As filed with the Securities and Exchange Commission on September 20, 2005

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F



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|£          | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|           | OR                                                                                            
|S          | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|           | For the fiscal year ended: March 31, 2005                                                     
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|£          | 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)

Lakeside House, Cain Road, Bracknell, Berkshire, RG12 1XL, United Kingdom

(Address of principal executive offices)

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



| | Title of each classAmerican Depositary SharesOrdinary Shares of nominal value 25 pence each |  | Name of each exchange on which registeredNew York Stock ExchangeNew York Stock Exchange* | 
| | ------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------- | 

*Not for trading, but only in connection with the registration of American Depositary Shares.

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.

2,394,822,240 Ordinary Shares of nominal value 25p each



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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.

YesSNo£

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

Item 17SItem 18£





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Operating and financial reviewCautionary statement regardingforward-looking statements
 
 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 35 of Notes to the financial statements.
Cautionary statements regarding forward-looking statementsThis 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, seeks 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 they are made, and it should
not be assumed that they have been revised or updated in 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:

Risks specific to Cable & Wireless business
the restructuring of the Group may not result in an improvement to performance and financial position;
transformation initiatives by the Group may not be successfully implemented;
technological changes in communication and information technology may render the Groups products
and services obsolete or non-competitive resulting in an adverse impact on financial results;
network or critical IT system failures may expose the Group to potential liability or loss of customers;

Regulatory risk
unforeseen changes in regulation and government policy in the countries in which Cable & Wireless
operates may result in planned business objectives not being met;
exposure to other telecommunications operators and the behaviour of other market participants may have
a detrimental effect on the Groups operations;
the Group may lose revenue if unlicensed operators are able 
  to gain access to the Groups network;Risks specific to the telecommunications industry
the Groups operations could suffer from adverse effects of competition and price pressures on
the demand for products and services;
continued overcapacity and other factors could lead to lower prices for the Groups products and
services;
mobile communications devices may pose health risks;Legal and other
the historic activities of the Groups insurance subsidiary may result in material claims;
the ongoing US Securities Act Class action might adversely impact the Groups financial condition;
the Groups withdrawal from the US domestic market may result in unforeseen claims against Cable
& Wireless;
changes in the pension regulatory framework and volatility in the financial markets may require the
Group to provide further cash funding to its pension funds; and
fluctuations in currency exchange rates in the countries where Cable & Wireless operates may adversely
affect the Groups reported results and financial condition.Trends and factors that are expected particularly to affect Cable & Wireless results are discussed in more detail elsewhere in this Annual Report, including,
without limitation, in the Business
overview and the Operating and financial review.

Back to Contents
Contents
    
    Section 1: Profile4
    
    About us and highlights5
    
    Chairmans statement7
    
    Chief Executives reviewBusiness overview11
    
    Introduction12
    
    Geographic operations18
    
    Services20
    
    Regulatory framework23
    
    History and development of Cable & WirelessSection 2: Corporate governanceCorporate governance27
    
    Corporate and social responsibility report31
    
    Board of Directors33
    
    Directors report42
    
    Directors remuneration report55
    
    Statement of Directors responsibilitiesSection 3: PerformanceOperating and financial review57
    
