proposed transactions,
  in which any Director, any other executive officer, any spouse or relative of
  any of the foregoing, or any relative of such spouse had or was to have a direct
  or indirect material interest. During the years ended 31 March 2001, 31 March 2002 and 31 March 2003, and as of 3 June 2003, no Director nor any other executive officer, nor any associate of any Director or any other executive officer was indebted to the Company or any of its subsidiaries. Corporate governance Good governance has been and remains
  the responsibility of the whole Board. The Combined Code  Principles of
  Good Governance and Code of Best Practice (the Combined Code) is issued by the
  UK Listing Authority. This statement describes how the Company applies the principles
  and complies with the provisions of the Combined Code. The Board is currently considering
  the impact of the Higgs Review of the role and effectiveness of Non-executive
  Directors and the Smith Report on audit committees on the Companys corporate
  governance arrangements. The Financial Reporting Council is currently producing
  a revised draft of the Combined Code after considering the Higgs and Smith reports.
  The Board broadly supports the principles contained in the Higgs Review and
  Smith Report and will




---

Page 61




---



Back to Contents

corporate
  governance

---



report on compliance with the new Combined Code as and when it is implemented. Compliance The Board confirms that the Company
  was fully compliant with all the provisions of section 1 of the current Combined
  Code throughout the period with the exception of Directors service contracts,
  as set out on pages 68 to 71. The Statement of Directors Responsibilities
  for preparing the financial statements is set out on page 79. The Board The Board meets at least nine times
    a year and concentrates mainly on strategy, direction and financial performance.
    The Board is chaired by Richard D Lapthorne, Francesco Caio is the Chief Executive
    Officer and Kevin Loosemore is the Chief Operating Officer. Robert O Rowley
    is the Executive Deputy Chairman. Sir Winfried Bischoff is Non-executive Deputy
    Chairman. Details of the full Board are set out on pages 57 to 59. Sir Winfried
    Bischoff is the recognised Senior Independent Director. For the purposes of
    the Combined Code, the Board considers that all of the Non-executive Directors
    are independent, namely Sir Winfried Bischoff, Dr Janet P Morgan, Richard
    D Lapthorne, W Anthony Rice, Bernard P Gray, Graham E Howe and Kasper B Rorsted.
    The Board has a formal schedule of matters reserved to it for decision, but
    also delegates specific responsibilities to Board committees, notably Audit,
    Remuneration and Nominations Committees. Directors receive Board and committee
    papers several days in advance of Board and committee meetings and also have
    access to the advice and services of the Company Secretary. The Board has
    adopted a procedure whereby Directors may, in the furtherance of their duties,
    take independent professional advice on any matter at the Companys expense. The Group operates through Boards of Directors of subsidiaries, joint ventures and associates with clear reporting lines and delegated powers. Board Committees REMUNERATION COMMITTEE The Remuneration Committee determines
    and recommends to the Board the framework or broad policy for the remuneration
    of the Companys Executive Directors and senior executives. The Committees
    full terms of reference are available either from the Company Secretary or
    on the Companys website. The Committee comprises all of the Non-executive
    Directors of the Company, namely: Sir Winfried Bischoff (Chairman), Dr Janet
    P Morgan, W Anthony Rice, Bernard P Gray, Richard D Lapthorne, Graham
    E Howe and Kasper B Rorsted. The Chief Executive Officer and HR Director may
    be invited to attend


and speak at meetings of the Committee.
    Meetings are normally held in February, April and May each year but may be
    held at other times. All the Committees members attended its meetings
    during the course of the year with the exception of The Hon Raymond Seitz
    who did not attend the May 2002 meeting and Dr Janet P Morgan who did not
    attend the March 2003 meeting. The Directors Remuneration Report on
    pages 65 to 78 includes details on remuneration policy, practices and the
    remuneration of the Directors. NOMINATIONS COMMITTEE The Nominations Committee reviews
  the composition of the Board and recommends to the Board appointments of new
  Executive and Non-executive Directors. The Chairman, Richard D Lapthorne, chairs
  the Committee which also comprises the Chief Executive Officer, Francesco Caio,
  and any two of the Non-executive Directors namely Sir Winfried Bischoff, Dr
  Janet P Morgan, Bernard P Gray, W Anthony Rice, Graham E Howe and Kasper B Rorsted.
  The Committees terms of reference are available either from the Company
  Secretary or on the Companys website. AUDIT COMMITTEE The Audit Committee comprises all
  of the Non-executive Directors of the Company, namely: W Anthony Rice (Chairman),
  Richard D Lapthorne, Bernard P Gray, Dr Janet P Morgan, Sir Winfried Bischoff,
  Graham E Howe and Kasper B Rorsted. The Executive Directors attend meetings
  of the Committee by invitation but are not members. The Committees full
  terms of reference are available either from the Company Secretary or on the
  Companys web site. The Committee meets at least five times a year, generally
  in February, April, May, September and November. Meetings are timed to coincide
  with the reporting of the Companys financial results. All of the Committee
  members attended meetings held during the financial year ended 31 March 2003
  with the exception of The Hon Raymond Seitz who did not attend the meetings
  in May 2002, November 2002 and January 2003, Sir Winfried Bischoff who did not
  attend meetings held in November 2002 and January 2003 and Robert O Rowley who
  did not attend the September 2002 meeting. The Committees responsibilities
  include: 
    making recommendations to the Board on the appointment of the Companys auditors; 
    determining the level of audit fees and scope of audit; 
    assessing the independence of the auditors; 
    recommending the policy in relation to the provision of non-audit services; 
      regularly reviewing the
          internal audit programme and considering the effectiveness of the internal
          audit function; and




---



---



Back to Contents

corporate
  governance

---




    reviewing and challenging
        where necessary the judgements of management in relation to the Companys
        financial results. Annual General Meeting Business at the Companys AGM
  will cover the Annual Report and Accounts, Directors Remuneration Report,
  election of Directors, the re-appointment of the auditors and the authorisation
  for the Directors to set the auditors fees. Special business will cover
  the renewal of authority for the Directors to allot unissued Ordinary Shares,
  disapplication of pre-emption rights, renewal of UK and Global Sharesave Schemes,
  change the definition of market value in the Share Purchase Plan, general authority
  for political donations and cancellation of the share premium account. Full details and an explanation of
  these resolutions are set out in the Notice of AGM and Chairmans Letter.
  At the AGM, a business review is presented to shareholders. All Directors including
  the Chairman of the Audit and Remuneration Committees attend and are available
  to answer shareholders questions. Apart from the AGM, the Company communicates
  with its shareholders by way of the Annual Report or the Annual Review and Summary
  Financial Statements. The Companys website also contains investor relations
  material including results presentations. In addition, the Company communicates
  with its institutional shareholders through analysts briefings throughout
  the year but particularly at the interim and year end results stages. The Company
  clearly recognises the importance of maintaining a regular dialogue with shareholders
  to ensure that the Companys strategy and performance are understood. Internal control and risk management The Board is responsible for the Groups
  system of internal control and for reviewing its effectiveness. The Board confirms
  that it has adopted a process for identifying, evaluating and managing the significant
  risks faced by the Group in accordance with the guidance of the Turnbull Committee
  on Internal Control. The Board considers that the Groups
  system of internal control is appropriately designed to manage, rather than
  eliminate, the risk of failure to achieve business objectives and provides reasonable
  but not absolute assurance against material misstatement or loss. The concept
  of reasonable assurance recognises that the cost of a control procedure should
  not exceed the expected benefits. The Board reviews the Groups systems
  of internal control to improve it as necessary, taking into account emerging
  best practice. During the year and up to the date of this report procedures
  were in place throughout the Group to ensure compliance with the report of the
  Turnbull Committee.


Using a common risk management framework,
  each principal business and functional unit identifies risks that could impede
  the achievement of their objectives and records them in a Risk Register. For
  each significant risk, line managers document an overview of the risk, consider
  the effectiveness of the current mitigating controls in place and identify any
  improvement actions required. In addition to this, the Groups Executive
  Directors monitor all significant risks through a structure of Risk Review Boards.
  The Risk Review Boards comprise the Chief Executive Officer, Group Finance Director
  and other senior executives within the Groups principal trading units.
  There is also a schedule of the Groups risks that covers significant operational,
  financial and strategic risks and this is reviewed by the Group Audit Committee.
  A risk assessment process is also adopted as an integral part of major capital
  or change programmes. The past few years have been transitional
  ones for the Group, with the Company making a number of acquisitions and dispositions
  and having undergone a number of restructurings. As with all acquisitions or
  reorganisations, the Company has had to dedicate resources to try and bring
  the embedded processes and controls across its businesses up to standards acceptable
  to the Group and its new managment. A comprehensive control self assessment
  exercise has been conducted to complement the work of Group Internal Audit,
  the risk management framework and the external auditors. This exercise required
  management to assess the effectiveness of their fundamental operating controls
  over all aspects of their operations, not just financial controls. The results
  of this exercise have been considered by Group Internal Audit in planning their
  work for the forthcoming year. In addition to the self-assessment
  and management review procedures, the Group monitors its internal financial
  control system through a programme of internal audits. The Groups Internal
  Audit function has a formal charter approved by the Board that describes its
  purpose, authority and responsibility. Its annual audit plan is approved by
  the Group Audit Committee. It supports the Board in assessing key internal controls
  through a structured review programme. At the end of the financial year,
  the finance and general management of operating units are required to sign a
  letter of representation to confirm that their financial reporting is based
  on sound data, that they are fully aware of their responsibility to operate
  internal control systems and that their results are properly stated in accordance
  with Group and statutory requirements. Additionally, a structure has been developed
  to assess the Groups corporate social responsibility including social,
  environmental and ethical matters and this is covered in Corporate Governance
   Social, Environmental and Ethical Report.




---

Page 63




---





Back to Contents

corporate
  governance

---

The Audit Committee meets at least five times a year and receives regular reports on internal controls from both the external and internal auditors. Under the US Sarbanes-Oxley Act of 2002, new and enhanced standards of corporate governance, and business and financial disclosure, will apply to US public companies and non-US companies, including the Company, with securities registered in the United States. Some of the new standards and rules affecting the Group are already in force and others will come into force in the future. For example, in February 2003, a Disclosure Committee chaired by the Groups General Counsel and reporting to the Audit Committee, was established to support the Groups process of disclosure controls and procedures. Going concern After making enquiries the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future and therefore continue to adopt the going concern basis in preparing the Financial Statements on pages 82 to 143. By order of the Board of Directors. K K ClaydonSecretary
    3 June 2003 Sarbanes-Oxley confirmation Within the 90 days prior to the
    date of this report, the Company carried out an evaluation under the supervision
    and the participation of the Companys management, including the Chief
    Executive Officer and Group Finance Director (Chief Financial Officer), of
    the effectiveness of the design and operation of the Companys disclosure
    controls and procedures. There are inherent limitations to the effectiveness
    of any system of disclosure controls and procedures, including the possibility
    of human error and the circumvention or overriding of the controls and procedures.
    Accordingly, even effective disclosure controls and procedures can only provide
    reasonable assurance of achieving their control objectives. Based upon and
    as of the date of the Companys evaluation, the Chief Executive Officer
    and Group Finance Director concluded that the disclosure controls and procedures
    are effective to provide reasonable assurance that information required to
    be disclosed in the reports the Company files and submits under the US Securities
    and Exchange Act of 1934 is recorded, processed, summarized and reported as
    and when required.




---

Page 64

---



Back to Contents

corporate
  governance

---

DIRECTORS
        REMUNERATION REPORT Introduction The Remuneration Committee comprises all the independent Non-executive Directors, Sir Winfried Bischoff (Chairman), Richard D Lapthorne (from 10 January 2003), Dr Janet P Morgan, Bernard P Gray (from 21 January 2003), and W Anthony Rice (from 21 January 2003). David P Nash (until 31 December 2002), Sir Ralph Robins (until 28 February 2003), Robert O Rowley (from 2 September 2002 until 21 January 2003), and The Hon Raymond Seitz (until 31 January 2003) were also members of the Remuneration Committee during the year ended 31 March 2003. Since the year end, Graham E Howe and Kasper B Rorsted have been appointed members of the Remuneration Committee with effect from 27 May 2003. The Remuneration Committee makes recommendations to the Board, within agreed terms of reference, on the Companys framework of executive remuneration and on the specific remuneration of the Executive Directors. During the year the Board approved all recommendations without amendment. The terms of reference for the Remuneration Committee are obtainable from the Companys website or from the Company Secretary. In forming these recommendations, the Committee received advice and information from the former Chief Executive, Graham M Wallace, the Group Company Secretary, Kenneth K Claydon, and the Group Director, Human Resources, Martin Hayton. The Remuneration Committee has not appointed remuneration consultants but seeks independent market information and professional advice from external advisors as it sees fit. The following advisors were consulted during the year ended 31 March 2003: 
    Manches; 
      New Bridge Street Consultants; 
      Speechly Bircham, who
          in addition provide the Company with corporate legal advice and share
          scheme services; and 
      William M Mercer, who
          in addition provide the Company with general remuneration surveys and
          market information. The Executive Directors and officers attending any meeting abstain from any discussion or decision on their own remuneration or the design or operation of any incentive schemes from which they may derive benefit. The Directors Remuneration Report
    will be subject to an advisory vote at the Annual General Meeting of the Company
    to be held on 25 July 2003 in accordance with the Directors Remuneration
    Report Regulations 2002. Full


details of the resolution are set out in the Notice of Annual General Meeting. Statement of Remuneration Policy Remuneration Philosophy Cable & Wireless is a an international company, operating in 80 countries around the world. Attracting, retaining and motivating high quality people is key to the Companys success. Remuneration arrangements are designed to enable the Company to maintain a competitive position in each country in a cost-effective way and are continually reviewed against best practice. The Companys remuneration philosophy for Directors is based upon creating a strong link between performance and reward, underpinned by the following guiding principles: 
    total reward levels should reflect the markets in which the Company competes. The Companys competitive position is regularly monitored by independent analysis against market peer groups of companies selected on the basis of relevant size, business and geographic focus; 
    the majority of total direct remuneration for executives should be linked to the achievement of demanding performance targets. Fixed salaries and benefits are set at the market median; and 
    an appropriate mix of short and long-term incentives combined with stretching performance targets provides executives with the opportunity to achieve upper quartile total remuneration for upper quartile performance. In order to attract and retain high calibre individuals to the Company against the background of turmoil in the telecommunications industry and the associated decline in the Companys share price, the Remuneration Committee felt it necessary to set some elements of the remuneration package for Robert O Rowley, Francesco Caio and Kevin Loosemore outside the Companys normal policies on Directors remuneration. Details of their remuneration packages are provided in the relevant sections of this report. Elements of Remuneration Executive Directors direct remuneration consists of salary, annual bonus and long-term incentives. The Remuneration Committee believes
    that the majority of Executive Directors potential direct remuneration
    should be performance related. The appropriate mix and level of


---

Page 65



---



Back to Contents

corporate
  governance

---

performance related awards may vary from year to year and between each Executive
  Director according to the judgement of the Committee. The actual value delivered
  is dependent upon the achievement of stretching performance conditions.  In the year ended 31 March 2003, two-thirds of Executive Directors potential direct remuneration was performance related (see illustrative chart below).  Performance related long term incentives consisted of awards made under the Share Option Plan (SOP) and the Performance Share Plan (PSP). Figures reflect on-target payment potential under the annual bonus plan and the expected value of SOP and PSP awards at the time of grant. Base Salary Base salaries are reviewed by reference to the median of a market peer group selected on the basis of comparable scale, geographic spread and business focus, and taking account of individual experience, responsibility, performance and business contribution. Salaries are generally reviewed on an annual basis in July or following a significant change in responsibilities. Executive Directors pensions are based only on their base salaries. Short Term Incentive Plan & Deferred Short Term Incentive Plan Short Term Incentive Plan (STIP) Individual awards under the STIP are based upon annual performance against objective targets. The specific measures and targets are reviewed and set annually by the Remuneration Committee to reflect the key business priorities for the year in question. Executive Directors are set an appropriate mix of Company and business unit targets to reflect both their individual and group responsibilities.


The target cash bonus payable under the STIP is 50 per cent of base salary,
    and the maximum is 100 per cent of base salary. Deferred Short Term
        Incentive Plan The Executive Directors may elect to defer up to half of any STIP bonus earned into the Deferred Short Term Incentive Plan (Deferred STIP). The Deferred STIP is designed to encourage participants to invest in shares to align their interests more closely with those of shareholders. Under this plan any bonus deferred is used to purchase shares in the Company, which are held in trust for three years before being released to the participant. Participants may also be awarded matching shares based on the relative Total Shareholder Return (TSR) performance of the Company measured over the three-year period (see Performance Conditions for Share Based Awards). Matching shares are based on one matching share for two purchased shares for median TSR performance, rising to two matching shares for one purchased share for TSR performance at upper quartile or above. No matching shares are awarded for TSR performance below the median. A dividend award supplement also operates on the Deferred STIP. Dividends that would have been paid on the purchased shares and the actual award of matching shares during the performance period are reinvested in additional shares. Performance Share Plan Under the terms of the Performance Share Plan (PSP), Executive Directors may be awarded shares at nil cost, subject to certain performance requirements. The level of any award is determined by the Remuneration Committee each year by reference to total remuneration within a market peer group, subject to an overriding annual limit of one times salary for any participant. The vesting of awarded shares is subject to relative TSR performance conditions (see Performance Conditions for Share Based Awards). Full vesting occurs only if the TSR performance of the Company meets or exceeds the upper quartile on the third anniversary of the date of award. Where TSR performance meets the median, 40 per cent of the initial award vests. A sliding scale operates between median and upper quartile, and nothing vests for TSR performance below the median. A dividend award supplement operates on the PSP. Dividends that would have been paid on the performance shares which vest, will be regarded as having been re-invested in additional shares.


---

Page 66

---



Back to Contents

corporate
  governance

---

Share Option Plan The Share Option Plan (SOP) is the principal vehicle for long-term retention and incentivisation for the Executive Directors, other executives and key staff. The level of any award is determined by the Remuneration Committee each year by reference to total remuneration within a market peer group, subject to an overriding annual limit of six times salary for the Chief Executive and four times salary for other Executive Directors. The vesting of share options awarded to the Executive Directors is subject to relative TSR performance conditions (see Performance Conditions for Share Based Awards). Full vesting occurs only if the TSR performance of the Company meets or exceeds the upper quartile between the third and fifth anniversaries of the date of grant. Where TSR performance meets the median, 50 per cent of the initial award vests. A sliding scale operates between median and upper quartile, and nothing vests for TSR performance below the median. If performance conditions have not been met by the fifth anniversary of the date of grant, the options lapse. Other Plans Details of plans applicable only in special circumstances are as follows: 
    the Restricted Share Plan provides for awards of restricted shares in exceptional circumstances, primarily as a recruitment tool to compensate for the forfeiture of long-term incentive arrangements when transferring to Cable & Wireless. The Remuneration Committee, taking into account the previous arrangements of the new recruit, will set the quantum, performance measures and vesting schedule for any restricted share award; and 
      the Stock Appreciation
          Rights Plan is used to exactly replicate the plans described above but
          rewards are delivered as a cash equivalent. It is used in exceptional
          cases only for countries in which tax or legislation issues preclude
          the use of real shares or share options. No Executive Director has received
          awards under this plan. Performance Conditions for Share Based Awards Total Shareholder Return (TSR) is
  the performance measure used in the Deferred Short Term Incentive Plan, the
  Performance Share Plan and the Share Option Plan as it provides a stretching
  measure of financial performance. The Remuneration Committee believes that it
  is important to measure and reward relative performance against an appropriate
  set of companies. The Companys relative TSR performance is assessed against
  the constituents of the FTSE


Global Telecoms Sector Index, which provides a global benchmark of independently
    selected industry peers. TSR is share price growth adjusted for dividends
    and capital actions. TSR performance is averaged over a three month period
    at the beginning and end of the measurement period. This moderates the effect
    of short-term share price volatility. It is assumed that dividends are re-invested at the closing share price on the day the dividend is paid. Performance
        Graphs The graph below is included to meet the new requirement to show the change in value of a hypothetical £100 holding in Cable & Wireless Ordinary Shares over five years relative to a broad equity market index. The FTSE 100 index was considered by the Remuneration Committee to be the most relevant index for this purpose as the Company is a constituent of the index and a five year history is available.  The following graph shows the change in value of a hypothetical £100 holding in Cable & Wireless Ordinary Shares over two years against the constituents of the FTSE Global Telecoms Sector Index (FTSE GTSI). The constituents of the FTSE GTSI form the comparator group against which relative performance is assessed under the Companys current Share Option Plan, Performance Share Plan and Deferred Short Term Incentive Plan. This index was only created in February 2001, therefore comparative TSR performance can only be provided for the last two financial years.




---

Page 67



---



Back to Contents

corporate
  governance

---

Dilution The Remuneration Committee ensures that at all times the number of new shares which may be issued under any share option or share-based plans, including all-employee plans, does not exceed the dilution limit of 10 per cent of the Companys issued share capital over any ten year rolling period. Awards under the various plans are funded by a mix of purchased and newly issued shares, as determined by the Remuneration Committee. Newly issued shares are subject to the dilution limit outlined above. Purchased shares, which are held by the Cable & Wireless Employee Share Ownership Trust, are subject to a limit of 5 per cent of the issued Ordinary Share capital of the Company. Closed Plans Details of plans which are now closed but under some of which awards outstanding may still vest are as follows: 
    prior to July 2001, Cable & Wireless operated a Performance Share Plan similar to the current PSP. The performance conditions for vesting were based on TSR, measured against a comparator group of global telecommunications companies selected by the Company, underpinned by real growth in EBITDA and turnover. Vesting occurred on the same basis as the current plan except that 50 per cent of the award would vest if TSR performance was at the median. The last award under this plan, made in April 2000, did not meet the performance conditions and therefore lapsed in full in May 2003. No further grants will be made under this plan; 
      prior to July 2001, Cable
          & Wireless granted share options under the Cable & Wireless
          Senior Employees Share Option Scheme (SESOS) and the Cable &
          Wireless Revenue Approved Share Option Scheme (RESOS). Options awarded
          under these plans between June 1999 and July 2001 are subject to performance
          conditions based on Cable & Wireless TSR performance relative
          to the FTSE 100 Index, underpinned by real growth in EBITDA and turnover.
          For full vesting, Cable & Wireless TSR must achieve at least
          upper quartile level against the FTSE 100 between the third and fifth
          anniversaries of the date of grant. Half vesting applies for TSR at
          the median level, with a sliding scale between median and upper quartile.
          If the performance conditions are not met by the fifth anniversary of
          the date of grant, the options lapse. As at the date of this report,
          no such options have achieved their performance conditions; RESOS and SESOS options granted before June
        1999 became exercisable if growth in the Companys published Earnings
        Per Share (excluding exceptional


items) measured over any period of three
        consecutive financial years, commencing not earlier than the financial
        year in which the option was granted, exceeded by not less than 6 per
        cent the percentage growth of the Retail Price Index over the same three
        year period. All such options became exercisable in full; andno further grants will be made under the SESOS
        or RESOS plans. Pension and Other Benefits Executive Directors are eligible to participate in the appropriate pension schemes and employee benefits applicable in their home countries, including private medical cover and permanent health insurance. The taxable value of these employee benefits is included in the Directors Remuneration table on page 73. Company cars and car allowances are not provided to Directors. Executive Directors are also eligible to participate in all-employee share schemes and savings plans applicable in their home countries. These include the Cable & Wireless Savings Related Share Options Scheme and the Cable & Wireless Share Purchase Plan  further details can be found in Note 24 of the Notes to the Financial Statements. Executive Directors Service Contracts Policy Since July 1999 the Remuneration Committees policy has been that new Executive Directors service contracts should contain a maximum notice period of one year. A longer notice period may apply initially, where this is required to secure the services of high calibre executives in exceptional circumstances, but in all cases the notice period will reduce to one year or less over time. In the event of early termination, the Remuneration Committee will, within legal constraints, determine the approach to be taken according to the circumstances of each individual case, taking full account of the departing Executive Directors obligation to mitigate loss. Except in cases of early termination for cause, the Committee will take into account the relevant Executive Directors current salary, notice period and contractual benefits when calculating any liability of the Company. The principal contractual benefits provided in addition to salary are pension and life insurance. Annual bonuses and long-term incentives are non-contractual and would be dealt with in accordance with the rules of the relevant schemes. A significant proportion of each Executive Directors total remuneration is subject to performance conditions and therefore will not be payable to the extent that the relevant targets are not met.




---

Page 68

---



Back to Contents

corporate
  governance

---

Specific contracts Adrian Chamberlains contract is dated 14 May 2002 and continues until his normal retirement date of 1 June 2017. The notice period under contract is 1 year. At 31 March 2003, the unexpired term of his service contract was 14 years and 2 months. Robert E Lerwills contract is dated 6 January 1997. The notice period under contract is 2 years from the Company to the Executive and 1 year from the Executive to the Company. At 31 March 2003 the unexpired term of his service contract was 8 years and 9 months. He resigned from the Board on 3 June 2003 and will provide assistance for a short period in introducing the new management team to key Regional contacts. David N Princes contract is dated 14 May 2002 and continues until his normal retirement date of 1 July 2011. The notice period under contract is 1 year. At 31 March 2003, the unexpired term of his service contract was 8 years and 3 months. Donald B Reeds contract was dated 21 June 1999 and continued until his departure on 31 January 2003. The notice period under contract was 1 year. Robert O Rowleys contract is dated 1 February 2003 and continues until his normal retirement date of 1 September 2009. The contract is for a fixed term of 30 months from the commencement date and continuing after the end of the fixed term until terminated by either party giving 6 months notice expiring on or at any time after the end of the fixed term. At 31 March 2003, the unexpired term of the service contract was 6 years and 5 months. On 4 June 2003, Robert O Rowley will make an initial investment of £375,000 in Ordinary Shares of the Company, to be held for a maximum of three years. The Company will provide a matching award of £375,000 in restricted shares vesting at the end of the three years. Graham M Wallaces contract is
  dated 21 January 1997 and contains a notice period of 2 years. At 31 March 2003
  the unexpired term of his service contract was 1 year and 10 months. He resigned
  from the Board on 4 April 2003, remaining available for a period to support
  the Chairman and the new Chief Executive Officer. His employment will terminate
  on 20 July 2003. He has agreed to waive a significant proportion of his contractual
  entitlements. Accordingly he will receive a cash payment of £387,500,
  equivalent to six months salary, in lieu of notice. To allow for the possibility of further mitigation, this amount
  will be spread over six monthly payments following his employment termination
  date. He will also receive additional pension credit, the capital value of which
  is £500,000. He will


receive no payment under any of the Companys short term or long term
    incentive plans. Adrian Chamberlain and David N Prince have a clause in their service contracts governing a change of control. In the event of a change of a control of the Company, if the Directors job is materially adversely changed, then a change of control provision will be triggered and they will receive a payment equivalent to 2 years base salary. It is the Remuneration Committees intention that this clause will be removed without compensation. Robert O Rowleys service contract includes a provision for the payments of salary only in lieu of any unexpired term or notice at the Companys discretion. The Executive Directors service contracts contain no other provisions for compensation payable on early termination. Non-executive directors The Non-executive Directors, including the Chairman, do not have service contracts with the Company, but instead have letters of appointment. Their fees are determined by the Board, within the limits set out in the Companys articles of association, with Non-executive Directors abstaining from any discussion or decision on their fees. Fee levels reflect the Directors responsibilities, the committees on which they serve and the general market conditions for their services. Full details of the fees paid in the year ended 31 March 2003 are set out in the Directors Remuneration table and the associated notes on pages 73 to 74. The Non-executive Directors do not receive any pension. Sir Winfried Bischoff and Dr Janet P Morgan by way of letters dated 31 January 1991 and 1 December 1988 respectively were appointed for two three-year terms on the basis that they would serve for six years and thereafter by annual renewal with the approval of the Chairman. Bernard P Gray and W Anthony Rice have been appointed for a three year term commencing on 21 January 2003, with the expectation that a further three-year term will follow. After two three-year terms, the period may be extended on an annual basis at the invitation of the Chairman. Termination of the appointment may be earlier at the discretion of either party on one months written notice, but total service will not exceed nine years. Graham E Howe and Kasper B Rorsted have been appointed for a three year term commencing on 27 May 2003, with the expectation that a further three-year term will follow. After two three-year terms, the period may be extended on an annual basis at the invitation of the Chairman. Termination of the appointment may be earlier at the discretion of either party on one months written notice, but total service will not exceed nine years.




---

Page 69



---



Back to Contents

corporate
  governance

---

The Chairman, Richard D Lapthorne, has been appointed for an initial fixed term of three years from 10 January 2003 and continuing until terminated by either party. The appointment will be terminable by either party serving not less than six months prior written notice expiring on the anniversary of the appointment, save that no notice can take effect prior to the expiry of the initial three-year term. The following arrangements for Richard D Lapthorne were made to secure his appointment given the general turmoil in the telecommunications industry, the associated decline in the share price of the Company and the retirement of Sir Ralph Robins as Chairman. The Directors considered the arrangements to be in the best interests of the Companys shareholders to secure Mr Lapthornes services. None of the benefits under the arrangement is pensionable. On his appointment, the Company granted Richard D Lapthorne an option to acquire 1,000,000 Ordinary Shares in the Company (the Investment Shares) at a price of 57 pence per Ordinary Share (the closing mid-market price per share on 10 January 2003). He exercised the option immediately to satisfy his agreement to acquire 1,000,000 Ordinary Shares in the Company. Subject to Richard D Lapthorne remaining a Director and Chairman of the Company and retaining beneficial ownership of all of the Investment Shares until 10 January 2006, the Company will deliver 1,000,000 Ordinary Shares to him (the Matching Shares). So long as his appointment continues, Richard D Lapthorne will acquire from the Company 200,000 Ordinary Shares in the Company (the Annual Acquisition of Shares) on the following dates at the lower of the mid-market price or: a)
    10 January 2004  57 pence per Ordinary Share; b)
      10 January 2005 
          63 pence per Ordinary Share; c)
      10 January 2006 
          78 pence per Ordinary Share; d)
      Each subsequent anniversary
          with the price increasing 15 pence per Ordinary Share It is intended that Richard D Lapthorne will retain all of these Ordinary Shares for the duration of his appointment. In the event of any capitalisation or rights issue by the Company, the number of Ordinary Shares under the Matching Shares or Annual Acquisition of Shares will be adjusted on a basis agreed between Richard D Lapthorne and the Company, failing which, on a basis certified by the Companys auditors as, in their opinion, fair and reasonable. In the event of a rights issue by
  the Company, Richard D Lapthorne must acquire as additional Investment Shares
  the number of Ordinary Shares that can be acquired from tail swallowing (selling
  sufficient of his rights in respect of the


Investment Shares so that the net
  proceeds of sale are used to subscribe for the balance). In the event of any other variation in the Ordinary Share capital of the Company, or any demerger by the Company, adjustments shall be made to the arrangements set out above as the Companys auditors certify to be, in their opinion, fair and reasonable. If Richard D Lapthornes appointment is terminated by reason of death or by the Company otherwise than by due notice or if there is a change of control, he or his personal representatives shall be entitled to: 
    an immediate payment equivalent to his fee for the balance of the period ending on the earliest date on which the appointment would have been terminated if the Company had given the requisite prior written notice, unless in the case of a change of control he remains a Chairman of the Company on similar terms; 
    an immediate vesting of the Matching Shares (if not already vested); and 
    subject to payment by Richard D Lapthorne or his personal representatives of the appropriate consideration the next Annual Acquisition of Ordinary Shares at the price described above. The following share incentive arrangements for Bernard P Gray, Graham E Howe, Dr Janet P Morgan, W Anthony Rice and Kasper B Rorsted were made to secure or retain their appointments as Non-executive Directors of the Company given the general turmoil in the telecommunications industry, the associated decline in the share price of the Company and the re-structuring of the Companys Board of Directors. Each of these Non-executive Directors will purchase a specified number of Ordinary Shares in the Company on 4 June 2004, and on the anniversary of this date until 4 June 2006 inclusive: Director
    
    
    Number of OrdinarySharesBernard P Gray
      
      
      100,000Graham E Howe
      
      
      100,000Dr Janet P Morgan
      
      
      30,000W Anthony Rice
      
      
      100,000Kasper B Rorsted
      
      
      30,000 The purchase price for the Ordinary Shares to be purchased on 4 June 2004, 4 June 2005 and 4 June 2006 shall be the lower of the closing mid-market price on such dates or the closing mid-market price on 4 June 2003.




---

Page 70

---



Back to Contents

corporate
  governance

---

The Non-executive Directors are expected to hold the purchased Ordinary Shares for the duration of their service as a Director. None of the benefits under the arrangement is pensionable. Sir Winfried Bischoff, Bernard P Gray, Graham E Howe, Dr Janet P Morgan, W Anthony Rice and Kasper B Rorsted are not entitled to compensation if their appointment is terminated. New Executive Director Appointments Francesco Caio was elected to the Board as Chief Executive Officer with effect from 4 April 2003. His contract is dated 2 April 2003 and continues until his normal retirement date of 1 September 2017. The notice period is 2 years during the first 2 years of the contract and 1 year thereafter. He will be paid a base salary of £700,000 per annum. Kevin Loosemore was elected to the Board as Chief Operating Officer with effect from 2 April 2003. His service contract is dated 2 April 2003 and continues until his normal retirement date on 1 February 2019. The notice period is 2 years during the first 2 years of the contract and 1 year thereafter. He will be paid a base salary of £490,000 per annum. The maximum bonus payable to Francesco Caio is 150  per  cent of base salary and in the first year he will be guaranteed a minimum bonus payment of £375,000. He will be able to re-invest a proportion of any bonus in the Companys shares, to be held for three years, with one for one share matching from the Company at the end of this period. The maximum bonus payable to Kevin Loosemore under the STIP is 100 per cent of base salary. In recognition of arrangements with
  his previous employer that he will forego, Francesco Caio will receive a one-off
  payment of £375,000 that must be invested in Ordinary Shares of the Company,
  to be held for a minimum of three


years. The Company will provide a
  matching award of £375,000 in restricted shares vesting at the end of
  three years. Kevin Loosemore will make an initial investment of £375,000 in Ordinary Shares of the Company, to be held for a minimum of three years. The Company will provide a matching award of £375,000 in restricted shares vesting at the end of three years. Francesco Caio and Kevin Loosemore will receive defined contribution pensions, with the Company contribution rate set at 25 per cent of base salary. Francesco Caio will receive a relocation package. This will consist of a housing allowance, payable for the first three years of employment, sufficient to pay the cost of renting a two-bedroom apartment in Central London. If he relocates his main family home to London, relocation costs will be paid. While his principal family home remains in Italy, reasonable travel costs for himself and his family between Italy and London will be met. Kevin Loosemore will also receive a relocation package. Subject to an overall limit of £150,000, relocation costs will be paid for him to buy and set up a home in Central London. Each of the investments to be made in the Companys Ordinary Shares referred to above will occur following the publication of the Companys results for the year ending 31 March 2003. Directors Shareholding Requirement The Company operates a policy of encouraging Executive Directors to closely align their interests with shareholders by requiring them to build up and maintain a holding of Ordinary Shares in the Company to the value of at least twice their base salary. This is to be achieved through the retention of any net awards received from the short and long-term incentive plans described above.




---

Page 71



---



Back to Contents

corporate
  governance

---



|Directors Shareholdings
|------------------------

The beneficial interests of the Directors and their immediate families in the Ordinary Shares of the Company were as follows:

|Director                                                |  |  | As at 1 April 2002 (or on appointment if later) |  |  | Shares Acquired |  |  | As at 31 March 2003 | 
|------------------------------------------------------- |  |  | ----------------------------------------------- |  |  | --------------- |  |  | ------------------- | 
|                                                        | 
|Sir
        Winfried Bischoff                           |  |  | 11,188                                          |  |  | 51,920          |  |  | 63,108              | 
|Adrian
        Chamberlain (appointed 15 May 2002)      |  |  | 1,413                                           |  |  | 6,243           |  |  | 7,656               | 
|Bernard
        P Gray (appointed 21 January 2003)      |  |  |                                                |  |  |                |  |  |                    | 
|Richard
        D Lapthorne (appointed 10 January 2003) |  |  |                                                |  |  | 1,000,000       |  |  | 1,000,000           | 
|Robert
        E Lerwill                                |  |  | 59,937                                          |  |  | 15,542          |  |  | 75,479              | 
|Dr
        Janet P Morgan                               |  |  | 5,566                                           |  |  | 594             |  |  | 6,160               | 
|David
        N Prince (appointed 1 July 2002)          |  |  | 23,596                                          |  |  |                |  |  | 23,596              | 
|W
        Anthony Rice (appointed 21 January 2003)      |  |  |                                                |  |  |                |  |  |                    | 
|Robert
        O Rowley (appointed 2 September 2002)    |  |  | 1,696                                           |  |  | 50,000          |  |  | 51,696              | 
|Graham
        M Wallace                                |  |  | 104,540                                         |  |  | 32,122          |  |  | 136,662             | 

The Company operates a Dividend Reinvestment Plan that enables shareholders to reinvest dividends on their shareholdings into additional Ordinary Shares. The following Directors participated in this plan during the year and the Ordinary Shares acquired under the plan are reflected in the above table: Sir Winfried Bischoff 1,326 Ordinary Shares; Adrian Chamberlain 187 Ordinary Shares; and Graham M Wallace 5,633 Ordinary Shares.

In accordance with the rules of the Deferred Short Term Incentive Plan, Robert E Lerwill has deferred £30,000 of his Short Term Incentive Plan bonus in respect of the financial year ended 31 March 2002 into the Deferred STIP. As a consequence, 14,703 Ordinary Shares have been purchased in his name during the year ended 31 March 2003 and are held in the Cable & Wireless Employee Share Ownership Trust. These Ordinary Shares are reflected in the table above.

On their appointment as Directors of the Company on 2 April, 4 April and 27 May 2003 respectively, Kevin Loosemore, Francesco Caio, Graham E Howe and Kasper B Rorsted held no Ordinary Shares in the Company.

Between 31 March 2003 and 3 June 2003 there were the following changes to the Directors shareholdings: purchase of Ordinary Shares under the Share Purchase Plan  Adrian Chamberlain  262 Ordinary Shares and Robert E Lerwill  329 Ordinary Shares.