    Overview59
    
    Group financial performance66
    
    Review by division75
    
    Acquisitions76
    
    Review by division  summary77
    
    Liquidity and capital resources79
    
    Capital expenditure80
    
    Cash flow81
    
    Property and network infrastructure82
    
    Disclosures about market risk83
    
    Five year summary84
    
    Critical accounting policies87
    
    Reconciliation of US GAAP and of non-GAAP measures89
    
    Risk factors93
    
    Legal proceedings96
    
    Report of the independent public accounting firmFinancial statements97
    
    Consolidated profit and loss accounts100
    
    Consolidated balance sheets101
    
    Company balance sheets102
    
    Consolidated cash flow statements103
    
    Consolidated statements of total recognised gains and losses104
    
    Reconciliation of movements in consolidated equityshareholders funds104
    
    Reconciliation of movements in equity shareholders fundsfor the Company105
    
    Statement of accounting policies109
    
    Notes to the financial statementsSection 4: ReferenceShareholder information154
    
    Trading market155
    
    Dividends156
    
    Exchange rate information156
    
    Exchange controls and other limitations affecting security holders157
    
    Taxation158
    
    Memorandum and Articles of Association159
    
    Material contracts160
    
    Cross reference guide to Form 20-F162
    
    Glossary of terms166
    
    Shareholder information2005 Annual Report
    1Back to Contents
This report (Annual Report) comprises the annual report of Cable and Wireless plc in accordance with United Kingdom requirements. and, in substantial part, the Companys Annual Report on Form 20-F in accordance with the requirements of the United States Securities and Exchange Commission (SEC). The 2005 Annual Review is published as a separate document.
It should be noted that the Company restated its 2004 Form 20-F filing to include amendments to certain figures included in the US GAAP Reconciliation of its Form 20-F originally filed on 21 June 2004. As such, only the amended 2004 form 20-F filed on 28 July 2005 will include figures for 2004 that are completely consistent with the historic figures shown in the US GAAP Reconciliation in this 2005 filing.
Unless otherwise stated in this Annual Report the terms Cable & Wireless, the Group, it, we, us and our refer to Cable and Wireless plc and its subsidaries, collectively. The term Company refers to Cable and Wireless plc.
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 144 to 152.
Cable & Wireless publishes its Financial Statements in pounds sterling (£). On 31 March 2005, 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$1.89 = £1. On 26 August 2005 the noon buying rate was US$1.81 = £1. For additional information on exchange rates between pounds sterling and the US dollar see exchange rates on page 156.
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 Groups financial year.
This document is dated 20 September 2005 including the Legal proceedings section at pages 93 to 95. Note 33 to the Financial statements for the year ended 31 March 2005 discusses legal proceedings also but has not been updated to reflect most recent developments given that the Financial statements are dated 3 June 2005.
This document includes terms which may be specific to the industry, the Group or UK GAAP. A Glossary of terms is included on pages 162 to 165 to explain and define such terms or to give the US GAAP equivalent, as appropriate.
2 2005 Annual Report
Back to Contents
Profile4
    
    About us and highlights5
    
    Chairmans statement7
    
    Chief Executives reviewBusiness overview11
    
    Introduction12
    
    Geographic operations18
    
    Services20
    
    Regulatory framework23
    
    History and developmentof Cable & WirelessBack to Contents
About us and highlightsAbout usCable & Wireless is the leading telecoms operator in the majority of countries in which it operates. It is the second largest fixed network telecoms operator in the UK.
Its principal operations are in the UK, the Caribbean, Panama, Macau and Monaco. It provides voice, data, broadband, internet protocol (IP) and mobile services to business and residential customers, fixed and mobile telecoms carriers, mobile operators and content, application and internet providers.
Its extensive international network conveys traffic between these operations and provides a platform from which to offer telecommunication services to other carriers.
HighlightsCable & Wireless completed the second year of its turnaround programme with a robust financial performance and further progress in reshaping the Group. Key developments included:

    restructuring of UK operations around customer segments;
    acquisition of Bulldog Communications and a controlling interest in Monaco Telecom;
    expansion of National Telcos broadband and mobile activities;
    completion of US exit for £220 million and withdrawal from Japanese domestic market; andWe achieved further cost savings in the traditional legacy voice and data sectors. Led by a strengthened management team, we accelerated investment to position the Group for profitable growth in new services. Shortly after the year end, we announced a three-year plan to develop an IP-based Next Generation Network in the UK and confirmed that Bulldog had completed the first phase of its local loop unbundling programme ahead of schedule. In National Telcos, we have continued to invest in our broadband and mobile infrastructure.
Profit before tax and exceptionals 
    (continuing operations):a
    up 13 per cent to £361 millionEarnings per share (total Group):
    13.0 pence per shareFull year dividend:
    up 21 per cent to 3.8 pencea
    This is a non-UK GAAP financial measure which is used by management as a key performance measure. A reconciliation is set out on page 87.4
    2005 Annual ReportBack to Contents
ProfileChairmans statement

Richard Lapthorne
Chairman
    Turnaround programme on track
    Revenue from continuing operations stable at constant currency
    Initiated £190 million investment in Next Generation Networks
    Targeted National Telcos investment in broadband, IP and mobile
The past 12 months have been a time of transition
        as Cable & Wireless entered a new phase in the three-year programme to revive the Group. By the end of the year, the Chief Executive and his new team were no longer preoccupied with the Groups
        past, and had turned confidently to face the future. A year of transitionOver the past year, management has delivered on the promises it made in June 2003. We completed our exit from the US market at considerably lower cost than originally expected. This allowed the Chief Executive to concentrate on the restructuring of our UK business and on defining a path to a sustainable position in this market. An enormous amount of work has gone into improving operations and tightening cost controls in the legacy businesses. Customer focus has been central to our new structures. 
    We are also seeing some excellent groundwork in network development. A
    prime example is our investment in Bulldog, the UK broadband operator we
    acquired last May. Bulldog gives us network access across the last mile to the customer, enabling
  us to offer an end-to-end service in competition with BT. Building
  our customer base in this way is an important goal as we embark
  upon investment of £190 million over three years in our UK
  IP-based Next Generation Network. This new technology offers network economies that will benefit our customers and improve our margins. In this context, we welcome Ofcoms
  vision of a UK telecommunications market based on realistic and sustainable competition
  among players willing to invest in future technological strength. 
  Our financial disciplines and continued cost reduction have created a stable framework
  so that Cable & Wireless can move forward. Since November, a corporate reorganisation
  has refocused our activities on the key customer segments at the heart of our business.
  We are now well-placed to exploit rising global demand for broadband, IP and mobile
  services across the whole market, from large multinational corporations to residential
  users. 
  Outside the UK, our National Telcos have become more aggressive in dealing with
  competition. Co-operation and communication have also improved between our operations,
  so that these businesses can benefit from each others experiences of the
  rapidly liberalising telecom landscape. We are successfully capitalising on the
  controlling stake in Monaco Telecom acquired a year ago, and will take opportunities
  to expand our footprint into new geographies as appropriate. 
  The exit from the US and disposal of our Japanese business kept our cash intact,
  which allowed us, in November 2004, to launch a £250 million share buyback.
  As at March 2005 we had bought back 60.5 million shares, at an average price of
  124.4 pence.

2005 Annual Report
    5Back to Contents
Chairmans statement

Results and dividendThe 2005 financial performance demonstrates our progress. Profit before taxation and exceptional items for continuing operations, for the year ended 31 March 2005, was £361 million. Revenue from continuing operations at £3,023 million, was stable at constant currency compared to 2004.The Board has recommended a full year dividend of 3.8 pence per share, after paying 1.16 pence per share at the interim stage. This represents a 21 per cent increase in the total dividend, indicating our confidence in the Group.The BoardThe Board was strengthened during the year. In July, George Battersby joined the executive team as Group Human Resources Director and in December, Harris Jones was appointed as Executive Director, International Businesses. We also appointed three new Non-executive Directors, Kate Nealon, Agnès Touraine and Clive Butler. Their combined experience has significantly broadened the skills of our Board as we undertake the next stage of the Groups transformation. Kevin Loosemore resigned from the Board on 1 December 2004 and left Cable & Wireless at the end of the financial year, we would like to thank him for his contributions. Dr Janet Morgan retired from the Board in July 2004 having served 16 years during which time her contribution has been considerable, and for which we thank her.On page 36, our senior Non-executive Director reports on the four key aspects of good corporate governance. I am pleased to report that Cable & Wireless continues to operate governance to high standards.Our teamCost-cutting and corporate reorganisation has inevitably been unsettling for staff, and I want to thank our management and employees for meeting the challenges so far with resilience and determination. Their contribution has enabled us to strengthen our business for the future.Looking aheadOur markets continue to suffer from excess capacity and severe price competition. Performance improvement will come from efficiencies and cost-cutting, and a shift in our sales mix towards broadband, IP and mobile. We are in a unique position to help our customers embrace these new technologies and I look forward with confidence to the year ahead.Richard LapthorneChairman6
    2005 Annual ReportBack to Contents
ProfileChief Executives review

Francesco Caio
Chief Executive OfficerFocusing on marginand investing in profitable growth
We have defined a clear path for our business based around key trends in customer demand and the rapid shift in technology. It is key to our success to manage margins in traditional services and to be able to invest for profitable growth in new services.In 2005 we made solid progress in strengthening Cable & Wireless competitive position:
    we have focused the Group on markets where we have a relevant presence and can develop and maintain a sustainable position;
    we completed the US exit and the sale of our domestic business in Japan;
    we committed to invest £190 million over three years in a UK Next Generation Network to increase competitiveness and enhance financial performance;
    we focused National Telcos to compete in the growth areas of mobile and broadband and continue to reduce costs;
    we reshaped our UK business into four customer-focused segments, Enterprise, Business, Carrier Services and Bulldog, each led by experienced telecom professionals; and
    in May 2005 we completed the first phase of Bulldogs unbundling programme to cover 30 per cent of UK
      households, just a year after acquisition.We streamlined central management and relocated our head office to Bracknell, reflecting our reduced cost base and a culture where the centre drives performance across the Group. Worldwide we are a leaner organisation, in line with our aim to be the lowest cost provider in all our markets.Industry contextThe telecoms industry is experiencing profound structural changes. There are common challenges and opportunities across the Group that have shaped our strategic priorities. Revenues from traditional services continue to decline, so we must protect margins by further forcing down costs. At the same time, we are pursuing growth. As new broadband, IP and mobile services replace legacy services we are investing to win customers in these highly competitive growth areas.UK GroupOur UK operations are focused around the customer segments of Enterprise, Business and Carrier Services. At present, 67 per cent of our revenues in the UK are generated by switched voice services, however, we have adopted targeted strategies for each customer segment as they migrate to new technologies. These customers are also supported by our operations in Europe, Asia, and the US.