---

Page 72

---



Back to Contents

corporate
  governance

---

The following sections of the Directors Remuneration Report have been subject to audit.

|Directors Remuneration
|-----------------------

|Name
        of Director                               |  |  | Salary and fees
      £ |  |  | Short term performance
      related annual bonus
      £ |  |  | Other Benefits
      £
      Note 2 |  |  | Compensation for loss of office
      £ |  |  | Total 2003
      £ |  |  | Total 2002
      £ | 
|------------------------------------------------------ |  |  | ----------------------- |  |  | --------------------------------------------------------- |  |  | ----------------------------------- |  |  | --------------------------------------- |  |  | ------------------ |  |  | ------------------ | 
|                                                      
|                                                       |  |  |                         |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Executive
        Directors                            |  |  |                         |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Adrian
        Chamberlain (from 15 May 2002)          |  |  | 309,420                 |  |  |                                                          |  |  | 7,000                               |  |  |                                        |  |  | 316,420            |  |  |                   | 
|                                                       |  |  | Note 3                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Robert
        E Lerwill                               |  |  | 450,000                 |  |  | 118,800                                                   |  |  | 23,760                              |  |  |                                        |  |  | 592,560            |  |  | 576,532            | 
|David
        N Prince (from 1 July 2002)              |  |  | 300,000                 |  |  |                                                          |  |  | 16,541                              |  |  |                                        |  |  | 316,541            |  |  |                   | 
|                                                       |  |  | Note 4                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Donald
        B Reed (until 31 January 2003)          |  |  | 394,725                 |  |  |                                                          |  |  | 1,405                               |  |  | 453,976                                 |  |  | 850,106            |  |  | 440,000            | 
|                                                       |  |  |                         |  |  |                                                           |  |  |                                     |  |  | Note 5                                  |  |  |                    |  |  |                    | 
|Robert
        O Rowley (from 2 September 2002)        |  |  | 114,167                 |  |  | 75,000                                                    |  |  |                                    |  |  |                                        |  |  | 189,167            |  |  |                   | 
|                                                       |  |  | Note 6                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Graham
        M Wallace                               |  |  | 775,000                 |  |  |                                                          |  |  | 41,417                              |  |  |                                        |  |  | 816,417            |  |  | 808,103            | 
|                                                       |  |  |                         |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Non-executive
        Directors                        |  |  |                         |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Sir
        Winfried Bischoff                          |  |  | 41,708                  |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 41,708             |  |  | 43,537             | 
|                                                       |  |  | Note 7                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Bernard
        P Gray (from 21 January 2003)          |  |  | 9,964                   |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 9,964              |  |  |                   | 
|                                                       |  |  | Note 8                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Richard
        D Lapthorne (from 10 January 2003)     |  |  | 86,710                  |  |  |                                                          |  |  | 498                                 |  |  |                                        |  |  | 87,208             |  |  |                   | 
|                                                       |  |  | Note 9                  |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Dr
        Janet P Morgan                              |  |  | 34,124                  |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 34,124             |  |  | 43,537             | 
|                                                       |  |  | Note 10                 |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|David
        P Nash (until 31 December 2002)          |  |  | 149,208                 |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 149,208            |  |  | 43,537             | 
|                                                       |  |  | Note 11                 |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|W
        Anthony Rice (from 21 January 2003)          |  |  | 14,946                  |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 14,946             |  |  |                   | 
|                                                       |  |  | Note 12                 |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|Sir
        Ralph Robins (until 28 February 2003)      |  |  | 230,875                 |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 230,875            |  |  | 253,537            | 
|                                                       |  |  | Note 13                 |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|The
        Hon. Raymond Seitz (until 31 January 2003) |  |  | 30,874                  |  |  |                                                          |  |  |                                    |  |  |                                        |  |  | 30,874             |  |  | 38,537             | 
|                                                       |  |  | Note 14                 |  |  |                                                           |  |  |                                     |  |  |                                         |  |  |                    |  |  |                    | 
|                                                      
|Totals                                                 |  |  | 2,941,721               |  |  | 193,800                                                   |  |  | 90,621                              |  |  | 453,976                                 |  |  | 3,680,118          |  |  | 2,247,320          | 
|                                                      

|Notes
|-----

|1. | The aggregate emoluments of the Directors, which excludes compensation for loss of office, were £3,226,142 (2002  £2,634,369, which includes emoluments of £387,049 paid to Executive Directors who resigned during the year ended 31 March 2002).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|   |                                                                                                                                                                                                                           
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2. | Includes the reimbursement
        of costs associated with staff entertaining and relocation and the value
        of benefits in kind relating to Company provided life assurance, professional
        fees and travel.

|   |                                                             
|-- | ------------------------------------------------------------
|3. | Adrian Chamberlains
        annual base salary is £350,000.

|   |                                                         
|-- | --------------------------------------------------------
|4. | David N Princes annual
        base salary is £400,000.

|   |                                                                                                                                                                                               
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | Donald B Reed is being paid
        US$715,000 in 12 monthly instalments from his date of leaving the Company
        on 31 January 2003 in accordance with the terms of his service contract.

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | On his appointment to the
        Board as a Non-executive Director on 2 September 2002, Robert O Rowley
        received a fee of £30,000 per annum. He was subsequently awarded
        an additional fee of £60,000 to cover the period from 1 November
        2002 to 31 January 2003 to reflect additional duties principally in respect
        of Chairmanship of the Audit Committee. With effect from his appointment
        as part
        time Executive Deputy Chairman on 1 February 2003 he received an annual
        salary of £250,000.



---

Page 73



---



Back to Contents

corporate
  governance

---

|7. | Sir Winfried Bischoffs
        annual fee is £40,000, which includes a fee of £10,000 for
        his Chairmanship of the Remuneration Committee. In addition, he received
        an annual fee of £1,707.50 being equal to the market value of 1,000
        Ordinary Shares in the Company. The net amount of this fee after the deduction
        of taxes and dealing costs was used to purchase 594 Ordinary Shares in
        the Company. These were purchased on 15 July 2002 at a market value of 170.75 pence
        per share.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|8. | Bernard P Grays annual
        fee is £50,000.
|-- | -----------------------------------------------
|   |                                                

|9. | Richard D Lapthornes
        annual fee as Chairman of the Board is £386,000.
|-- | ------------------------------------------------------------------------------
|   |                                                                               

|10. | Dr Janet P Morgans
        annual fee up until 18 February 2003 was £30,000. In addition, she
        received an annual fee of £1,707.50 being equal to the market value
        of 1,000 Ordinary Shares in the Company. The net amount of this fee after
        the deduction of taxes and dealing costs was used to purchase 594 Ordinary
        Shares in the Company. These were purchased on 15 July 2002 at a market
        value of 170.75 pence per share. With effect from 18 February 2003, her fees were
        increased to £50,000 per annum.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|11. | David P Nashs fees
        were based on: (a) £40,000 per annum for the period up to 1 July
        2002, which included a fee of £10,000 per annum for Chairmanship
        of the Group Audit Committee; and (b) £137,500 per annum as Deputy
        Chairman for the period from 1 July 2002 to 31 December 2002. In July
        2002, he was paid all fees in advance up to 31 March 2003 (with the fee
        for the period from 1 January 2003 to 31 March 2003 being paid at the rate of £275,000
        per annum). Following his resignation as a Director of the Company with
        effect from 31 December 2002, he reimbursed the Company for the fees paid
        for the period from 1 January to 31 March 2003. In addition, David P Nash
        received an annual fee of £1,707.50 equal to the market value of
        1,000 Ordinary Shares in the Company. He used all the fees paid in July 2002 to acquire 48,431 Ordinary
        Shares in the Company on 15 July 2002 at a price of 170.75 pence per share.
        David P Nash was subsequently awarded an additional fee of £87,250
        in recognition of the extra services he provided with respect to the Group
        strategic review announced on 13 November 2002, £18,500 of which
        he waived.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|12. | W Anthony Rices annual
        fee is £75,000, which includes a fee of £25,000 for his role
        as Chairman of the Group Audit Committee.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                               

|13. | Sir Ralph Robins annual
        fee, which was set at the time of his appointment as Chairman of the Board
        in 1998, was £250,000. In addition, he received an annual fee of
        £1,707.50 being equal to the market value of 1,000 Ordinary Shares
        in the Company. The net amount of this fee after the deduction of taxes
        and dealing costs was used to purchase 594 Ordinary Shares in the Company.
        These were purchased on 15 July 2002 at a market value of 170.75 pence per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|14. | The Hon Raymond Seitzs annual fee was £35,000 which included an annual fee of £5,000 for his Chairmanship of the Community Investment Committee. In addition, he received an annual fee of £1,707.50 being equal to the market value of 1,000 Ordinary Shares in the Company. The net amount of this fee after the deduction of taxes and dealing costs was used to purchase 594 Ordinary Shares in the Company. These were purchased on 15 July 2002 at a market value of 170.75 pence per share.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

Page 74

---



Back to Contents

corporate
  governance

---

|                        
|------------------------
|Directors Share Options

|Name
        of Director        |  | Scheme               |  | Grant Date |  | Date from
      which first exercisable |  | Date
      of expiry
      of option |  | Exercise
      Price
      (pence) |  | Shares Under Option at 1 April
      2002
      (or date of appointment
      if later) |  | Granted
      Between
      1 April 2002
      and
      31 March
      2003 |  | Exercised |  | Lapsed Cancelled or Forfeited |  | Shares Under Option at
      31 March
      2003
      (or date of leaving if earlier) | 
|------------------------------- |  | -------------------- |  | ---------- |  | --------------------------------------- |  | ------------------------------------ |  | ---------------------------------- |  | --------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------- |  | --------- |  | ----------------------------- |  | -------------------------------------------------------------------------------------- | 
|                               
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|Adrian
        Chamberlain      |  | SOP
      Unapproved |  | 27/07/01   |  | 27/7/04                                 |  | 26/7/08                              |  | 340                                |  | 176,471                                                                                 |  |                                                                             |  |          |  |                              |  | 176,471                                                                                | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 262                                |  |                                                                                        |  | 201,000                                                                      |  |          |  |                              |  | 201,000                                                                                | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 204.05                             |  |                                                                                        |  | 258,000                                                                      |  |          |  |                              |  | 258,000                                                                                | 
|                                |  | C&W
      RESOS      |  | 22/12/99   |  | 22/12/02                                |  | 21/12/09                             |  | 982                                |  | 3,054                                                                                   |  |                                                                             |  |          |  |                              |  | 3,054                                                                                  | 
|                                |  | C&W
      RESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/10                              |  | 966.2                              |  | 1                                                                                       |  |                                                                             |  |          |  |                              |  | 1                                                                                      | 
|                                |  | C&W
      SESOS      |  | 3/7/96     |  | 3/7/99                                  |  | 2/7/03                               |  | 420.5                              |  | 25,000                                                                                  |  |                                                                             |  |          |  |                              |  | 25,000                                                                                 | 
|                                |  | C&W
      SESOS      |  | 13/6/97    |  | 13/6/00                                 |  | 12/6/04                              |  | 553.3                              |  | 49,000                                                                                  |  |                                                                             |  |          |  |                              |  | 49,000                                                                                 | 
|                                |  | C&W
      SESOS      |  | 22/12/99   |  | 22/12/02                                |  | 21/12/06                             |  | 982                                |  | 16,294                                                                                  |  |                                                                             |  |          |  |                              |  | 16,294                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 9,832                                                                                   |  |                                                                             |  |          |  |                              |  | 9,832                                                                                  | 
|                                |  | C&W
      SAYE       |  | 18/12/98   |  | 1/3/04                                  |  | 31/8/04                              |  | 558.64                             |  | 2,295                                                                                   |  |                                                                             |  |          |  |                              |  | 2,295                                                                                  | 
|                                |  | C&W
      SAYE       |  | 16/6/00    |  | 1/9/05                                  |  | 28/2/06                              |  | 985.92                             |  | 410                                                                                     |  |                                                                             |  |          |  |                              |  | 410                                                                                    | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 282,357                                                                                 |  | 459,000                                                                      |  |          |  |                              |  | 741,357                                                                                | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|Richard
        D Lapthorne     |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|(from
        10 January 2003)  |  | Unapproved           |  | 10/1/03    |  | 10/1/03                                 |  | 21/2/03                              |  | 57                                 |  | 1,000,000                                                                               |  |                                                                             |  | 1,000,000 |  |                              |  |                                                                                       | 
|(Note
        6)                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 1,000,000                                                                               |  |                                                                             |  | 1,000,000 |  |                              |  |                                                                                       | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|Robert
        E Lerwill        |  | SOP Unapproved       |  | 27/7/01    |  | 27/7/04                                 |  | 26/7/08                              |  | 340                                |  | 470,588                                                                                 |  |                                                                             |  |          |  |                              |  | 470,588                                                                                | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 262                                |  |                                                                                        |  | 258,000                                                                      |  |          |  |                              |  | 258,000                                                                                | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 204.05                             |  |                                                                                        |  | 331,000                                                                      |  |          |  |                              |  | 331,000                                                                                | 
|                                |  | C&W
      RESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/10                              |  | 966.2                              |  | 3,104                                                                                   |  |                                                                             |  |          |  |                              |  | 3,104                                                                                  | 
|                                |  | C&W
      SESOS      |  | 8/1/97     |  | 8/1/00                                  |  | 7/1/04                               |  | 472.4                              |  | 112,853                                                                                 |  |                                                                             |  |          |  |                              |  | 112,853                                                                                | 
|                                |  | C&W
      SESOS      |  | 8/6/98     |  | 8/6/01                                  |  | 7/6/05                               |  | 704.6                              |  | 40,000                                                                                  |  |                                                                             |  |          |  |                              |  | 40,000                                                                                 | 
|                                |  | C&W
      SESOS      |  | 19/5/99    |  | 19/5/02                                 |  | 18/5/06                              |  | 810.7                              |  | 43,150                                                                                  |  |                                                                             |  |          |  |                              |  | 43,150                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 50,456                                                                                  |  |                                                                             |  |          |  |                              |  | 50,456                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 35,132                                                                                  |  |                                                                             |  |          |  |                              |  | 35,132                                                                                 | 
|                                |  | C&W
      SAYE       |  | 30/5/97    |  | 1/9/04                                  |  | 28/2/05                              |  | 394.48                             |  | 1,977                                                                                   |  |                                                                             |  |          |  | 1,977                         |  |                                                                                       | 
|                                |  | C&W
      SAYE       |  | 15/6/01    |  | 1/9/06                                  |  | 28/2/07                              |  | 357.92                             |  | 2,828                                                                                   |  |                                                                             |  |          |  | 2,828                         |  |                                                                                       | 
|                                |  | C&W
      SAYE       |  | 14/6/02    |  | 1/9/05                                  |  | 28/2/06                              |  | 158.36                             |  |                                                                                        |  | 5,998                                                                        |  |          |  |                              |  | 5,998                                                                                  | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 760,088                                                                                 |  | 594,998                                                                      |  |          |  | 4,805                         |  | 1,350,281                                                                              | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|David
        N Prince          |  | SOP Approved         |  | 1/7/02     |  | 1/7/05                                  |  | 30/6/09                              |  | 166.8                              |  |                                                                                        |  | 17,985                                                                       |  |          |  |                              |  | 17,985                                                                                 | 
|(from
        1 July 2002)      |  | SOP Unapproved       |  | 1/7/02     |  | 1/7/05                                  |  | 30/6/09                              |  | 166.8                              |  |                                                                                        |  | 342,015                                                                      |  |          |  |                              |  | 342,015                                                                                | 
|                                |  | SOP Unapproved       |  | 1/7/02     |  | 1/7/05                                  |  | 30/6/09                              |  | 262                                |  |                                                                                        |  | 229,000                                                                      |  |          |  |                              |  | 229,000                                                                                | 
|                                |  | C&W
      RESOS      |  | 19/5/99    |  | 19/5/02                                 |  | 18/5/09                              |  | 810.7                              |  | 3,700                                                                                   |  |                                                                             |  |          |  | 3,700                         |  |                                                                                       | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 3,700                                                                                   |  | 589,000                                                                      |  |          |  | 3,700                         |  | 589,000                                                                                | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         |  |                                                                              |  |           |  |                               |  |                                                                                        | 
|Donald
        B Reed           |  | SOP Unapproved       |  | 27/7/01    |  | 27/7/04                                 |  | 26/7/08                              |  | 340                                |  | 529,412                                                                                 |  |                                                                             |  |          |  |                              |  | 529,412                                                                                | 
|(until
        31 January 2003) |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 262                                |  |                                                                                        |  | 282,000                                                                      |  |          |  |                              |  | 282,000                                                                                | 
|(Note
        5)                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 204.05                             |  |                                                                                        |  | 362,000                                                                      |  |          |  |                              |  | 362,000                                                                                | 
|                                |  | C&W
      RESOS      |  | 8/6/98     |  | 8/6/01                                  |  | 7/6/08                               |  | 704.6                              |  | 4,258                                                                                   |  |                                                                             |  |          |  |                              |  | 4,258                                                                                  | 
|                                |  | C&W
      SESOS      |  | 8/6/98     |  | 8/6/01                                  |  | 7/6/05                               |  | 704.6                              |  | 25,742                                                                                  |  |                                                                             |  |          |  |                              |  | 25,742                                                                                 | 
|                                |  | C&W
      SESOS      |  | 19/5/99    |  | 19/5/02                                 |  | 18/5/06                              |  | 810.7                              |  | 24,050                                                                                  |  |                                                                             |  |          |  |                              |  | 24,050                                                                                 | 
|                                |  | C&W
      SESOS      |  | 22/12/99   |  | 22/12/02                                |  | 21/12/06                             |  | 982                                |  | 31,168                                                                                  |  |                                                                             |  |          |  |                              |  | 31,168                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 71,274                                                                                  |  |                                                                             |  |          |  |                              |  | 71,274                                                                                 | 
|                                |  | C&W
      SESOS      |  | 1/9/00     |  | 1/9/03                                  |  | 1/9/07                               |  | 1205.6                             |  | 18,827                                                                                  |  |                                                                             |  |          |  |                              |  | 18,827                                                                                 | 
|                                |  | C&W
      SAYE       |  | 15/6/01    |  | 1/9/04                                  |  | 28/2/05                              |  | 357.92                             |  | 2,706                                                                                   |  |                                                                             |  |          |  | 2,706                         |  |                                                                                       | 
|                                |  | C&W
      SAYE       |  | 14/6/02    |  | 1/9/05                                  |  | 28/2/06                              |  | 158.36                             |  |                                                                                        |  | 5,998                                                                        |  |          |  |                              |  | 5,998                                                                                  | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 707,437                                                                                 |  | 649,998                                                                      |  |          |  | 2,706                         |  | 1,354,729                                                                              | 
|                                | 
|Graham
        M Wallace        |  | SOP Unapproved       |  | 27/7/01    |  | 27/7/04                                 |  | 26/7/08                              |  | 340                                |  | 1,367,647                                                                               |  |                                                                             |  |          |  |                              |  | 1,367,647                                                                              | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 262                                |  |                                                                                        |  | 592,000                                                                      |  |          |  |                              |  | 592,000                                                                                | 
|                                |  | SOP Unapproved       |  | 23/5/02    |  | 23/5/05                                 |  | 22/5/09                              |  | 204.05                             |  |                                                                                        |  | 760,000                                                                      |  |          |  |                              |  | 760,000                                                                                | 
|                                |  | C&W
      RESOS      |  | 13/6/97    |  | 13/6/00                                 |  | 12/6/07                              |  | 553.3                              |  | 5,422                                                                                   |  |                                                                             |  |          |  |                              |  | 5,422                                                                                  | 
|                                |  | C&W
      SESOS      |  | 13/6/97    |  | 13/6/00                                 |  | 12/6/04                              |  | 553.3                              |  | 169,578                                                                                 |  |                                                                             |  |          |  |                              |  | 169,578                                                                                | 
|                                |  | C&W
      SESOS      |  | 8/6/98     |  | 8/6/01                                  |  | 7/6/05                               |  | 704.60                             |  | 40,000                                                                                  |  |                                                                             |  |          |  |                              |  | 40,000                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/2/99    |  | 25/2/02                                 |  | 23/2/06                              |  | 848.8                              |  | 182,597                                                                                 |  |                                                                             |  |          |  |                              |  | 182,597                                                                                | 
|                                |  | C&W
      SESOS      |  | 19/5/99    |  | 19/5/02                                 |  | 18/5/06                              |  | 810.7                              |  | 88,800                                                                                  |  |                                                                             |  |          |  |                              |  | 88,800                                                                                 | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 108,673                                                                                 |  |                                                                             |  |          |  |                              |  | 108,673                                                                                | 
|                                |  | C&W
      SESOS      |  | 25/5/00    |  | 25/5/03                                 |  | 24/5/07                              |  | 966.2                              |  | 71,370                                                                                  |  |                                                                             |  |          |  |                              |  | 71,370                                                                                 | 
|                                |  | C&W
      SAYE       |  | 15/6/01    |  | 1/9/06                                  |  | 28/2/07                              |  | 357.92                             |  | 4,714                                                                                   |  |                                                                             |  |          |  | 4,714                         |  |                                                                                       | 
|                                |  | C&W
      SAYE       |  | 14/6/02    |  | 1/9/07                                  |  | 28/2/08                              |  | 158.36                             |  |                                                                                        |  | 10,450                                                                       |  |          |  |                              |  | 10,450                                                                                 | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  |                                                                                         | 
|                                |  |                      |  |            |  |                                         |  |                                      |  |                                    |  | 2,038,801                                                                               |  | 1,362,450                                                                    |  |          |  | 4,714                         |  | 3,396,537                                                                              | 
|                                | 



---

Page 75



---



Back to Contents

corporate
  governance

---

|     
|-----
|Notes
|     

|1. | SOP Approved and Unapproved
         Inland Revenue approved and unapproved grants respectively made
        under the Share Option Plan (see page 67 for details).
      C&W RESOS  Cable & Wireless Revenue
      Approved Share Option Scheme (see Closed Plans on page 68 for details).
      C&W SESOS  Cable & Wireless Senior Employees Share Option
      Scheme (see Closed Plans on page 68 for details).
      C&W SAYE  Cable & Wireless Save As You Earn share option scheme.
      These options are not subject to performance conditions because this is
      an all-employee scheme governed by specific tax legislation. | 
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | 
|2. | Nil price was paid for the
        award of the options listed in the table above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|3. | Applicable performance conditions
        relate to the schemes under which each option was granted and apply to
        all of the Executive Directors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4. | The closing mid-market price
        of an Ordinary Share on 31 March 2003 was 69 pence. The highest closing
        mid-market price of an Ordinary Share during the year was 220 pence and
        lowest closing mid-market price was 41 pence. There were no changes to
        the Directors share options from 31 March 2003 to 3 June 2003.                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|5. | In accordance with the rules
        of the Companys share option plans, the share options held by Donald
        B Reed may be exercised within specified periods from his date of leaving
        the Company, 31 January 2003, and will not be subject to performance conditions.
        He may exercise his Cable & Wireless RESOS, Cable & Wireless SESOS,
        SOP Approved and Unapproved share options before 31 January 2004, and
        his SAYE share options before 31 July 2003, after which the respective
        awards lapse.                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|6. | Details on the option granted
        and exercised by Richard D Lapthorne are set out under the section on
        Non-executive Directors on page 70.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



---



---



Back to Contents

corporate
  governance

---



|Directors Performance
        Share Plan (PSP), Deferred Short Term Incentive Plan (STIP) and Restricted
        Share Awards
|------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                              

|Name of Director                                   |  |  | Scheme                |  |  | Award date |  |  | Vesting date |  |  | Market price on Award (pence) |  |  | Shares under award at 1 April 2002(or date of appointment if later) |  |  | Shares awarded in 2002 |  |  | Shares Lapsed, Cancelled or Forfeited |  |  | Shares Under Award at 31 March
      2003 (or date of cessation if earlier) | 
|-------------------------------------------------- |  |  | --------------------- |  |  | ---------- |  |  | ------------ |  |  | ----------------------------- |  |  | ------------------------------------------------------------------- |  |  | ---------------------- |  |  | ------------------------------------- |  |  | --------------------------------------------------------------------------- | 
|                                                   | 
|Adrian Chamberlain                                 |  |  | PSP                   |  |  | 1/4/99     |  |  | 31/3/02      |  |  | 779.1                         |  |  | 18,290                                                              |  |  |                       |  |  | 18,290                                |  |  |                                                                            | 
|                                                   |  |  | PSP                   |  |  | 1/4/00     |  |  | 31/3/03      |  |  | 1271                          |  |  | 7,474                                                               |  |  |                       |  |  |                                      |  |  | 7,474                                                                       | 
|                                                   |  |  | PSP                   |  |  | 27/7/01    |  |  | 27/7/04      |  |  | 340                           |  |  | 58,824                                                              |  |  |                       |  |  |                                      |  |  | 58,824                                                                      | 
|                                                   |  |  | PSP                   |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 171,600                |  |  |                                      |  |  | 171,600                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 84,588                                                              |  |  | 171,600                |  |  | 18,290                                |  |  | 237,898                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|Richard
        D Lapthorne (from 10 January 2003) |  |  | Matching Shares       |  |  | 10/1/03    |  |  | 10/1/06      |  |  | 57                            |  |  | 1,000,000
      Note 2                                              |  |  |                       |  |  |                                      |  |  | 1,000,000                                                                   | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 1,000,000                                                           |  |  |                       |  |  |                                      |  |  | 1,000,000                                                                   | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|Robert E Lerwill                                   |  |  | PSP                   |  |  | 1/4/99     |  |  | 31/3/02      |  |  | 779.1                         |  |  | 42,998                                                              |  |  |                       |  |  | 42,998                                |  |  |                                                                            | 
|                                                   |  |  | PSP                   |  |  | 1/4/00     |  |  | 31/3/03      |  |  | 1271                          |  |  | 27,144                                                              |  |  |                       |  |  |                                      |  |  | 27,144                                                                      | 
|                                                   |  |  | PSP                   |  |  | 27/7/01    |  |  | 27/7/04      |  |  | 340                           |  |  | 117,647                                                             |  |  |                       |  |  |                                      |  |  | 117,647                                                                     | 
|                                                   |  |  | PSP                   |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 220,600                |  |  |                                      |  |  | 220,600                                                                     | 
|                                                   |  |  | Deferred STIP         |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 29,406                 |  |  |                                      |  |  | 29,406                                                                      | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 187,789                                                             |  |  | 250,006                |  |  | 42,998                                |  |  | 394,797                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|David N Prince(from 1 July 2002)                   |  |  | PSP                   |  |  | 1/4/99     |  |  | 31/3/02      |  |  | 779.1                         |  |  | 20,134                                                              |  |  |                       |  |  | 20,134                                |  |  |                                                                            | 
|                                                   |  |  | PSP                   |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 196,100                |  |  |                                      |  |  | 196,100                                                                     | 
|                                                   |  |  | Restricted Share Plan |  |  | 1/7/02     |  |  | 30/6/03      |  |  | 166.8                         |  |  |                                                                    |  |  | 82,434
      Note 3    |  |  |                                      |  |  | 82,434                                                                      | 
|                                                   |  |  | Restricted Share Plan |  |  | 1/7/02     |  |  | 30/6/04      |  |  | 166.8                         |  |  |                                                                    |  |  | 82,434
      Note 3    |  |  |                                      |  |  | 82,434                                                                      | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 20,134                                                              |  |  | 360,968                |  |  | 20,134                                |  |  | 360,968                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|Donald
        B Reed(until 31 January 2003)       |  |  | PSP                   |  |  | 1/4/99     |  |  | 31/3/02      |  |  | 779.1                         |  |  | 35,297                                                              |  |  |                       |  |  | 35,297                                |  |  |                                                                            | 
|                                                   |  |  | PSP                   |  |  | 1/4/00     |  |  | 31/3/03      |  |  | 1271                          |  |  | 24,651                                                              |  |  |                       |  |  | 1,370                                 |  |  | 23,281                                                                      | 
|                                                   |  |  | PSP                   |  |  | 27/7/01    |  |  | 27/7/04      |  |  | 340                           |  |  | 132,353                                                             |  |  |                       |  |  | 66,176
      Note 4                   |  |  | 66,177                                                                      | 
|                                                   |  |  | PSP                   |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 241,000                |  |  | 187,444
      Note 4                  |  |  | 53,556                                                                      | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 192,301                                                             |  |  | 241,000                |  |  | 290,287                               |  |  | 143,014                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                     |  |  |                        |  |  |                                       |  |  |                                                                             | 
|Graham M Wallace                                   |  |  | PSP                   |  |  | 1/4/99     |  |  | 31/3/02      |  |  | 779.1                         |  |  | 89,847                                                              |  |  |                       |  |  | 89,847                                |  |  |                                                                            | 
|                                                   |  |  | PSP                   |  |  | 1/4/00     |  |  | 31/3/03      |  |  | 1271                          |  |  | 55,075                                                              |  |  |                       |  |  |                                      |  |  | 55,075                                                                      | 
|                                                   |  |  | PSP                   |  |  | 27/7/01    |  |  | 27/7/04      |  |  | 340                           |  |  | 227,941                                                             |  |  |                       |  |  |                                      |  |  | 227,941                                                                     | 
|                                                   |  |  | PSP                   |  |  | 23/5/02    |  |  | 23/5/05      |  |  | 204.05                        |  |  |                                                                    |  |  | 379,900                |  |  |                                      |  |  | 379,900                                                                     | 
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  |                                                                    
|                                                   |  |  |                       |  |  |            |  |  |              |  |  |                               |  |  | 372,863                                                             |  |  | 379,900                |  |  | 89,847                                |  |  | 662,916                                                                     | 

|Notes
|-----
|     

|1. | Applicable performance conditions
        relate to the schemes under which each award was granted and apply to
        all of the Executive Directors.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                        

|2. | Subject to Richard D Lapthorne
        remaining a Director and Chairman of the Company and retaining beneficial
        ownership until 10 January 2006 of the 1,000,000 Ordinary Shares he acquired
        on appointment on 10 January 2003, the Company will deliver 1,000,000
        Ordinary Shares to him. No performance conditions are attached to this
        award.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                  

|3. | David N Prince was awarded
        164,868 restricted shares on his appointment as a Director of the Company
        on 1 July 2002. 82,434 of these restricted shares vest on 30 June 2003
        and 82,434 vest on 30 June 2004. No performance conditions are attached
        to this award of restricted shares since they were compensation for benefits
        lost on leaving his previous employer.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                

|4. | In accordance with the rules
        of the Performance Share Plan, the unvested contingent awards made to
        Donald B Reed were pro-rated to reflect the number of completed months
        membership in each Plan at the point he left the Company on 31 January
        2003. Vesting of these pro-rated awards at the end of the performance
        periods will continue to be subject to the originally specified performance
        conditions.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|5. | There were no changes to the Directors PSP and Restricted Share Awards from 31 March 2003 to 3 June 2003 other than the lapsing of the PSP contingent award granted on 1 April 2000.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

Page 77




---



Back to Contents

corporate
  governance

---



|Directors Pension Entitlements
|-------------------------------

Adrian Chamberlain, Robert E Lerwill and Graham M Wallace participate in defined benefit pension schemes. David N Prince and Donald B Reed participate in defined contribution pension schemes. Robert O Rowley does not participate in a Company pension scheme.

|Defined benefit pensions
|------------------------

Pension values for the year ended 31 March 2003 were as follows:

|Name
        of Director   |  |   | Accrued benefits 
      at 31 March 2003 |  |   | Increase in accrued benefits
      during the year
      (including inflation) |  |   | Transfer value of accrued benefits
      at 31 March 2003 |  |   | Transfer value of accrued benefits
      at 1 April 2002 |  |   | Increase in transfer value less
      Directors contributions | 
|-------------------------- |  | - | ---------------------------------------- |  | - | ------------------------------------------------------------------------------ |  | - | --------------------------------------------------------- |  | - | -------------------------------------------------------- |  | - | -------------------------------------------------------------- | 
|                           |  | £ |                                          |  | £ |                                                                                |  | £ |                                                           |  | £ |                                                          |  | £ |                                                               
|                           | 
|Adrian
        Chamberlain |  |   | 65,896                                   |  |   | 22,327                                                                         |  |   | 782,063                                                   |  |   | 436,521                                                  |  |   | 327,901                                                        | 
|Robert
        E Lerwill   |  |   | 81,635                                   |  |   | 16,741                                                                         |  |   | 1,193,081                                                 |  |   | 801,442                                                  |  |   | 391,639                                                        | 
|Graham
        M Wallace   |  |   | 231,294                                  |  |   | 48,907                                                                         |  |   | 3,917,131                                                 |  |   | 2,641,229                                                |  |   | 1,275,902                                                      | 



Adrian Chamberlain contributed £17,641 to his pension during the year ended 31 March 2003. Robert E Lerwill and Graham M Wallace have non-contributory pensions.

The difference between transfer values of the accrued benefits at the beginning and end of the year have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11, less directors contributions.

The table below provides supplementary disclosures on Directors pensions required by the Listing Rules of the Financial Services Authority:

|Name
        of Director   |  |   | Increase in accrued benefits
      during the year(excluding inflation) |  |   | Transfer value of the increase
      in accrued benefits
      less Directors contributions (excluding inflation) | 
|-------------------------- |  | - | ----------------------------------------------------------------------- |  | - | ------------------------------------------------------------------------------------------------------------------ | 
|                           |  | £ |                                                                         |  | £ |                                                                                                                   
|                           | 
|Adrian
        Chamberlain |  |   | 20,976                                                                  |  |   | 231,305                                                                                                            | 
|Robert
        E Lerwill   |  |   | 14,730                                                                  |  |   | 215,276                                                                                                            | 
|Graham
        M Wallace   |  |   | 43,253                                                                  |  |   | 732,521                                                                                                            | 

|Defined Contribution Pensions
|-----------------------------

During the year the Company contributed £13,726 (2002  £43,242) into Donald B Reeds defined contribution schemes and £90,000 (2002  nil) into David N Princes defined contribution scheme.

|Former Directors Pensions
|--------------------------

An amount of £4.7 million (2002  £6.4 million) is included in provisions to cover the cost of former Directors pension entitlements.

On behalf of the Board
  Sir Winfried Bischoff
  Chairman of the Remuneration Committee
  3 June 2003



---



---



Back to Contents

directors
  responsibilities in respect of the preparation of the financial statements

---



DIRECTORS RESPONSIBILITIES IN RESPECT OF THE PREPARATION OF THE FINANCIAL STATEMENTS

United Kingdom company law requires
  the Directors to prepare financial statements for each financial year which
  give a true and fair view of the state of affairs of the Company and of the
  Group and of the profit or loss for that period. In preparing those financial
  statements, the Directors are required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for
  keeping proper accounting records which disclose, with reasonable accuracy at
  any time, the financial position of the Company and enable them to ensure that
  the financial statements comply with the Companies Act 1985. They have general
  responsibility for taking such steps as are reasonably open to them to safeguard
  the assets of the Group and to prevent and detect fraud and other irregularities.



---

Page 79




---



Back to Contents

report of
  the independent chartered accountants

---



REPORT OF
  INDEPENDENT CHARTERED ACCOUNTANTS

To the Shareholders and Directors of Cable and Wireless plc

We have audited the accompanying consolidated balance sheets of Cable and Wireless plc and subsidiaries as of 31 March 2003 and 2002, and the related consolidated profit and loss accounts, statements of cash flows, statements of total recognised gains and losses and reconciliations of movements in shareholders’ funds for each of the years in the three year period ended 31 March 2003.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance
  with generally accepted auditing standards in the United Kingdom and the United
  States of America. Those standards require that we plan and perform the audit
  to obtain reasonable assurance about whether the consolidated financial statements
  are free of material misstatement. An audit includes examination, on a test
  basis, of evidence supporting the amounts and disclosures in the consolidated
  financial statements. An audit also includes assessing the accounting principles
  used and significant estimates made by management, as well as evaluating the
  overall consolidated financial statements presentation. We believe that our
  audit provides a reasonable basis for our opinion.

In our opinion, based on our audits,
  the consolidated financial statements referred to above present fairly, in all
  material respects, the financial position of Cable and Wireless plc and subsidiaries
  as of 31 March 2003 and 2002 and the results of their operations and cash flows
  for each of the years in the three year period ended 31 March 2003 in conformity
  with generally accepted accounting principles in the United Kingdom.

As more fully described in the Statement of accounting policies  New Accounting Standards note to the consolidated financial statements, in conformity with generally accepted accounting principles in the United Kingdom, Cable and Wireless plc has adopted UITF 36 ‘Contracts for sales of capacity’ in the year ended 31 March 2003.  Consequently, Cable and Wireless plc’s consolidated financial statements as at 31 March 2002 and for the years ended 31 March 2002 and 2001 referred to above have been restated.



---



---



Back to Contents

report of
  the independent chartered accountants

---

Generally accepted accounting principles
  in the United Kingdom vary in certain significant respects from generally accepted
  accounting principles in the United States of America. Application of generally
  accepted accounting principles in the United States of America would have affected
  net income for the three years ended 31 March 2003 and shareholders’ equity
  as of 31 March 2003 and 31 March 2002 to the extent summarised in Note 36 to
  the consolidated financial statements.

As described in Note 36, the Company’s
  net income and shareholders’ equity reconciliations have been restated.