2005 Annual Report
    7Back to Contents
Chief Executives review

EnterpriseEnterprise provides integrated telecommunication services
      to large corporations and central government departments. The convergence of
        voice, data and internet access on IP-based services is reshaping the way
        many businesses operate. Migrating to IP offers lower costs and more sophisticated
        services, such as video-streaming, multi-party conferencing and remote access
        into corporate IT systems.
      Enterprise won a number of new contracts with major customers. Although
    our current revenue is still generated primarily by traditional services  which are subject to continued decline  we
          have made solid gains in winning IP business, which now accounts for 13
          per cent of Enterprise turnover. 
      Cable & Wireless has the network and the capabilities to support our
          biggest customers as they make the transition to new generation, IP-based
          technologies.Business
      Business addresses a market that includes a wide range of customers. In
    the last year we have focused on the top end of the segment and saw new
    business wins with Damovo, easyJet, Lothian Health Board and Littlewoods.
    Overall, however, revenue was reduced by severe competition. Pressure on
    revenues in legacy services has been higher than in Enterprise reflecting the fact that, as many customers only buy switched voice, they have higher price sensitivity and propensity to
          switch. 
      Take-up of IP is growing among our small business customers. We are developing a new portfolio of packaged and bundled products such as Intelligent Voice and Straight Talk. The services, including IP, are being designed for ease of implementation and use.Carrier Services
      Cable & Wireless has worldwide coverage across 200 countries and is one of the worlds largest carriers of international voice and data. Carrier Services generates 45 per cent of UK revenue and operates in a highly competitive market that continues to suffer from over-capacity and declining margins, although these have been partially offset by increased volumes. Our innovative customer solutions have won notable contracts. We now enable the Post Office to provide
      a fixed phone line service, and won an international termination deal with Skype, the Voice over IP (VoIP)
      operator for which we now transport around 100 million minutes a year. This
      year we will expand our services to international customers by offering wholesale
      VoIP. By taking a Group-wide view of network assets, Carrier Services aims
      to improve utilisation of our international network.
    
    We continue to develop new services for mobile carriers and launched MMX, a platform to exchange pictures and multimedia messages developed with Vodafone. We operate one of the largest Global 3G roaming exchanges and support email roaming for a third of the worlds mobile networks. We also launched our Global Carrier multi-protocol label switching (MPLS) service, which can transmit any type of traffic in IP format, including time-sensitive and business-critical information and we have already signed up eight significant carriers. 
        Revenue declined following a fall in mobile termination rates, imposed on all carriers in the UK by Ofcom, but had no impact on profits. In Europe we downsized and refocused on the demands of a customer base of fewer, larger clients.BulldogThe acquisition in May 2004 of Bulldog, the broadband operator, was an important step in advancing our UK access strategy. Local loop unbundling (LLU) strengthens our presence in the valuable access network, while Bulldogs appeal to the residential and small/home office market (the so-called SoHos) broadens our UK customer base. This additional traffic increases use of the existing core network and can, in future, migrate very simply to our Next Generation Network. 
      Through LLU, Bulldog puts its own equipment inside BTs local exchanges to take control of the last mile copper link (the local loop) into the customers home or office. Access to this last mile improves our end-to-end control of the network resulting in lower outpayments to BT and, hence, higher gross margins. It also allows us to innovate, differentiate and control the end-to-end quality of our services to business and residential customers.LLU enables Cable & Wireless to redefine its position in the telecom industry away from the alternative network model. We have the capability, the core network, and the funding to exploit unbundling. LLU enables us to make the most of these advantages to differentiate our business from our competitors. 
      Our unbundling programme has made rapid progress. We reached our initial target of 400 exchanges in May 2005, seven months ahead of the original timetable. The Bulldog team, under its new Chief Executive, is now progressing with plans to extend its UK coverage and intends to unbundle an additional 200 exchanges by March 2006 and a further 200 exchanges in the first half of 2006/07 bringing the total number of exchanges unbundled to 800. This will increase planned investment and start-up losses in 2005/06.8
    2005 Annual ReportBack to Contents
ProfileBulldogs dual super-fast 4Mbps
        broadband and voice telephony offer attracted early customer enthusiasm in
        the residential and SoHo markets and we quickly followed this with the release
        of 8Mbps across all 400 exchanges. As the roll-out progresses we have supported
        it with a broader commercial marketing programme. With the largest non-incumbent
        telecom network in the UK, our new end-to-end infrastructure has offered
        customers a real choice of total fixed voice and broadband provider for the
        first time. 
      Bulldog has similar characteristics to a start-up in the early days of mobile; it is marketing led, innovative, and offers customers a fast, convenient, good value service. For clarity of management and transparency, we are therefore reporting the results of Bulldog separately in our segmental analysis. Next Generation Networks and Operations
      In all our markets, we are an infrastructure-based competitor. Control of
      our own network is a key source of competitive advantage through which we can
      provide high-quality, cost-effective innovative services. The creation last
      year of an integrated management structure for network systems and operations
      has enabled us to enhance quality of service, identify investment priorities,
      reduce hand-offs and target cost reductions. 
      We have carried out a review of our existing UK network, and launched a programme
      to address operating costs, interconnection costs and loading. The first phase
      of this programme will cut costs by £50 million in 2006 enabling us to
      mitigate, to some extent, the continuing effects of price pressure.
      The network review also demonstrated the significant benefits of moving to
      an IP-based Next Generation Network architecture, and the associated IT systems
      and processes. In April we announced investment of £190 million over three
      years to transform our core UK network into a single integrated IP platform,
      carrying voice, data and internet services. 
      This decision was driven by the shift in demand in all customer segments towards
      IP-based products, and the rapid advance in IP technologies. The development
      of new services will be supported by Bulldogs expanding broadband access
      network, which will feed traffic into the IP core. We expect our new IP architecture
      to be in place by the end of 2008. 
      A large proportion of the anticipated £190 million capital expenditure on our Next Generation Network will replace expenditure that would otherwise have been needed to maintain our legacy system, leaving a net increase in planned investment over the three years of £35
      million.
    
    Over the next three years UK voice and data traffic will continue to migrate to IP. Cable & Wireless has the scale to lead this transformation. Our infrastructure size, combined with the efficiency of putting all traffic onto a single IP-based core network, will deliver significant economies. Our Next Generation Network will offer customers greater functionality and customised solutions, at an attractive price. The benefit for Cable & Wireless will be lower operating and maintenance costs, and a more flexible network that can accommodate significant growth in traffic at a much lower capital cost, offering the potential to achieve a higher margin. Ofcom
      The regulatory framework is fundamental to our business and our investment decisions. The strategic review by Ofcom, the telecom and media regulator, provides an opportunity to create a more transparent and effective regulatory regime in areas where BT still controls access to customers. The promised level playing field must become a reality. Establishing the appropriate structure and processes to obtain equality of access to BTs local loop assets will enable the market to take the lead in setting prices for products and services where there is already competition.
      We are encouraged by Ofcoms emphasis on infrastructure-based competition. We are also pleased that the regulator has adopted the principle of equivalence as the tool to deliver parity in the market. Successfully implemented, this would require BT to offer regulated products to competitors at exactly the same price and quality of service as it does to BTs own businesses. There should be no discrimination between non-BT customers and BTs own operations when purchasing products such as wholesale broadband capacity and call origination. Our recent experience has shown considerable room for improvement in, for example, BTs co-operation over local loop unbundling.
    It is critical that equivalence is designed into BTs planned 21st Century Network so that new barriers to entry are not created by BTs migration to next generation systems. Fair infrastructure-based competition must be at the heart of the UK telecoms market if customers are to benefit from the variety of services that new technologies can offer and the UK is to recapture its pre-eminent position as a business location.2005 Annual Report
    9Back to Contents
Chief Executives review

National TelcosCable & Wireless is the market leader in integrated fixed, broadband and mobile services in 34 countries. Our National Telcos have delivered solid results in the context of an increasingly liberalised environment. As at 31 March 2005 88 per cent of our National Telco revenues were generated by companies operating in liberalised markets
      although not all of these are yet fully competitive. Revenues increased by
      10 per cent due to good performances in Panama and Rest of the World and the
      acquisition of Monaco Telecom. Mobile revenues grew by 26 per cent and data
      and IP revenues grew by 13 per cent year on year. (All revenue changes are
      expressed at constant currency.)Our new leadership team aims to take advantage of the National Telcos breadth
      of operations. We believe that this increased cross-business co-operation,
      and sharing of knowledge and expertise across our geographies, will continue
      to sharpen performance. Our National Telcos markets are at different stages of liberalisation.
      Each has its own customer profile but the competitive challenges they face
      are similar, and so must be the response:
   
    reducing the costs of legacy services, where margins are under pressure;
    investing further in the key growth services of broadband, IP and mobile; and
    developing sales and marketing skills to stay ahead of the competition.In broadband and IP we are leaders in most of our markets and are investing to meet growing demand. Many of the countries in which we operate still have relatively low take-up of broadband and IP services, and we are well positioned to offer services that assist customers in the transition. We have started to invest in IP backbones in countries where traffic volumes justify the expenditure, including in the Caribbean where hurricane damage has accelerated infrastructure replacement. Upgrades are underway in Monaco, Macau, the Cayman Islands and Grenada. 
        Across all the National Telcos, we have established tight financial discipline and control over investment. This has sharpened our focus on initiatives that produce results. We intend to expand broadband and mobile services and this strategy will determine our investment decisions.
The futureOver the last two years we have created a more focused and streamlined platform, better equipped to face the challenges and opportunities from the rapidly transforming telecommunications industry.
        Our markets will remain very challenging, but I believe that we can build on our early achievements. In the UK, our reorganisation will sharpen our customer focus and strengthen our competitive position. The investment in Bulldog and our Next Generation Network will further distinguish us from other UK operators. In our overseas businesses, we will strive to maintain profitable market leadership.Francesco Caio
        Chief Executive Officer
10
    2005 Annual ReportBack to Contents
ProfileBusiness overviewIntroduction

Cable & Wireless is a leading international telecommunications company with principal operations
in the United Kingdom, the Caribbean, Panama, Macau and Monaco. Cable & Wireless provides voice, data, internet protocol
(IP) and mobile services to business and residential customers as well
as to fixed and mobile telecommunications operators and content, application and
internet providers.
Business overviewCable & Wireless strategy is to exploit growing demand for broadband, IP and mobile services
in markets where it can achieve significant scale. As a result, Cable & Wireless
intends to be the number one or two operator in the principal markets in which it
operates. To continue to achieve this as the telecommunications industry faces unprecedented
changes in customer behaviour, technology and market structure, the Group must protect
margins by reducing costs whilst accelerating investment to position itself for profitable
growth in new services.
During the past two years,
    Cable & Wireless has pursued this strategy, exiting markets where it
did not have a relevant position, reshaping its operations, investing for growth
  and streamlining the central office.
Exit from US and JapanIn 2005, the Group
completed its exit from the United States and Japan, two markets where it did not
have sufficient scale to sustain a competitive position. To exit the US, the Group
agreed, at the request of the purchaser, to sell its business through a Chapter 11
process under the United States Bankruptcy Code. In Japan, the Group conducted a
competitive auction process culminating in the sale of the Groups Japanese
 subsidiary.
Reshaping the UK businessFollowing its review
in 2004 of the dynamics of the UK market, the Group restructured its United Kingdom
operations and in April 2005 announced a three-year plan to develop an IP-based Next
Generation Network. In addition, the Group acquired Bulldog Communications Ltd (Bulldog) in May 2004, a UK-based broadband
provider specialising in local loop unbundling (LLU). Through Bulldog and its investment
in a Next Generation Network, Cable & Wireless is in the process of redefining
its position in the UK telecom industry, moving away from the alternative network
model. To effect this move, the UK is now structured around the following key customer
segments:

    the Enterprise
        segment comprising businesses and institutions with the biggest telecoms
        spend in the UK. Cable & Wireless objective in Enterprise is to
        be the partner of choice in transitioning customers to new generation, IP-based
      technologies;
    the Business
        segment, comprising small and medium-sized companies. Cable & Wireless
        aims to be a credible, strong supplier to small and medium-sized customers
      through targeted sales of bundled products, including IP services;

      the
          Carrier Services segment comprising large telecoms companies that provide
          long distance international voice services; mobile operators buying international
          voice and transport services; and operators, including resellers and ISPs.
          Cable & Wireless objective in Carrier Services is to leverage
          the depth of its intercontinental network and advanced services to position
          the Group as the backbone of choice for mobile and other operators. In
          November 2004, management commenced a restructuring of its European operations
      to focus principally on Carrier Services;
      the
          SoHo/consumer segment which Cable & Wireless addresses through Bulldog.
      Bulldog provides high speed data and voice services in the UK via LLU.The Groups remaining
      operations in the United States, Europe and Asia provide international services
  to UK-based Enterprise and Carrier Services customers.
Relocation of Group Head OfficeConsistent with the
steps taken to reshape and re-focus Cable & Wireless, the Group has relocated
its head office from central London. This move has combined corporate and UK functions
and has resulted in a shift towards a more customer oriented, responsive culture.
National TelcosAlmost all the 34 national
markets in which the National Telcos operate are now fully or partially liberalised
and present very similar competitive challenges. For this reason Cable & Wireless strategy
across the National Telcos is based on three principles: invest in key growth services
of broadband, IP and mobile; lower costs on legacy services where margins are under
pressure and develop sales and marketing skills.
In line with these principles,
    Cable & Wireless acquired Monaco Telecom in June 2004. Monaco Telecom
is a fully integrated telecommunications company.
In addition, the Group completed the roll out of its GSM network across the National Telcos, improving
coverage and services to residential and business customers across 22 businesses. The Group also
launched proactive marketing initiatives to increase broadband penetration across the National Telcos.
Going forward, the Group aims
    to take advantage of the National Telcos breadth of operations,
increasing cross-business cooperation and sharing knowledge and expertise across
  the National Telcos geographies to continue to improve performance.
2005 Annual Report
    11Back to Contents
Business overviewGeographic operations

Cable & Wireless
  Group
Cable & Wireless
    2005 Turnover by geography
(Continuing operations)Total turnover: £3,023 million

1.  United Kingdom 
        2.  Caribbean
        3.  Panama
        4.  Macau
        5.  Monaco
        6.  Rest of the WorldCable & Wireless has principal operations in the United Kingdom, the Caribbean, Panama, Macau and
Monaco. The Groups operations are managed and reported on a country-based structure.
The Caribbean, Panama, Macau, Monaco and Rest of the World are collectively referred to as the National
Telcos. For a discussion of Cable & Wireless turnover by geographic operation for the past
three years, see Operating and financial review  Group turnover.
United Kingdom
United Kingdom 2005 Turnover by customer segmentTotal turnover: £1,602 million