KPMG Audit PlcChartered AccountantsRegistered AuditorLondon3 June 2003





---

Page 81




---



Back to Contents

consolidated
  profit and loss account

---



CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH

|                                                                                                            |                  |  |         |    |  | 2003    |      |   | 2002    |      |   | 2001   |     
|----------------------------------------------------------------------------------------------------------- | ---------------- |  | ------- | -- |  | ------- | ---- | - | ------- | ---- | - | ------ | ----
|                                                                                                            |                  |  | Note    |    |  | £m      |      |   | £m      |      |   | £m     |     
|                                                                                                            |                 
|Turnover
        of the Group including its share of joint ventures and associates                          |                  |  | 3       |    |  | 4,651   |      |   | 6,098   |      |   | 8,245  |     
|Share
        of turnover of                                                                                |  joint ventures |  |         | 17 |  |         | (195 | ) |         | (285 | ) |        | (333
|                                                                                                            |  associates     |  |         | 17 |  |         | (65  | ) |         | (65  | ) |        | (61 
|                                                                                                            |                 
|Group
        turnover *                                                                                    |                  |  | 3,4     |    |  | 4,391   |      |   | 5,748   |      |   | 7,851  |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Operating
        costs before depreciation, amortisation and exceptional items                             |                  |  | 5       |    |  | (4,057  | )    |   | (5,013  | )    |   | (6,194 | )   
|Exceptional
        operating costs                                                                         |                  |  | 5,10    |    |  | (442    | )    |   | (210    | )    |   |       |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Operating
        costs before depreciation and amortisation                                                |                  |  |         |    |  | (4,499  | )    |   | (5,223  | )    |   | (6,194 | )   
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Depreciation
        before exceptional items                                                               |                  |  | 5,16    |    |  | (735    | )    |   | (1,072  | )    |   | (1,126 | )   
|Exceptional
        depreciation                                                                            |                  |  | 5,10,16 |    |  | (2,381  | )    |   | (1,909  | )    |   | (444   | )   
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Depreciation                                                                                                |                  |  |         |    |  | (3,116  | )    |   | (2,981  | )    |   | (1,570 | )   
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Amortisation
        of capitalised goodwill before exceptional items                                       |                  |  | 5,15    |    |  | (126    | )    |   | (562    | )    |   | (469   | )   
|Exceptional
        amortisation                                                                            |                  |  | 5,10,15 |    |  | (2,725  | )    |   | (2,007  | )    |   |       |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Amortisation                                                                                                |                  |  |         |    |  | (2,851  | )    |   | (2,569  | )    |   | (469   | )   
|                                                                                                            |                 
|Total
        operating costs                                                                               |                  |  | 5       |    |  | (10,466 | )    |   | (10,773 | )    |   | (8,233 | )   
|                                                                                                            |                 
|Group
        operating loss *                                                                              |                  |  |         |    |  | (6,075  | )    |   | (5,025  | )    |   | (382   | )   
|Share
        of operating profits in joint ventures                                                        |                  |  | 17      |    |  | 53      |      |   | 95      |      |   | 97     |     
|Share
        of operating profits in associates                                                            |                  |  | 17      |    |  | 22      |      |   | 20      |      |   | 17     |     
|                                                                                                            |                 
|Total
        operating loss                                                                                |                  |  |         |    |  | (6,000  | )    |   | (4,910  | )    |   | (268   | )   
|Exceptional
        profits less (losses) on sale and termination of operations                             |                  |  | 10      |    |  | (147    | )    |   | 1,057   |      |   | 4,311  |     
|Exceptional
        costs of fundamental reorganisation                                                     |                  |  | 10      |    |  |        |      |   |        |      |   | (530   | )   
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Profits
        less (losses) on disposal of fixed assets before exceptional items                          |                  |  | 9       |    |  |        |      |   | (7      | )    |   | 4      |     
|Exceptional
        items                                                                                   |                  |  | 10      |    |  | 62      |      |   |        |      |   | 42     |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Profits
        less (losses) on disposal of fixed assets                                                   |                  |  |         |    |  | 62      |      |   | (7      | )    |   | 46     |     
|Exceptional
        write down of investments                                                               |                  |  | 10      |    |  | (390    | )    |   | (904    | )    |   | (43    | )   
|                                                                                                            |                 
|(Loss)/profit
        on ordinary activities before interest                                                |                  |  |         |    |  | (6,475  | )    |   | (4,764  | )    |   | 3,516  |     
|Net
        interest and other similar income/(charges)                                                     |                  |  |         |    |  |         |      |   |         |      |   |        |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|
        Group (including exceptional finance charges of £nil, 2002 - £nil,
        2001 - £110m)          |                  |  | 10,11   |    |  | 103     |      |   | 227     |      |   |       |     
|
        joint ventures and associates                                                                     |                  |  | 17      |    |  | (1      | )    |   | (12     | )    |   |       |     
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Total
        net interest and other similar income                                                         |                  |  |         |    |  | 102     |      |   | 215     |      |   |       |     
|                                                                                                            |                 
|(Loss)/profit
        on ordinary activities before taxation                                                |                  |  |         |    |  | (6,373  | )    |   | (4,549  | )    |   | 3,516  |     
|Tax
        on (loss)/profit on ordinary activities                                                         |                  |  | 9,10,12 |    |  | (36     | )    |   | (311    | )    |   | (520   | )   
|                                                                                                            |                 
|(Loss)/profit
        on ordinary activities after taxation                                                 |                  |  |         |    |  | (6,409  | )    |   | (4,860  | )    |   | 2,996  |     
|Equity
        minority interests                                                                           |                  |  |         |    |  | (124    | )    |   | (94     | )    |   | (258   | )   
|                                                                                                            |                 
|(Loss)/profit
        for the financial year                                                                |                  |  |         |    |  | (6,533  | )    |   | (4,954  | )    |   | 2,738  |     
|Dividends                                                                                                   |                  |  | 13      |    |  | (37     | )    |   | (427    | )    |   | (462   | )   
|                                                                                                            |                 
|(Loss)/profit
        for the year retained                                                                 |                  |  | 25      |    |  | (6,570  | )    |   | (5,381  | )    |   | 2,276  |     
|                                                                                                            |                 
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Basic
        (loss)/earnings per Ordinary Share                                                            |                  |  | 14      |    |  | (280.4  | )p   |   | (181.2  | )p   |   | 100.3  | p   
|Basic
        (loss)/earnings per Ordinary Share before exceptional items and goodwill
        amortisation |                  |  | 14      |    |  | (18.0   | )p   |   | (8.4    | )p   |   | 11.2   | p   
|Diluted
        (loss)/earnings per Ordinary Share                                                          |                  |  | 14      |    |  | (280.4  | )p   |   | (181.2  | )p   |   | 99.2   | p   
|                                                                                                            |                  |  |         |    |  |         |      |   |         |      |   |        |     
|Dividends
        per Ordinary Share                                                                        |                  |  |         |    |  | 1.6     | p    |   | 16.5    | p    |   | 16.5   | p   
|                                                                                                            |                 

The accompanying notes are an integral part of these Financial Statements.

|* Refer to page 83 for continuing operations analysis and page 84 for discontinued operations analysis.
|-------------------------------------------------------------------------------------------------------



---



---



Back to Contents

consolidated
  profit and loss account

---



CONTINUING
  OPERATIONS PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH

|                                                                                   |                  |  |         |    |  | 2003       |      |   | 2002       |      |   | 2001       |     
|---------------------------------------------------------------------------------- | ---------------- |  | ------- | -- |  | ---------- | ---- | - | ---------- | ---- | - | ---------- | ----
|                                                                                   |                  |  |         |    |  | Continuing |      |   | Continuing |      |   | Continuing |     
|                                                                                   |                  |  |         |    |  | operations |      |   | operations |      |   | operations |     
|                                                                                   |                  |  | Note    |    |  | £m         |      |   | £m         |      |   | £m         |     
|                                                                                   |                 
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Turnover
        of the Group including its share of joint ventures and associates |                  |  | 3       |    |  | 4,507      |      |   | 4,984      |      |   | 4,966      |     
|Share
        of turnover of                                                       |  joint ventures |  |         | 17 |  |            | (195 | ) |            | (216 | ) |            | (218
|                                                                                   |  associates     |  |         | 17 |  |            | (65  | ) |            | (65  | ) |            | (60 
|                                                                                   |                 
|Group
        turnover                                                             |                  |  | 3,4     |    |  | 4,247      |      |   | 4,703      |      |   | 4,688      |     
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Operating
        costs before depreciation, amortisation and exceptional items    |                  |  | 5       |    |  | (3,818     | )    |   | (3,925     | )    |   | (3,731     | )   
|Exceptional
        operating costs                                                |                  |  | 5,10    |    |  | (442       | )    |   | (204       | )    |   |           |     
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Operating
        costs before depreciation and amortisation                       |                  |  |         |    |  | (4,260     | )    |   | (4,129     | )    |   | (3,731     | )   
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Depreciation
        before exceptional items                                      |                  |  | 5       |    |  | (711       | )    |   | (912       | )    |   | (649       | )   
|Exceptional
        depreciation                                                   |                  |  | 5,10    |    |  | (2,324     | )    |   | (1,822     | )    |   | (353       | )   
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Depreciation                                                                       |                  |  |         |    |  | (3,035     | )    |   | (2,734     | )    |   | (1,002     | )   
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Amortisation
        of capitalised goodwill before exceptional items              |                  |  | 5,15    |    |  | (126       | )    |   | (561       | )    |   | (270       | )   
|Exceptional
        amortisation                                                   |                  |  | 5,10,15 |    |  | (2,725     | )    |   | (1,794     | )    |   |           |     
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Amortisation                                                                       |                  |  |         |    |  | (2,851     | )    |   | (2,355     | )    |   | (270       | )   
|                                                                                   |                 
|Total
        operating costs                                                      |                  |  | 5       |    |  | (10,146    | )    |   | (9,218     | )    |   | (5,003     | )   
|                                                                                   |                 
|Group
        operating loss                                                       |                  |  |         |    |  | (5,899     | )    |   | (4,515     | )    |   | (315       | )   
|Share
        of operating profits in joint ventures                               |                  |  | 17      |    |  | 53         |      |   | 51         |      |   | 56         |     
|Share
        of operating profits in associates                                   |                  |  | 17      |    |  | 22         |      |   | 20         |      |   | 17         |     
|                                                                                   |                 
|Total
        operating loss                                                       |                  |  |         |    |  | (5,824     | )    |   | (4,444     | )    |   | (242       | )   
|Exceptional
        costs of fundamental reorganisation                            |                  |  | 10      |    |  |           |      |   |           |      |   | (530       | )   
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Profits
        less (losses) on disposal of fixed assets before exceptional items |                  |  | 9       |    |  |           |      |   | (10        | )    |   | 4          |     
|Exceptional
        items                                                          |                  |  | 10      |    |  | 62         |      |   |           |      |   | 8          |     
|                                                                                   |                  |  |         |    |  |            |      |   |            |      |   |            |     
|Profits
        less (losses) on disposal of fixed assets                          |                  |  |         |    |  | 62         |      |   | (10        | )    |   | 12         |     
|Exceptional
        write down of investments                                      |                  |  | 10      |    |  | (390       | )    |   | (904       | )    |   | (43        | )   
|                                                                                   |                 
|Loss
        on ordinary activities before interest                                |                  |  |         |    |  | (6,152     | )    |   | (5,358     | )    |   | (803       | )   
|                                                                                   |                 

The accompanying notes are an integral part of these Financial Statements.



---

Page 83




---



Back to Contents

consolidated
  profit and loss account

---



DISCONTINUED OPERATIONS PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH

|                                                                                   |                  |  |      |    |  | 2003         |   |  | 2002         |     |   | 2001         |     
|---------------------------------------------------------------------------------- | ---------------- |  | ---- | -- |  | ------------ | - |  | ------------ | --- | - | ------------ | ----
|                                                                                   |                  |  |      |    |  | Discontinued |   |  | Discontinued |     |   | Discontinued |     
|                                                                                   |                  |  |      |    |  | operations   |   |  | operations   |     |   | operations   |     
|                                                                                   |                  |  | Note |    |  | £m           |   |  | £m           |     |   | £m           |     
|                                                                                   |                 
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Turnover
        of the Group including its share of joint ventures and associates |                  |  | 3    |    |  | 144          |   |  | 1,114        |     |   | 3,279        |     
|Share
        of turnover of                                                       |  joint ventures |  |      | 17 |  |              |  |  |              | (69 | ) |              | (115
|                                                                                   |  associates     |  |      | 17 |  |              |  |  |              |    |   |              | (1  
|                                                                                   |                 
|Group
        turnover                                                             |                  |  | 3,4  |    |  | 144          |   |  | 1,045        |     |   | 3,163        |     
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Operating
        costs before depreciation, amortisation and exceptional items    |                  |  | 5    |    |  | (239         | ) |  | (1,088       | )   |   | (2,463       | )   
|Exceptional
        operating costs                                                |                  |  | 5,10 |    |  |             |   |  | (6           | )   |   |             |     
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Operating
        costs before depreciation and amortisation                       |                  |  |      |    |  | (239         | ) |  | (1,094       | )   |   | (2,463       | )   
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Depreciation
        before exceptional items                                      |                  |  | 5    |    |  | (24          | ) |  | (160         | )   |   | (477         | )   
|Exceptional
        depreciation                                                   |                  |  | 5,10 |    |  | (57          | ) |  | (87          | )   |   | (91          | )   
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Depreciation                                                                       |                  |  |      |    |  | (81          | ) |  | (247         | )   |   | (568         | )   
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Amortisation
        of capitalised goodwill before exceptional items              |                  |  | 5    |    |  |             |   |  | (1           | )   |   | (199         | )   
|Exceptional
        amortisation                                                   |                  |  | 5,10 |    |  |             |   |  | (213         | )   |   |             |     
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Amortisation                                                                       |                  |  |      |    |  |             |   |  | (214         | )   |   | (199         | )   
|                                                                                   |                 
|Total
        operating costs                                                      |                  |  | 5    |    |  | (320         | ) |  | (1,555       | )   |   | (3,230       | )   
|                                                                                   |                 
|Group
        operating loss                                                       |                  |  |      |    |  | (176         | ) |  | (510         | )   |   | (67          | )   
|Share
        of operating profits in joint ventures                               |                  |  | 17   |    |  |             |   |  | 44           |     |   | 41           |     
|                                                                                   |                 
|Total
        operating loss                                                       |                  |  |      |    |  | (176         | ) |  | (466         | )   |   | (26          | )   
|Exceptional
        profits less (losses) on sale and termination of operations    |                  |  | 10   |    |  | (147         | ) |  | 1,057        |     |   | 4,311        |     
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Profits
        less (losses) on disposal of fixed assets before exceptional items |                  |  | 9    |    |  |             |   |  | 3            |     |   |             |     
|Exceptional
        items                                                          |                  |  | 10   |    |  |             |   |  |             |     |   | 34           |     
|                                                                                   |                  |  |      |    |  |              |   |  |              |     |   |              |     
|Profits
        less (losses) on disposal of fixed assets                          |                  |  |      |    |  |             |   |  | 3            |     |   | 34           |     
|                                                                                   |                 
|(Loss)/profit
        on ordinary activities before interest                       |                  |  |      |    |  | (323         | ) |  | 594          |     |   | 4,319        |     
|                                                                                   |                 

The accompanying notes are an integral part of these Financial Statements.



---



---



Back to Contents

consolidated
  balance sheet

---

CONSOLIDATED
  BALANCE SHEET AT 31 MARCH

|                                                                |                                |  |      |    |  | 2003   |       |  | 2002   |      
|--------------------------------------------------------------- | ------------------------------ |  | ---- | -- |  | ------ | ----- |  | ------ | -----
|                                                                |                                |  | Note |    |  | £m     |       |  | £m     |      
|                                                                |                               
|Fixed
        assets                                            |                                |  |      |    |  |        |       |  |        |      
|Intangible
        assets                                       |                                |  | 15   |    |  | (2     | )     |  | 2,900  |      
|Tangible
        assets                                         |                                |  | 16   |    |  | 1,937  |       |  | 4,617  |      
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Loans
        to joint ventures and associates                  |                                |  | 17   |    |  | 1      |       |  | 9      |      
|Interest
        in net assets of joint ventures*               |                                |  | 17   |    |  | 148    |       |  | 330    |      
|Investments
        in associates                               |                                |  | 17   |    |  | 83     |       |  | 78     |      
|Other
        investments                                       |                                |  | 17   |    |  | 123    |       |  | 209    |      
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Total
        fixed asset investments                           |                                |  |      |    |  | 355    |       |  | 626    |      
|                                                                |                               
|                                                                |                                |  |      |    |  | 2,290  |       |  | 8,143  |      
|                                                                |                               
|Current
        assets                                          |                                |  |      |    |  |        |       |  |        |      
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Stocks                                                          |                                |  | 18   |    |  | 51     |       |  | 82     |      
|Current
        asset investments                               |                                |  | 19   |    |  | 246    |       |  | 1,155  |      
|Debtors                                                         |  due within one year          |  |      | 20 |  |        | 1,455 |  |        | 2,374
|                                                                |  due after more than one year |  |      | 20 |  |        | 166   |  |        | 164  
|Short
        term deposits                                     |                                |  | 21   |    |  | 2,958  |       |  | 4,063  |      
|Cash
        at bank and in hand                                |                                |  | 21   |    |  | 196    |       |  | 216    |      
|                                                                |                               
|                                                                |                                |  |      |    |  | 5,072  |       |  | 8,054  |      
|Creditors:
        amounts falling due within one year          |                                |  | 22   |    |  | (3,275 | )     |  | (3,971 | )    
|                                                                |                               
|Net
        current assets                                      |                                |  |      |    |  | 1,797  |       |  | 4,083  |      
|                                                                |                               
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Total
        assets less current liabilities                   |                                |  |      |    |  | 4,087  |       |  | 12,226 |      
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Creditors:
        amounts falling due after more than one year |                                |  | 22   |    |  | (807   | )     |  | (2,031 | )    
|Provisions
        for liabilities and charges                  |                                |  | 23   |    |  | (760   | )     |  | (838   | )    
|                                                                |                               
|                                                                |                                |  |      |    |  | (1,567 | )     |  | (2,869 | )    
|                                                                |                               
|Net
        assets                                              |                                |  |      |    |  | 2,520  |       |  | 9,357  |      
|                                                                |                               
|                                                                |                                |  |      |    |  |        |       |  |        |      
|Capital
        and reserves                                    |                                |  |      |    |  |        |       |  |        |      
|Called
        up share capital                                 |                                |  | 24   |    |  | 596    |       |  | 595    |      
|Share
        premium account                                   |                                |  | 25   |    |  | 1,745  |       |  | 1,745  |      
|Capital
        redemption reserve                              |                                |  | 25   |    |  | 105    |       |  | 105    |      
|Profit
        and loss account                                 |                                |  | 25   |    |  | (297   | )     |  | 6,513  |      
|                                                                |                               
|Equity
        shareholders funds                              |                                |  |      |    |  | 2,149  |       |  | 8,958  |      
|Equity
        minority interests                               |                                |  |      |    |  | 371    |       |  | 399    |      
|                                                                |                               
|Capital
        employed                                        |                                |  |      |    |  | 2,520  |       |  | 9,357  |      
|                                                                |                               
|                                                                |                                |  |      |    |  |        |       |  |        |      

|* | Interests in net assets of joint ventures include the Groups share of gross assets of joint ventures of £224 million (2002  £492 million) and the Groups share of gross liabilities of joint ventures of £76 million (2002  £162 million)  see Note 17.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The accompanying notes are an integral part of these Financial Statements

The Financial Statements on pages 82 to 143 were approved by the Board of Directors on 3 June 2003 and signed on its behalf by:

|Richard Lapthorne  Chairman | David Prince  Group Finance Director
|---------------------------- | -------------------------------------



---

Page 85




---



Back to Contents

company balance
  sheet

---



COMPANY BALANCE SHEET AT 31 MARCH

|                                                                |                                |  |      |    |  | 2003    |     |  | 2002    |    
|--------------------------------------------------------------- | ------------------------------ |  | ---- | -- |  | ------- | --- |  | ------- | ---
|                                                                |                                |  | Note |    |  | £m      |     |  | £m      |    
|                                                                |                               
|Fixed
        assets                                            |                                |  |      |    |  |         |     |  |         |    
|Tangible
        assets                                         |                                |  | 16   |    |  | 22      |     |  | 42      |    
|                                                                |                                |  |      |    |  |         |     |  |         |    
|Loans
        to joint ventures and associates                  |                                |  | 17   |    |  | 1       |     |  | 11      |    
|Investments
        in associates                               |                                |  | 17   |    |  | 24      |     |  | 17      |    
|Investments
        in subsidiaries                             |                                |  | 17   |    |  | 18,116  |     |  | 24,733  |    
|Other
        investments                                       |                                |  | 17   |    |  | 85      |     |  | 174     |    
|                                                                |                                |  |      |    |  |         |     |  |         |    
|Total
        fixed asset investments                           |                                |  |      |    |  | 18,226  |     |  | 24,935  |    
|                                                                |                               
|                                                                |                                |  |      |    |  | 18,248  |     |  | 24,977  |    
|                                                                |                               
|Current
        assets                                          |                                |  |      |    |  |         |     |  |         |    
|                                                                |                                |  |      |    |  |         |     |  |         |    
|Stock                                                           |                                |  | 18   |    |  | 1       |     |  | 1       |    
|Current
        asset investments                               |                                |  | 19   |    |  | 11      |     |  | 308     |    
|Debtors                                                         |  due within one year          |  |      | 20 |  |         | 154 |  |         | 480
|                                                                |  due after more than one year |  |      | 20 |  |         | 90  |  |         | 73 
|Short
        term deposits                                     |                                |  | 21   |    |  | 2,755   |     |  | 1,705   |    
|Cash
        at bank and in hand                                |                                |  |      |    |  | 28      |     |  | 5       |    
|                                                                |                               
|                                                                |                                |  |      |    |  | 3,039   |     |  | 2,572   |    
|Creditors:
        amounts falling due within one year          |                                |  | 22   |    |  | (1,132  | )   |  | (978    | )  
|                                                                |                               
|Net
        current assets                                      |                                |  |      |    |  | 1,907   |     |  | 1,594   |    
|                                                                |                               
|                                                                |                                |  |      |    |  |         |     |  |         |    
|                                                                |                               
|Total
        assets less current liabilities                   |                                |  |      |    |  | 20,155  |     |  | 26,571  |    
|                                                                |                                |  |      |    |  |         |     |  |         |    
|Creditors:
        amounts falling due after more than one year |                                |  | 22   |    |  | (16,482 | )   |  | (15,265 | )  
|Provisions
        for liabilities and charges                  |                                |  | 23   |    |  | (19     | )   |  | (217    | )  
|                                                                |                               
|                                                                |                                |  |      |    |  | (16,501 | )   |  | (15,482 | )  
|                                                                |                               
|Net
        assets                                              |                                |  |      |    |  | 3,654   |     |  | 11,089  |    
|                                                                |                               
|Capital
        and reserves                                    |                                |  |      |    |  |         |     |  |         |    
|Called
        up share capital                                 |                                |  | 24   |    |  | 596     |     |  | 595     |    
|Share
        premium account                                   |                                |  | 25   |    |  | 1,745   |     |  | 1,745   |    
|Revaluation
        reserve                                     |                                |  | 25   |    |  | 9,379   |     |  | 9,156   |    
|Capital
        redemption reserve                              |                                |  | 25   |    |  | 105     |     |  | 105     |    
|Profit
        and loss account                                 |                                |  |      |    |  |         |     |  |         |    
|                                                                |                                |  |      |    |  |         |     |  |         |    
|
        Realised profit                                       |                                |  |      |    |  | 2,970   |     |  | 3,114   |    
|
        Unrealised loss                                       |                                |  |      |    |  | (11,141 | )   |  | (3,626  | )  
|                                                                |                                |  |      |    |  |         |     |  |         |    
|                                                                |                                |  | 25   |    |  | (8,171  | )   |  | (512    | )  
|                                                                |                               
|Equity
        shareholders funds                              |                                |  |      |    |  | 3,654   |     |  | 11,089  |    
|                                                                |                               
|                                                                |                                |  |      |    |  |         |     |  |         |    



The accompanying notes are an integral part of these Financial Statements.

The Financial Statements on pages 82 to 143 were approved by the Board of Directors on 3 June 2003 and signed on its behalf by:

|Richard Lapthorne  Chairman | David Prince  Group Finance Director
|---------------------------- | -------------------------------------



---



---



Back to Contents

consolidated
  cash flow statement

---



CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH

|                                                                                                      |  |  |      |  |  | 2003   |   |  | 2002   |   |  | 2001   |  
|----------------------------------------------------------------------------------------------------- |  |  | ---- |  |  | ------ | - |  | ------ | - |  | ------ | -
|                                                                                                      |  |  | Note |  |  | £m     |   |  | £m     |   |  | £m     |  
|                                                                                                      | 
|Net
        cash inflow from operating activities                                                     |  |  | 29   |  |  | 95     |   |  | 94     |   |  | 1,287  |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Dividends
        from joint ventures                                                                 |  |  |      |  |  | 13     |   |  | 11     |   |  | 66     |  
|Dividends
        from associates                                                                     |  |  |      |  |  | 15     |   |  | 15     |   |  | 15     |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  | 28     |   |  | 26     |   |  | 81     |  
|Returns
        on investments and servicing of finance                                               |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Interest
        and similar income received                                                          |  |  |      |  |  | 197    |   |  | 383    |   |  | 334    |  
|Interest
        paid (including exceptional finance charges of £nil, 2002£nil,
        2001 £110m) |  |  |      |  |  | (88    | ) |  | (238   | ) |  | (384   | )
|Net
        interest element of finance lease rentals paid                                            |  |  |      |  |  | (2     | ) |  | (5     | ) |  | (4     | )
|Dividends
        paid to minorities                                                                  |  |  |      |  |  | (70    | ) |  | (61    | ) |  | (262   | )
|Dividends
        received from preference shares                                                     |  |  |      |  |  |       |   |  | 54     |   |  | 14     |  
|Income
        received from other investments                                                        |  |  |      |  |  |       |   |  |       |   |  | 9      |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  | 37     |   |  | 133    |   |  | (293   | )
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Taxation                                                                                              |  |  |      |  |  | (438   | ) |  | (139   | ) |  | (310   | )
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Capital
        expenditure and financial investment                                                  |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Purchase
        of tangible fixed assets                                                             |  |  |      |  |  | (810   | ) |  | (1,868 | ) |  | (3,293 | )
|Purchase
        of intangible fixed assets                                                           |  |  |      |  |  |       |   |  |       |   |  | (72    | )
|Sale
        of tangible fixed assets                                                                 |  |  |      |  |  | 15     |   |  | 21     |   |  | 123    |  
|Purchase
        of current asset investments                                                         |  |  |      |  |  | (3     | ) |  | (608   | ) |  | (804   | )
|Purchase
        of investments                                                                       |  |  |      |  |  | (38    | ) |  | (121   | ) |  | (84    | )
|Sale
        of current asset investments                                                             |  |  |      |  |  | 600    |   |  |       |   |  |       |  
|Sale
        of investments                                                                           |  |  |      |  |  | 11     |   |  | 900    |   |  | 26     |  
|Capital
        element of finance lease rentals received                                             |  |  |      |  |  |       |   |  |       |   |  | 41     |  
|Loans
        to joint ventures and associates                                                        |  |  |      |  |  | 10     |   |  | 2      |   |  | (1     | )
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  | (215   | ) |  | (1,674 | ) |  | (4,064 | )
|Acquisitions
        and disposals                                                                    |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Receipts
        from sales of subsidiary undertakings                                                |  |  |      |  |  | 14     |   |  | 2,372  |   |  | 5,311  |  
|Purchase
        of selected assets and business activities of Exodus                                 |  |  |      |  |  |       |   |  | (478   | ) |  |       |  
|Purchase
        of shareholdings in subsidiary undertakings (net of cash received)                   |  |  |      |  |  | 2      |   |  | (49    | ) |  | (349   | )
|Payments
        to acquire investments in joint ventures and associates                              |  |  |      |  |  |       |   |  |       |   |  | (30    | )
|Receipts
        from sale of associates                                                              |  |  |      |  |  | 94     |   |  |       |   |  |       |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  | 110    |   |  | 1,845  |   |  | 4,932  |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Equity
        dividends paid to shareholders                                                         |  |  |      |  |  | (119   | ) |  | (669   | ) |  | (395   | )
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Management
        of liquid resources                                                                |  |  |      |  |  |        |   |  |        |   |  |        |  
|Movement
        in short term investments and fixed deposits (net)                                   |  |  | 32   |  |  | (1,040 | ) |  | 2,586  |   |  | 129    |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Financing                                                                                             |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|Purchase
        of own shares                                                                        |  |  |      |  |  |       |   |  | (1,107 | ) |  |       |  
|Issue
        of ordinary share capital                                                               |  |  |      |  |  | 1      |   |  | 2      |   |  | 40     |  
|Capital
        element of finance lease rental repayments                                            |  |  |      |  |  | (18    | ) |  | (15    | ) |  | (12    | )
|Other
        long term debt issued                                                                   |  |  |      |  |  | 88     |   |  | 1,338  |   |  | 746    |  
|Long
        term debt repaid                                                                         |  |  |      |  |  | (649   | ) |  | (785   | ) |  | (1,718 | )
|                                                                                                      |  |  |      |  |  |        |   |  |        |   |  |        |  
|                                                                                                      |  |  |      |  |  | (578   | ) |  | (567   | ) |  | (944   | )
|                                                                                                      | 
|(Decrease)/increase
        in cash in the year                                                       |  |  | 30   |  |  | (2,120 | ) |  | 1,635  |   |  | 423    |  
|                                                                                                      | 

The accompanying notes are an integral part of these Financial Statements.



---

Page 87




---



Back to Contents

---



CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 MARCH

|                                                                                                            |  |  | 2003   |   |  | 2002   |   |  | 2001  | 
|----------------------------------------------------------------------------------------------------------- |  |  | ------ | - |  | ------ | - |  | ----- | 
|                                                                                                            |  |  | £m     |   |  | £m     |   |  | £m    | 
|                                                                                                            | 
|                                                                                                            |  |  |        |   |  |        |   |  |       | 
|(Loss)/profit
        for the financial year                                                                |  |  | (6,533 | ) |  | (4,954 | ) |  | 2,738 | 
|Currency
        translation differences on foreign currency net investments and related
        borrowings |  |  | (240   | ) |  | 20     |   |  | 190   | 
|Tax
        (charge)/credit on translation differences taken to reserves                                    |  |  |       |   |  | (3     | ) |  | 11    | 
|Other                                                                                                       |  |  |       |   |  |       |   |  | 4     | 
|                                                                                                            | 
|Total
        (losses)/gains relating to the financial year                                                 |  |  | (6,773 | ) |  | (4,937 | ) |  | 2,943 | 
|                                                                                                            |  |  |        |   |  |       
|Prior
        year adjustment  change in accounting policy for capacity sales
        (Note 4)             |  |  | (66    | ) |  |        |   |  |       | 
|                                                                                                            |  |  |        |   |  |        |  
|Total
        losses recognised since last annual report                                                    |  |  | (6,839 | ) |  |        |   |  |       | 
|                                                                                                            | 

---

Page 88

---



Back to Contents

---



RECONCILIATION OF MOVEMENTS IN CONSOLIDATED EQUITY SHAREHOLDERS FUNDS FOR THE YEAR ENDED 31 MARCH

|                                                           |  |  | 2003   |   |  | 2002   |  
|---------------------------------------------------------- |  |  | ------ | - |  | ------ | -
|                                                           |  |  | £m     |   |  | £m     |  
|                                                           | 
|Loss for the financial year                                |  |  | (6,533 | ) |  | (4,954 | )
|Dividends                                                  |  |  |        |   |  |        |  
| interim                                                  |  |  | (37    | ) |  | (40    | )
| special interim                                          |  |  |       |   |  | (304   | )
| final                                                    |  |  |       |   |  | (83    | )
|                                                           | 
|Loss for the year carried forward                          |  |  | (6,570 | ) |  | (5,381 | )
|Other recognised gains and losses relating to the year     |  |  | (240   | ) |  | 17     |  
|Purchase of own shares                                     |  |  |       |   |  | (1,107 | )
|New share capital issued                                   |  |  | 1      |   |  | 2      |  
|Goodwill written back                                      |  |  |       |   |  | 410    |  
|                                                           | 
|Net decrease in equity shareholders funds                 |  |  | (6,809 | ) |  | (6,059 | )
|Opening equity shareholders funds (prior years adjusted)* |  |  | 8,958  |   |  | 15,017 |  
|                                                           | 
|Closing equity shareholders funds                         |  |  | 2,149  |   |  | 8,958  |  
|                                                           | 

|* | Opening equity shareholders
              funds were originally £9,024 million before deducting a prior
              year adjustment of £66 million (2002  £15,252
              million before deducting a prior year adjustment of £235 million)
              relating to a change in accounting policy for capacity sales.
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------
|RECONCILIATION
      OF MOVEMENTS IN EQUITY SHAREHOLDERS FUNDS FOR THE COMPANY FOR THE
      YEAR ENDED 31 MARCH
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|                                                                                                                 
|Loss
        for the financial year                                                                              
|Dividends                                                                                                        
|
        interim                                                                                                
|
        special interim                                                                                        
|
        final                                                                                                  
|                                                                                                                 
|Loss
        for the year carried forward                                                                        
|Other
        recognised gains relating to the year                                                              
|Revaluation                                                                                                      
|Purchase
        of own shares                                                                                   
|New
        share capital issued                                                                                 
|                                                                                                                 
|Net
        (decrease)/increase in equity shareholders funds                                                    
|Opening
        equity shareholders funds                                                                       
|                                                                                                                 
|Closing
        equity shareholders funds                                                                       
|                                                                                                                 

The accompanying notes are an integral part of these Financial Statements.



---

Page 89



---



Back to Contents

statement of accounting policies



---



STATEMENT OF ACCOUNTING POLICIES

|Basis of preparation
|--------------------

The accounts are prepared in accordance with applicable accounting standards and on the historical cost basis except for the revaluation of investments in subsidiaries in the Companys accounts.

The accompanying consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom (UK GAAP) which differ in certain significant respects from generally accepted accounting principles in the United States (US GAAP), (see Note 36  Summary of differences between United Kingdom and United States GAAP).

The preparation of Financial Statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

|New accounting standards
|------------------------

The Group sells network capacity to third parties pursuant to indefeasible rights-of-use agreements (IRUs). In prior periods, in accordance with UK accounting standards, where substantially all of the risks and rewards of ownership transfer to the purchaser, over the economic life of the asset, these transactions were accounted for as sales and recognised in turnover at fair value at the time of delivery and acceptance.

On 27 March 2003, the Urgent Issues Task Force (UITF) of the UK Accounting Standards Board issued UITF Abstract 36, Contracts for sales of capacity. The abstract is applicable for accounting periods ending on or after 30 June 2003, although early adoption is encouraged, and application is retrospective. The Group has adopted UITF Abstract 36 for the year ended 31 March 2003.

As a result of the adoption of the new abstract, revenues or gains in respect of capacity sales to carriers from whom capacity or other services were also acquired are no longer recognised as the transactions are not considered to meet all the conditions required under the new abstract, in particular the requirement for the capacity provided or received to have a readily ascertainable market value as set out in Financial Reporting Standard 10 Goodwill and intangible assets. The Groups cash sales to carriers with no related purchase are largely unaffected by the conditions of the new abstract and will continue to be recognised at the time of delivery and acceptance.

The impact of adoption on the reported results of the Group is set out in Note 4 to the Financial Statements, including the impact on prior period comparatives as the abstract applies retrospectively. The revised accounting policy is set out on page 92.

|Basis of consolidation
|----------------------

The Group accounts comprise a consolidation of the accounts of the Company and all its subsidiaries and include the Groups share of the results and net assets of its joint ventures and associates. The accounts of principal subsidiaries, joint ventures and associates are made up to 31 March.

Where subsidiaries, joint ventures or associates have been acquired during the year, goodwill, being the difference between the fair value of consideration given and the fair values attributed to the separable net assets acquired, is capitalised on the balance sheet and amortised through the profit and loss account.

For acquisitions made before 1 April 1998, goodwill was written off directly to reserves. Goodwill written off directly to reserves is reinstated in the profit and loss account when the related business is sold.



---

Page 90

---



Back to Contents

statement of accounting policies



---



|                  
|------------------
|Foreign currencies

Average rates of exchange ruling during the year are used to translate the profit and loss accounts of overseas subsidiaries, joint ventures and associates. Foreign currency assets and liabilities are translated at year end rates and any exchange differences arising are dealt with through the profit and loss account.

The net investments in the Groups overseas subsidiaries, joint ventures and associates are translated into sterling at year end rates of exchange. Exchange differences resulting from the translation of opening net investments at rates ruling at the beginning and end of the year, together with the differences between profit and loss accounts translated at average rates and year end rates, are dealt with as movements in Group reserves.

Where net investments are matched in whole or in part by foreign currency borrowings, the exchange differences arising on the retranslation of such borrowings are also recorded as movements on Group reserves and any excess taken to the profit and loss account.

All other exchange differences are dealt with through the profit and loss account.

|Tangible fixed assets and depreciation
|--------------------------------------

Tangible fixed assets are stated at cost less depreciation. The cost of fixed assets includes directly attributable labour and overhead costs. Interest incurred up to the time that separately identifiable major capital projects are ready for service is also capitalised as part of the cost of assets.

Depreciation is not provided on freehold land or projects under construction. On other tangible fixed assets, depreciation is provided on the difference between the cost of tangible fixed assets and the estimated residual value, in equal annual instalments over the estimated useful lives of the assets. These lives are:

|                             |  |  | Lives                                   |  |  | Average  | 
|---------------------------- |  |  | --------------------------------------- |  |  | -------- | 
|                             | 
|Cables                       |  |  | up to 20 years                          |  |  | 15 years | 
|Network equipment            |  |  | 3 to 25 years                           |  |  | 8 years  | 
|Ducting                      |  |  | 40 years                                |  |  | 40 years | 
|Freehold buildings           |  |  | 40 years                                |  |  | 40 years | 
|Leasehold land and buildings |  |  | up to 40 years or term of lease if less |  |  | 40 years | 
|                             | 

Surpluses and deficits on disposals of tangible fixed assets are determined by reference to sale proceeds and net book values.

|Intangible fixed assets
|-----------------------

From 1 April 1998 intangible fixed assets acquired have been recorded at cost and amortised on a straight line basis over their estimated useful life, not exceeding 20 years. Intangible fixed assets primarily comprise goodwill arising on the acquisition of businesses.

Goodwill arising on acquisition prior to 1 April 1998 was eliminated directly against reserves. The profit or loss on the disposal of all or part of a previously acquired business is calculated after taking account of the gross amount of any goodwill previously eliminated directly against reserves.

|Asset impairment
|----------------

Intangible and tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of the fixed asset may not be recoverable. Where an impairment indicator is identified, the carrying value of the income generating unit is compared with its recoverable amount. Where the recoverable amount is less than the carrying value an impairment is recognised.



---

Page 91



---



Back to Contents

statement of accounting policies



---



|Fixed asset investments
|-----------------------

Joint ventures and associates are accounted for in the Group accounts under the gross equity and equity methods of accounting respectively.

Other fixed asset investments in the Group accounts are stated at cost less amounts written off in respect of any impairments.