1.  Enterprise 
2.  Business 
3.  Carrier servicesCable & Wireless is the largest fixed voice telecommunications service provider in the United Kingdom
after BT, the incumbent telecom operator.
The UK operation is structured around three key customer segments known as Enterprise, Business and Carrier Services. Additionally, the SoHo/Consumer customer
segment is served through Bulldog. The UK sells voice and data services over fixed line networks using legacy and IP platforms.
The UK uses the United States (CWAO), Europe and Asia to provide services to UK-based Enterprise
and Carrier Services customers with international service requirements. For this reason, the United
States, Europe and Asia operations are managed from the UK and organised around the three relevant
customer segments. This section discusses the customer segments in the UK and
provides an outline of the operations that
support the UK, the United States, Europe and Asia. For a discussion on Bulldog and
  on the United States, Europe and Asia see page 13.
UK Enterprise (2005 Turnover: £475
      million)Cable & Wireless defines Enterprise customers as large national and international
organisations where significant customisation of their telecommunications services
is required. Enterprise customers purchase voice and data telecommunications services.
Enterprise customers typically
    buy telecommunications services from a variety of suppliers, although many have
    a longer-term relationship with a primary supplier. Enterprise customers often
    require interconnection between multiple sites, so deep network reach is important.
    As a result, Cable & Wireless generally competes against other operators
  with large networks. Price pressure continues to be significant in this market.
Cable & Wireless objective
    in the Enterprise market is to become the partner of choice for companies as
    they transition from voice and data services delivered over legacy platforms
    to new voice, data and integrated services delivered over IP-based platforms.
    Currently, fixed voice represents 54 per cent of total turnover for Enterprise
  customers in the UK.
Cable & Wireless addresses
    the needs of its UK-based Enterprise customers for international services through
  its presence in the United States, Europe and Asia.
UK Business (2005 Turnover: £394
      million)Cable & Wireless defines business customers as mid-sized companies who purchase voice and data
services over legacy and IP-based platforms through direct or indirect sales channels. Often, Business customers are regional entities with one or a small number of sites. Cable & Wireless
aims to serve these customers through standardised service offerings. This market
attracts competition from operators with both large and relatively small networks.
Currently, fixed voice represents 39 per cent of total turnover for Business customers in the UK. Customers in the Business market are more easily able to switch providers,
resulting in significant price pressure and high levels of churn across all services delivered over
legacy platforms, particularly fixed voice services. The key area of growth in this market is voice,
data and integrated services delivered over IP-based platforms. These platforms allow customers to
access enhanced features such as voice, video and data provided through a single cost-effective platform.
UK Carrier Services (2005
      Turnover: £733 million)Cable & Wireless defines Carrier Services customers as large national and
international telecommunications operators or resellers who purchase wholesale services
mainly focusing on voice and data services delivered over legacy platforms.
12
    2005 Annual ReportBack to ContentsProfileCarrier Services provide fixed voice and data services to the following types of customers:

    large international telecommunications operators, who buy fixed long distance and international fixed voice services;
    national
        mobile operators, who buy both international voice and data transport/backbone
        services to allow them to connect their radio networks via the fixed infrastructure.
        To serve mobile operators in their migration to new 3G networks,
      we have launched services that support international data roaming;
    regional and domestic telecommunications operators to whom we sell fixed voice and data services;
    virtual
          telecommunications operators and resellers, who purchase voice services
          using Carrier Pre-Select (CPS). CPS allows consumer calls to be automatically connected from the incumbent operator network to the network of a competing operator. Virtual operators purchase CPS services from Cable & Wireless
      and re-sell them under their own brands to residential customers; and
    Internet
        Service Providers (ISP), who buy data and internet transport
      services.Currently, fixed voice represents 91 per cent of total UK Carrier Services turnover. The Carrier Services
market is highly competitive and price sensitive. As a result, significant price declines have been
seen in all key service areas.
Driven by the requirements
    of its Carrier Services customers, Cable & Wireless leverages its presence
    in the United States, Europe and Asia as well as the National Telcos to provide
  voice and data services internationally.
SoHo/Consumer (Bulldog)2005 Total turnover: £11
million
In May 2004 Cable & Wireless acquired 100 per cent of Bulldog in order to capture the growth opportunity in broadband, leverage the Cable & Wireless backbone
network and expand the Groups IP network.
Bulldog provides IP services by way of broadband internet access to SoHo and residential customers.
Bulldog uses full LLU to connect directly to customers, providing voice telephony and high speed
internet access services independent of the incumbent operator.
Full LLU refers to the process
    by which providers, such as Bulldog install their own Digital Subscriber Line
    (DSL) equipment in rented space within an incumbent operators
    local exchanges. DSL technology allows Bulldog to deliver broadband capabilities
  to customers over ordinary copper telephone lines.
The ability to deliver IP services using its own network provides Bulldog with technological advantages
over competitors reselling the incumbents products. This allows Bulldog to differentiate its service offerings, maintain
full bandwidth control and own the customer from end-to-end.
In September 2004, Cable & Wireless announced the initial LLU plan for Bulldog including the target
to unbundle 400 exchanges by December 2005. Bulldog had completed LLU on 252 exchanges as at 31 March
2005 and completed LLU on 400 exchanges in May 2005.
Cable & Wireless believes LLU is more than an opportunity to offer fast internet access. LLU can
also provide a cost effective platform from which Cable & Wireless can launch a wide range of
new and existing telecom services from voice to video.
United States (CWAO)2005 Total turnover: £16 million
Cable & Wireless operates in the United States through its subsidiary Cable & Wireless Americas
Operations, Inc. (CWAO).
CWAO operates a small, efficient and predominantly international network. The business provides US
connectivity for data and IP services to Enterprise customers principally those based in the UK.
Europe2005 Total turnover: £186 million
Cable & Wireless operations in continental Europe are in Germany, France, Spain and Italy,
together with smaller operations in Russia, Belgium, The Netherlands, Switzerland and Sweden.
The continental European operations are focused on Carrier Services, and also support UK Enterprise
customers. Carrier Services represents over 80 per cent of turnover in continental Europe. The main
Carrier Services customers are mobile operators and other telecommunications operators.
Asia2005 Total turnover: £39 million
Cable & Wireless operations in Asia span Australia, China, Hong Kong, India, Japan and Singapore
and focus on Carrier Services and Enterprise segments. The Groups network of 33 nodes in 13 countries provides a footprint across the entire region.
Following the disposal of the Groups domestic business in Japan in February 2005, the Asia operations
have been focused on serving Enterprise customers that require IP and managed data services to and from Asia (principally those based in the UK) and Carrier Services customers in Asia that require
voice, IP and data services to the rest of the world.
2005 Annual Report
    13Back to Contents
Business overviewGeographic operations