Investments in subsidiaries are included in the Company balance sheet at valuation.

|Current asset investments
|-------------------------

Current asset investments are stated at the lower of cost and net realisable value.

|Tax
|---

The charge for tax is based on the result for the year and takes into account tax deferred due to timing differences between the treatment of certain items for tax and accounting purposes.

Deferred tax assets are recognised to the extent that they are regarded as recoverable. Deferred tax assets are regarded as recoverable to the extent that on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.

Except where otherwise required by accounting standards, full provision without discounting is made for all timing differences which have arisen but not reversed at the balance sheet date.

|Stocks
|------

Stocks of equipment, held for use in the maintenance and expansion of the Groups telecommunications systems, are stated at cost, including appropriate allocation of labour and overheads, less provision for deterioration and obsolescence. Stocks held for resale are stated at the lower of cost and net realisable value.

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

The Group complies with Financial Reporting Standard 3 (FRS 3), Reporting financial performance, in determining the classification of operations as discontinued or continuing.

|Revenue recognition
|-------------------

Turnover, which excludes value added tax, represents the amount receivable in respect of telecommunications services provided to customers and is accounted for on the accruals basis. Amounts are recognised as services are provided; in respect of services invoiced in advance, amounts are deferred until provision of the service.

|Interconnection with other operators
|------------------------------------

Amounts payable by and to telecommunications operators of national and international networks are recognised as services are provided. Charges are negotiated separately and are subject to continuous review.

|Capacity sales
|--------------

Sales of network capacity to third parties pursuant to IRUs are accounted for as sales and recognised at the time of delivery and acceptance where:

---

Page 92

---



Back to Contents

statement of accounting policies



---



|  |                                                                                     |  |  |  |  |  |  |  |  |  |  |  | 
|- | ----------------------------------------------------------------------------------- |  |  |  |  |  |  |  |  |  |  |  | 
| | the purchasers right of use is exclusive and irrevocable;                         
| | the asset is specific and separable;                                               
| | the term of the contract is for the major part of the assets useful economic life;
| | the attributable cost of carrying value can be measured reliably; and              
| | no significant risks are retained by the Group.                                    

Capacity sales are made out of network capacity and infrastructure held for re-sale (stock). Transfers are made from fixed assets to stock at cost on completion of construction based on an estimate of what will be sold to third parties under IRU contracts (which typically form part of the original investment criteria). The cost of the construction is apportioned on a pro rata basis between stock and fixed assets. Income relating to operations and maintenance contracts is spread over the period of the contract.

Revenues or gains in respect of contracts involving the provision of capacity in exchange for receiving capacity, or other services, are not recognised on the basis that the capacity does not have a readily ascertainable market value as defined in accounting standards.

|Pensions
|--------

The regular cost of providing benefits under defined benefit schemes is charged to operating profit over the expected remaining service lives of the members of the schemes so as to achieve a constant percentage of pensionable pay. Variations from the regular cost arising from periodic actuarial valuations of the principal defined benefit schemes are allocated to operating profit over the expected remaining service lives of the members.

The cost of providing benefits under defined contribution schemes is charged as it becomes payable.

The Group has applied the transitional arrangements of Financial Reporting Standard 17 (FRS 17) Retirement benefits and appropriate additional disclosures have been included in Note 8.

|Leased assets
|-------------

Where assets are financed by leasing agreements that give rights approximating to ownership, the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable during the lease term. The corresponding lease commitments are shown as obligations to the lessor. Lease payments are split between capital and interest elements using the annuity method. Depreciation on the relevant assets and interest are charged to the profit and loss account. All other leases are operating leases and the rentals are charged to operating profit on a straight line basis over the lease term.

|Debt issue costs
|----------------

The costs of issue of capital instruments such as bonds and debentures are charged to the profit and loss account over the life of the instrument.

|Derivatives
|-----------

|                                 
|---------------------------------
|Swaps and forward rate agreements

The net interest paid or received under interest rate and cross currency swaps and forward rate agreements (FRAs) is recorded on an accruals basis and included within net interest in the profit and loss account.

The notional amounts of interest rate swaps and FRAs are not recorded on the balance sheet. Cross currency swaps are used to hedge the initial draw down and final repayment of foreign currency denominated debt, as well as the foreign currency interest flows.

---

Page 93



---



Back to Contents

statement of accounting policies



---



|Forward exchange contracts
|--------------------------

Forward exchange contracts are carried on the balance sheet at the difference between the amounts of the payable and receivable currency revalued at the closing exchange rate. The interest differential, being the difference between the contract rate and the spot rate on the date of entering into the forward exchange contract, is charged to the profit and loss account as interest over the life of the contract.

|Exchange gains and losses
|-------------------------

Exchange gains and losses on revaluation and maturity of forward exchange contracts and cross currency swaps are treated differently depending on the underlying exposure they hedge:

| | for contracts which hedge firm third party commitments the exchange gains and losses are recognised in the profit and loss account in the same period as the underlying transaction;                                                                
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | for contracts over underlying currency assets or liabilities the exchange gains and losses are off-set against the equal and opposite exchange gains or losses arising on the retranslation of the underlying assets or liabilities;                
| | for contracts taken out to hedge overseas equity investments the exchange gains and losses are taken to reserves to off-set against the exchange differences arising on the retranslation of the net assets of the investments on consolidation; and
| | for contracts which hedge general trading flows the exchange gains or losses are taken to the profit and loss account in the period in which they arise.                                                                                            

Where the underlying exposure changes, or ceases to exist, the contract would be terminated and the exchange gain or loss arising taken to the profit and loss account.



---

Page 94

---



Back to Contents

notes to the financial statements



---



NOTES TO THE FINANCIAL STATEMENTS

|1 | Companys
        profit and loss account
|- | -----------------------------------------

The Company has taken advantage of the exemption contained in the Companies Act 1985 from presenting its own profit and loss account. The loss for the year of the Company amounted to £7,639 million (2002  loss of £6,696 million, 2001 - profit of £810 million).

|2 | Historical
        cost profits and losses
|- | ------------------------------------------

There is no difference between the Group results as reported and on the historical cost basis. Accordingly no additional note of historical cost profits and losses has been prepared.

|3 | Turnover
|- | --------

The Groups operations are all considered to fall into one class of business, namely telecommunications.

|4 | Segmental
        information
|- | -----------------------------

Cable & Wireless is an international telecommunications company. During the periods presented it operated through two segments, Cable & Wireless Global and Cable & Wireless Regional, which can be further analysed by geographic area. Cable & Wireless Global provides communication solutions to business and wholesale customers. It offers IP, data and voice products with a focus on IP and data, centred on the key markets of US, Europe (including UK) and Japan. Cable & Wireless Regional provides a full range of telecommunications services to both consumer and business customers, including fixed and mobile voice, data and IP. The major businesses in this segment are in the Caribbean and Panama, but it also includes operations in Macau, the Middle East, South East Asia and in the Pacific, Indian and Atlantic Oceans.

Details of Group turnover, contributions to operating (loss)/profit, net operating assets/(liabilities) by geographical region are as follows:

|                             |  |  | 2003  |   |  | 2002  |   |  | 2001  |  
|---------------------------- |  |  | ----- | - |  | ----- | - |  | ----- | -
|Turnover                     |  |  | £m    |   |  | £m    |   |  | £m    |  
|                             | 
|Cable & Wireless Global      |  |  |       |   |  |       |   |  |       |  
|                             |  |  |       |   |  |       |   |  |       |  
|US                           |  |  | 512   |   |  | 530   |   |  | 503   |  
|UK                           |  |  | 1,728 |   |  | 2,075 |   |  | 2,158 |  
|Europe                       |  |  | 304   |   |  | 305   |   |  | 251   |  
|Japan                        |  |  | 323   |   |  | 361   |   |  | 450   |  
|                             |  |  |       |   |  |       |   |  |       |  
|                             |  |  | 2,867 |   |  | 3,271 |   |  | 3,362 |  
|Cable & Wireless Regional    |  |  |       |   |  |       |   |  |       |  
|                             |  |  |       |   |  |       |   |  |       |  
|Caribbean (including Panama) |  |  | 1,062 |   |  | 1,150 |   |  | 1,066 |  
|Asia (including Sakhalin)    |  |  | 154   |   |  | 156   |   |  | 199   |  
|Other                        |  |  | 195   |   |  | 160   |   |  | 168   |  
|                             |  |  |       |   |  |       |   |  |       |  
|                             |  |  | 1,411 |   |  | 1,466 |   |  | 1,433 |  
|                             |  |  |       |   |  |       |   |  |       |  
|Inter-regional turnover      |  |  | (31   | ) |  | (34   | ) |  | (107  | )
|                             | 
|Continuing operations        |  |  | 4,247 |   |  | 4,703 |   |  | 4,688 |  
|Discontinued operations      |  |  | 144   |   |  | 1,045 |   |  | 3,163 |  
|                             | 
|Group turnover               |  |  | 4,391 |   |  | 5,748 |   |  | 7,851 |  
|                             | 



---

Page 95



---



Back to Contents

notes to the financial statements



---



The Group turnover figure disclosed represents turnover of the Company and its subsidiaries allocated to the location to which the Group invoices its services. This is generally the same as the location to which telecommunications services are supplied. It does not follow, however, that international telecommunications traffic which the Group may be responsible for carrying on part of its route would necessarily originate in that location. The Group does not have access to information on the original source or ultimate destination of international telecommunications traffic.

Turnover for 2001 and 2002 has been adjusted to reflect the introduction of UITF Abstract 36 Contracts for sales of capacity (see below) and for operations now classified as discontinued.

Discontinued operations comprise sales in the US in 2003 of £144 million (2002  US £281 million and Australia £764 million, 2001  US £354 million, Australia £1,815 million, Hong Kong £878 million and UK £116 million).

The Company has adopted UITF Abstract 36 for the year ended 31 March 2003. The requirements of UITF Abstract 36 have been incorporated into a revised accounting policy for capacity sales. Accordingly the amounts for the current and corresponding periods have been updated on the basis of the new accounting policy. The impact of this change for the 12 months to 31 March 2003 is to decrease turnover by £nil (2002  £163 million, 2001  £248 million) in respect of sales made to carriers from whom capacity was also acquired, and to decrease cost of sales by £nil (2002  £76 million, 2001  £123 million). In respect of capacity purchases from carriers to whom Cable & Wireless also sold capacity, the net impact is to decrease the impairment charge in 2002 by £105 million, decrease the depreciation charge in 2003 by £2 million (2002  £12 million, 2001  £9 million) and
decrease exceptional operating costs by £3 million (2002  £128 million, 2001  £nil). The impact on profit for the year ended 31 March 2003 is an increase of £6 million (2002  increase of £168 million, 2001  decrease of £117 million). The cumulative effect of adopting UITF Abstract 36 was to decrease net assets by £66 million as at 31 March 2002.

Cash capacity sales of £nil (2002  £29 million, 2001  £91 million) are included within Group turnover, with attributable cost of sales of £nil (2002  £10 million, 2001  £37 million). Revenue from operating and maintenance and similar services relating to capacity was £11 million (2002  £37 million, 2001  £30 million), with cost of sales of £2 million (2002  £16 million, 2001  £13 million).

|(Loss)/profit on ordinary activities before interest and taxation
|-----------------------------------------------------------------

|                              |  |  | Operating (loss)/
      profit before
      exceptional |   |  | Exceptional |   | (Loss)/profit on ordinary activities before interest and taxation |       
|----------------------------- |  |  | ------------------------------------------------------- | - |  | ----------- | - | ----------------------------------------------------------------- | ------
|                              |  |  | items                                                   |   |  | items       |   |                                                                   | 2003  
|                              |  |  | £m                                                      |   |  | £m          |   |                                                                   | £m    
|                              | 
|Cable & Wireless Global       |  |  | (794                                                    | ) |  | (5,461      | ) |                                                                   | (6,255
|Cable & Wireless Regional     |  |  | 430                                                     |   |  | (35         | ) |                                                                   | 395   
|Other                         |  |  | (44                                                     | ) |  | (377        | ) |                                                                   | (421  
|Discontinued operations       |  |  | (119                                                    | ) |  | (204        | ) |                                                                   | (323  
|Joint ventures and associates |  |  | 75                                                      |   |  | 54          |   |                                                                   | 129   
|                              | 
|                              |  |  | (452                                                    | ) |  | (6,023      | ) |                                                                   | (6,475
|                              | 

The exceptional items are described fully in Note 10.

Segmental information in respect of the Groups investments in joint ventures and associates is given in Note 17.

Financing is dealt with at a Group level and therefore net interest and other similar income/(charges) cannot be allocated to a geographic region.



---

Page 96

---



Back to Contents

notes to the financial statements



---



|                                   |  |  | 2003  |   |  | 2002  |  
|---------------------------------- |  |  | ----- | - |  | ----- | -
|Net operating assets/(liabilities) |  |  | £m    |   |  | £m    |  
|                                   | 
|                                   |  |  |       |   |  |       |  
|Cable & Wireless Global            |  |  |       |   |  |       |  
|                                   |  |  |       |   |  |       |  
|US                                 |  |  | (537  | ) |  | (217  | )
|UK                                 |  |  | (117  | ) |  | 3,228 |  
|Europe                             |  |  | (60   | ) |  | 82    |  
|Japan                              |  |  | 115   |   |  | 303   |  
|                                   |  |  |       |   |  |       |  
|                                   |  |  | (599  | ) |  | 3,396 |  
|Cable & Wireless Regional          |  |  |       |   |  |       |  
|                                   |  |  |       |   |  |       |  
|Caribbean (including Panama)       |  |  | 911   |   |  | 1,040 |  
|Asia (including Sakhalin)          |  |  | 56    |   |  | 60    |  
|Other                              |  |  | 69    |   |  | 66    |  
|                                   |  |  |       |   |  |       |  
|                                   |  |  | 1,036 |   |  | 1,166 |  
|Other                              |  |  | (176  | ) |  | (451  | )
|Discontinued operations            |  |  | (212  | ) |  | 1,117 |  
|                                   | 
|                                   |  |  | 49    |   |  | 5,228 |  
|Other net assets                   |  |  | 2,471 |   |  | 4,129 |  
|                                   | 
|Net assets                         |  |  | 2,520 |   |  | 9,357 |  
|                                   | 

Other net assets include tangible fixed assets not yet in service, fixed asset investments, current asset investments, short term deposits less loans and overdrafts.



---

Page 97



---



Back to Contents

notes to the financial statements



---



|5 | Operating costs
|- | ---------------

|                                                                     |  |  | Continuing operations before exceptional items |  |  | Exceptional Items (note 10) |  |  | Discontinued operations before exceptional items |  |  | 2003   |  |  | Continuing operations before exceptional items |  |  | Exceptional Items(note 10) |  |  | Discontinued operations before exceptional items |  |  | 2002   | 
|-------------------------------------------------------------------- |  |  | ---------------------------------------------- |  |  | --------------------------- |  |  | ------------------------------------------------ |  |  | ------ |  |  | ---------------------------------------------- |  |  | -------------------------- |  |  | ------------------------------------------------ |  |  | ------ | 
|                                                                     |  |  | £m                                             |  |  | £m                          |  |  | £m                                               |  |  | £m     |  |  | £m                                             |  |  | £m                         |  |  | £m                                               |  |  | £m     | 
|                                                                     | 
|Outpayments to other telecommunications administrations and carriers |  |  | 1,552                                          |  |  |                            |  |  | 123                                              |  |  | 1,675  |  |  | 1,926                                          |  |  |                           |  |  | 466                                              |  |  | 2,392  | 
|Rental of transmission facilities                                    |  |  | 241                                            |  |  |                            |  |  |                                                 |  |  | 241    |  |  | 389                                            |  |  |                           |  |  | 10                                               |  |  | 399    | 
|Cost of sales relating to equipment sales and rentals                |  |  | 167                                            |  |  |                            |  |  |                                                 |  |  | 167    |  |  | 52                                             |  |  |                           |  |  | 113                                              |  |  | 165    | 
|Employee costs                                                       |  |  | 806                                            |  |  | 90                          |  |  | 46                                               |  |  | 942    |  |  | 786                                            |  |  |                           |  |  | 156                                              |  |  | 942    | 
|Pension costs                                                        |  |  | 62                                             |  |  |                            |  |  | 1                                                |  |  | 63     |  |  | 35                                             |  |  |                           |  |  | 11                                               |  |  | 46     | 
|Property rentals, taxes and utility costs                            |  |  | 178                                            |  |  | 211                         |  |  | 8                                                |  |  | 397    |  |  | 115                                            |  |  |                           |  |  | 38                                               |  |  | 153    | 
|Depreciation and impairment of owned tangible fixed assets           |  |  | 701                                            |  |  | 2,381                       |  |  | 24                                               |  |  | 3,106  |  |  | 896                                            |  |  | 1,909                      |  |  | 157                                              |  |  | 2,962  | 
|Depreciation of tangible fixed assets held under finance leases      |  |  | 10                                             |  |  |                            |  |  |                                                 |  |  | 10     |  |  | 16                                             |  |  |                           |  |  | 3                                                |  |  | 19     | 
|Amortisation and impairment of capitalised goodwill                  |  |  | 126                                            |  |  | 2,725                       |  |  |                                                 |  |  | 2,851  |  |  | 561                                            |  |  | 2,007                      |  |  | 1                                                |  |  | 2,569  | 
|Operating lease rentals:                                             |  |  |                                                |  |  |                             |  |  |                                                  |  |  |        |  |  |                                                |  |  |                            |  |  |                                                  |  |  |        | 
| plant and equipment                                                |  |  | 71                                             |  |  |                            |  |  | 6                                                |  |  | 77     |  |  | 37                                             |  |  |                           |  |  | 37                                               |  |  | 74     | 
| other                                                              |  |  | 94                                             |  |  | 28                          |  |  | 1                                                |  |  | 123    |  |  | 75                                             |  |  |                           |  |  | 12                                               |  |  | 87     | 
|Other operating costs                                                |  |  | 647                                            |  |  | 113                         |  |  | 54                                               |  |  | 814    |  |  | 510                                            |  |  | 210                        |  |  | 245                                              |  |  | 965    | 
|                                                                     | 
|                                                                     |  |  | 4,655                                          |  |  | 5,548                       |  |  | 263                                              |  |  | 10,466 |  |  | 5,398                                          |  |  | 4,126                      |  |  | 1,249                                            |  |  | 10,773 | 
|                                                                     | 



|                                                                     |  |  | Continuing opera-tions before exceptional items |  |  | Exceptional items (note10) |  |  | Discontinued opera-tions before exceptional items |  |  | 2001  | 
|-------------------------------------------------------------------- |  |  | ----------------------------------------------- |  |  | -------------------------- |  |  | ------------------------------------------------- |  |  | ----- | 
|                                                                     |  |  | £m                                              |  |  | £m                         |  |  | £m                                                |  |  | £m    | 
|                                                                     | 
|Outpayments to other telecommunications administrations and carriers |  |  | 1,969                                           |  |  |                           |  |  | 834                                               |  |  | 2,803 | 
|Rental of transmission facilities                                    |  |  | 141                                             |  |  |                           |  |  | 46                                                |  |  | 187   | 
|Cost of sales relating to equipment sales and rentals                |  |  | 84                                              |  |  |                           |  |  | 429                                               |  |  | 513   | 
|Employee costs                                                       |  |  | 747                                             |  |  |                           |  |  | 424                                               |  |  | 1,171 | 
|Pension costs                                                        |  |  | 58                                              |  |  |                           |  |  | 34                                                |  |  | 92    | 
|Property rentals, taxes and utility costs                            |  |  | 85                                              |  |  |                           |  |  | 106                                               |  |  | 191   | 
|Television programming costs                                         |  |  |                                                |  |  |                           |  |  | 21                                                |  |  | 21    | 
|Depreciation
        and impairment of owned tangible fixed assets   |  |  | 642                                             |  |  | 444                        |  |  | 472                                               |  |  | 1,558 | 
|Depreciation of tangible fixed assets held under finance leases      |  |  | 7                                               |  |  |                           |  |  | 5                                                 |  |  | 12    | 
|Amortisation of capitalised goodwill                                 |  |  | 270                                             |  |  |                           |  |  | 199                                               |  |  | 469   | 
|Operating lease rentals:                                             |  |  |                                                 |  |  |                            |  |  |                                                   |  |  |       | 
| plant and equipment                                                |  |  | 70                                              |  |  |                           |  |  | 65                                                |  |  | 135   | 
| other                                                              |  |  | 65                                              |  |  |                           |  |  | 10                                                |  |  | 75    | 
|Other operating costs                                                |  |  | 512                                             |  |  |                           |  |  | 494                                               |  |  | 1,006 | 
|                                                                     | 
|                                                                     |  |  | 4,650                                           |  |  | 444                        |  |  | 3,139                                             |  |  | 8,233 | 
|                                                                     | 



---

Page 98

---



Back to Contents

notes to the financial statements



---



All exceptional items relate to continuing operations except £57 million of depreciation (2002  other operating costs £6 million, depreciation £87 million and amortisation £213 million, 2001  depreciation £91 million) which relates to discontinued operations.

Certain operating lease rental charges are included within rental of transmission facilities and property rentals, taxes and utility costs in operating costs. Including these amounts, operating lease rentals for the financial year totalled £164 million for plant and equipment and £138 million for other assets (2002  plant and equipment £118 million and other £141 million, 2001  plant and equipment £143 million and other £75 million).

The remuneration of the auditors and their associates in respect of audit services provided to the Group during the year was £4.9 million (2002  £2.6 million, 2001  £2.7 million). The remuneration of the auditors and their associates in respect of non-audit services to the Company and its UK subsidiaries during the year was £3.6 million (2002  £3.8 million, 2001  £12.4 million) and to overseas subsidiaries £1.4 million (2002  £1.8 million, 2001  £4.6 million) as summarised below:

|                                  |  |  | 2003 |  |  | 2002 |  |  | 2001 | 
|--------------------------------- |  |  | ---- |  |  | ---- |  |  | ---- | 
|                                  |  |  | £m   |  |  | £m   |  |  | £m   | 
|                                  | 
|Acquisition and disposal services |  |  | 0.2  |  |  | 0.8  |  |  | 3.3  | 
|Tax services                      |  |  | 2.5  |  |  | 1.4  |  |  | 3.7  | 
|General consultancy               |  |  |     |  |  | 2.5  |  |  | 8.6  | 
|Other advisory services           |  |  | 2.3  |  |  | 0.9  |  |  | 1.4  | 
|                                  | 
|                                  |  |  | 5.0  |  |  | 5.6  |  |  | 17.0 | 
|                                  | 



|6 | Employees
|- | ---------

The average monthly number of persons employed by the Group during the year was:

|                                    |  |  | 2003   |  |  | 2002   |  |  | 2001   | 
|----------------------------------- |  |  | ------ |  |  | ------ |  |  | ------ | 
|                                    |  |  | Number |  |  | Number |  |  | Number | 
|                                    | 
|Cable & Wireless Global             |  |  | 12,167 |  |  | 13,345 |  |  | 16,160 | 
|Cable & Wireless Regional           |  |  | 10,433 |  |  | 11,915 |  |  | 15,034 | 
|Other                               |  |  | 167    |  |  | 195    |  |  | 164    | 
|Discontinued operations (pro rated) |  |  | 385    |  |  | 4,769  |  |  | 16,546 | 
|                                    | 
|                                    |  |  | 23,152 |  |  | 30,224 |  |  | 47,904 | 
|                                    | 



The aggregate remuneration and associated costs of Group employees, including amounts capitalised, was:

|                                   |  |  | 2003  |  |  | 2002  |  |  | 2001  | 
|---------------------------------- |  |  | ----- |  |  | ----- |  |  | ----- | 
|                                   |  |  | £m    |  |  | £m    |  |  | £m    | 
|                                   | 
|Salaries and wages                 |  |  | 895   |  |  | 1,003 |  |  | 1,422 | 
|Social security costs              |  |  | 71    |  |  | 99    |  |  | 166   | 
|Pension costs                      |  |  |       |  |  |       |  |  |       | 
| principal
      schemes (Note 8) |  |  | 31    |  |  | 12    |  |  | 37    | 
| other costs                      |  |  | 32    |  |  | 34    |  |  | 55    | 
|                                   | 
|                                   |  |  | 1,029 |  |  | 1,148 |  |  | 1,680 | 
|                                   | 



---

Page 99



---



Back to Contents

notes to the financial statements



---



|7 | Directors
        remuneration and shareholdings
|- | -------------------------------------------------

Information covering Directors remuneration (including pension entitlements), interest in shares and interests in share options (including in each case those arising under the Share Option Plan and Performance Share Plan) is included in the Directors Remuneration Report on pages 65 to 78.

|8 | Pensions
|- | --------

|                       
|-----------------------
|Defined benefit schemes

The Company and its principal subsidiaries operate pension and other retirement schemes which cover the majority of employees in the Group. These schemes include both the defined benefit type, whereby retirement benefits are based on the employees final remuneration and length of service, and defined contribution schemes, whereby retirement benefits reflect the accumulated value of agreed contributions paid by, and in respect of, employees. With the exception of the unfunded, unapproved retirement benefit schemes, the remaining schemes are funded through separate trustee administered schemes. Contributions to the defined benefit schemes are made in accordance with the recommendations of independent actuaries who value the schemes at regular intervals, usually triennially.

An actuarial valuation of the principal United Kingdom defined benefit pension scheme (the Scheme) was prepared at 31 March 2002 for the purpose of UK Statement of Standard Accounting Practice 24 (SSAP 24) Accounting for pension costs.

The valuation of the Scheme disclosed a shortfall in the market value of the Schemes assets compared with the accrued liabilities. This was principally due to the fall in the Schemes asset values following the fall in global equity markets between 1 April 1999 and 31 March 2002. Thus, with agreement from the actuary, the Company increased its contributions to the Scheme to 20 per cent of salary with effect from 1 April 2002, and made a one-off contribution to the Scheme of £47 million in December 2002 in respect of the shortfall.

The Scheme was valued using the projected unit method and the principal assumptions were that future investment returns on existing assets would, on average, be 3.2 per cent a year above the level of price inflation, that the return on new investments would be 3.9 per cent a year above price inflation, that general salary growth would be 1.7 per cent a year above price inflation, and that inflation related pension increases would generally be in line with price inflation. The market value of the Schemes investments at the valuation date was £1,401 million. The Scheme also holds some insurance policies which have an assessed value of £11 million. The total value of the assets was 97 per cent of the value of the aggregate benefits that had accrued to members of the Scheme, allowing for expected future earnings increases in the case of employees.

The assumptions used for calculating the pension cost for accounting purposes differ from the funding assumptions in that the assumed return on existing assets is 3.3 per cent a year above price inflation. In the financial statements, the deficit in the Scheme is spread over the remaining service lives of the employed members. Under those assumptions as at 31 March 2002, the total value of the investments was 99 per cent of the value of the aggregate benefits that had accrued to members of the Scheme.

The pension costs as shown in Note 6 comprise:

|                                                  |  |  | 2003 |  |  | 2002 |  
|------------------------------------------------- |  |  | ---- |  |  | ---- | -
|                                                  |  |  | £m   |  |  | £m   |  
|                                                  | 
|Regular costs                                     |  |  | 22   |  |  | 20   |  
|Variation from regular costs (including interest) |  |  | 9    |  |  | (8   | )
|                                                  | 
|                                                  |  |  | 31   |  |  | 12   |  
|                                                  | 

Pension schemes other than the principal scheme are accounted for on the basis of local custom and practice. Pension prepayments relating to the Scheme of £112 million (2002  £72 million, 2001  £64 million) are included in other debtors (Note 20). Provisions for obligations to pay terminal gratuities on retirement to staff who are not members of the pension and retirement schemes are included in provisions for pensions (Note 23).



---

Page 100

---



Back to Contents

notes to the financial statements



---



|                            
|----------------------------
|Defined contribution schemes

The pension cost for the year for the defined contribution schemes was £19 million (2002  £10 million, 2001  £26 million).

|Disclosures in respect of Financial Reporting Standard 17 (FRS 17)  Retirement benefits
|------------------------------------------------------------------------------------------

The above figures have been prepared in accordance with the requirements of SSAP 24. The UK has published FRS 17, however, its full introduction has been deferred. The accounting requirements of FRS 17 are broadly as follows:

| | pension scheme assets are valued at market values at the balance sheet date;                                                                                                                                                 
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | pension scheme liabilities are measured using a projected unit method and discounted at the current rate of return on high quality (AA) corporate bonds of equivalent term and currency to the liability;                    
| | for accounting periods beginning on or after 1 January 2005 the pension scheme surplus (to the extent it is considered recoverable) or deficit will be recognised in full and presented on the face of the balance sheet; and
| | the movement in the scheme surplus/deficit will be split between operating charges, financing items and, in the statement of total recognised gains and losses, actuarial gains and losses.                                  

The transitional disclosures in respect of FRS 17 are set out below:

Qualified independent actuaries, Watson Wyatt LLP, updated the actuarial valuations of the major defined benefit schemes operated by the Group to 31 March 2003. The main financial assumptions in accordance with FRS 17 are as follows:

|                                      |  | 2003 |         | 2002 | 
|------------------------------------- |  | ---- | ------- | ---- | 
|                                      |  |      | UK      |      | 
|                                      |  |      | %       |      | 
|                                      | 
|Inflation assumption                  |  |      | 2.5     |      | 
|Rate of increase in salaries          |  |      | 4.3     |      | 
|Pension increases                     |  |      | 2.5-3.0 |      | 
|Deferred pension increases            |  |      | 2.5     |      | 
|Discount rate                         |  |      | 5.5     |      | 
|Long term expected rate of return on: |  |      |         |      | 
| Equities                            |  |      | 8.5     |      | 
| Bonds                               |  |      | 5.0     |      | 
| Other                               |  |      | 4.0     |      | 
|                                      | 

The assumptions used by the actuaries are the best estimates chosen from a range of possible actuarial assumptions which may not necessarily be borne out in practice. The assumptions shown above for the Rest of Group represent a weighted average of the assumptions used for the individual funds.

The UK defined benefit scheme is closed to new entrants and under the projected unit method for closed schemes the current service cost will increase as the members of the scheme approach retirement.



---

Page 101



---



Back to Contents

notes to the financial statements



---

|                                            |  | At 31 March 2003 |        | At 31 March 2002 | 
|------------------------------------------- |  | ---------------- | ------ | ---------------- | 
|                                            |  |                  | UK     |                  | 
|                                            |  |                  |        |                  | 
|                                            |  |                  | £m     |                  | 
|                                            | 
|Equities                                    |  |                  | 855    |                  | 
|Bonds                                       |  |                  | 246    |                  | 
|Other                                       |  |                  | 53     |                  | 
|                                            | 
|Total fair value assets                     |  |                  | 1,154  |                  | 
|Present value of scheme liabilities         |  |                  | (1,630 | )                | 
|                                            | 
|Deficit in funded defined benefit schemes   |  |                  | (476   | )                | 
|Deficit in unfunded defined benefit schemes |  |                  | (18    | )                | 
|                                            | 
|Total deficit in defined benefit schemes    |  |                  | (494   | )                | 
|                                            | 

No deferred tax asset would be recognised when this liability is reflected in the Financial Statements. There will be a consequential impact on reserves once this liability is reflected in the Financial Statements.

If the above amounts were recognised in the Financial Statements, the Groups shareholders funds at 31 March 2003 would be as follows:

|                                                                       |  |  | 2003  |   |  | 2002  |  
|---------------------------------------------------------------------- |  |  | ----- | - |  | ----- | -
|                                                                       |  |  | £m    |   |  | £m    |  
|                                                                       | 
|Shareholders funds as presented                                       |  |  | 2,149 |   |  | 8,958 |  
|Less: SSAP 24 net assets                                               |  |  | (71   | ) |  | (40   | )
|                                                                       | 
|Shareholders funds excluding SSAP 24 net assets                       |  |  | 2,078 |   |  | 8,918 |  
|FRS 17 retirement benefits net liability                               |  |  | (578  | ) |  | (76   | )
|                                                                       | 
|Shareholders funds including FRS 17 retirement benefits net liability |  |  | 1,500 |   |  | 8,842 |  
|                                                                       | 

Under the transitional requirements of FRS 17, the following disclosures are given to show the impact on the profit and loss account and statement of total recognised gains and losses if FRS 17 had been adopted in full. These amounts have not been included in the profit and loss account or the statement of total recognised gains and losses.



---

Page 102

---



Back to Contents

notes to the financial statements



---



Analysis of amounts that would be charged to operating profit for the year ended 31 March 2003 in respect of defined benefit schemes is as follows:

|                                  |  |  | UK |  |  | Rest of Group |  |  | Total | 
|--------------------------------- |  |  | -- |  |  | ------------- |  |  | ----- | 
|                                  |  |  | £m |  |  | £m            |  |  | £m    | 
|                                  | 
|                                  |  |  |    |  |  |               |  |  |       | 
|Current service cost              |  |  | 27 |  |  | 17            |  |  | 44    | 
|                                  | 
|Total charged to operating profit |  |  | 27 |  |  | 17            |  |  | 44    | 
|                                  | 

Analysis of other amounts that would be charged to the profit and loss account for the year ended 31 March 2003 is as follows:

|                    |  |  | UK |  |  | Rest of Group |   |  | Total |  
|------------------- |  |  | -- |  |  | ------------- | - |  | ----- | -
|                    |  |  | £m |  |  | £m            |   |  | £m    |  
|                    | 
|Gain on curtailment |  |  |   |  |  | (3            | ) |  | (3    | )
|                    | 

Analysis of amounts that would be charged to other finance income for the year ended 31 March 2003 is as follows:

|                                         |  |  | UK   |   |  | Rest of Group |   |  | Total |  
|---------------------------------------- |  |  | ---- | - |  | ------------- | - |  | ----- | -
|                                         |  |  | £m   |   |  | £m            |   |  | £m    |  
|                                         | 
|Interest on pension scheme liabilities   |  |  | 84   |   |  | 14            |   |  | 98    |  
|Expected return on pension scheme assets |  |  | (102 | ) |  | (12           | ) |  | (114  | )
|                                         | 
|Net return                               |  |  | (18  | ) |  | 2             |   |  | (16   | )
|                                         | 

Analysis of amounts that would be recognised in the statement of total recognised gains and losses for the year ended 31 March 2003 is as follows:

|                                                                                      |  |  | UK   |   |  | Rest of Group |   |  | Total |  
|------------------------------------------------------------------------------------- |  |  | ---- | - |  | ------------- | - |  | ----- | -
|                                                                                      |  |  | £m   |   |  | £m            |   |  | £m    |  
|                                                                                      | 
|Actual return less expected return on pension scheme assets                           |  |  | (380 | ) |  | (16           | ) |  | (396  | )
|Experience losses on scheme liabilities                                               |  |  | (18  | ) |  | (12           | ) |  | (30   | )
|Changes in the assumptions underlying the present value of the scheme liabilities     |  |  | (111 | ) |  | (7            | ) |  | (118  | )
|                                                                                      | 
|Total actuarial loss recognised in the statement of total recognised gains and losses |  |  | (509 | ) |  | (35           | ) |  | (544  | )
|                                                                                      | 



---

Page 103



---



Back to Contents

notes to the financial statements



---





History of experience gains and losses for the year ended 31 March 2003 is as follows:

|                                                                                      |  | UK |      | Rest of Group |  | Total |  
|------------------------------------------------------------------------------------- |  | -- | ---- | ------------- |  | ----- | -
|                                                                                      |  |    | £m   |               |  | %     |  
|                                                                                      | 
|Difference between expected and actual return on scheme assets                        |  |    | (380 | )             |  | (33   | )
|Experience losses on scheme liabilities                                               |  |    | (18  | )             |  | (1    | )
|Total actuarial loss recognised in the statement of total recognised gains and losses |  |    | (509 | )             |  | (31   | )
|                                                                                      | 

Analysis of movement in the deficit during the year ended 31 March 2003 is as follows:

|                              |  |  | UK   |   |  | Rest of Group |   |  | Total |  
|----------------------------- |  |  | ---- | - |  | ------------- | - |  | ----- | -
|                              |  |  | £m   |   |  | £m            |   |  | £m    |  
|                              | 
|Deficit at 1 April 2002       |  |  | (48  | ) |  | (28           | ) |  | (76   | )
|Contributions made            |  |  | 72   |   |  | 15            |   |  | 87    |  
|Current service costs         |  |  | (27  | ) |  | (17           | ) |  | (44   | )
|Curtailment gain              |  |  |     |   |  | 3             |   |  | 3     |  
|Other finance income/(charge) |  |  | 18   |   |  | (2            | ) |  | 16    |  
|Actuarial loss                |  |  | (509 | ) |  | (35           | ) |  | (544  | )
|Other movements               |  |  |     |   |  | (26           | ) |  | (26   | )
|Exchange gain                 |  |  |     |   |  | 6             |   |  | 6     |  
|                              | 
|Deficit at 31 March 2003      |  |  | (494 | ) |  | (84           | ) |  | (578  | )
|                              | 

Other movements consist of acquisitions and minor schemes not previously included.

|9 | Profits
        less (losses) on disposal of fixed assets
|- | ---------------------------------------------------------

Profits less (losses) on disposal of fixed assets before exceptional items amount to £nil (2002  loss of £7 million, 2001 profit of £4 million). The tax charge attributable is £nil (2002  £nil, 2001  £1 million) and the minority interest is £nil (2002  £1 million, 2001  £1 million).



---

Page 104

---



Back to Contents

notes to the financial statements



---



|   |                          
|-- | -------------------------
|10 | Exceptional
        items

Exceptional items in 2003, 2002 and 2001 comprise:

|                                                            |  |  | Note                     |  |  | Exceptional
      items
      £m |   |  | Taxation
      £m |  |  | Minority
      interest
      £m |   |  | Total 
      2003
      £m |   |  | Exceptional
      items
      £m |   |  | Taxation
      £m |   |  | Minority 
      interest
      £m |  |  | Total
      2002
      £m |  
|----------------------------------------------------------- |  |  | ------------------------ |  |  | -------------------------------- | - |  | ----------------- |  |  | -------------------------------- | - |  | -------------------------- | - |  | -------------------------------- | - |  | ----------------- | - |  | --------------------------------- |  |  | ------------------------- | -
|                                                            | 
|Operating items                                             |  |  |                          |  |  |                                  |   |  |                   |  |  |                                  |   |  |                            |   |  |                                  |   |  |                   |   |  |                                   |  |  |                           |  
|Other operating costs                                       |  |  | (i), (vi)                |  |  | (442                             | ) |  | 10                |  |  | 11                               |   |  | (421                       | ) |  | (210                             | ) |  |                  |   |  | 3                                 |  |  | (207                      | )
|Fixed asset impairment and
      amounts written off        |  |  | (ii), (iii),
      (vii) |  |  | (2,381                           | ) |  | 48                |  |  |                                 |   |  | (2,333                     | ) |  | (1,909                           | ) |  |                  |   |  | 28                                |  |  | (1,881                    | )
|Goodwill impairment charge                                  |  |  | (ii), (vii)              |  |  | (2,725                           | ) |  |                  |  |  |                                 |   |  | (2,725                     | ) |  | (2,007                           | ) |  |                  |   |  |                                  |  |  | (2,007                    | )
|                                                            | 
|                                                            |  |  |                          |  |  | (5,548                           | ) |  | 58                |  |  | 11                               |   |  | (5,479                     | ) |  | (4,126                           | ) |  |                  |   |  | 31                                |  |  | (4,095                    | )
|Non operating items                                         |  |  |                          |  |  |                                  |   |  |                   |  |  |                                  |   |  |                            |   |  |                                  |   |  |                   |   |  |                                   |  |  |                           |  
|Profits less (losses) on sale and termination of operations |  |  | (iii), (viii)            |  |  | (147                             | ) |  |                  |  |  |                                 |   |  | (147                       | ) |  | 1,057                            |   |  | (228              | ) |  | 7                                 |  |  | 836                       |  
|Profits less (losses) on disposal of fixed assets           |  |  | (iv)                     |  |  | 62                               |   |  |                  |  |  | (33                              | ) |  | 29                         |   |  |                                 |   |  |                  |   |  |                                  |  |  |                          |  
|Write down of investments                                   |  |  | (v), (ix)                |  |  | (390                             | ) |  |                  |  |  |                                 |   |  | (390                       | ) |  | (904                             | ) |  |                  |   |  |                                  |  |  | (904                      | )
|                                                            | 
|                                                            |  |  |                          |  |  | (6,023                           | ) |  | 58                |  |  | (22                              | ) |  | (5,987                     | ) |  | (3,973                           | ) |  | (228              | ) |  | 38                                |  |  | (4,163                    | )
|                                                            | 



|                                                            |  |  | Note   |  |  | Exceptional
      items
      £m |   |  | Taxation
      £m |   |  | Minority 
      interest
      £m |   |  | Total
      2001
      £m |  
|----------------------------------------------------------- |  |  | ------ |  |  | -------------------------------- | - |  | ----------------- | - |  | --------------------------------- | - |  | ------------------------- | -
|                                                            | 
|Operating items                                             |  |  |        |  |  |                                  |   |  |                   |   |  |                                   |   |  |                           |  
|Fixed asset impairment charge                               |  |  | (x)    |  |  | (444                             | ) |  |                  |   |  | 3                                 |   |  | (441                      | )
|Non operating items                                         |  |  |        |  |  |                                  |   |  |                   |   |  |                                   |   |  |                           |  
|Profits less (losses) on sale and termination of operations |  |  | (xi)   |  |  | 4,311                            |   |  | (373              | ) |  | 8                                 |   |  | 3,946                     |  
|Costs of fundamental reorganisation                         |  |  | (xii)  |  |  | (530                             | ) |  | 15                |   |  | 17                                |   |  | (498                      | )
|Profits less (losses) on disposal of fixed assets           |  |  | (xiii) |  |  | 42                               |   |  | 9                 |   |  | (16                               | ) |  | 35                        |  
|Write down of investments                                   |  |  | (xiv)  |  |  | (43                              | ) |  |                  |   |  |                                  |   |  | (43                       | )
|Finance charges                                             |  |  | (xv)   |  |  | (110                             | ) |  | 9                 |   |  |                                  |   |  | (101                      | )
|                                                            | 
|                                                            |  |  |        |  |  | 3,226                            |   |  | (340              | ) |  | 12                                |   |  | 2,898                     |  
|                                                            | 

|                                
|--------------------------------
|Year
        ended 31 March 2003

|    |                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | The Group announced a restructuring of the Cable & Wireless Global business on 13 November 2002. Exceptional costs in the period of £248 million associated with this restructuring include £182 million in respect of property costs, £52 million in respect of redundancy costs and £14 million of other costs.

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other exceptional costs
        relate to integration costs of Digital Island and the business activities
        of Exodus of £31 million, redundancy costs of £38 million
        principally in Cable & Wireless Regional, £44 million of provisions
        in respect of rentals on vacant properties and £81 million
        in respect of onerous network contracts and distressed carrier asset write
        offs (Cable & Wireless Global £159 million, Cable & Wireless
        Regional £35 million).
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|(ii) | The Group has carried out a review to
      determine whether there has been an impairment of its fixed assets and goodwill.
      The carrying values of fixed assets and goodwill of each of the Groups
      income generating units have been compared to their recoverable amounts,
      represented by their value in use to the Group. The charge has been determined
      in accordance with Financial Reporting Standard 11 (FRS 11) Impairment
      of fixed assets and goodwill which involves amongst other factors
      using a growth rate of 2.5 per cent after five years (based on a nominal
      increase in GDP for the countries in which the Group operates), and a discount
      rate of 14 per cent. The resulting charge in Cable & Wireless Global
      is £10 million and Other operations, £2 million in respect of
      goodwill and £1,479 million in respect of fixed assets. This charge is in addition to the charge of £2,713 million
      in respect of goodwill and £787 million in respect of fixed assets
      recognised at the half year. Exceptional depreciation also includes the
      write-off of redundant fixed assets of £58 million. Tax credits of
      £48 million are available on the Cable & Wireless Regional impairment
      charges of £191 million which was disclosed in the 2002 Group Financial
      Statements.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

---

Page 105



---



Back to Contents

notes to the financial statements



---



|(iii) | The Group has exited its
        US retail voice business, as announced on 15 May 2002. The exceptional
        costs associated with this amount to £288 million and include exit
        costs of £200 million, redundant fixed asset write downs of £57
        million included in the exceptional depreciation charge and other write
        downs of £31 million. In addition, £84 million of accrued
        costs relating to disposals in previous years, principally the disposal
        of the consumer operations of Cable & Wireless Communications plc
        on 30 May 2000, have been released (Discontinued £204 million).
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |                                                                                                                                                                                                                                      
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iv) | The profit of £62 million on disposal of fixed assets principally comprises a £54 million gain on the sale of part of the Groups interest in MobileOne (Asia) Pte Ltd (Joint ventures and associates £54 million, Other £8 million).

|    |                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(v) | The current asset investments principally relating to Pacific Century CyberWorks Ltd (PCCW) have been written down by £274 million to market value at 31 March 2003. The shares held by the Employee Share Ownership Plan Trust (ESOP) have been written down by £116 million to market value at 31 March 2003. (Cable & Wireless Global £7 million, Other £383 million).

|                        
|------------------------
|Year ended 31 March 2002

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(vi) | Exceptional items included in other operating costs related principally to provisions in respect of ongoing obligations associated with businesses withdrawn from and redundant assets (Cable & Wireless Global £112 million, Discontinued operations £6 million), costs associated with the integration of the Web hosting businesses (Cable & Wireless Global £44 million) and redundancy and reorganisation costs incurred (Cable & Wireless Global £48 million).

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(vii) | The Group carried out a review as at 31 March 2002 to determine whether there had been an impairment of its fixed assets and goodwill. The carrying values of fixed assets and goodwill of each of the Groups income generating units were compared to their recoverable amounts, represented by their value in use to the Group. In accordance with FRS 11, the value in use of each of the Groups income generating units was determined with reference to the Groups five year plan, which had been approved by the Board, using a growth rate of 2.5 per cent in the period beyond the Groups five year plan (based on a nominal increase in GDP for the countries in which the Group operates), and an average discount rate of 11 per cent. The resulting charge in Cable & Wireless Global is £2,007 million in respect of goodwill and £1,502 million in respect of fixed assets and in Cable & Wireless Regional £191 million in
respect of fixed assets and £87 million in respect of fixed assets in discontinued operations. In addition, £129 million of fixed assets relating to Cable & Wireless Global businesses withdrawn from service were written off at 30 September 2001.

|
|

|(viii) | The Group disposed of its interest in Cable
      & Wireless Optus Limited to Singapore Telecommunications Limited
      (SingTel) on 6 September 2001 resulting in a gain of £1,057
      million. The consideration received included shares and bonds issued
      by SingTel which were converted into cash.
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |                                                                                                                                                                                                                                                                                                                 
|(ix)   | Current asset investments
        held in ntl Incorporated (ntl) and CMGI Inc. were written down to nil
        value and the investment in PCCW was written down to estimated realisable
        value (Other £904 million).                                                                                   

|                                
|--------------------------------
|Year
        ended 31 March 2001

|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(x) | Implementation of the Groups strategy based on IP affected the useful life and carrying value of certain network assets employed in its switched circuit voice business. An assessment of the value in use of this business based on a discount rate of 9.5 per cent, resulted in an impairment charge to these assets of £444 million (Cable & Wireless Global £353 million, Discontinued operations £91 million).

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(xi) | The Group disposed of its interests in Cable & Wireless HKT Limited and ConsumerCo to PCCW and ntl for a gain of £3,594 million and £586 million respectively. The consideration received in respect of both transactions included cash and shares in the acquirer which under the terms of the sale and purchase agreements, the Group was required to retain for various periods. These are disclosed as part of discontinued operations. The gain primarily includes the subsequent partial sales of the PCCW (profit of £600 million) and ntl (loss of £25 million) shares, less the reduction in market value of the retained shares below their book values (£449 million).

Page 106

  
Back to Contents
notes to the financial statements

(xii)
    The Group effected the transformation
        of its activities from an integrated model offering a total range of services
        to consumer and business customers structured on geographic lines to one
        focussing on the provision of global IP solutions to business customers.
        The costs directly associated with this reorganisation and restructuring
        amounted to £530 million (Cable & Wireless Global £451
        million, Cable & Wireless Regional £66 million, Other £13
        million) and included announced redundancies, retraining, recruitment
        and relocation (£265 million) and property, product and systems
        rationalisation (£208 million).(xiii)
    Related to the sale of mobile telephone transmission
      towers in Australia and properties in the United Kingdom and is included
      as part of discontinued operations.(xiv)
    Related to the write down of certain fixed
      asset investments to reflect identified impairments (Cable & Wireless
      Global £24 million, Cable & Wireless Regional £9 million,
      Other £10 million).(xv)
    Related to penalties incurred
        on the early redemption of CWCs sterling and US dollar denominated
        bonds as part of the restructuring of its operations during the sale process.11
    Net
        interest and other similar income/(charges)2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mInterest
        receivable and similar incomeDeposits
        and short term loan interest and similar income
    
    
    198
    
    
    319
    
    
    344Preference
        share dividends
    
    
    
    
    
    54
    
    
    14Share
        of profits of international telecommunications satellite organisations
    
    
    
    
    
    4
    
    
    21Exchange
        losses on retranslation of foreign currency denominated loans and deposits
    
    
    (9
    )
    
    
    
    
    (23
    )189
    
    
    377
    
    
    356Interest
        payable and other similar chargesFinance
        charges on leases
    
    
    (3
    )
    
    (5
    )
    
    (14
    )Bank
        loans and overdrafts
    
    
    (77
    )
    
    (134
    )
    
    (190
    )Other
        loans
    
    
    (8
    )
    
    (22
    )
    
    (70
    )Exceptional
        finance charges
    
    
    
    
    
    
    
    
    (110
    )Discount
        charge
    
    
    (3
    )
    
    
    
    
    (91
    )
    
    (161
    )
    
    (384
    )Less:
        Interest capitalised
    
    
    5
    
    
    11
    
    
    28(86
    )
    
    (150
    )
    
    (356
    )Net
        interest and other similar income/(charges)
    
    
    103
    
    
    227
    
    
    No tax relief is available on interest capitalised in the year ended 31 March 2003.

Page 107

Back to Contents
notes to the
  financial statements



12
    Tax
        on (loss)/profit on ordinary activitiesThe charge for tax, based on the Group (loss)/profit for the year, comprises:
2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mUnited
        KingdomCorporate
        tax at 30% (2002  30%, 2001  30%)Current
    
    
    39
    
    
    59
    
    
    342Double
        taxation relief
    
    
    (39
    )
    
    (37
    )
    
    (38
    )Deferred
    
    
    1
    
    
    (7
    )
    
    87Adjustments
        in respect of prior years      current
    
    
    (54
    )
    
    (18
    )
    
    (20
    )
        deferred
    
    
    (7
    )
    
    
    
    
    (60
    )
    
    (3
    )
    
    371OverseasCurrent
    
    
    65
    
    
    295
    
    
    118Deferred
    
    
    26
    
    
    11
    
    
    29Adjustments
        in respect of prior years      current
    
    
    43
    
    
    19
    
    
    (15
    )
        deferred
    
    
    (51
    )
    
    (31
    )
    
    83
    
    
    294
    
    
    132Joint
        ventures and associatesJoint
        ventures
    
    
    13
    
    
    20
    
    
    16Associates
    
    
    
    
    
    
    
    
    113
    
    
    20
    
    
    17Tax
        on (loss)/profit on ordinary activities
    
    
    36
    
    
    311
    
    
    520The Groups effective tax rate varies from the statutory tax rate as a result of the following factors:
2003
    
    
    2002
    
    
    2001%
    
    
    %
    
    
    %Statutory
        tax rate
    
    
    30.0
    
    
    30.0
    
    
    30.0Income/expenses
        not taxable/allowable  permanent
    
    
    (12.9
    )
    
    (21.9
    )
    
    (21.6
    )Income/expenses
        not taxable/allowable  timing
    
    
    (17.4
    )
    
    (11.9
    )
    
    (0.4
    )Tax
        losses not utilised
    
    
    (6.6
    )
    
    (9.1
    )
    
    3.6Tax
        rate differences
    
    
    5.7
    
    
    5.5
    
    
    0.7Adjustments
        to tax charge in respect of previous periods
    
    
    0.2
    
    
    
    
    
    (1.0
    )Current
        tax rate
    
    
    (1.0
    )
    
    (7.4
    )
    
    11.3On 25 March 2003 the Group reached agreement with the Inland Revenue to settle the Groups outstanding UK corporation tax affairs for the 10 years up to 31 March 2001. The agreement involved the payment of £380 million to the Inland Revenue in respect of all previously unsettled matters for this period. The settlement has no impact on the current year tax charge as the amount of the settlement was covered by existing provisions (see Note 23).

Page 108


Back to Contents
notes to the financial statements


13     Dividends
2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £mInterim
    
    
    37
    
    
    40
    
    
    138Special interim
    
    
    
    
    
    304
    
    
    Final
    
    
    
    
    
    83
    
    
    32437
    
    
    427
    
    
    462
14
    (Loss)/earnings
        per share2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £m(Loss)/profit
        for the financial year attributable to shareholders
    
    
    (6,533
    )
    
    (4,954
    )
    
    2,738Interest
        saved on loan stock conversion for distribution
    
    
    
    
    
    
    
    
    2Diluted
        (loss)/profit for the financial year attributable to shareholders
    
    
    (6,533
    )
    
    (4,954
    )
    
    2,740Weighted
        average number of shares in issue
    
    
    2,329,814,506
    
    
    2,733,445,915
    
    
    2,730,991,541Dilution
        effects of
        share options
    
    
    6,494,406
    
    
    1,296,950
    
    
    14,641,309
        convertible unsecured loan stock
    
    
    
    
    
    
    
    
    15,067,564Diluted
        weighted average number of shares
    
    
    2,336,308,912
    
    
    2,734,742,865
    
    
    2,760,700,414Basic
        (loss)/earnings per Ordinary Share before exceptional items and goodwill
        amortisation
    
    
    (18.0
    )p
    
    (8.4
    )p
    
    11.2
    pBasic
        (loss)/earnings per Ordinary Share on exceptional items
    
    
    (257.0
    )p
    
    (152.3
    )p
    
    106.1
    pBasic
        (loss) per Ordinary Share on goodwill amortisation
    
    
    (5.4
    )p
    
    (20.5
    )p
    
    (17.0
    )pBasic
        (loss)/earnings per Ordinary Share
    
    
    (280.4
    )p
    
    (181.2
    )p
    
    100.3
    pDiluted
        (loss)/earnings per Ordinary Share
    
    
    (280.4
    )p
    
    (181.2
    )p
    
    99.2
    pBasic and diluted (loss)/earnings per Ordinary Share are based on the (loss)/profit for the year attributable to shareholders. Basic (loss)/earnings per Ordinary Share before exceptional items and goodwill amortisation is based on the weighted average number of shares in issue and has been provided in order to show the effects of exceptional items and the amortisation of capitalised goodwill on reported earnings.

Page 109


Back to Contents
notes to the
  financial statements

15
    Intangible
        fixed assetsNegative Goodwill
    
    
    Positive Goodwill
    
    
    Licences and other intangibles
    
    
    Total£m
    
    
    £m
    
    
    £m
    
    
    £mCostAt 1 April 2002
    
    
    
    
    
    6,186
    
    
    9
    
    
    6,195Additions
    
    
    (14
    )
    
    10
    
    
    
    
    
    (4
    )Exchange
    
    
    
    
    
    (55
    )
    
    
    
    
    (55
    )At 31 March 2003
    
    
    (14
    )
    
    6,141
    
    
    9
    
    
    6,136AmortisationAt 1 April 2002
    
    
    
    
    
    (3,290
    )
    
    (5
    )
    
    (3,295
    )Charge for the year amortisation
    
    
    2
    
    
    (128
    )
    
    
    
    
    (126
    ) impairment
    
    
    
    
    
    (2,721
    )
    
    (4
    )
    
    (2,725
    )Exchange
    
    
    
    
    
    8
    
    
    
    
    
    8At 31 March 2003
    
    
    2
    
    
    (6,131
    )
    
    (9
    )
    
    (6,138
    )Net book valueAt 31 March 2003
    
    
    (12
    )
    
    10
    
    
    
    
    
    (2
    )At 31 March 2002
    
    
    
    
    
    2,896
    
    
    4
    
    
    2,900Negative goodwill is being amortised over five years. Positive goodwill is being amortised over 20 years. These periods have been determined after taking into account the nature of the businesses.


Page 110

Back to Contents
notes to the financial statements



16
    Tangible
        fixed assetsGroup
    
    CompanyLand and 
      buildings
    
    Plant and e
      quipment
    
    Projects 
      under 
      construction
    
    Total
    
    Land and 
      buildings
    
    Plant and 
      equipment
    
    Projects 
      under 
      construction
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mCostAt
        1 April 2002
    
    809
    
    9,550
    
    1,208
    
    11,567
    
    13
    
    56
    
    5
    
    74Additions*
    
    26
    
    283
    
    443
    
    752
    
    
    
    3
    
    3
    
    6Disposals
    
    (19
    )
    (333
    )
    (2
    )
    (354
    )
    (11
    )
    
    
    
    
    (11
    )Transfers
    
    56
    
    790
    
    (846
    )
    
    
    
    
    4
    
    (4
    )
    Exchange
        adjustments
    
    (45
    )
    (419
    )
    (50
    )
    (514
    )
    
    
    (1
    )
    
    
    (1
    )At
        31 March 2003
    
    827
    
    9,871
    
    753
    
    11,451
    
    2
    
    62
    
    4
    
    68DepreciationAt
        1 April 2002
    
    279
    
    6,671
    
    
    
    6,950
    
    11
    
    21
    
    
    
    32Charge
        for the year
    
    102
    
    633
    
    
    
    735
    
    
    
    4
    
    
    
    4Impairment
        and exceptional depreciation
    
    176
    
    2,205
    
    
    
    2,381
    
    
    
    20
    
    
    
    20Disposals
    
    (12
    )
    (329
    )
    
    
    (341
    )
    (10
    )
    
    
    
    
    (10
    )Transfers
    
    (34
    )
    34
    
    
    
    
    
    
    
    
    
    
    
    Exchange
        and other adjustments
    
    (15
    )
    (196
    )
    
    
    (211
    )
    
    
    
    
    
    
    At
        31 March 2003
    
    496
    
    9,018
    
    
    
    9,514
    
    1
    
    45
    
    
    
    46Net
        book valueAt
        31 March 2003
    
    331
    
    853
    
    753
    
    1,937
    
    1
    
    17
    
    4
    
    22At
        31 March 2002
    
    530
    
    2,879
    
    1,208
    
    4,617
    
    2
    
    35
    
    5
    
    42Included in the cost of tangible fixed assets is £54 million (2002  £77 million) relating to assets held under finance leases. Accumulated depreciation on these assets is £50 million (2002  £51 million).
Included within additions is £102 million (2002  £184 million) in respect of own work capitalised.
*
    Included within additions is £21 million of tangible fixed assets relating to Cable and Wireless Guernsey Limited which was acquired on 30 May 2002.Group
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mLand
        and buildings at net book valueFreeholds
    
    
    194
    
    
    319
    
    
    1
    
    
    2Long
        leaseholds
    
    
    52
    
    
    15
    
    
    
    
    
    Short
        leaseholds
    
    
    85
    
    
    196
    
    
    
    
    
    331
    
    
    530
    
    
    1
    
    
    2Page 111


Back to Contents
notes to
  the financial statements
17
    Fixed
        asset investmentsGroup
    
    CompanyJoint
      ventures
      and
      associates
    
    Other 
      investments
    
    Total
    
    Joint
      ventures
      and
      associates
    
    Subsidiary
      undertakings
    
    Other
      investments
    
    Total£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mCost/valuationAt
        1 April 2002
    
    152
    
    235
    
    387
    
    33
    
    25,768
    
    174
    
    25,975Additions
    
    2
    
    38
    
    40
    
    
    
    1,253
    
    38
    
    1,291Transfers
    
    (19
    )
    19
    
    
    
    
    
    
    
    
    
    Disposals
    
    (31
    )
    (14
    )
    (45
    )
    
    
    (23
    )
    (11
    )
    (34
    )Revaluation
    
    
    
    
    
    
    
    
    
    223
    
    
    
    223Exchange
        adjustments
    
    (21
    )
    (5
    )
    (26
    )
    
    
    
    
    
    
    At
        31 March 2003
    
    83
    
    273
    
    356
    
    33
    
    27,221
    
    201
    
    27,455LoansAt
        1 April 2002
    
    9
    
    
    
    9
    
    11
    
    6,295
    
    
    
    6,306Additions
    
    
    
    
    
    
    
    
    
    853
    
    
    
    853Loans
        repaid
    
    (8
    )
    
    
    (8
    )
    (10
    )
    (1,429
    )
    
    
    (1,439
    )At
        31 March 2003
    
    1
    
    
    
    1
    
    1
    
    5,719
    
    
    
    5,720Provisions
        and amounts written offAt
        1 April 2002
    
    (43
    )
    (26
    )
    (69
    )
    (16
    )
    (7,330
    )
    
    
    (7,346
    )Amounts
        written back in year
    
    
    
    
    
    
    
    7
    
    
    
    
    
    7Increase
        in year
    
    (2
    )
    (126
    )
    (128
    )
    
    
    (7,515
    )
    (116
    )
    (7,631
    )Disposals
    
    
    
    1
    
    1
    
    
    
    21
    
    
    
    21Exchange
        adjustments
    
    
    
    1
    
    1
    
    
    
    
    
    
    
    At
        31 March 2003
    
    (45
    )
    (150
    )
    (195
    )
    (9
    )
    (14,824
    )
    (116
    )
    (14,949
    )Share
        of post acquisition reservesAt
        1 April 2002
    
    299
    
    
    
    299
    
    
    
    
    
    
    
    Share
        of retained profit
    
    33
    
    
    
    33
    
    
    
    
    
    
    
    Disposals
    
    (114
    )
    
    
    (114
    )
    
    
    
    
    
    
    Exchange
        adjustments
    
    (25
    )
    
    
    (25
    )
    
    
    
    
    
    
    At
        31 March 2003
    
    193
    
    
    
    193
    
    
    
    
    
    
    
    Net
        book valueAt
        31 March 2003
    
    232
    
    123
    
    355
    
    25
    
    18,116
    
    85
    
    18,226At
        31 March 2002
    
    417
    
    209
    
    626
    
    28
    
    24,733
    
    174
    
    24,935Page 112

Back to Contents
notes to the financial statements

Group
    
    CompanyJoint
      ventures
    
    Other
    
    Joint
      ventures
    
    Otherand
      associates
    
    investments
    
    and
      associates
    
    investments2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002£m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £m
    
    £mInvestments
        at net book valueListed
        shares
    
    84
    
    84
    
    21
    
    21
    
    17
    
    17
    
    
    
    6Unlisted
        shares
    
    147
    
    324
    
    64
    
    61
    
    7
    
    2
    
    47
    
    45Loans
    
    1
    
    9
    
    
    
    
    
    1
    
    9
    
    
    
    Other
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    Listed
        ESOP shares (Note 24)
    
    
    
    
    
    38
    
    123
    
    
    
    
    
    38
    
    123232
    
    417
    
    123
    
    209
    
    25
    
    28
    
    85
    
    174The market value of the Groups holdings in listed shares was £196 million (2002  £215 million) for joint ventures and associates and £62 million (2002  £24 million) for other investments. The market value of the Companys holdings in listed shares of joint ventures and associates was £196 million (2002  £215 million) and £nil (2002  £10 million) for other investments. The Group and Companys investment in listed ESOP shares has been written down to market value at 31 March 2003.
Reconciliation of Group share of profits less (losses) of joint ventures and associates with post acquisition retained reservesJoint
      ventures
    
    
    Associates
    
    
    2003
    
    
    Joint
      ventures
    
    
    Associates
    
    
    2002
    
    
    Joint
      ventures
    
    
    Associates
    
    
    2001£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mShare
        of turnover
    195
    
    
    65
    
    
    260
    
    
    285
    
    
    65
    
    
    350
    
    
    333
    
    
    61
    
    
    394Operating
        costs
    (142
    )
    
    (43
    )
    
    (185
    )
    
    (190
    )
    
    (45
    )
    
    (235
    )
    
    (236
    )
    
    (44
    )
    
    (280
    )Operating
        profits less (losses)
    53
    
    
    22
    
    
    75
    
    
    95
    
    
    20
    
    
    115
    
    
    97
    
    
    17
    
    
    114Net
        interest
    (2
    )
    
    1
    
    
    (1
    )
    
    (12
    )
    
    
    
    
    (12
    )
    
    (2
    )
    
    2
    
    
    Share
        of profits less (losses) before tax
    51
    
    
    23
    
    
    74
    
    
    83
    
    
    20
    
    
    103
    
    
    95
    
    
    19
    
    
    114Taxation
        charge
    (13
    )
    
    
    
    
    (13
    )
    
    (20
    )
    
    
    
    
    (20
    )
    
    (16
    )
    
    (1
    )
    
    (17
    )Dividends
        paid to Group companies
    (13
    )
    
    (15
    )
    
    (28
    )
    
    (11
    )
    
    (15
    )
    
    (26
    )
    
    (66
    )
    
    (14
    )
    
    (80
    )Share
        of retained profits
    25
    
    
    8
    
    
    33
    
    
    52
    
    
    5
    
    
    57
    
    
    13
    
    
    4
    
    
    17Page 113


Back to Contents
notes to the financial statements

Segmental analysis of Group share of turnover and operating profit/(losses) of joint ventures and associatesTurnover
    
    Operating profit/(loss)2003
    
    
    2002
    
    
    2001
    
    
    2003
    
    
    2002
    
    
    2001£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCable & Wireless GlobalGlobal Services
    
    
    6
    
    
    
    
    
    33
    
    
    
    
    
    (6
    )
    
    11Cable & Wireless RegionalCaribbean
    
    
    111
    
    
    109
    
    
    87
    
    
    35
    
    
    35
    
    
    32Asia
    
    
    52
    
    
    75
    
    
    55
    
    
    13
    
    
    17
    
    
    5Rest of World
    
    
    91
    
    
    97
    
    
    103
    
    
    27
    
    
    25
    
    
    25Continuing operations
    
    
    260
    
    
    281
    
    
    278
    
    
    75
    
    
    71
    
    
    73Discontinued operations
    
    
    
    
    
    69
    
    
    116
    
    
    
    
    
    44
    
    
    41260
    
    
    350
    
    
    394
    
    
    75
    
    
    115
    
    
    114The Global Services category comprises businesses which provide services to multinational customers and consequently supply these services from many geographic locations.
Group share of net assets of joint ventures and associatesJoint ventures
    
    
    Associates
    
    
    2003
    
    
    Joint ventures
    
    
    Associates
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mFixed assets
    
    
    177
    
    
    67
    
    
    244
    
    
    282
    
    
    73
    
    
    355Current assets
    
    
    47
    
    
    35
    
    
    82
    
    
    210
    
    
    34
    
    
    244Group share of gross assets
    
    
    224
    
    
    102
    
    
    326
    
    
    492
    
    
    107
    
    
    599Current borrowings
    
    
    (5
    )
    
    
    
    
    (5
    )
    
    (15
    )
    
    (1
    )
    
    (16
    )Other current liabilities
    
    
    (33
    )
    
    (19
    )
    
    (52
    )
    
    (82
    )
    
    (24
    )
    
    (106
    )Long term borrowings
    
    
    (25
    )
    
    
    
    
    (25
    )
    
    (51
    )
    
    (4
    )
    
    (55
    )Other long term liabilities
    
    
    (13
    )
    
    
    
    
    (13
    )
    
    (14
    )
    
    
    
    
    (14
    )Group share of gross liabilities
    
    
    (76
    )
    
    (19
    )
    
    (95
    )
    
    (162
    )
    
    (29
    )
    
    (191
    )Share of net assets
    
    
    148
    
    
    83
    
    
    231
    
    
    330
    
    
    78
    
    
    408Page 114

Back to Contents
notes to the financial statements
Segmental
        analysis of the Group share of net assets of joint ventures and associatesJoint ventures
    
    
    Associates
    
    
    2003
    
    
    Joint ventures
    
    
    Associates
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCable & Wireless GlobalGlobal Services
    
    
    
    
    
    
    
    
    
    
    
    142
    
    
    
    
    
    142Cable & Wireless RegionalCaribbean
    
    
    121
    
    
    
    
    
    121
    
    
    123
    
    
    
    
    
    123Asia
    
    
    
    
    
    
    
    
    
    
    
    41
    
    
    
    
    
    41Other
    
    
    27
    
    
    83
    
    
    110
    
    
    24
    
    
    78
    
    
    102148
    
    
    83
    
    
    231
    
    
    330
    
    
    78
    
    
    40818
    StocksStocks comprise network equipment and items held for resale.
19
    Current
        asset investmentsCurrent asset investments comprise a listed investment in PCCW with a book value and market value at 31 March 2003 of £235 million (Company  £nil) and £11 million of gilts (Company  £11 million).
The Ordinary shares in PCCW form the exchange property in respect of the zero coupon exchangeable bonds due 2003 as detailed in Note 26.
20
    DebtorsGroup
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mAmounts falling due within one yearTrade debtors
    
    
    962
    
    
    1,505
    
    
    3
    
    
    3Amounts owed by subsidiary undertakings
    
    
    
    
    
    
    
    
    82
    
    
    97Amounts owed by joint ventures and associates
    
    
    8
    
    
    5
    
    
    5
    
    
    4Other taxation and social security
    
    
    11
    
    
    
    
    
    
    
    
    Other debtors
    
    
    229
    
    
    589
    
    
    58
    
    
    370Prepayments and accrued income
    
    
    241
    
    
    275
    
    
    6
    
    
    6Lease payments receivable
    
    
    4
    
    
    
    
    
    
    
    
    1,455
    
    
    2,374
    
    
    154
    
    
    480Amounts falling due after more than one yearOther taxation and social security
    
    
    16
    
    
    
    
    
    
    
    
    Other debtors
    
    
    45
    
    
    50
    
    
    
    
    
    1Prepayments and accrued income
    
    
    101
    
    
    99
    
    
    90
    
    
    72Lease payments receivable
    
    
    4
    
    
    15
    
    
    
    
    
    166
    
    
    164
    
    
    90
    
    
    73Total debtors
    
    
    1,621
    
    
    2,538
    
    
    244
    
    
    553Page 115


Back to Contents
notes to the financial statements

21
    Short
        term deposits and cash at bank and in handOf the total amounts shown, £49 million (2002  £45 million) is held in countries subject to exchange regulations which may delay repatriation.
On 13 January 2003, the Company paid £1.5 billion into escrow in respect of the disposal of One2One in 1999. Following the agreement reached with the Inland Revenue to settle the Groups outstanding UK corporation tax affairs for the 10 years to 31 March 2001, the monies held in escrow were released by 31 March 2003 and the funds received on 1 April 2003.
22
    CreditorsGroup
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002Amounts
        falling due within one year
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mLoans
        and obligations under finance leasesBank
        loans and overdrafts
    
    
    2
    
    
    11
    
    
    
    
    
    Current
        instalments due on loans
    
    
    810
    
    
    204
    
    
    716
    
    
    Obligations
        under finance leases
    
    
    13
    
    
    22
    
    
    
    
    
    825
    
    
    237
    
    
    716
    
    
    Other
        creditorsPayments
        received on account
    
    
    16
    
    
    10
    
    
    
    
    
    Trade
        creditors
    
    
    846
    
    
    1,161
    
    
    
    
    
    Amounts
        owed to subsidiary undertakings
    
    
    
    
    
    
    
    
    51
    
    
    68Amounts
        owed to associates and joint ventures
    
    
    
    
    
    131
    
    
    
    
    
    14Dividends
        payable
    
    
    
    
    
    83
    
    
    
    
    
    83Other
        taxation and social security
    
    
    286
    
    
    326
    
    
    131
    
    
    156Other
        creditors
    
    
    445
    
    
    724
    
    
    135
    
    
    544Accruals
        and deferred income
    
    
    857
    
    
    1,299
    
    
    99
    
    
    1132,450
    
    
    3,734
    
    
    416
    
    
    978Total
        creditors falling due within one year
    
    
    3,275
    
    
    3,971
    
    
    1,132
    
    
    978Page 116 
Back to Contents
notes to the financial statements

Group
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002Amounts falling due after more than one year
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mOther loansSterling repayable at various dates up to 2019
    
    
    786
    
    
    636
    
    
    586
    
    
    349US dollars repayable at various dates up to 2038 *
    
    
    666
    
    
    1,417
    
    
    449
    
    
    1,187Other currencies repayable at various dates up to 2017
    
    
    74
    
    
    159
    
    
    
    
    
    1,526
    
    
    2,212
    
    
    1,035
    
    
    1,536Less: Current instalments due
    
    
    (810
    )
    
    (204
    )
    
    (716
    )
    
    716
    
    
    2,008
    
    
    319
    
    
    1,536Obligations under finance leases
    
    
    5
    
    
    14
    
    
    
    
    
    Total other loans and obligations under finance leases
    
    
    721
    
    
    2,022
    
    
    319
    
    
    1,536Other creditorsOther taxation and social security
    
    
    74
    
    
    
    
    
    74
    
    
    Amounts owed to subsidiary undertakings
    
    
    
    
    
    
    
    
    16,089
    
    
    13,729Other creditors
    
    
    11
    
    
    3
    
    
    
    
    
    Accruals and deferred income
    
    
    1
    
    
    6
    
    
    
    
    
    86
    
    
    9
    
    
    16,163
    
    
    13,729Total creditors falling due after more than one year
    
    
    807
    
    
    2,031
    
    
    16,482
    
    
    15,265*
    Includes the zero coupon exchangeable bonds due 2003, which are exchangeable into ordinary shares of PCCW as detailed in Note 26.The Articles of Association of the Company permit borrowing up to two and a half times the capital and reserves of the Group.
Group
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mPayment profile of total other loans and obligations under finance leasesIn more than one year but not more than two years
    
    
    56
    
    
    1,295
    
    
    
    
    
    1,217In more than two years but not more than five years
    
    
    226
    
    
    276
    
    
    121
    
    
    121In more than five years
    
    
    439
    
    
    451
    
    
    198
    
    
    198721
    
    
    2,022
    
    
    319
    
    
    1,536Any borrowing, the liability of which is swapped into another currency, is accounted for as a liability in the swap currency and not in the original currency of denomination.
Borrowings totalling £26 million are secured on assets of the Group (2002  £32 million).
Page 117


Back to Contents
notes to the financial statements
23
    Provisions
        for liabilities and chargesAt1 April 2002
    
    
    Additions/(releases)
    
    
    Amounts used
    
    
    Foreign exchangeand other move-ments
    
    
    At31 March 2003Note
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mGroupTaxation, including deferred taxation
    
    
    (i)
    
    
    493
    
    
    (31
    )
    
    (380
    )
    
    (15
    )
    
    67Pensions
    
    
    (ii)
    
    
    36
    
    
    9
    
    
    (5
    )
    
    (1
    )
    
    39Redundancy
    
    
    (iii)
    
    
    15
    
    
    108
    
    
    (79
    )
    
    
    
    
    44Property
    
    
    (iv)
    
    
    216
    
    
    303
    
    
    (97
    )
    
    (17
    )
    
    405Network
    
    
    (v)
    
    
    60
    
    
    159
    
    
    (34
    )
    
    (3
    )
    
    182Other
    
    
    (vi)
    
    
    18
    
    
    75
    
    
    (67
    )
    
    (3
    )
    
    23838
    
    
    623
    
    
    (662
    )
    
    (39
    )
    
    760At1 April 2002
    
    
    Additions
    
    
    Amounts Used
    
    
    At31 March 2003Note
    
    
    £m
    
    
    £m
    
    
    £m
    
    
    £mCompanyTaxation,
        including deferred taxation
    
    
    (i)
    
    
    203
    
    
    (5
    )
    
    (197
    )
    
    1Pensions
    
    
    (ii)
    
    
    14
    
    
    4
    
    
    
    
    
    18217
    
    
    (1
    )
    
    (197
    )
    
    19(i) Taxation, including
        deferred taxationThe movement in the Group deferred tax balance from £105 million to £67 million (Company  £6 million to £1 million) during the year comprises £31 million credited in the profit and loss account (Company  £5 million) and £7 million relating to exchange and other movements (Company  £nil). The total deferred tax balance relates to excess capital allowances. The movement in the Groups other tax provisions from £388 million to £nil (Company  £197 million to £nil) comprises utilisation of £380 million in respect of the tax settlement (Company  £197 million) and £8 million (Company  £nil) relating to exchange and other movements.
The deferred tax liability does not include an amount of £24 million (2002  £58 million) of contingent tax liability arising on the reserves of overseas subsidiaries, joint ventures and associates which the Group does not expect to remit to the United Kingdom.
As at 31 March 2003, the Group had tax losses to carry forward of approximately £6,860 million (2002  £2,588 million) against which no deferred tax asset has been recognised. A deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted.
(ii) PensionsThe Group operates various unfunded pension plans. Provision is made for the expected cost of meeting the associated liabilities. In view of their long term nature, the timing of utilisation of these provisions is uncertain. Included within this provision is an amount of £4.7 million (2002  £6.4 million) to cover the cost of former Directors pension entitlements.
(iii) RedundancyProvision has been made for the cost of redundancies announced during the year which are expected to be utilised within 12 months.
Page 118 
Back to Contents
notes to the financial statements
(iv) PropertyProvision has been made for the best estimate of the unavoidable lease payments on vacant properties, being the difference between the rentals due and any income expected to be derived from their being sub-let. The provision is expected to be utilised over the shorter of the period to exit and the lease contract life. Provision has also been made for the difference between rentals on properties relating to businesses acquired during the previous financial year and their fair value at the date of acquisition. The provision is being utilised over the lease contract life.
(v) NetworkProvision has been made for the best estimate of the unavoidable costs associated with redundant network capacity. The provision is expected to be utilised over the shorter of the period to exit and the lease contract life.
(vi) OtherOther provisions include £13 million relating to the disposal of the US discontinued businesses. It is expected that this provision will be utilised within 12 months. Other provisions also include £9 million relating to specific claims held against the Groups insurance subsidiary.
24
    Called
        up share capital2003
    
    
    2002Authorised3,500,000,000 Ordinary Shares of 25p each(2002  3,499,999,996 Ordinary Shares of 25p each)
    
    
    £875m
    
    
    £875mSpecial Rights Preference Share of £1
    
    
    
    
    
    £1Allotted, called up and fully paid2,383,124,694 Ordinary Shares of 25p each(2002  2,382,124,684 Ordinary Shares of 25p each)
    
    
    £596m
    
    
    £595mA proposal to re-designate the Special Rights Preference Share into four Ordinary Shares of 25p nominal value each was approved at the Annual General Meeting held on 12 July 2002. As a consequence the Companys authorised share capital now comprises 3,500,000,000 Ordinary Shares of 25p each.
Purchases and allotments of Ordinary Shares of 25p each were made during the year in respect of the following:
Number of shares
      allotted
    
    
    Gross consideration received £C&W
        Senior Employees Share Option Scheme
    
    
    1
    
    
    12C&W
        Revenue Approved Share Option Scheme
    
    
    9
    
    
    47Allotment
        of shares to Director
    
    
    1,000,000
    
    
    570,0001,000,010
    
    
    570,059Page 119


Back to Contents
notes to the financial statements

At 31 March 2003 outstanding options granted under share option schemes to subscribe for Ordinary Shares were as follows:
Number of shares
    
    
    Price
    
    
    Remaining periodC&W
        Senior Employees Share Option Scheme (SESOS)
    
    
    428,994
    
    
    420.5
    p
    
    20031,483,726
    
    
    472.4 to 553.3
    p
    
    2003-2004787,953
    
    
    537.2 to 716.3
    p
    
    2003-20053,683,191
    
    
    722.3 to 982.0
    p
    
    2003-200611,315,017
    
    
    885.7 to 1311.9
    p
    
    2003-20071,079,975
    
    
    760.9 to 856.27
    p
    
    2004-2008910,941
    
    
    470.6 to 545.22
    p
    
    2004-2008C&W
        Savings Related Share Option Schemes (SAYE)
    
    
    70,677
    
    
    358.16
    p
    
    2003136,549
    
    
    336.4 to 376.56
    p
    
    2003-2004115,114
    
    
    394.48 to 427.84
    p
    
    2003-2005321,643
    
    
    533.68 to 558.64
    p
    
    2003-200692,839
    
    
    625.36
    p
    
    2003-2007159,635
    
    
    687.68
    p
    
    2003-200761,359
    
    
    985.92
    p
    
    2003-200889,394
    
    
    761.76
    p
    
    2004-2008635,743
    
    
    357.92
    p
    
    2004-2009530,100
    
    
    274.64
    p
    
    2005-20091,962,593
    
    
    158.36
    p
    
    2005-2009
    *23,453,884
    
    
    36.96
    p
    
    2006-2010
    *C&W
        Revenue Approved Share Option Scheme (RESOS)
    
    
    314,701
    
    
    338.04 to 397.7
    p
    
    2003321,289
    
    
    446.5
    p
    
    2003-2004382,536
    
    
    413.7
    p
    
    2003-2005358,447
    
    
    420.5
    p
    
    2003-2006722,616
    
    
    478.5 to 553.3
    p
    
    2003-2007179,082
    
    
    704.6
    p
    
    2003-2008779,732
    
    
    722.3 to 982.0
    p
    
    2003-20097,560,683
    
    
    907.8 to 1311.9
    p
    
    2003-2010360,225
    
    
    760.9
    p
    
    2004-201158,040
    
    
    470.6
    p
    
    2004-2011C&W
        Share Option Plan (Approved and Unapproved)
    
    
    70,591,987
    
    
    219.70 to 415.69
    p
    
    2003-200930,905,617
    
    
    158.6875 to
      262.0
    p
    
    2003-2009
    *C&W
        Global Savings Related Share Option Scheme (GSAYE)
    
    
    276,858
    
    
    546.72
    p
    
    2003-2005564,994
    
    
    625.36 to 687.68
    p
    
    2003-200765,630
    
    
    893.76 to 1110.38
    p
    
    2003-2008143,480
    
    
    761.76
    p
    
    2004-20062,282,827
    
    
    229.92 to 777.20
    p
    
    2004-2007820,321
    
    
    135.86 to 203.02
    p
    
    2005-2008
    *1,078,398
    
    
    109.76
    p
    
    2005-2008
    *8,012,778
    
    
    36.96
    p
    
    2006-2010
    *At 31 March 2003 outstanding options for American Depositary Receipts (ADRs) under the Cable & Wireless Employee Stock Purchase Plan are as follows:
Number of ADRs
    
    
    PriceUS$
    
    
    Normal dates of exerciseC&W Employee Stock Purchase Plan
    
    
    90,723
    
    
    5.14
    
    
    30/09/03
    *131,511
    
    
    2.95
    
    
    31/03/04
    ** Granted during the year
        ended 31 March 2003.
Page 120 
Back to Contents
notes to the financial statements

The Employee Share Ownership Plan TrustThe Employee Share Ownership Plan Trust (the Trust), is a discretionary trust which has been funded by loans from the Company to acquire shares in Cable and Wireless plc. The Trust held 54,738,313 shares (2002  38,862,510 shares) valued at £38 million (2002  £87 million) on 31 March 2003. The cost of running the Trust is included in the profit and loss account. The Trustees of the plan may notionally allocate Ordinary Shares in the Company annually to Executive Directors or other senior executives and other key staff. Shares are held in trust until such time as they may be transferred to employees in accordance with the terms of the Performance Share Plan, the Restricted Share Plan, the Deferred Short Term Incentive Plan, details of which are given in the Directors Remuneration Report, and the Share Option Plan, details of which are given below. The shares will be provided from existing Ordinary Shares in issue acquired by the
Trustees. The expected cost of all these shares is charged to the profit and loss account over the life of the relevant scheme. Surplus shares may be held to satisfy future awards. The Trust has waived its rights to dividends. At 31 March 2003, there were 26,754 shares under options in relation to the Long Term Incentive Plan, 8,710,393 shares under contingent awards in relation to the Performance Share Plan, 763,283 shares under restricted share awards in relation to the Restricted Share Plan, 44,109 shares under the Deferred Short Term Incentive Plan and 76,210,041 shares under options in relation to the Share Option Plan.
Cable & Wireless Savings Related Share Option Scheme and Cable & Wireless Global Savings Related Share Option SchemeUnder the Cable & Wireless Savings Related Share Option Scheme (SAYE scheme), UK employees can enter a savings contract with a bank to save regular monthly sums of between £5 and £250 for a period of either three or five years. At the end of the savings contract, the participant receives interest from the bank on their savings. The savings and the interest may then be used to exercise an option over Ordinary Shares of the Company which are issued at a discount of 20 per cent to the market value of the Companys Ordinary Shares at the date of grant. The Company has extended the SAYE scheme to its overseas employees by the Cable & Wireless Global Savings Related Share Option Scheme (GSAYE scheme). The GSAYE scheme is offered throughout the Groups territories (with the exception of the UK and US) and it operates along similar lines to the SAYE scheme with local variances to accommodate local legal and tax
considerations.
The Group has taken advantage of the exemption contained in UITF Abstract 17  Employee share schemes not to recognise a charge to the profit and loss account in respect of its Inland Revenue approved SAYE scheme.
Cable & Wireless Revenue Approved Share Option SchemePrior to July 2001, Cable & Wireless granted share options under the Cable & Wireless Revenue Approved Share Option Scheme (RESOS). Options awarded under this plan between June 1999 and July 2001 are subject to performance based conditions based on Cable & Wireless Total Shareholder Return (TSR) performance relative to the FTSE 100 Index, underpinned by real growth in earnings before interest, tax, depreciation and amortisation and turnover. For full vesting, Cable & Wireless TSR must achieve at least upper quartile level against the FTSE 100 between the third and fifth anniversaries of the date of grant. Half vesting applies for TSR at the median level, with a sliding scale between median and upper quartiles. If the performance conditions are not met by the fifth anniversary of the date of grant, the options lapse. As at the date of this report, no such options have achieved their performance conditions.
Options granted under RESOS before June 1999 became exercisable if growth in Companys published earnings per share (excluding exceptional items) measured over any period of three consecutive financial years, commencing not earlier than the financial year in which the option was granted, exceeded by not less than 6 per cent the percentage growth of the Retail Price Index over the same three year period. All such options became exercisable in full. No further grants will be made under the RESOS plan.
Cable & Wireless Share Option PlanThe Share Option Plan is the principal vehicle for long-term retention and incentivisation for the Executive Directors, other executives and key staff. The level of any award is determined by the Remuneration Committee each year by reference to total remuneration within a market peer group, subject to an overriding annual limit of six times salary for the Chief Executive and four times salary for other Executive Directors.
The vesting of share options awarded
  to the Executive Directors and to all employees outside the United States is
  subject to relative TSR performance conditions. Full vesting occurs only if
  the TSR performance of the Company meets or exceeds thePage 121


Back to Contents
notes to the financial statements

upper quartile between the third and fifth anniversaries of
the date of grant. Where TSR performance meets the median, 50 per cent of the
initial award vests. A sliding scale operates between median and upper quartile, and nothing vests for TSR performance below the median.
If performance conditions have not been met by the fifth anniversary of the date
of grant, the options lapse.Performance conditions are applied in determining the level of awards to employees in the United States, but do not normally apply to the vesting of such awards. In addition, 25 per cent of awards to employees in the United States vest on the first anniversary of the date of the grant with a further 25 per cent on each subsequent anniversary. These terms reflect normal practice in the United States.
Cable
        & Wireless Employee Stock Purchase PlanThe Company also offers employees of its US subsidiaries the Cable & Wireless Employee Stock Purchase Plan (ESPP) which is a section 423 qualified plan under the US Internal Revenue Code 1986. Under ESPP, employees can save over a one year period sums of between US$10 and US$800 per payroll payment. At the end of each period the employees have the option to purchase ADRs in the Company at a 15 per cent discount to the market price of an ADR at the date of grant. Each ADR represents three Ordinary Shares in the Company.
Cable & Wireless Share Purchase PlanThe Company also offers its employees who are chargeable to income tax, under Section 15 Income Tax (Earnings and Pensions) Act 2003, the Cable & Wireless Share Purchase Plan (the Plan) which is a Revenue Approved Share Incentive Plan. Under the Plan, employees can contribute between £5 and £125 per month, or 10 per cent of pre tax salary each month, whichever is the lower, to buy partnership shares in the Company. Shares are held in a UK resident trust and can be withdrawn from the trust at any time, but there may be pay as youearn taxation and national insurance contributions payable in such events if the shares have not been held in the trust for five years. Dividends on the partnership shares are re-invested in additional Dividend Shares.
25
    ReservesGroupShare premium
    
    
    Capital redemptionreserve
    
    
    Profit and loss account£m
    
    
    £m
    
    
    £mAt 1 April 2002 after prior year adjustment
    
    
    1,745
    
    
    105
    
    
    6,513Exchange adjustments
    
    
    
    
    
    
    
    
    (240
    )Loss for the year retained
    
    
    
    
    
    
    
    
    (6,570
    )At 31 March 2003
    
    
    1,745
    
    
    105
    
    
    (297
    )CompanyShare premium
    
    
    Revaluation
      reserve
    
    
    Capital redemption
      reserve
    
    
    Profit and loss
      account£m
    
    
    £m
    
    
    £m
    
    
    £mAt
        1 April 2002
    
    
    1,745
    
    
    9,156
    
    
    105
    
    
    (512
    )Revaluation
    
    
    
    
    
    223
    
    
    
    
    
    Exchange
        adjustments
    
    
    
    
    
    
    
    
    
    
    
    17Loss
        for the year retained
    
    
    
    
    
    
    
    
    
    
    
    (7,676
    )At
        31 March 2003
    
    
    1,745
    
    
    9,379
    
    
    105
    
    
    (8,171
    )
Page 122 
Back to Contents
notes to the financial statements

The Company profit and loss account includes a net unrealised loss of £11,141 million (2002  £3,626 million) in respect of impairments to investments in subsidiary undertakings.
The Company carries investments in subsidiary undertakings at valuation. Provisions for impairment have been made in respect of some of the Companys investments in subsidiary undertakings.
The Directors have considered the value of the Companys other fixed assets and are satisfied that the aggregate value of those assets which have not actually been revalued was not less than the aggregate amount at which they are stated in the Companys accounts. Thus, under section 275(6) of the Companies Act 1985 the relevant items (as mentioned in section 270(2) of the Act) are accordingly regarded as stated in the Companys accounts on the basis that a revaluation of all of the Companys fixed assets took place at that time.Consequently, the provisions for impairment are deemed by section 275 of the Companies Act 1985 to be an unrealised loss.
Exchange adjustments in the Group are net of exchange profits of £20 million (2002  £27 million, 2001  losses of £39 million) on foreign currency borrowings. The cumulative amount of goodwill charged to reserves in prior years as a result of acquisitions, net of goodwill written back through the profit and loss account and statement of total recognised gains and losses, amounted to £475 million (2002  £475 million, 2001  £885 million). Of this amount £441 million (2002  £441 million, 2001  £441 million) related to joint ventures and associates.
26
    Financial
        instrumentsAn outline of the objectives, policies and strategies pursued by the Group in relation to financial instruments is set out in the Treasury activities and policies section of the Operating and Financial Review on pages 36 to 40.
For the purpose of the disclosures which follow in this note, short term debtors and creditors which arise directly from the Groups operations have been excluded from financial assets and liabilities as permitted under Financial Reporting Standard 13  Derivatives and other financial instruments: disclosures except for currency risk disclosures. The disclosures therefore focus on those financial instruments which play a significant medium to long term role in the financial risk profile of the Group. An analysis of the carrying value of all financial assets and liabilities is given in the fair value table on page 126.
Interest rate managementThe interest rate profile of the financial liabilities of the Group at 31 March 2003, after taking account of interest rate swaps and cross currency interest rate swaps, is set out in the table below:
Currency
    
    
    Floating rate
      £m
    
    
    Fixed rate
      £m
    
    
    Non-interest bearing
      £m
    
    
    2003
      £m
    
    
    Floating rate
      £m
    
    
    Fixed rate
£m
    
    
    Non-interest bearing
£m
    
    
    2002
      £mSterling
    
    
    121
    
    
    667
    
    
    
    
    
    788
    
    
    219
    
    
    428
    
    
    
    
    
    647US$
    
    
    104
    
    
    119
    
    
    449
    
    
    672
    
    
    122
    
    
    408
    
    
    914
    
    
    1,444Yen
    
    
    
    
    
    74
    
    
    
    
    
    74
    
    
    13
    
    
    147
    
    
    
    
    
    160Other
    
    
    7
    
    
    5
    
    
    
    
    
    12
    
    
    1
    
    
    7
    
    
    
    
    
    8232
    
    
    865
    
    
    449
    
    
    1,546
    
    
    355
    
    
    990
    
    
    914
    
    
    2,259The floating rate financial liabilities comprise bank borrowings bearing interest at rates fixed in advance for periods ranging from one week to six months by reference to LIBOR for sterling and US dollar borrowings.
The non-interest bearing financial
  liabilities comprise £449 million (2002  £914 million) of
  the zero coupon exchangeable bonds, which are exchangeable into ordinary shares
  of PCCW. The bonds were issued on 9 April 2001 at 100 per cent of their US$1,504
  million principal amount. During the year the Group purchased US$600 million
  (2002  US$200 million) of the principal amount of the bonds at a discount
  to their face value. This resulted in a gain of US$15 million (£10 million),Page 123


Back to Contents
notes to the financial statements

(2002  US$10 million (£7 million)) which is recognised
in the current year profit and loss account in full. Subject to the conditions
of the bonds, the bondholders had the option to exchange the bonds into ordinary shares of PCCW at any time prior to the close of business
on 2 June 2003. The Company had the option to redeem the bonds at their principal
amount provided that the market value of the ordinary shares of PCCW on such dealing day is greater than
120 per cent of the aggregate principal amount of the outstanding bonds on each
of 15 of any 20 consecutive dealing days. Unless previously purchased or redeemed (on exchange or otherwise),
the bonds will be redeemed at their principal amount on 9 June 2003.The Group has a net asset of £4 million (2002  £1 million net liability) resulting from the fair value of forward exchange contracts entered into before 31 March 2003. This has been excluded from the preceding table.
The weighted average interest rates for the fixed rate financial liabilities of the Group at 31 March 2003, together with the periods for which the rates were fixed, are set out in the table below:
2003
    
    2002Currency
    
    
    Weightedaverageinterestrate%
    
    
    Weightedaverageperiod
      forwhich rateis fixedMonths
    
    
    Weightedaverageinterestrate%
    
    
    Weightedaverageperiod
      forwhich rateis fixedMonthsSterling
    
    
    7.9
    
    
    95
    
    
    8.6
    
    
    154US$
    
    
    5.4
    
    
    82
    
    
    6.2
    
    
    42Yen
    
    
    3.7
    
    
    62
    
    
    2.6
    
    
    58Other
    
    
    10.9
    
    
    114
    
    
    10.9
    
    
    1217.3
    
    
    91
    
    
    6.7
    
    
    94The interest and other similar income rate profile of the financial assets of the Group at 31 March 2003, after taking account of interest rate swaps, is set out in the table below:
Currency
    
    
    Floating rate£m
    
    
    Non-interest
      bearing£m
    
    
    2003£m
    
    
    Floating rate£m
    
    
    Non-interest
      bearing£m
    
    
    2002£mSterling
    
    
    2,404
    
    
    87
    
    
    2,491
    
    
    3,575
    
    
    176
    
    
    3,751US$
    
    
    623
    
    
    11
    
    
    634
    
    
    1,077
    
    
    17
    
    
    1,094Yen
    
    
    12
    
    
    1
    
    
    13
    
    
    22
    
    
    8
    
    
    30HK$
    
    
    1
    
    
    254
    
    
    255
    
    
    2
    
    
    546
    
    
    548Other
    
    
    125
    
    
    5
    
    
    130
    
    
    212
    
    
    8
    
    
    2203,165
    
    
    358
    
    
    3,523
    
    
    4,888
    
    
    755
    
    
    5,643The floating rate financial assets principally comprise cash and short term deposits. Of the total, approximately 90 per cent is held by the Groups central treasury operations as sterling and US dollar cash deposits with short term maturities based on LIBOR and maturities ranging between one and 12 months.
At 31 March 2003, the Group had no financial assets upon which fixed income was earned during that year. The non-interest bearing financial assets are held in the form of shares.
During the year the Company purchased £75 million of credit linked notes issued by an AA-rated bank and referenced to the £200 million bond maturing in 2012. Two notes of £25 million and £50 million were purchased with maturities of September 2003 and July 2004 respectively. The transactions have a similar economic effect to repurchasing the referenced bonds for the period of the investment. The notes pay interest at an average rate of LIBOR plus 151 basis points.

Page 124 
Back to Contents
notes to the financial statements

In return for receiving interest on the credit linked notes at rates in excess of LIBOR the final redemption to be received by the Company is determined by certain circumstances related to the credit risk of the Company. These circumstances arise if there has been a credit event as defined in the terms of the note, in which case the counterparties may redeem the notes at less than par value. A credit event arises in the event of any of the following circumstances in respect of Cable and Wireless plc only:

    bankruptcy;
    failure to make any payment due under any of its debt obligations, after expiration of any grace period and subject to a threshold of £25 million; and
    restructuring of any of its debt subject to a threshold of £25 million.If a credit event should take place, the credit linked note is unlikely to be redeemed for cash. Instead the Company is likely to receive its own bonds or debt obligations with a par value equivalent to that of the credit linked notes in settlement of redemption of the note.
Exchange risk managementThe following table shows the Groups currency exposures at 31 March 2003 on currency transactions that give rise to the net currency gains and losses recognised in the profit and loss account. Such exposures comprise the monetary assets and liabilities of the Group that are not denominated in the functional currency of the operating company involved, other than certain non-sterling borrowings treated as hedges of net investments in overseas companies.
Net foreign currency monetary assets/(liabilities) in £m2003
    
    2002Functional currency of the operating company
    
    
    US$
    
    
    Sterling
    
    
    Euros
    
    
    Other
    
    
    Total
    
    
    US$
    
    
    Sterling
    
    
    Euros
    
    
    Other
    
    
    TotalSterling
    
    
    20
    
    
    
    
    
    2
    
    
    2
    
    
    24
    
    
    54
    
    
    
    
    
    7
    
    
    5
    
    
    66Yen
    
    
    (12
    )
    
    
    
    
    
    
    
    (3
    )
    
    (15
    )
    
    (14
    )
    
    
    
    
    
    
    
    (7
    )
    
    (21
    )HK$
    
    
    3
    
    
    3
    
    
    
    
    
    
    
    
    6
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3Euros
    
    
    (1
    )
    
    (4
    )
    
    
    
    
    1
    
    
    (4
    )
    
    (4
    )
    
    1
    
    
    
    
    
    
    
    
    (3
    )Other
    
    
    (26
    )
    
    10
    
    
    (3
    )
    
    9
    
    
    (10
    )
    
    (169
    )
    
    3
    
    
    (6
    )
    
    11
    
    
    (161
    )(16
    )
    
    9
    
    
    (1
    )
    
    9
    
    
    1
    
    
    (130
    )
    
    4
    
    
    1
    
    
    9
    
    
    (116
    )The amounts shown in the table above take into account the effect of any cross currency swaps, forward exchange contracts and other derivatives entered into to manage these currency exposures.
Maturity of financial liabilitiesThe maturity profiles of the Groups financial liabilities, as listed in the fair value table on page 126, are disclosed in Note 22.
Borrowing facilitiesThe undrawn committed facilities available at 31 March 2003, in respect of which all conditions precedent had been met at that date, were as follows:
2003
    
    
    2002£m
    
    
    £mExpiring within one year
    
    
    30
    
    
    90Expiring in year two
    
    
    
    
    
    3030
    
    
    120
Page 125


Back to Contents
notes to the financial statements

Fair valueThe estimated fair value of the Groups financial instruments are summarised below:
2003
    
    2002Carrying amount
    
    
    Estimated fair
      value
    
    
    Carrying amount
    
    
    Estimated fair
      value£m
    
    
    £m
    
    
    £m
    
    
    £mPrimary
        financial instruments held or issued to finance the Groups operationsTrade
        investments
    
    
    85
    
    
    126
    
    
    86
    
    
    86Cash
    
    
    196
    
    
    196
    
    
    216
    
    
    216Short
        term deposits
    
    
    2,958
    
    
    2,958
    
    
    4,063
    
    
    4,063Current
        asset investments
    
    
    246
    
    
    246
    
    
    1,155
    
    
    1,196Net
        investment in finance lease receivables
    
    
    
    
    
    
    
    
    15
    
    
    15Loans
        and obligations under finance leases due within one year
    
    
    (376
    )
    
    (378
    )
    
    (237
    )
    
    (237
    )Convertible
        bonds
    
    
    (449
    )
    
    (447
    )
    
    (914
    )
    
    (882
    )Other
        loans and obligations under finance leases due after more than one year
    
    
    (721
    )
    
    (681
    )
    
    (1,108
    )
    
    (1,148
    )Other
        creditors falling due after more than one year
    
    
    (86
    )
    
    (86
    )
    
    (9
    )
    
    (9
    )Derivative financial instruments
      held to manage interest rate and currency exposureForward
        rate agreements, interest rate swaps          assets
    
    
    
    
    
    3
    
    
    
    
    
    21     (liabilities)
    
    
    
    
    
    (1
    )
    
    
    
    
    (3
    )Cross
        currency swaps          assets
    
    
    1
    
    
    1
    
    
    35
    
    
    35     (liabilities)
    
    
    (16
    )
    
    (16
    )
    
    (26
    )
    
    (28
    )Forward
        exchange contracts
    
    
    7
    
    
    4
    
    
    (1
    )
    
    (1
    )Trade investmentsTrade investments above are detailed in Note 17 but exclude ESOP shares carried at £38 million (2002  £123 million) with a fair value of £38 million (2002  £87 million). The fair value is based on year end quoted prices for listed investments and estimates of likely sales proceeds for other investments.
Cash at bank and in hand, short term deposits and short term borrowingsThe carrying value approximates to fair value either because of the short maturity of the instruments or because the interest rate on investments is reset after periods not greater than six months.
Current asset investmentsThe fair value is based on market value or estimates of likely sales proceeds.
Convertible bonds and other long term debtThe fair value is based on quoted market prices or, where these are not available, on the quoted market prices of comparable debt issued by other companies.
Forward rate agreements, interest rate and cross currency swapsThe fair value of forward rate agreements, interest rate and cross currency swaps is the estimated amount which the Group would expect to pay or receive were it to terminate the swaps at the balance sheet date. This takes into consideration current interest rates, current exchange rates and the current creditworthiness of the counterparties. The nominal value of swaps at 31 March 2003 was £2,146 million (2002  £5,206 million).

Page 126 
Back to Contents
notes to the financial statements


Forward exchange contractsThe value of these contracts is the
  estimated amount which the Group would expect to pay or receive on the termination
  of the contracts. This takes into consideration current interest rates and current
  exchange rates. At 31 March 2003 the Group had £406 million of such contracts
  outstanding (2002  £107 million).
HedgesGains and losses on instruments used
  for hedging are not recognised until the exposure that is being hedged is itself
  recognised. Unrecognised gains and losses on instruments used for hedging (excluding
  hedges that have been accounted for by adjusting the carrying value of a fixed
  asset recognised on the balance sheet), and on the underlying asset or liability,
  are as follows:
Gains
    
    
    (Losses)
    
    
    Net gains/(losses)£m
    
    
    £m
    
    
    £mUnrecognised
        gains and losses on hedgesAt
        1 April 2002
    
    
    88
    
    
    (72
    )
    
    16Recognised
        during the year
    
    
    (53
    )
    
    4
    
    
    (49
    )Arising
        in the year that were not recognised during the year
    
    
    (32
    )
    
    64
    
    
    32At
        31 March 2003
    
    
    3
    
    
    (4
    )
    
    (1
    )Of
        which:Expected
        to be recognised in less than one year
    
    
    3
    
    
    (3
    )
    
    Expected
        to be recognised in after more than one year
    
    
    
    
    
    (1
    )
    
    (1
    )The above net unrecognised loss is a reflection of different market interest rates ruling at 31 March 2003.
27
    Commitments
        and contingent liabilitiesCommitmentsCapital commitments at the end of the financial year, for which no provision has been made, are as follows:
Group
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mContracted
    
    
    135
    
    
    367
    
    
    
    
    
    The Group figures above exclude amounts
  payable for certain network assets to be ordered by August 2005 under a take
  or pay contract. During the year this contract was re-negotiated. The £16
  million committed and payable under the amended contract has been provided for
  as at 31 March 2003.
In addition to the capital commitments
  above the Group has a number of operating commitments arising in the ordinary
  course of the Groups business. The most significant of these relate to
  network operating and maintenance costs, and out-sourcing arrangements in the
  UK and US for the provision of certain services including human resources and
  information technology systems management. In respect of operating and maintenance
  costs, in the event of default of another party, the Group may be liable to
  additional contributions under the terms of the agreements.



Page 127


Back to Contents
notes to the financial statements



Contingent liabilitiesContingent liabilities at the end of the financial year for which no provision or disclosure has been made elsewhere in the financial statements are as follows:
Group
    
    Company2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mTrading
        guarantees
    
    
    181
    
    
    154
    
    
    181
    
    
    154Other
        guarantees
    
    
    
    
    
    
    
    
    489
    
    
    547181
    
    
    154
    
    
    670
    
    
    701Upon re-examination of the Groups trading guarantees the comparative for 2002 has been amended to £154 million.
Trading guarantees principally comprise
  performance bonds or contracts issued in the normal course of business guaranteeing
  the Group will meet its obligations to complete projects in accordance with
  the contractual terms and conditions. The guarantees also enable the customer
  to obtain repayment of any advance payment in the event of the relevant subsidiary
  failing to carry out its contractual obligations in full. Some of these guarantees
  are uncapped.
The nature of contracts includes projects, service level agreements, installation of equipment, surveys, purchase of equipment and transportation of materials. The guarantees contain a clause that they will be terminated on final acceptance of work to be done under the contract.
Other guarantees include guarantees in respect of the financial obligations of subsidiary undertakings principally in respect of leases, borrowings and letters of credit.
Pender Insurance Limited (Pender),
  the Groups Isle of Man insurance subsidiary, has written policies in favour
  of the Group and third parties. Significant insurance claims have been made
  against Pender under certain of these third party policies. Pender is currently
  taking legal advice and it intends to defend vigorously these claims, and has
  notified its reinsurers where appropriate. The Board of Pender, in accordance
  with Financial Reporting Standard 12 Provisions, contingent liabilities
  and contingent assets determined that no provision was required in its
  financial statements for these claims for the year ended 31 March 2003. As certain
  of the insurance claims have not yet been fully quantified or substantiated
  by the claimants, it is not currently practicable to estimate their financial
  effects. Since 31 March 2003, Pender has ceased to write third party insurance.
Other mattersIn addition the Company has, as is
  considered standard practice in such agreements, given guarantees and indemnities
  in relation to a number of disposals of subsidiary undertakings in prior years.
  Generally, liability has been capped at no more than the value of the sales
  proceeds, although some uncapped indemnities have been given.
In relation to the sale of CWC ConsumerCo, the Company gave a number of standard warranties and indemnities. There is no time limit or cap that applies generally. The Company also gave warranties and indemnities in relation to facility sharing agreements.
The Directors do not expect any of these guarantees to result in a material loss to the Group or Company.



Page 128


Back to Contents
notes to the financial statements



28
    LeasesGroup operating lease commitments
  payable in the following year, analysed according to the period in which each
  lease expires are as set out below. The comparative disclosure has been adjusted
  following the announcement on 13 November 2002 of the Groups interim results
  that included additional information in respect of the Groups estimated
  property and other lease commitments.
Land
      and buildings
    
    Other
      assets2003
    
    
    2002
    
    
    2003
    
    
    2002£m
    
    
    £m
    
    
    £m
    
    
    £mExpiring
        within one year
    
    
    17
    
    
    4
    
    
    49
    
    
    72Expiring
        in years two to five
    
    
    44
    
    
    37
    
    
    34
    
    
    34Expiring
        thereafter
    
    
    97
    
    
    111
    
    
    23
    
    
    24158
    
    
    152
    
    
    106
    
    
    130The Company had no operating lease commitments payable (2002  £nil).
29
    Reconciliation
        of Group operating loss to net cash inflow from operating activities2003
    
    
    2002
    
    
    2001For
        the year ended 31 March
    
    
    £m
    
    
    £m
    
    
    £mGroup
        operating loss
    
    
    (6,075
    )
    
    (5,025
    )
    
    (382
    )Add
        back non-cash items:Depreciation
        and amortisation (before exceptional items)
    
    
    861
    
    
    1,634
    
    
    1,595Exceptional
        non-cash items (Note 10)
    
    
    5,446
    
    
    3,916
    
    
    444Other
        non-cash items
    
    
    27
    
    
    197
    
    
    35Decrease/(increase)
        in stocks
    
    
    33
    
    
    (90
    )
    
    (37
    )Decrease/(increase)
        in debtors
    
    
    882
    
    
    (182
    )
    
    (531
    )(Decrease)/increase
        in creditors
    
    
    (893
    )
    
    (156
    )
    
    389Fundamental
        reorganisation costs
    
    
    (89
    )
    
    (133
    )
    
    (186
    )Net
        cash outflow in respect of provisions
    
    
    (97
    )
    
    (67
    )
    
    (40
    )Net
        cash inflow from operating activities
    
    
    95
    
    
    94
    
    
    1,287
Page 129


Back to Contents
notes to the financial statements



30
    Reconciliation
        of net cash flow to movement in net funds/(debt)2003
    
    
    2002
    
    
    2001For
        the year ended 31 March
    
    
    £m
    
    
    £m
    
    
    £m(Decrease)/increase
        in cash in the year
    
    
    (2,120
    )
    
    1,635
    
    
    423Cash
        outflow/(inflow) resulting from (increase)/decrease in debt and lease
        financing
    
    
    581
    
    
    (538
    )
    
    984Cash
        outflow/(inflow) resulting from increase/(decrease) in liquid resources
        (Note 32)
    
    
    1,040
    
    
    (2,586
    )
    
    (129
    )(Decrease)/increase
        in net debt resulting from cash flows
    
    
    (499
    )
    
    (1,489
    )
    
    1,278Conversion
        of unsecured loan stock
    
    
    
    
    
    
    
    
    37Borrowings
        of businesses acquired and disposed
    
    
    
    
    
    1,239
    
    
    2,044Translation
        and other differences
    
    
    87
    
    
    (22
    )
    
    190Movement
        in net debt in the year
    
    
    (412
    )
    
    (272
    )
    
    3,549Net
        funds/(debt) at 1 April
    
    
    2,020
    
    
    2,292
    
    
    (1,257
    )Net
        funds at 31 March
    
    
    1,608
    
    
    2,020
    
    
    2,292
31
    Analysis
        of changes in net funds/(debt)At 1 April 2002
    
    
    Cash flow
    
    
    Exchange movements
    
    
    At 31 March
      2003£m
    
    
    £m
    
    
    £m
    
    
    £mCash
        at bank and in hand
    
    
    216
    
    
    (7
    )
    
    (13
    )
    
    196Short
        term deposits repayable on demand
    
    
    2,240
    
    
    (2,121
    )
    
    21
    
    
    140Bank
        overdrafts
    
    
    (11
    )
    
    8
    
    
    1
    
    
    (2
    )2,445
    
    
    (2,120
    )
    
    9
    
    
    334Liquid
        resources (Note 32)
    
    
    1,823
    
    
    1,040
    
    
    (45
    )
    
    2,818Debt
        due within 1 year
    
    
    (226
    )
    
    (707
    )
    
    110
    
    
    (823
    )Debt
        due after 1 year
    
    
    (2,022
    )
    
    1,288
    
    
    13
    
    
    (721
    )Total
        debt
    
    
    (2,248
    )
    
    581
    
    
    123
    
    
    (1,544
    )Total
        net funds
    
    
    2,020
    
    
    (499
    )
    
    87
    
    
    1,608
32
    Liquid
        resourcesLiquid resources comprise short term deposits which are readily convertible into known amounts of cash at or close to their carrying value.
Included within liquid resources are
  amounts totalling £48 million (2002  £47 million) held by
  the Groups insurance subsidiary. These assets are actively managed to
  meet insurance liabilities. These assets are required to meet insurance solvency
  requirements and, as a result, are not all readily available for the general
  purposes of the Group. Other short term deposits typically include bank deposits,
  excluding those which are repayable on demand, commercial paper and government
  securities. These deposits have short maturities and a high turnover arising
  from rollover as part of the Groups treasury management activities.



Page 130


Back to Contents
notes to the financial statements



33
    Related
        party transactionsTransactions with joint ventures and associatesAll transactions with joint ventures
  and associates arise in the normal course of business. The aggregate transactions
  recorded by the Group with joint ventures and associates, which are considered
  to be material and which have not been disclosed elsewhere in the financial
  statements, are summarised below:
2003
    
    
    2002For
        the year ended 31 March
    
    
    £m
    
    
    £mTurnover
    
    
    2
    
    
    7Outpayments
    
    
    4
    
    
    6Other
        operating expenses payable
    
    
    
    
    
    2Dividends
        received
    
    
    28
    
    
    26Purchase
        of fixed assets
    
    
    
    
    
    4Amounts owed by joint ventures and associates and owed to joint ventures and associates are set out in Notes 20 and 22 respectively.
Transactions with DirectorsThere were no material transactions with Directors, except for those relating to remuneration and shareholdings disclosed in the Directors Remuneration Report on pages 65 to 78.
34
    Legal
        ProceedingsClass
        action litigation against Cable and Wireless plcBetween December 2002 and February 2003, ten shareholder class action lawsuits were filed in the United States District Court for the Eastern District of Virginia naming Cable and Wireless plc and several of its officers and directors as defendants.
In March 2003, the court consolidated
  all of the cases into one action, styled as In re Cable and Wireless plc Securities
  Litigation, Civil Action No. 02-1860-A. The Court has appointed Ontario Teachers
  Pension Plan Board, an institutional investor located in Canada, and Alex Osinski,
  a U.S. citizen, as co-lead plaintiffs (collectively lead plaintiffs)
  to prosecute on behalf of all plaintiffs.
In May 2003, the lead plaintiffs filed
  a consolidated complaint that alleges violations of certain sections of the
  Securities and Exchange Act of 1934 and the rules promulgated thereunder. A
  central allegation is that the defendants made false and misleading statements
  about the Companys financial condition by failing to disclose on a timely
  basis the existence of a tax indemnity and a ratings trigger to place money
  in escrow until any liability which the Company may have had under the tax indemnity
  was finally determined. The indemnity and ratings trigger appear in an agreement
  between the Company and Deutsche Telekom for the sale of the Companys
  interest in the mobile telephone company that operated under the name One2One.
In addition to the allegations relating
  to the tax indemnity, the consolidated complaint also alleges that the defendants
  made false and misleading statements by: (1) failing to disclose certain lease
  liability commitments and (2) improperly recognising revenue received from sales
  of capacity to other carriers.
The plaintiffs seek unspecified money damages in their complaints.
Cable & Wireless believes that it has meritorious defences to these claims and intends to vigorously defend itself in this litigation.



Page 131


Back to Contents
notes to the financial statements



Dispute with IBM UK LimitedDisputes between (1) Cable and Wireless
  plc and IBM United Kingdom Limited, (2) Cable & Wireless USA, Inc. and International
  Business Machines Corporation and (3) IBM Japan Limited and Cable & Wireless
  IDC Incorporated (collectively Cable & Wireless and IBM
  respectively) have arisen out of a Global Framework Agreement (GFA) dated 20 December
  2000, and related agreements, pursuant to which IBM agreed to supply to Cable
  & Wireless information technology services.
In order to monitor the quality of
  the services provided by IBM, including price and service levels, the GFA contains
  benchmarking provisions, which set out the processes and procedures
  by which the services provided by IBM are to be assessed against a pre-determined
  objective. In February 2002, the parties engaged Compass America Inc (Compass)
  to conduct a benchmark for the 14 month period from 1 January 2001 to 28
  February 2002, the results of which revealed significant levels of overcharging
  by IBM.
Disputes arose as to whether the GFA
  obliged IBM to repay to Cable & Wireless the amounts that the benchmark
  established it has been overcharged and as to whether the Compass reports were
  valid both in terms of their substance and conformity with the GFA benchmarking
  requirements. On 4 July 2002, the Company issued proceedings for a declaration
  that it is entitled to compensation from IBM UK for any period of overcharging,
  including past overcharging, and to compensation in respect of overcharging
  as identified by Compass.
After an inconclusive Court-ordered
  mediation that took place in December 2002, the Court ordered an expedited trial
  of all matters in issue between the parties. Full pleadings were then exchanged.
  Cable & Wireless seeks a declaration as to the meaning of certain overcharging
  related provisions of the GFA and compensation for overcharging by IBM. From
  January 2001 to the date Cable & Wireless proceedings were issued,
  its claim in respect of overcharging by IBM amounts to approximately £115
  million in respect of the United Kingdom and approximately US$22 million in
  respect of the United States. For each month that IBM refuses to reduce its
  charges a further substantial overcharge arises. IBM UK and IBM US seek the
  declaration in respect of the Compass reports referred to above and IBM UK has
  brought counterclaims in respect of work it alleges Cable & Wireless should
  have given to it under the GFA and claims damages to be assessed. IBM Japan
  Limited seeks payment of certain charges allegedly due and payable to it by
  Cable & Wireless IDC Inc. Subsequently, on 21 February 2003, the Court
  directed that Cable & Wireless claim as to the meaning of certain
  overcharging related provisions of the GFA should be heard separately from the
  other claims and counterclaims as a preliminary issue. The preliminary issue
  has been set for trial in September 2003.
Cable & Wireless believes that
  it has meritorious defences to the counter claims asserted by IBM and intends
  to vigorously defend itself in this litigation.
Claim by APCC Services, Inc. and othersOn 30 March 2001, a complaint was
  filed in the US District Court for the District of Columbia against Cable &
  Wireless USA, Inc. and was served on Cable & Wireless USA, Inc. on 25 June
  2001. The complaint was filed by a group of billing and collection agents on
  behalf of hundreds of entities that own and operate public payphones throughout
  the United States. The complaint alleges that Cable & Wireless USA, Inc.
  violated the US Communications Act and the rules, regulations, and orders of
  the Federal Communications Commission by not adequately compensating the independent
  payphone operators for toll free and access code calls that were made from the
  independent payphone operators payphones and carried over Cable &
  Wireless USA, Inc.s network.
The complaint seeks approximately
  US$5 million in monetary damages. In August 2001, Cable & Wireless USA,
  Inc. and the plaintiff entered into a tolling agreement whereby the obligations
  of the parties in litigation would be suspended until 1 November 2001,
  while the parties attempted to resolve the dispute informally. Plaintiffs refiled
  their complaint which is now pending in the US District Court for the District
  of Columbia. The parties agreed to a confidential, non-binding, third-party
  neutral evaluation for settlement purposes which is currently ongoing.
Cable & Wireless USA, Inc. believes that it has meritorious defences to the claims. If the dispute is not resolved through the neutral evaluation process, Cable & Wireless USA, Inc. intends to vigorously defend the action.
Litigation against Digital Island, Inc./Cable & Wireless Internet Services, Inc.As described in Business Description  History, in 2002 Cable & Wireless acquired 100 per cent of Digital Island, which is now known as Cable & Wireless Internet Services, Inc.



Page 132


Back to Contents
notes to the financial statements



Akamai Technologies, Inc. (Akamai)
  and the Massachusetts Institute of Technology (MIT) filed a patent infringement
  suit against Digital Island on 13 September 2000 in the US District Court for
  the District of Massachusetts, alleging that a version of Digital Islands
  content delivery service infringes a patent owned by MIT and licensed exclusively
  to Akamai. On 20 September 2000, Akamai and MIT filed a further claim alleging
  infringement by Digital Island of a second Akamai patent.
On 21 December 2001, a jury invalidated
  three of the claims related to one of the Akamai patents. The jury also found
  that Digital Island infringed one independent claim and three dependent claims
  of this patent. Digital Island was found not to have infringed the other patent.
  On 23 August 2002, the Court entered a permanent injunction prohibiting further
  infringement of certain of the surviving claims. Cable & Wireless has revised
  its content delivery service (at little cost to and with no other effect on
  its customers) in such a way that Cable & Wireless believes that the infringement
  no longer exists and that the injunction is of no effect. Nevertheless, on 17
  September 2002, Akamai filed a contempt motion with the Court asserting that
  Cable & Wireless Internet Services, Inc. is violating the injunction by
  continuing
  to infringe the surviving Akamai claims. The Court denied Akamais motion on 1 November 2002. A damages trial has not yet been scheduled on the infringed claims.
On 22 January 2003, Akamai filed a
  patent infringement suit against Cable & Wireless Internet Services, Inc.
  in the US District Court for the Eastern District of Virginia, alleging that
  the Cable & Wireless content delivery service infringes a recently-issued
  patent owned by Akamai. Upon motion by Cable & Wireless Internet Services,
  Inc. the case was transferred to the District Court for the District of Massachusetts.
On 22 April 2003, Akamai filed a patent
  infringement suit against Cable & Wireless Internet Services, Inc. in the
  US District Court for the District of Massachusetts, alleging that the Cable
  & Wireless content delivery service infringes a patent issued to Akamai
  that same day. Akamai has not yet effected service of the complaint in this
  case.
On 29 August 2002, Teknowledge Corporation
  (Teknowledge) filed a patent infringement suit against Cable & Wireless
  Internet Services, Inc., Akamai, and Inktomi Corporation in the US District
  Court for the District of Delaware, alleging that the content delivery service
  of each defendant infringes a patent owned by Teknowledge. Upon motion by Cable
  & Wireless Internet Services, Inc. the case was transferred to the District
  Court for the Northern District of California.
Cable & Wireless Internet Services, Inc. believes that it has meritorious defences to the outstanding claims asserted in these cases and intends to vigorously defend itself in these cases.
Class actions against Digital Island, Inc. in connection with its initial public offeringIn August 2001, Digital Island became
  aware that two purported shareholder class action lawsuits were filed in the
  US District Court for the Southern District of New York naming Digital Island
  as a defendant along with certain of its present and former officers and directors
  and alleging violations of certain sections of the Securities Act 1933 and the
  Securities Exchange Act 1934.
The actions (which now include a third
  suit making virtually identical claims and allegations) allege that the Registration
  Statement and Prospectus through which Digital Island conducted its initial
  public offering (IPO) in June 1999 was false and misleading because it failed
  to disclose, amongst other things, that:
(i)
    the underwriters of the
        IPO allegedly had solicited and received excessive and undisclosed commissions
        from certain investors in exchange for which the underwriters allocated
        to those investors material portions of the restricted number of Digital
        Island shares issued in connection with the IPO; and(ii)
    the underwriters allegedly
        had entered into agreements with customers whereby the underwriters agreed
        to allocate Digital Island shares to those customers in the IPO in exchange
        for which the customers agreed to purchase additional Digital Island shares
        in the after market at pre-determined prices.On 15 July 2002, Cable & Wireless Internet Services, Inc. moved to dismiss all claims against it. On 19 February 2003, the Court denied the motion to dismiss.
Cable & Wireless Internet Services,
  Inc. is now engaged in settlement discussions with the plaintiffs. Notwithstanding
  this Cable & Wireless Internet Services, Inc. believes that it has meritorious
  defences to these claims and, should the settlement discussions prove unsuccessful,
  intends to vigorously defend itself in any such litigation.



Page 133


Back to Contents
notes to the financial statements



Class action securities litigation against Digital Island, Inc., Cable & Wireless and othersDigital Island, Cable and Wireless
  plc, Dali Acquisition Corp. (Dali) (a former subsidiary of Cable & Wireless),
  and certain of the then present and former directors of Digital Island, have
  been named as defendants in six separate putative class action lawsuits alleging
  various claims arising out of Cable & Wireless acquisition of Digital
  Island in August 2001. Three of the lawsuits were filed in the US District Court
  for the District of Delaware and three were filed in the Delaware Court of Chancery.
  The three federal lawsuits were consolidated into a single case, and, while
  the plaintiffs motion to consolidate the three state cases was granted
  on 24 April 2002, the plaintiffs have yet to file a consolidated, amended complaint.
The federal suit alleged that the
  defendants violated federal securities laws by failing to disclose on a timely
  basis that Digital Island had entered into certain business agreements with
  Bloomberg, L.P., and Major League Baseball. It further alleged that compensation
  agreements with certain officers and/or directors of the company violated the
  federal securities all-holders rule. One state lawsuit alleged violations
  of Delaware law based upon similar allegations.
The other two state lawsuits alleged
  various violations of Delaware law against the same corporate defendants and
  the present and former Digital Island directors, including that they failed
  to disclose all material facts relating to Digital Islands relationship
  with Microsoft, and that they failed to obtain a fair price for Digital Island
  shares.
On 10 September 2002, a federal judge
  granted the defendants motion to dismiss the federal lawsuits with prejudice.
  Plaintiffs have appealed the decision to the US Circuit Court of Appeals for
  the Third Circuit. Cable & Wireless believes that it and its subsidiaries
  have meritorious defences to the claims asserted in these lawsuits, and intends
  to continue to vigorously defend itself in that litigation as well should the
  plaintiffs pursue those claims.
Litigation with Cibertec International, S.A. and Inversiones Kamasu, S.A.Cibertec International, S.A. and Inversiones
  Kamasu, S.A. initiated proceedings against Cable & Wireless Panama, S.A.
  and Cable and Wireless (CALA Management Services) Limited in Panama on 29 October
  1999. The claim is for approximately US$125 million and alleges breach of contract.
  On 18 November 2002, the Panamanian Circuit Court handed down a decision against
  Cable & Wireless Panama, S.A. awarding damages of US$67,255,000, including
  moral damages and costs. The Court decided that Cable & Wireless Panama,
  S.A. had failed to maintain in sufficient confidence certain of the proprietary
  information of the plaintiffs.
Cable & Wireless Panama, S.A. appealed the judgement on 3 December 2002 and intends to pursue this appeal vigorously. Pending the resolution of its appeal, Cable & Wireless Panama, S.A. is not obliged to pay, and has not paid, any of the awards against it.
Claim against the Minister of Finance and EconomyOn 16 December 2002, a complaint was
  filed at the Supreme Court of Justice of Panama against the Minister of Finance
  and Economy in Panama alleging that the Operating Agreement executed between
  Cable and Wireless (CALA Management Services) Limited and INTEL, S.A. (now Cable
  & Wireless Panama, S.A.) as part of the privatisation agreements was null
  and void ab initio, on the grounds that it had not been published in
  the Official Gazette in Panama.
On 21 March 2003, the Court admitted the claim against the Minister of Finance and Economy.
Panamanian counsel consider this claim
  to be without merit and none of Cable and Wireless plc, Cable & Wireless
  Panama, S.A. or Cable and Wireless (CALA Management Services) Limited are parties
  to the complaint. However, if the complaint were to be successful and the Operating
  Agreement declared null and void, then the complainants could file a complaint
  against Cable and Wireless (CALA Management Services) Limited requiring the
  return of all management fees collected under the agreement since its execution.
  This would amount to approximately £60 million. In the event that this
  complaint is successful, Cable & Wireless and its subsidiaries intends to
  vigorously pursue any legal recourse available to them.
Claim by Caribtel (Caribbean) LimitedOn 9 May 2003, Caribtel (Caribbean)
  Limited, a telecommunications operator specialising in calling cards, filed
  a suit against Cable & Wireless Jamaica Limited in the Supreme Court of
  Judicature of Jamaica. Caribtel has alleged that Cable & Wireless Jamaica
  Limited wrongfully disconnected Caribtels local access telephone services,
  resulting in a breach of contract and a violation of the Jamaican Fair Competition
  Act and the Telecommunications Act. Caribtel is claiming US$50 million of lost
  income to its pre-paid local access calling card business for the period from
  25 April 2003 to 25 April 2006. Caribtel has also claimed aggravated and/or
  exemplary damages of Jamaica $300 million (approximately £2.94 million)
  and is seeking injunctive relief to have Cable & Wireless Jamaica Limited
  reinstate
  Caribtels local access telephone service.



Page 134


Back to Contents
notes to the financial statements



On 22 May 2003, Caribtel presented
  a petition for injunctive relief before the Supreme Court of Jamaica requesting
  that Cable & Wireless Jamaica Limited be required to reinstate Caribtels
  local access telephone service; be restrained from disconnecting any other telecommunications
  facility currently supplied to Caribtels business premises until trial;
  and be prevented from calling on a prior bank guarantee that Caribtel had provided
  to Cable & Wireless Jamaica Limited in conjunction with a settlement agreement
  entered into between the parties in February 2003 relating to breaches of contract
  by Caribtel in December 2002. The injunctions were not granted by the court.
  However, Cable & Wireless Jamaica Limited gave an undertaking that it would
  not disconnect the direct internet access facility pending
  a hearing scheduled for 2 June 2003.
Prior to the hearing of 2 June 2003,
  Caribtel approached Cable & Wireless Jamaica Limited with a view to arriving
  at a settlement. The parties entered into negotiations as a result of which
  the matter was taken off the court list by consent of both parties. A new court
  date will be set if the parties are unable to arrive at a settlement. Cable
  & Wireless Jamaica Limited believes that its actions were lawful and that
  it was entitled to disconnect Caribtels services under its contract with
  Caribtel. If the settlement negotiations prove unsuccessful, Cable & Wireless
  Jamaica Limited will continue to defend itself vigorously in this matter.
Arbitration between Tilts Communications A/S/Cable and Wireless plc/Sonera OY and Republic of Latvia/Lattelekom SIAIn September 2001, Cable and Wireless
  plc was joined as a party to an arbitration in connection with its former participation
  with Sonera OY (Sonera) in the joint venture Tilts Communications A/S (Tilts).
  Through Tilts, Cable and Wireless plc and Sonera purchased a 49 per cent shareholding
  in a Latvian telecommunications company, Lattelekom SIA (Lattelekom) in 1994.
  Cable and Wireless plc sold its interest in Tilts to Sonera in June 1998.
Tilts commenced arbitration proceedings
  in August 2000 against the Republic of Latvia alleging a number of breaches
  of an agreement signed in 1994 by Tilts, Lattelekom and the Republic of Latvia
  (the Umbrella Agreement). Tilts claims a total of approximately
  LVL87.6 million (approximately £95 million) from the Republic of Latvia
  as compensation for, amongst other things, losses sustained as a consequence
  of the shortening of the twenty year exclusivity period granted to Lattelekom
  as the provider of fixed line telecommunications services.
The Republic of Latvia has asserted
  nine counterclaims for a total of approximately LVL599.5 million (approximately
  £656 million) against Tilts, alleging that Tilts has failed to comply
  with various obligations it assumed under the Umbrella Agreement including (i)
  to digitalise and otherwise improve Lattelekoms network in accordance
  with its contractual commitments, (ii) to meet certain quality of service and
  network performance commitments, and (iii) to procure that Sonera sell its shares
  in GSM operator Latvijas Mobilais Telefons to Lattelekom. Tilts considers that
  the counterclaims asserted by the Republic of Latvia are unfounded.
Cable and Wireless plc was joined
  as a party to the arbitration by the Republic of Latvia because it (and Sonera)
  guaranteed the performance by Tilts of its obligations under the Umbrella Agreement
  to the Republic of Latvia by performance and parental guarantees. However, as
  part of the arrangements relating to Soneras purchase of Cable and Wireless
  plcs shares in Tilts, Sonera provided Cable and Wireless plc with an indemnity
  for any liability incurred by Cable and Wireless plc under these guarantees.
  Provided Sonera honours its obligations under the indemnity, Cable and Wireless
  plc will not be exposed to any liability under these guarantees. Cable and Wireless
  plc has taken legal advice. Based on this advice, Cable and Wireless plc believes
  that the indemnity is binding. In addition, Sonera provided Cable and Wireless
  plc with a letter dated 11 December 2001, confirming that in its view all
  liabilities, costs and expenses incurred by Cable and Wireless plc in connection
  with the arbitration fell within the scope of the indemnity. Following the acquisition
  of Sonera in 2002, the successor entity to Sonera, TeliaSonera, provided Cable
  and Wireless plc with a further letter dated 23 February 2003, acknowledging
  Soneras obligations under the indemnity and stating that TeliaSoneras
  acquisition of Sonera did not alter the validity of the confirmations given
  by Sonera in its earlier letter of 11 December 2001.
Other than the above, there are no pending legal or regulatory proceeding against the Company or any of its Subsidiaries which the Company believes will if determined adversely to the Group have a material adverse effect on the Groups liquidity or results of operation.



Page 135


Back to Contents
notes to the financial statements



35
    Subsidiary
        undertakings, joint ventures and associates at 31 March 2003OwnershipSubsidiaries
    
    
    Local currency
    
    
    Issued Share Capital (m)
    
    
    Direct
    
    
    Via subsidiaries
    
    
    Class of shares
    
    
    Country of incorporation
    
    
    Area of operationCable
        & Wireless UK
    
    
    £
    
    
    2,333
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    England
    
    
    UKCable
        & Wireless USA, Inc.
    
    
    US$
    
    
    
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    US
    
    
    USCable
        & Wireless Jamaica Limited
    
    
    J$
    
    
    15,883
    
    
    
    
    
    82
    %
    
    Ordinary
    
    
    Jamaica
    
    
    JamaicaCable
        and Wireless (Cayman Islands) Limited
    
    
    Cay$
    
    
    
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    Cayman Islands
    
    
    Cayman IslandsCable
        & Wireless Panama SAa
    
    
    Balboa
    
    
    316
    
    
    
    
    
    49
    %
    
    Ordinary
    
    
    Panama
    
    
    PanamaCompanhia
        de Telecomunicacoes de Macau, S.A.R.L.b
    
    
    Pataca
    
    
    150
    
    
    51
    %
    
    
    
    
    Ordinary
    
    
    Macau
    
    
    Macau and ChinaCable
        & Wireless Global Limited
    
    
    £
    
    
    
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    Rep. of Ireland
    
    
    World wideCable
        & Wireless IDC Inc.
    
    
    Yen
    
    
    36,200
    
    
    
    
    
    98
    %
    
    Ordinary
    
    
    Japan
    
    
    JapanCable
        & Wireless Internet Services Inc.
    
    
    US$
    
    
    
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    US
    
    
    USCable
        & Wireless (Barbados) Limited
    
    
    B$
    
    
    
    
    
    
    
    
    81
    %
    
    Ordinary
    
    
    Barbados
    
    
    BarbadosCable
        and Wireless (West Indies) Limited
    
    
    £
    
    
    5
    
    
    
    
    
    100
    %
    
    Ordinary
    
    
    England
    
    
    CaribbeanYemen
        International Telecommunications Company LLCb
    
    
    YRiyal
    
    
    192
    
    
    51
    %
    
    
    
    
    Ordinary
    
    
    Yemen
    
    
    YemenDhivehi
        Raajjeyge Gulhun Private Limitedbc
    
    
    Rufiya
    
    
    190
    
    
    45
    %
    
    
    
    
    Ordinary
    
    
    Maldives
    
    
    MaldivesJoint
        venturesTelecommunications
        Services of Trinidad and Tobago Limitedd
    
    
    T$
    
    
    283
    
    
    
    
    
    49
    %
    
    Ordinary
    
    
    Trinidad and
      Tobago
    
    
    Trinidad and
      TobagoAssociatesBahrain
        Telecommunications Company B.S.C.b
    
    
    Dinar
    
    
    100,000
    
    
    20
    %
    
    
    
    
    Ordinary
    
    
    Bahrain
    
    
    BahrainNotesThe Group comprises a large number of companies and it is not practical to include all of them in this list. The list therefore, only includes those companies whose results or financial position, in the opinion of the Directors, principally affects the figures shown in the Groups Financial Statements.Full details of all subsidiary undertakings, joint ventures, associates and trade investments will be attached to the Companys Annual Return, to be filed with the Registrar of Companies in England and Wales.a
    The Group regards this company as a subsidiary because it controls the majority of the Board of Directors through a shareholders agreement.b
    This company had a financial year end of 31 December 2002 due to the requirements of the shareholders agreement.c
    The Group regards this company as a subsidiary undertaking because it exercises dominant influence through a management agreement.d
    This company is audited by a firm other than KPMG International member firms.
Page 136


Back to Contents
notes to the financial statements



36
    Summary
        of differences between United Kingdom and United States GAAPBasis of preparationThe Group prepares its consolidated
  accounts in accordance with generally accepted accounting principles (GAAP)
  in the United Kingdom which differ in certain material respects from US GAAP.
  The following is a summary of the significant differences applicable to the
  Group, and the adjustments necessary to present net income and shareholders
  equity in accordance with US GAAP are shown on pages 142 and 143.

UK
        GAAP
    
    US GAAPGoodwillGoodwill arising on acquisitions prior
          to 1 April 1998 was eliminated directly against reserves. Amounts are
          transferred from reserves and charged through the profit and loss account
          when the related investments are sold or written down as a result of
          an impairment.

      Following the adoption of FRS 10 Goodwill
        and intangible assets, goodwill arising after 31 March 1998 is capitalised
        and amortised through the profit and loss account over the intangible
        assets estimated useful economic lives.
      The profit or loss on the disposal of all
        or part of a previously acquired business is calculated after taking account
        of the gross amount of any goodwill previously eliminated directly against
        reserves and not already charged to the profit and loss account. An adjustment
        to profit or loss on disposal is required in respect of the unamortised
        portion of goodwill.
    
    For acquisitions completed prior to 1 July
        2001, goodwill was capitalised and amortised by charges against income
        over the period, not exceeding 20 years, over which the benefit arises.
      Goodwill acquired prior to 30 June 2001 ceased
        to be amortised from 31 March 2002. For acquisitions completed after 1
        July 2001, Statement of Financial Accounting Standards (SFAS) 141 Business
        Combinations and 142 Goodwill and Other Intangible Assets
        require that goodwill is not amortised. From 1 April 2002 all goodwill
        is tested at least annually for impairment.
      Certain elements of goodwill under UK GAAP
        must be classified as other intangible assets under US GAAP, which are
        also capitalised and amortised over their estimated useful economic lives.Customer
        acquisition costsCustomer
        acquisition costs are written off over the expected customer life.
    
    Customer acquisition costs are written off
      over the initial contract period.RestructuringRedundancy
        provisions relating to a restructuring can only be recognised once an
        entity has a constructive obligation in respect of a past event. This
        is the case where an entity has raised a valid expectation in those affected
        that it will carry out the restructuring and has in place a detailed formal
        plan.
    
    Redundancy provisions relating to a restructuring
        provision can only be recognised when the company is irrevocably committed
        to the plan and has communicated the arrangements to the employees.
      If there is a requirement for future service,
        the company should accrue the liability over the future service period.
        Employees are required to render future service if they must
        render service until they are terminated and the service period extends
        beyond a minimum retention period, limited to 60 days unless a contract
        or law mandates otherwise.
Page 137


Back to Contents
notes to the financial statements



UK
        GAAP
    
    US GAAPThe costs of terminating property leases under
      a restructuring may be recognised when the decision to restructure has been
      taken.
    
    The costs of terminating property
      leases may not be recognised until the contract has been terminated and
      liabilities for remaining lease rentals are not recognised until the property
      is physically vacated. If a property has been vacated, but the contract
      has not been terminated, a liability for the fair value of the future costs
      may be recognised but must be reduced by the estimated sublease income that
      could reasonably be obtained, even if the company has no intention of entering
      into a sublease.Onerous
        contractsIf an entity has a contract that is onerous,
      the present obligation under the contract should be recognised and measured
      as a provision. An onerous contract is one where the unavoidable costs of
      meeting the obligations under it exceed the expected benefits to be received.
    
    The costs of an onerous contract
      will be recognised as they are incurred.Derivative
        and hedge accountingDerivative instruments are
        recorded at appropriate historical cost amounts, with fair values shown
        as a disclosure item. Profits and losses from hedging activities are matched
        with the underlying cash flows and profits being hedged.
      The notional amounts of interest rate swaps
        and FRAs are not recorded on the balance sheet. Forward exchange contracts
        are carried on the balance sheet at the difference between the amounts
        of the payable and receivable currency revalued at the closing exchange
        rate.
    
    In accordance with SFAS 133
        Accounting for Derivative Instruments and Hedging Activities
        all derivatives are recognised on the balance sheet at their fair value.
        The accounting for subsequent changes in the fair value of a derivative
        (that is, gains and losses) depends on the intended use:
    if a derivative is designated
      as either a hedge of the fair value of a recognised asset or liability or
      of an unrecognised firm commitment (fair value hedge), gains
      or losses are recorded in earnings together with the gain or loss on the
      hedged asset or liability or unrecognised firm commitment;
    if the derivative is designated as a hedge
      of a forecasted transaction or the variability of cash flows to be received
      or paid related to a recognised asset or liability (cash flow hedge),
      any gain or loss is included as a component of other comprehensive income
      and recycled to earnings when the forecasted transaction affects earnings;
    if the derivative is designated as a hedge
      of a net investment in a foreign operation, any gain or loss is included
      as a component of other comprehensive income, together with the associated
      gain or loss on the hedged item; and
    changes in the fair values of derivatives
      that do not qualify as a hedge, together with the ineffective portion of
      any hedges, are reported in current period earnings.Capitalisation
        of interestInterest cost may be capitalised as part of
      the cost of acquiring and making ready for use certain qualifying assets.
    
    Interest cost must be capitalised
      as part of the cost of acquiring and making ready for use certain qualifying
      assets.
Page 138


Back to Contents
notes to the financial statements



UK
        GAAP
    
    US GAAPDeferred
        taxDeferred
        taxes relating to investments in subsidiaries, joint ventures or associates
        are only provided for to the extent that dividends have been accrued as
        receivable or a binding agreement to distribute the past earnings has
        been entered into by the joint venture or associate.
    
    Deferred taxes relating to investments in
      joint ventures or associates must be recognised, with limited exceptions.
      Deferred taxes relating to investments in foreign subsidiaries must be recognised
      unless earnings are permanently re-invested.Marketable
        securitiesInvestments
        in marketable securities are recorded at historical cost less provision
        for impairments in value. A loss resulting from a decline in fair value
        that is judged to be other than temporary is recorded in earnings.
    
    Investments classified as available for sale
      are reported at fair value, with unrealised gains or losses reported as
      a separate component of shareholders equity.Defined
        benefit schemesThe
        expected cost of pensions is charged to the profit and loss account so
        as to spread the cost of pensions over the expected service lives of employees.
        Scheme assets are valued based on projected future income streams discounted
        at a long-term rate of return. Liabilities are valued on an actuarial
        basis discounted using a long-term rate. Surpluses arising from actuarial
        valuations are similarly spread.
    
    Pension costs are determined in accordance
        with SFAS 87 Employers accounting for pensions. SFAS
        87 requires a similar method of actuarial valuation for liabilities but
        requires assets to be valued at fair market rates and liabilities to be
        discounted using current settlement rates for high-quality bonds.
      Cumulative experience gains or losses are
        amortised to income, over a maximum period of the average remaining service
        life of employees, if they exceed a minimum threshold of 10 per cent of
        the greater of plans assets or obligations. Adjustments to plan benefits
        affecting current participants (unrecognised prior service costs) are
        also generally recognised over the average remaining service life of company
        employees.
      When the accumulated benefit obligation exceeds
        the fair value of plan assets, the excess must be recognised as an additional
        liability with an offsetting intangible asset. However, any intangible
        asset recognised cannot exceed the amount of unrecognised prior service
        cost and the excess of the additional liability above the intangible asset
        is charged to other comprehensive income.ESOP
        sharesESOP
        shares are carried as fixed asset investments.
    
    ESOP shares are treated as a reduction of
      shareholders equity.Gain
        on sale of subsidiaryChanges
        to the value of any share consideration received between the transaction
        date and the end of any mandatory retention period are included as part
        of the gain on sale of the subsidiary.
    
    The value of the consideration received (ie
      marketable securities of the buyer) is measured and recognised at the date
      of the transaction.
Page 139


Back to Contents
notes to the financial statements



UK
        GAAP
    
    US GAAPExchange gains and losses on the
      retranslation of the net assets and results of foreign subsidiary and associated
      undertakings and joint ventures are recognised in the statement of total
      recognised gains and losses as incurred, and are therefore excluded from
      the gain or loss arising on subsequent sale or liquidation.
    
    Exchange gains and losses on the retranslation
      of the net assets and results of foreign subsidiary and associated undertakings
      are accumulated as a separate component of shareholders equity and
      included in the gain or loss on sale or liquidation.Proposed
        final dividendsDividends declared after the period
      end are recorded in the period to which they relate.
    
    Dividends are recorded in the period in which
      they are declared.Capacity
        salesAs set out on page 90 the Group
        adopted UITF 36 for the year ended 31 March 2003 and the results for the
        three years then ended have been adjusted to reflect the change in accounting
        policy required under UK GAAP.
      Following the adoption of UITF 36 revenues
        or gains in respect of capacity sales to carriers from whom capacity or
        other services were also acquired are no longer recognised as the transactions
        are not considered to meet all the conditions required under the new abstract,
        in particular the requirement for the capacity provided or received to
        have a readily ascertainable market value as set out in FRS 10.
      The Groups cash sales to carriers with
        no related purchase continue to be recognised at the time of delivery
        and acceptance where:
    
    Under US GAAP, cash sales of
        capacity entered into after the issuance of FASB Interpretation No. 43
        in June 1999 are required to be accounted for as operating leases, unless
        title is transferred to the lessee by the end of the lease term. The IRU
        sales that Cable & Wireless enters into generally do not contain such
        title-transfer clauses, and accordingly, the related IRU revenue, which
        is recognised up-front for UK purposes, is deferred and recognised on
        a straight-line basis over the term of the contract for US purposes.
      Exchanges of capacity for capacity on alternative
        routes, are recognised only if the fair value of the assets can be established
        by reference to comparable cash transactions. To be considered comparable
        for US reporting, transactions must generally occur in the same quarter,
        be for similar fibres, with similar transmission features, over similar
        distances with counter-parties of a similar credit quality. In the absence
        of such comparable cash sales, the exchanges generally receive no accounting
        recognition.
      No revenue or net income on exchanges of
        capacity is recognised under either UK or US GAAP.
    the purchasers right of use is exclusive
      and irrevocable;
    the asset is specific and separable;
    the term of the contract is for the major
      part of the assets useful economic life;
    the attributable cost of carrying value can
      be measured reliably; and
    no significant risks are retained by the Group.Income relating to operations
      and maintenance contracts is spread over the period of the contract.Stock
        based compensationWhere share options are issued
      with an exercise price below market value on the date of grant, the discount
      will be charged to the profit and loss account over the vesting period.
      For long term incentive schemes, the fair value of the shares awarded is
      charged to the profit and loss account over the vesting period.
    
    The Group has adopted SFAS123 Accounting
      for stock based compensation. As permitted by SFAS 123 entities are
      allowed to continue to apply the provisions of APB No. 25 Accounting
      for stock issued to employees.
Page 140


Back to Contents
notes to the financial statements



UK
        GAAP
    
    US GAAPTo the extent that the number of options/shares
      that will be granted/awarded changes as performance conditions are met or
      not met, the compensation charge is adjusted based on the original fair
      value at the date of grant.
    
    To the extent that the number of options/shares
      that will be granted/awarded changes as performance conditions are met or
      not met, the company follows variable plan accounting and a
      compensation charge is adjusted based on the fair value at the date of change.Save As You Earn (SAYE) Type Schemes are exempt
      from the requirement to recognise a charge to the profit and loss account.
    
    The Cable & Wireless SAYE Scheme is regarded
      as compensatory and the discount is accrued
      over the vesting period of the grant.Operating
        leasesIn respect of operating leases, disclosure
      is required of the payments which are committed to be made during the next
      year, analysed by the period in which the commitment expires (see
      Note 28).
    
    In respect of operating leases with an initial
      minimum lease term in excess of one year, disclosure is required of the
      total payments due over the non-cancellable period of the lease.Cash flowsThe cash flow statement is prepared
  in accordance with the UK Financial Reporting Standard No 1 Revised, Cash
  flow statements (FRS 1 Revised) for UK GAAP reporting. Its objective and
  principles are similar to those set out in SFAS 95  Statement of
  cash flows. The principal difference between the standards is in respect
  of classification. Under FRS 1 Revised, the Group presents its cash flows for:
  operating activities; returns on investments and servicing of finance; taxation;
  capital expenditure and financial investment; acquisitions and disposals; equity
  dividends paid; management of liquid resources; and financing. SFAS 95 requires
  only three categories of cash flow activity: operating; investing; and financing.
Summary consolidated cash flow information as presented in accordance with US GAAP is provided below:
2003
    
    
    2002
    *
    
    2001
    *£m
    
    
    £m
    
    
    £mCash
        was (used in)/provided by:Operating
        activities
    
    
    (679
    )
    
    2,358
    
    
    1,060Investing
        activities
    
    
    (77
    )
    
    251
    
    
    963Financing
        activities
    
    
    (1,364
    )
    
    (974
    )
    
    (1,600
    )Net
        (decrease)/increase in cash
    
    
    (2,120
    )
    
    1,635
    
    
    423Exchange
        movements
    
    
    9
    
    
    13
    
    
    20Cash
        at the beginning of year
    
    
    2,445
    
    
    797
    
    
    354Cash
        at end of year
    
    
    334
    
    
    2,445
    
    
    797*
    The results for 2002 and 2001 have been adjusted
      to reflect the change in accounting policy for capacity sales in light of
      the adoption of UITF Abstract 36 ‘Contracts for sales of capacity’
      and related consequential effects.

Page 141


Back to Contents
notes to the financial statements



Net income reconciliationThe effects of these different accounting principles are as follows:
2003
    
    
    2002
    *
    
    2001
    *£m
    
    
    £m
    
    
    £m(Loss)/profit
        as reported under UK GAAP
    
    
    (6,533
    )
    
    (4,954
    )
    
    2,738US
        GAAP adjustments:Capacity
        sales
    
    
    2
    
    
    (13
    )
    
    (48
    )Customer
        acquisition costs
    
    
    (5
    )
    
    16
    
    
    7Pension
        costs
    
    
    18
    
    
    (15
    )
    
    (19
    )Stock
        based compensation
    
    
    (4
    )
    
    (26
    )
    
    (3
    )Partial
        depreciation
    
    
    
    
    
    (3
    )
    
    6Amortisation
        and impairment of goodwill and other intangible assets
    
    
    53
    
    
    (242
    )
    
    51Gain
        on sale of subsidiary
    
    
    
    
    
    33
    
    
    4,487Restructuring
        costs and onerous contracts
    
    
    149
    
    
    (69
    )
    
    69Profit
        on sale and leaseback
    
    
    
    
    
    
    
    
    (33
    )Derivative
        and hedge accounting
    
    
    (59
    )
    
    64
    
    
    1ESOP
        shares
    
    
    120
    
    
    
    
    
    Capitalisation
        of interest
    
    
    (6
    )
    
    (28
    )
    
    (80
    )Marketable
        securities
    
    
    4
    
    
    (126
    )
    
    (4,618
    )Deferred
        tax  difference in accounting for income tax standards
    
    
    58
    
    
    (27
    )
    
    (62
    )
        tax effect of other US GAAP reconciling items
    
    
    
    
    
    
    
    
    130Other
    
    
    10
    
    
    (10
    )
    
    (10
    )Minority
        interests on reconciling items
    
    
    (21
    )
    
    21
    
    
    100Net
        (loss)/income under US GAAP before cumulative effect of change in accounting
        principle
    
    
    (6,214
    )
    
    (5,379
    )
    
    2,716Cumulative
        effect of change in accounting principle, for derivatives in 2002
    
    
    
    
    
    8
    
    
    Net
        (loss)/income under US GAAP
    
    
    (6,214
    )
    
    (5,371
    )
    
    2,716(Loss)/earnings per share under US GAAP
        Basic
    
    
    (266.7
    )p
    
    (196.5
    )p
    
    99.5
    p
        Diluted
    
    
    (266.7
    )p
    
    (196.5
    )p
    
    98.4
    p(Loss)/earnings
        per ADR under US GAAP**
        Basic
    
    
    (800.1
    )p
    
    (589.5
    )p
    
    298.5
    p
        Diluted
    
    
    (800.1
    )p
    
    (589.5
    )p
    
    295.2
    p*
    The results for 2002 and 2001 have been adjusted to reflect the change in accounting policy for capacity sales in light of the adoption of UITF Abstract 36 Contracts for sales of capacity. The results for 2002 also include an increase of £233 million in US GAAP net income relating to impairment charges and asset write-downs which are no longer required.**
    Computed on the basis that one American Depositary Receipt (ADR) represents three Ordinary Shares.
Page 142


Back to Contents
notes to the financial statements



Shareholders equity reconciliation2003
    
    
    2002
    *£m
    
    
    £mShareholders
        equity as reported under UK GAAP
    
    
    2,149
    
    
    8,958US
        GAAP adjustments:Capacity
        sales
    
    
    (27
    )
    
    (29
    )Customer
        acquisition costs
    
    
    (11
    )
    
    (8
    )Pension
        costs
    
    
    (454
    )
    
    (36
    )Restructuring
        costs and onerous contracts
    
    
    146
    
    
    Goodwill
        and other intangible assets
    
    
    307
    
    
    284Derivative
        and hedge accounting
    
    
    (1
    )
    
    60Capitalisation
        of interest
    
    
    16
    
    
    22Gain/(loss)
        on marketable securities
    
    
    42
    
    
    (2
    )Deferred
        tax  difference in accounting for income tax standards
    
    
    
    
    
    (58
    )Proposed
        final dividend
    
    
    
    
    
    83ESOP
        shares
    
    
    (38
    )
    
    (123
    )Other
    
    
    (5
    )
    
    (15
    )Minority
        interests on reconciling items
    
    
    1
    
    
    22Shareholders
        equity under US GAAP
    
    
    2,125
    
    
    9,158*
    The shareholders equity reconciliation for 2002 has been adjusted to reflect the change in accounting policy for capacity sales in light of the adoption of UITF Abstract 36 Contracts for sales of capacity and related consequential effects.Other US Accounting Standards issued but not adoptedIn June 2001, the FASB issued FASB
  Statement No. 143, Accounting for asset retirement obligations.
  The standard is effective for fiscal years beginning after 15 June 2002, with
  earlier application encouraged. This standard requires entities to record the
  fair value of a liability for an asset retirement obligation in the period in
  which it is incurred. When the liability is initially recorded, the entity capitalises
  a cost by increasing the carrying amount of the related long-lived asset. Over
  time, the liability is accreted to its present value each period, and the capitalised
  cost is depreciated over the useful life of the related asset. Upon settlement
  of the liability, an entity either settles the obligation for its recorded amount
  or incurs a gain or loss upon settlement. Management has not determined the
  effect of the adoption of FASB Statement No. 143.
In December 2002, the FASB issued
  SFAS No. 148, Accounting of stock-based compensation  transition
  and disclosure  an amendment of FASB Statement No. 123. This statement
  amends SFAS No. 123 to provide alternative methods of transition for a voluntary
  change to the fair value based method on accounting for stock-based employee
  compensation. In addition, SFAS No. 148 requires prominent disclosures about
  the method of accounting for stock-based employee compensation and the effect
  of the method used on reported results. As Cable & Wireless continues to
  apply the provisions of APB No. 25 Accounting for stock issued to employees,
  the adoption of SFAS No. 148 will not impact reported net income or shareholders
  equity.
In April 2003, the FASB issued SFAS
  No.149, Amendment of Statement 133 on derivative instruments and hedging
  activities. SFAS 149 amends and clarifies accounting for derivative instruments,
  including certain derivative instruments embedded in other contracts, and for
  hedging activities under SFAS 133. SFAS 149 is effective for contracts entered
  into or modified after 30 June 2003 and for hedging relationships designated
  after 30 June 2003. Management has not determined the effect of the adoption
  of SFAS 149.
In May 2003, the FASB issued SFAS
  No. 150, Accounting for certain financial instruments with characteristics
  of both liabilities and equity. SFAS 150 improves the accounting for certain
  financial instruments that, under previous guidance, issuers could account for
  as equity. SFAS 150 requires these instruments to be classified as liabilities
  in the balance sheet. SFAS 150 is effective from 15 June 2003. SFAS 150 is not
  expected to have an impact on the financial statements.



Page 143


Back to Contents
shareholder information
SHAREHOLDER
  INFORMATION
This section contains information about:
Trading
        market
    144
    
    Taxation
    146Dividends
    145
    
    Memorandum and Articles of
      Association
    148Exchange
        rate information
    145
    
    Material contracts
    148Exchange
        controls and other limitations affecting security holders
    146
TRADING
      MARKETThe principal trading market for the
  Ordinary Shares is the London Stock Exchange on which 7,759,288,538 Ordinary
  Shares were traded during the period from 1 April 2002 to 31 March 2003. As
  at 31 March 2003, the Company had a market capitalisation of approximately £1.64
  billion (US$2.59 billion, based on the Noon Buying Rate on 31 March 2003).
American Depositary Receipts (ADRs), each representing three Ordinary Shares, have been issued by Citibank N.A. as Depositary and are listed on the New York Stock Exchange under the symbol CWP.
The table below sets forth, for the
  fiscal quarters indicated, the high and low middle market quotations for the
  Ordinary Shares on the London Stock Exchange as reported on its Daily Official
  List and the high and low market quotations for the ADRs on the New York Stock
  Exchange.
Pence
        Per Ordinary Share
    
      US$
        Per ADRHigh
    
    
    Low
    
    
    High
    
    
    LowYear ended 31 March 1999
    
    
    994.5
    
    
    516.0
    
    
    48.0
    
    
    24.9Year ended 31 March 2000
    
    
    1,561.5
    
    
    658.0
    
    
    74.5
    
    
    31.4Year ended 31 March 2001
    
    
    1,325.0
    
    
    430.0
    
    
    56.4
    
    
    18.3Year ended 31 March 2002
    
    
    531.5
    
    
    207.0
    
    
    22.9
    
    
    8.9Year ended 31 March 2003
    
    
    223.0
    
    
    41.0
    
    
    10.3
    
    
    1.9Year ended 31 March 2002First quarter
    
    
    531.5
    
    
    369.0
    
    
    22.9
    
    
    15.7Second quarter
    
    
    417.0
    
    
    253.0
    
    
    17.7
    
    
    11.0Third quarter
    
    
    389.0
    
    
    266.0
    
    
    16.7
    
    
    11.7Fourth quarter
    
    
    345.0
    
    
    207.0
    
    
    15.0
    
    
    8.9Year ended 31 March 2003First quarter
    
    
    223.0
    
    
    163.2
    
    
    9.6
    
    
    7.5Second quarter
    
    
    179.2
    
    
    114.4
    
    
    8.3
    
    
    5.4Third quarter
    
    
    153.4
    
    
    41.0
    
    
    7.2
    
    
    1.9Fourth quarter
    
    
    73.2
    
    
    46.0
    
    
    3.5
    
    
    2.2

Pence
        Per Ordinary Share
    
      US$
        Per ADRHigh
    
    
    Low
    
    
    High
    
    
    LowDecember 2002
    
    
    87.2
    
    
    41.0
    
    
    4.1
    
    
    1.9January 2003
    
    
    69.4
    
    
    46.0
    
    
    3.4
    
    
    2.2February 2003
    
    
    67.0
    
    
    55.4
    
    
    3.2
    
    
    2.7March 2003
    
    
    73.2
    
    
    57.2
    
    
    3.4
    
    
    2.7April 2003
    
    
    83.4
    
    
    69.6
    
    
    4.0
    
    
    3.3May 2003
    
    
    102.6
    
    
    71.4
    
    
    5.1
    
    
    3.4At 3 June 2003, 893,979 Ordinary Shares
  were held in the United States representing 0.04 per cent of the total number
  of issued and outstanding Ordinary Shares on that date. These Ordinary Shares
  were held by 792 holders of record. At 3 June 2003, 42,871,909 ADRs (representing
  128,615,727 Ordinary Shares) were held in the United States by 2,092 holders
  of record. Since certain of such Ordinary Shares (or ADRs, as the case may be)
  are held by broker nominees, the number of holders or record may not be representative
  of the number of beneficial owners. At 3 June 2003, the Company had 156,531
  shareholders of record.
Distribution and classification
of ordinary shareholdings
  At
          31 March 2003
      
      
      Number of Accounts
      
      
      Percentage of total
      
      
      Number of Shares
      
      
      Percentage
        of totalUp
          to 1,000
      
      
      105,147
      
      
      66.07
      
      
      48,693,320
      
      
      2.041,001
           5,000
      
      
      46,740
      
      
      29.37
      
      
      94,444,678
      
      
      3.965,001
          100,000
      
      
      6,391
      
      
      4.02
      
      
      84,426,058
      
      
      3.54100,001
           1,000,000
      
      
      598
      
      
      0.38
      
      
      215,101,315
      
      
      9.031,000,001
          and over
      
      
      259
      
      
      0.16
      
      
      1,940,459,323
      
      
      81.43159,135
      
      
      100.00
      
      
      2,383,124,694
      
      
      100.00Individuals
      
      
      137,254
      
      
      86.25
      
      
      163,752,493
      
      
      6.87Corporate
          bodies
      
      
      2,526
      
      
      1.59
      
      
      89,177,602
      
      
      3.74Banks/nominee
          companies
      
      
      19,300
      
      
      12.13
      
      
      2,097,826,519
      
      
      88.03Insurance
          companies/ pension funds
      
      
      55
      
      
      0.03
      
      
      32,368,080
      
      
      1.36Total
      
      
      159,135
      
      
      100.00
      
      
      2,383,124,694
      
      
      100.00
Page 144


Back to Contents

shareholder
information
DIVIDENDSThe table below sets out the sterling
    amounts of interim, final and total gross dividends paid per Ordinary Share
    and also the US dollar amounts per American Depositary Share (ADS) evidenced
    by ADRs (each representing three Ordinary Shares) translated at the Noon Buying
    Rate at 31 March each year. The dividends for the year ended 1999 are
    not increased by the associated ACT rebates as the Company elected to pay
    these as Foreign Income Dividends. The Company is no longer required to account
    for ACT on dividends paid on or after 6 April 1999.
To give greater financial flexibility
    during the current transitional period, the Board decided in June 2003 to
    suspend dividends for 12 months. Thus no final dividend will be proposed for
    2003 and no interim dividend declared for 2004. However, the Board intends
    to pay a final dividend for 2004. The level of this payment will be determined
    by reference to progress made against the restructuring plan and the resultant
    financial performance of the Group.
  There are currently no UK governmental
    restrictions on dividend payments to non-UK shareholders applicable to the
    Company.

Year
        ended 31 March
    
    Pence
      per Ordinary Share
    
    US
      dollars per ADRInterim
    
    
    Special
    
    
    Final
    
    
    Total
    
    
    Interim
    
    
    Special
    
    
    Final
    
    
    Total1999
    
    
    4.10
    
    
    
    
    
    9.40
    
    
    13.50
    
    
    0.20
    
    
    
    
    
    0.45
    
    
    0.652000
    
    
    4.50
    
    
    
    
    
    10.50
    
    
    15.00
    
    
    0.21
    
    
    
    
    
    0.50
    
    
    0.712001
    
    
    4.95
    
    
    
    
    
    11.55
    
    
    16.50
    
    
    0.21
    
    
    
    
    
    0.49
    
    
    0.702002
    
    
    1.50
    
    
    11.50
    *
    
    3.50
    
    
    16.50
    
    
    0.06
    
    
    0.49
    
    
    0.15
    
    
    0.702003
    
    
    1.60
    
    
    
    
    
    
    
    
    1.60
    
    
    0.08
    
    
    
    
    
    
    
    
    0.08*
    Paid at the same time as
        the interim dividend.EXCHANGE
      RATE INFORMATIONThe Company presents its Consolidated
    Financial Statements in pounds sterling (£). In this Annual Report,
    references to £, pound(s) sterling, GBP,
    pence and p are to the lawful currency of the United
    Kingdom, references to US$, US dollars cents
    and c are to the lawful currency of the United States. This Annual
    Report contains translations of certain pound sterling amounts into US dollars
    at specified rates solely for the convenience of the reader. These translations
    should not be construed as representations that the pound sterling amounts
    actually represent such US dollar amounts or could be converted into US dollars
    at the rate indicated. Unless otherwise indicated, the translation of pounds
    sterling into such US dollars have been made at the Noon Buying Rate in New
    York City for cable transfers in pounds sterling as certified for customs
    purposes by the Federal Reserve Bank of New York in effect on 31 March 2003,
    which was £1.00 to US$1.58.
  The following table sets forth the
    high and low Noon Buying Rates for pounds sterling expressed in US dollars
    per £1.00 for the previous six months:
High
      
      
      LowDecember
          2002
      
      
      1.61
      
      
      1.56January
          2003
      
      
      1.65
      
      
      1.60February
          2003
      
      
      1.65
      
      
      1.57March
          2003
      
      
      1.61
      
      
      1.56April
          2003
      
      
      1.60
      
      
      1.55May
          2003
      
      
      1.65
      
      
      1.59The following table sets forth,
    for the periods indicated, the average, high, low and period-end Noon Buying
    Rates for pounds sterling expressed in US dollars per £1.00.
  Year
          ended 31 March
      
      
      Average
      1
      
      High
      
      
      Low
      
      
      Period End1999
      
      
      1.65
      
      
      1.69
      
      
      1.61
      
      
      1.612000
      
      
      1.61
      
      
      1.68
      
      
      1.55
      
      
      1.592001
      
      
      1.47
      
      
      1.60
      
      
      1.40
      
      
      1.422002
      
      
      1.43
      
      
      1.48
      
      
      1.37
      
      
      1.432003
      
      
      1.55
      
      
      1.65
      
      
      1.43
      
      
      1.581 The average of the Noon
          Buying Rates on the last day of each full month during the relevant
          period.

Page 145

Back to Contents

shareholder information

On 3 June 2003 the Noon Buying Rate was £1.00
    to US$1.63. A substantial portion of Cable & Wireless assets, gross
    turnover and operating costs are denominated in
currencies other than pounds sterling. See Operating
    and Financial Review  Quantitative and Qualitative Disclosures about
    Market Risk.

EXCHANGE
      CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERSCertain of the countries in which
    Cable & Wireless and its associated companies operate have exchange controls.
    Operations in the countries that currently have exchange controls are not,
    however, material to
the business of Cable & Wireless
    and its associated companies, and the controls themselves have not materially
    restricted payments within Cable & Wireless and its associated companies.
TAXATIONThe following is a summary, under
    current law, of the principal UK and US federal income tax considerations
    relating to an investment by a US taxpayer in Ordinary Shares or ADRs. This
    summary applies to investors only if:
  
      they are individual US
          citizens or residents, US corporations, or otherwise subject to US federal
          income tax on a net income basis in respect of the Ordinary Shares or
          ADRs;
      they hold the Ordinary
          Shares or ADRs as a capital asset for tax purposes; and
      they are not resident
          or ordinarily resident in the United Kingdom for UK tax purposes, and
          do not hold the Ordinary Shares or ADRs for the purposes of a trade,
          profession, or vocation that they carry on in the United Kingdom through
          a branch or agency.This summary does not purport to
    be a comprehensive description of all of the tax considerations that may be
    relevant to any particular investor, and does not address the tax treatment
    of investors that are subject to special rules. It is assumed that investors
    are familiar with the tax rules applicable to investments in securities generally
    and with any special rules to which they may be subject. In particular, the
    discussion does not address the tax treatment of investors that are subject
    to special rules, such as banks, insurance companies, dealers in securities
    or currencies, persons that elect mark-to-market treatment, persons that hold
    Ordinary Shares or ADRs as a position in a straddle, conversion transaction,
    synthetic security, or other integrated financial transaction, and persons
    whose functional currency is not the US dollar.
  The discussion is based on laws,
    treaties, judicial decisions, and regulatory interpretations in effect on
    the date of this document, all of which are subject to change. On 31 March
    2003, representatives of the United Kingdom and United States exchanged instruments
    of ratification for a new income tax convention (the New Treaty). The New
    Treaty has the force and effect of law in respect of withholding taxes on
    dividends from 1 May 2003. As discussed below, investors will no longer be
    entitled to claim a special foreign
tax credit in respect of dividends
    that was available under the terms of the prior treaty, except for a limited
    period of time during which investors may elect to apply the entirety of the
    prior treaty in preference to the New Treaty.
  Investors should consult their own
    advisers regarding the tax consequences of the acquisition, ownership, and
    disposition of the Ordinary Shares or ADRs in the light of their particular
    circumstances, including the effect of any state, local, or other national
    laws.
  UK Taxation
  Dividends
  Under current UK taxation legislation,
    no tax is required to be withheld at source from cash dividend payments on
    the Ordinary Shares or ADRs.
  Capital Gains
  Subject to the following, if investors
    are not resident or ordinarily resident in the United Kingdom for UK tax purposes
    they will not generally be liable to UK tax on gains realised or accrued on
    the disposal of Ordinary Shares or ADRs, unless they carry on a trade, profession,
    or vocation in the United Kingdom through a branch or agency and the Ordinary
    Shares or ADRs are used in or for the purposes of the trade, profession, or
    vocation or are used or held for the purposes of the branch or agency or acquired
    for use by or for the purposes of the branch or agency. Particular rules may
    apply to investors who have previously been resident in the United Kingdom,
    who dispose of Ordinary Share or ADRs while they are not so resident, and
    who subsequently again become resident in the United Kingdom within specified
    time periods. Such rules may have the effect of subjecting such an investor
    to United Kingdom capital gains tax in the year in which they again become
    resident in the United Kingdom.
  Inheritance Tax
  Ordinary Shares or
    ADRs held by an individual who is domiciled in the United States for purposes
    of the current
Page 146


Back to Contents

shareholder
information
estate and gift tax convention
  between the United Kingdom and the United States and is not a national of the
  United Kingdom for such purposes do not generally attract UK inheritance tax
  on the individuals death or on transfer during his lifetime.Stamp Duty
          And Stamp Duty Reserve TaxUK stamp duty reserve tax (SDRT)
    is chargeable where Ordinary Shares are issued or transferred to the depositary
    or nominee or agent for the depositary pursuant to an arrangement under which
    the depositary issues depositary receipts (such as the ADRs). The SDRT, payable by the depositary, will generally be 1.5 per cent of the purchase or issue
    price of the Ordinary Shares. In certain circumstances, the transfer to the
    depositarys nominee or agent may give rise to a liability to ad valorem
    stamp duty, in which case the SDRT charge is reduced or
    eliminated accordingly. Such SDRT or stamp duty liability will ordinarily
    (in accordance with the terms of the deposit agreement) be charged to the
    person to whom ADRs are delivered in connection with the deposit of Ordinary
    Shares.
  No UK stamp duty is payable on any
    transfer of an ADR provided that the ADR and any separate instrument of transfer
    is executed and remains outside the United Kingdom. Nor is any agreement for
    transfer of ADRs subject to SDRT. However, if the seller of an ADR fulfils
    his obligations by requiring the transfer of the underlying Ordinary Shares
    (whether or not to the purchaser), the transfer instrument is, it is thought,
    subject to stamp duty at approximately 0.5 per cent of the purchase price.
    A transfer of Ordinary Shares which does not
    complete a sale is dutiable at the fixed rate of £5.
  If Ordinary Shares themselves are
    sold, SDRT at 0.5 per cent of the consideration will, subject to exceptions,
    be payable, generally by the purchaser. If, within six years of the date on
    which the agreement is made or (if later) becomes unconditional, the Ordinary
    Shares are
    transferred to the person with whom the agreement is made or (where the agreement
    was to transfer the Ordinary Shares to that persons nominee) his nominee
    and the transfer instrument is stamped on payment of the applicable stamp
    duty (approximately 0.5 per cent of the
    consideration), the stamp duty will cancel the SDRT charge and the SDRT may
    be repaid on making of a claim within the six year period.
  US
          Federal Income TaxationGeneralBeneficial owners of ADRs will be
    treated as owners of the underlying Ordinary Shares for US federal income
    tax purposes and for purposes of the Current Treaty. Deposits and withdrawals
    of Ordinary Shares in exchange for ADRs
will not result in the realisation
    of gain or loss for US federal income tax purposes.
  DividendsIf Cable & Wireless pays dividends,
    investors must include those dividends in their income for US federal income
    tax purposes when they receive them. The dividends will be treated as foreign
    source income. Investors should determine the amount of their dividend income
    by
    converting pounds sterling into US dollars at the exchange rate in effect
    on the date of their (or the depositarys, in the case of ADRs) receipt
    of the dividend. Subject to certain exceptions for positions that are hedged
    or held for less than 60 days, an individual US holder
    generally will be subject to US taxation at a maximum rate of 15 per cent
    in respect of dividends received after 2002 and before 2009.
  Special Foreign
          Tax Credit Benefits Under Prior TreatyInvestors who qualified for benefits
    under the income tax convention between the United States and the United Kingdom
    in force before 31 March 2003 may be eligible, subject to generally applicable
    limitations, to receive a special US foreign tax credit equal to one-ninth
    of
    the amount of certain cash dividends that they receive on the Ordinary Shares
    or ADRs, so long as they make an election to include in their income, as an
    additional notional dividend, an amount equal to the tax credit. This foreign
    tax credit benefit is generally only available
    with respect to dividends paid before 1 May 2003, unless an investor elects
    to apply the prior income tax convention in its entirety for an optional 12
    month extension period. Investors should consult their own tax advisers regarding
    their potential eligibility for this foreign tax
    credit benefit.
  Capital GainsIf investors sell their Ordinary
    Shares or ADRs, investors will recognise capital gain or loss. Gain on the
    sale of Ordinary Shares or ADRs held for more than one year will be treated
    as long-term capital gain. The net amount of long-term capital gain realised
    by a non-
    corporate holder generally is subject to taxation at a maximum rate of 20
    per cent; however, net long-term capital gain recognised after 5 May
    2003 and before 2009 generally is subject to taxation at a maximum rate of
    15 per cent. An investors ability to offset capital losses
    against ordinary income is subject to limitations.
  US Information
          Reporting And Backup Withholding RulesPayments in respect of the Ordinary
  Shares or ADRs that are made within the United States or through certain US-related
Page 147


Back to Contents

shareholder
information 

financial intermediaries are subject
    to information reporting and may be subject
    to backup withholding unless the holder (1) is a corporation or other exempt
    recipient or (2) provides a taxpayer
    identification number and certifies that no loss of exemption from backup
    withholding has occurred. Holders that are not US persons generally are not
    subject to
information reporting or backup withholding.
    However, such a holder may be required to provide a certification of its non-US
    status in connection with payments received within the United States or through
    a US-related financial intermediary.
MEMORANDUM
      AND ARTICLES OF ASSOCIATIONThe Memorandum and Articles of Association
  are registered with the Registrar of Companies of England and Wales and the
  registered number of the Company is 238525. The summary of the material terms
  of Cable and Wireless plcs Memorandum and Articles of Association contained in the
  Companys Annual Report on Form 20-F for the
  year ended 31 March 2002 under the caption Memorandum and Articles of
  Association is incorporated by reference herein.MATERIAL
      CONTRACTSAcquisition
  of ExodusOn 30 November 2001, Cable and Wireless
  plc announced that it and certain of its wholly owned subsidiaries had entered
  into a conditional contract with EXDS to acquire for cash the Exodus business
  for an enterprise value of approximately US$850 million.
In connection with the acquisition,
  Cable and Wireless plc and DI entered into an Asset Purchase Agreement dated
  29 November 2001 (the APA) with EXDS and certain of EXDS US subsidiaries.
Under the terms of the APA, the base
  purchase price for the assets was US$560 million, subject to certain adjustments,
  including those relating to security deposits under property leases, the redesignation
  of financing leases as operating leases, the assumptions of obligations under
  property leases, intellectual property and the levels of accounts receivable
  and prepaid accounts. The APA contemplated that the acquisition of the Exodus
  business UK and German assets and Japanese shares would be documented
  under separate purchase agreements.
The APA was conditional upon, amongst
  other things, receipt of the required orders of the US Bankruptcy Court for
  the District of Delaware (the Court), receipt of consents to the assignments
  of all contracts not capable of being

assigned
  by order of the Court and to the transfer of certain ownership interests and
  the absence of governmental lawsuits seeking to enjoin the transaction or make
  it illegal.
  The acquisition of the Exodus business
  in the United States was completed on 1 February 2002.
The acquisition of the Exodus business
  in the United Kingdom and Japan was completed on 20 February 2002.
On 6 March 2002, Cable & Wireless
  announced that it had decided not to pursue the proposed acquisition of the
  Exodus business in Germany.
Pursuant to the terms of the APA,
  Cable & Wireless and EXDS entered into a review process with an independent
  accountant in relation to a dispute connected to a proposed downward adjustment
  of the purchase price in connection with the levels of accounts receivable and
  associated matters. The review process is ongoing and the decision of the independent
  accountant is expected late in 2003. The decision will be final and binding
  on the parties.
Copies of Material Contracts are filed
  in the United States with the SEC.Page 148


Back to Contents

cross reference guide
      to form 20-FCROSS
        REFERENCE GUIDE TO FORM 20-FItem
    
    
    Page1.
    
    
    Identity of
      directors, senior management and advisers
    
    
    n/a2.
    
    
    Offer statistics
      and expected timetable
    
    
    n/a3.
    
    
    Key informationSelected financial
      data
    
    
    41Exchange rates
    
    
    145Capitalisation
      and indebtedness
    
    
    n/aReasons for offer
      and use of proceeds
    
    
    n/aRisk factors
    
    
    454.
    
    
    Information
      on the companyHistory and development
      of the company
    
    
    6Principal capital
      expenditure
    
    
    7Business overview
    
    
    8Organisational structure
    
    
    7Property, plant and equipment
    
    
    14 and 185.
    
    
    Operating
      and financial review and prospectsOperating results
    
    
    26Liquidity and
      capital resources
    
    
    36Research and
      development, patents and licences etc
    
    
    n/aTrend information
    
    
    246.
    
    
    Directors,
      senior management and employeesDirectors and
      senior management
    
    
    57Compensation
    
    
    65Board practices
    
    
    62Employees
    
    
    56Share ownership
    
    
    727.
    
    
    Major shareholders
      and related party transactionsMajor shareholders
    
    
    61Related party
      transactions
    
    
    61Interests of
      experts and counsel
    
    
    n/a8.
    
    
    Financial
      informationConsolidated
      accounts and other financial information
    
    
    See item 17Legal proceedings
    
    
    19Dividend policy
    
    
    145Significant changes
    
    
    49.
    
    
    The offer
      and listingOffer and listing
      details  price history of stock
    
    
    144Plan of distribution
    
    
    n/aMarkets
    
    
    144Selling shareholders
    
    
    n/aDilution
    
    
    n/aExpenses of the
      issue
    
    
    n/a
Page 149


Back to Contents

cross reference guide
      to form 20-F

Item
    
    
    Page10.
    
    
    Additional informationShare capital
    
    
    n/aMemorandum and Articles of
      Association
    
    
    148Material contracts
    
    
    148Exchange controls
    
    
    146Taxation
    
    
    146Dividends and paying agents
    
    
    n/aStatement by experts
    
    
    n/aDocuments on display
    
    
    filed separatelySubsidiary information
    
    
    n/a11.
    
    
    Quantitative and qualitative
      disclosures about market risk
    
    
    3912.
    
    
    Description of securities
      other than equity securities
    
    
    n/a13.
    
    
    Defaults, dividend arrearages
      and delinquencies
    
    
    n/a14.
    
    
    Material modifications
      to the rights of security holders and use of proceeds
    
    
    n/a15.
    
    
    Controls and procedures
    
    
    6317.
    
    
    Financial statements
    
    
    8218.
    
    
    Financial statements
    
    
    n/a19.
    
    
    Exhibits
    
    
    Back pages
Page 150


Back to Contents

glossary of termsGLOSSARY OF
  TERMS
Terms
      used in this Annual Report
    Brief description
      of meaning or US equivalentACCESS SERVICES
    Services giving customers the ability to connect
      to the internet.ACCOUNTING RATES
    Cost per call minute to connect international
      calls.ADRs
    The American Depositary Receipts evidencing
      ADSs.ADSL
    (Asymmetrical Digital Subscriber Line) A transmission
      technology that transforms existing copper wires from a subscribers
      premises to the local exchange into high bandwidth lines.ADSs
    The American Depositary Shares, each of which
      represents three Ordinary shares.ATM
    (Asynchronous Transfer Mode) A very high-speed
      transmission technology for transporting voice, data and video in digital
      format.BACKBONE
    A high-capacity network linking networks of
      lower capacity, such as LANs.BANDWIDTH
    The information-carrying capacity of a network.BROADBAND
    A broadband network is one on which a number
      of independent, simultaneous data flows are transmitted on each cable.CALLED-UP SHARE CAPITAL
    Ordinary shares, issued and fully paid.CAPACITY SALES
    Sales of transmission space on a network to
      business and wholesale customers.CAPITAL ALLOWANCES
    Tax term equivalent to US tax depreciation
      allowances.CASH AT BANK AND IN HAND
    CashCHAPTER 11
    Bankruptcy restructuring under Chapter 11
      of the US Bankruptcy Code.COMPANY
    Cable and Wireless plc.CONNECTIVITY
    Providing customers with access to the internet.CONTENT DELIVERY/DISTRIBUTION
    Service providing geographically diverse distribution
      of web pages ensuring the fastest possible delivery to the end user.CORPORATION TAX
    Income tax.CREDITORS:
      AMOUNTS FALLING DUE AFTER MORE THAN 
      ONE YEAR
    Long-term debtCREDITORS:
      AMOUNT FALLING DUE WITHIN ONE YEAR
    Current liabilitiesDIGITAL
    Sound, text or video coded into binary form,
      a series of 1s and 0s, to enable more effective transmission.Page 151


Back to Contents

glossary of terms
Terms
      used in this Annual Report
    Brief description
      of meaning or US equivalentFIBRE OPTIC
    The use of special glass fibres to transmit
      laser light pulses, giving the on & off signals
      of digital information.FID
    Foreign Income Dividend, under the provisions
      of the UK Finance Act 1994.FINANCE LEASE
    Capital lease.FRAME RELAY
    A high-speed data transmission technology.FREEHOLD
    Ownership with absolute rights in perpetuity.GSM
    Global system for mobile communications, a
      standard for digital mobile telephone transmissions at a frequency of 900
      MHz, 1800 MHz or 1900 MHz.INTELLIGENT NETWORK
    A network where the transmission logic is
      located separately from the switching equipment, greatly simplifying the
      provision of value added services.INTERCONNECT
    Connection arrangements between carriers.INTEREST RECEIVABLE
    Interest income.INTERNET
    The system comprising all networks interconnected
      using the Internet Protocol (IP). The internet supports access to databases,
      websites, email, and file downloading world wide.IP
    The data transmission standard on which the
      internet is based.IP DEDICATED ACCESS
    Direct access to the internet.IP TRANSIT
    Transmission of IP traffic across the network
      backbone.IP-VPN
    A network using Internet Protocol to provide
      companies with an internal communications system linking employees in different
      offices worldwide.IP WHOLESALE DIAL
    Dial-up access to the internet via telephone
      lines.IRU
    (Indefeasible Rights of Use) The right to
      use a cable fibre or wavelength for a fixed period of time.ISP
    (Internet Service Provider) A business that
      provides internet access to users. It may also provide additional services
      such as web-hosting.LAN
    (Local Area Network) A network that covers
      only short distances (usually less than 1 km) and is normally confined to
      one building or site.MANAGED HOSTING
    A service where customer websites are hosted,
      maintained and managed by Cable & Wireless.MPLS
    (Multi Protocol Label Switching) Technology
      for enhancing the speed and management of network traffic.NETWORK COSTS
    Network costs include bandwidth, operating
      and maintenance of equipment, software and cables, wayleaves, customer acquisition
      costs, cost of goods sold, licences.
Page 152


Back to Contents

glossary of terms
Terms
      used in this Annual Report
    Brief description
      of meaning or US equivalentNODES
    Connecting points on a network.NOON BUYING RATE
    The noon buying rate in the City of New York
      for cable transfers in pounds sterling as certified for customs purposes
      by the Federal Reserve Bank of New York on the date specified.NYNEX CABLECOMMS
    NYNEX CableComms UK together with NYNEX CableComms
      Group Inc.OFTEL
    The Office of Telecommunications in the United
      Kingdom. This is the independent regulatory body set up under the Telecommunications
      Act which has responsibility for the enforcement and monitoring, and where
      appropriate initiating modification, of telecommunications licences in the
      United Kingdom.ORDINARY SHARES
    Ordinary shares of 25p each in the capital
      of the Company.OUTPAYMENTS
    Payments to other network operators to carry
      traffic on behalf of Cable & Wireless.PSTN
    (Public Switched Telephone Network) The telecommunications
      lines and exchanges to which the public connects to make domestic voice
      and facsimile calls and to access international telecommunications networks.PROFIT
    Income.PROFIT AND LOSS ACCOUNT
    Income statement.PROFIT AND LOSS ACCOUNT
      (under Capital and reserves)
    Retained earnings.PROFIT ATTRIBUTABLE TO ORDINARY
      SHAREHOLDERS
    Net income.PROPOSED DIVIDEND
    Dividend declared by directors but not yet
      approved by shareholders.RESELLERS
    Businesses that provide communication services
      to consumers by buying capacity off network operators and selling it on.SHARE CAPITAL
    Ordinary shares, capital stock or common stock
      issued and fully paid.SHARE PREMIUM ACCOUNT
    Additional paid-in capital or paid-in surplus
      (not distributable).STOCKS
    Inventories.TANGIBLE FIXED ASSETS
    Property, plant and equipment.TRADE CREDITORS
    Accounts payable.TRADE DEBTORS
    Accounts receivable.TURNOVER
    Operating revenue.
Page 153


Back to Contents

glossary of terms 
Terms
      used in this Annual Report
    Brief description
      of meaning or US equivalentVPN
    (Virtual Private Network) A corporate network
      provided to a customer by a telecommunications operator using elements of
      the PSTN. To the customer it offers all the features of a private network,
      such as direct dialling between offices in different countries.WAVELENGTHS
    A measurement of capacity on a network.WEB HOSTING
    Service providing facilities to hold customer
      websites.
Page 154


Back to Contents

REGISTRARThe Companys share register is administered by Lloyds TSB Registrars. All queries about your shareholding should be addressed to:
  Lloyds TSB Registrars
    The Causeway
    Worthing
    West Sussex
    BN99 6DA
  Telephone
      0870 600 3975 (UK shareholders)+44 1903 502541 (Overseas shareholders)Shareholders can view up-to-date
    information about their own shareholding by viewing Shareview
    (www.shareview.co.uk). Shareholders registered with Shareview can elect to
    receive shareholder communications in electronic form.
FINANCIAL
          CALENDARQuarter 1 results update
      24 July 2003AGM
      25 July 2003Announcement of interim results
      12 November 2003
SHAREGIFTIf you have a small number of shares whose value makes it uneconomic to sell them, you may wish to consider donating them to charity under ShareGift, a charity share donation scheme administered by The Orr Mackintosh Foundation. The relevant share transfer forms may be obtained from the Registrars, the Company Secretarys Office or the Investor Relations section of the Companys website. Further information is available from the Companys website (www.cw.com) or from ShareGift on +44 (0)20 7337 0501 (www.sharegift.co.uk).
COMPANY
          SECRETARY AND REGISTERED OFFICEMr Ken Claydon is the Company Secretary.
  The Companys Registered Office
    is:
    124 Theobalds Road
    London
    WC1X 8RX
    Tel +44 (0)20 7315 4000
AMERICAN
          DEPOSITARY RECEIPTSHolders of American Depositary ReceiptsCitibank N.A. is depositary for Cable and Wireless plc American Depositary Receipts.
  Details on the Companys ADR
    programme can be obtained from:
    Citibank N.A.
    111 Wall Street
    New York, New York 10043
    USA
    Tel 001 800 422 2066
or from their website www.citibank.com
INVESTOR
          RELATIONSEnquiries may be directed to:
  Director, Investor Relations
    124 Theobalds Road
    London
    WC1X 8RX
Or
Email: Investor-Relations.C&WPLC@plc.cwplc.com
Page 155



Back to ContentsSIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
CABLE
      AND WIRELESS PUBLIC LIMITED COMPANY
      (Registrant)By
    /s/ Francesco CaioFrancesco CaioTitle:
    Chief Executive OfficerJune 20, 2003

Back to Contents

CERTIFICATIONS
I, Francesco Caio, certify that:
1. I have reviewed this annual report on Form 20-F of Cable and Wireless Public Limited Company;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a.
    designed such disclosure controls and procedures
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;b.
evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); andc.
presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a.
    all significant deficiencies in the design
      or operation of internal controls which could adversely affect the registrant's
      ability to record, process, summarize and report financial data and have
      identified for the registrant's auditors any material weaknesses in internal
      controls; andb.
    any fraud, whether or not material, that
      involves management or other employees who have a significant role in the
      registrant's internal controls; and6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June 20, 2003/s/
    Francesco CaioTitle:
    Chief Executive Officer

Back to Contents
I, David N. Prince, certify that:
1. I have reviewed this annual report on Form 20-F of Cable and Wireless Public Limited Company;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a.
    designed such disclosure controls and procedures
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this annual report is
      being prepared;b.
    evaluated the effectiveness of the registrant's
      disclosure controls and procedures as of a date within 90 days prior to
      the filing date of this annual report (the "Evaluation Date"); andc.
    presented in this annual report our conclusions
      about the effectiveness of the disclosure controls and procedures based
      on our evaluation as of the Evaluation Date;5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):
a.
all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; andb.
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: June 20, 2003/s/
    David N. PrinceTitle:
    Group Finance Director
Back to Contents
Exhibit No.
    
    Description1*
    
    Memorandum and Articles of Association
      of Cable and Wireless Public Limited Company4.1*
    
    Asset Purchase Agreement dated
      29 November 2001 among Cable and Wireless plc, DI, Exodus Communications,
      Inc. and certain of Exodus Communications, Inc.’s US subsidiaries4.2**
    
    Service Agreement between Cable
      & Wireless plc and Kevin Loosemore4.3**
    
    Service Agreement between Cable
      & Wireless plc and David Norman Prince4.4**
    
    Service Agreement between Cable
      & Wireless plc and Robert O. Rowley4.5**
    
    Service Agreement between Cable
      & Wireless plc and Adrian Chamberlain4.6**
    
    Service Agreement between Cable
      & Wireless plc and Francesco Caio8
    
    Significant
      Subsidiaries12
    
    Certification
      delivered pursuant to Section 906 of the Sarbanes-Oxley Act of 2002* Exhibits to the registrant’s Annual Report on Form 20-F filed September 30, 2002 under the Exchange Act of 1934, as amended, hereby incorporated by reference in this annual report.
** Exhibits to the registrant’s report on Form 6-K, submitted to the Securities and Exchange Commission on June 20, 2003 under the Exchange Act of 1934, as amended, hereby incorporate by reference in this annual report.