National Telcos
National Telcos 2005 Turnover by serviceTotal turnover: £1,191 million
1.  International Voice 
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherIn the National Telcos, Cable & Wireless
    typically operates the domestic fixed line telecom network and associated international
    interconnect facilities. Its fixed and mobile voice, data and IP services meet
    the needs of corporate and residential customers, including the fast-growing
  demand for internet access through dial-up IP and broadband ADSL connections.
Almost all the 34 markets in
    which Cable & Wireless operates are fully or partially liberalised. The principal exception is Monaco Telecom which has an exclusive
concession to operate international, domestic, data and mobile services until 2023. As competition
has intensified across the National Telcos, Cable & Wireless has transformed
its organisation, taking on its new competition by investing in innovation, such
as GSM networks, managing and reducing costs, and marketing proactively.
Caribbean
Caribbean 2005 Turnover by serviceTotal turnover: £550 million
1.  International Voice 
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherOverview
Cable & Wireless operates in 16 Caribbean countries providing domestic and international voice,
data and IP services to residential and business customers. The Caribbeans
principal businesses are subsidiary operations in Jamaica, Barbados, and the Cayman
Islands and an equity holding in Trinidad and Tobago.
In nearly all the Caribbean
    countries in which it operates, Cable & Wireless is the incumbent operator,
    providing domestic and international fixed and mobile voice and data services
  and IP
services. Liberalisation is at an
  advanced stage across the Caribbean with nearly all markets either fully liberalised or in transition
  to competitive markets. Further discussion on liberalisation is in Regulatory framework.
In response to growing competition and to customer demand, Cable & Wireless is increasingly focused
on developing and enhancing its mobile and IP service offerings, whilst retaining its position in
fixed voice services.
In order to develop and enhance mobile services in the Caribbean, Cable & Wireless continued its
expansion of GSM mobile services to reach all 13 of the countries in which Cable & Wireless holds
mobile licences. Cable & Wireless continues to enhance network coverage, capacity and roaming
capabilities, enabling the launch of new products and services, including mobile email, prepaid
pan-Caribbean roaming and mobile messaging services (MMS).
At 31 March 2005, there were over 900 GSM equipped sites in the Caribbean with land mass coverage on most islands between
  65 per cent and 99 per cent. During the year, Cable & Wireless total mobile subscribers in these
countries increased from 1,141,000 to 1,367,000.
During 2005, Cable & Wireless expanded its broadband capabilities across the Caribbean. Sales and
marketing activities have been focused on the rebranding of broadband services. Investment has been
focused on increasing the number of fixed lines enabled to deliver broadband service, average prices
have been reduced and line speeds increased. DSL customers at 31 March 2005 were approximately 38,000, an increase of
over 125 per cent from 31 March 2004.
In the Caribbean countries where Cable & Wireless provides domestic voice services, customers at
31 March 2005 totalled 735,000, an overall decrease of approximately 12 per cent in the year. This reduction is a result of customers substituting mobile services for fixed line services.
Jamaica 
Cable & Wireless Jamaica Limited (Cable & Wireless Jamaica), a subsidiary of Cable
& Wireless, is the incumbent operator and is the largest of Cable & Wireless Caribbean
operations (by turnover) generating 37 per cent of the Caribbeans turnover in 2005. Cable & Wireless Jamaica is the largest telecommunications company in Jamaica.
Cable & Wireless Jamaica provides domestic and international fixed and mobile voice and data services
and IP services to residential and business customers.
The Jamaican market has been liberalising since March 2000. In addition to Cable & Wireless Jamaica, there are currently two active competitors in the mobile
sector, 10 active ISPs (out of a total of 76 licensed parties), 32 licensed data service providers
and two competitors in the domestic voice sector. The international carrier
14
    2005 Annual ReportBack to Contents
Profilemarket has been liberalised since March 2003 and now comprises 68 licensed carriers, of which
six are active and interconnect with Cable & Wireless Jamaica. Nine ISPs offer internet services
to end customers over Cable & Wireless network.
Barbados
Cable & Wireless (Barbados) Limited (Cable & Wireless Barbados), a subsidiary of
Cable & Wireless, is the incumbent operator and provides domestic and international fixed and
mobile voice and data services and IP services to residential and business customers. Cable &
Wireless Barbados generated 18 per cent of the Caribbeans turnover in 2005. Cable & Wireless
Barbados is the largest telecommunications company in Barbados.
The Barbados domestic fixed and mobile voice markets have been liberalising since August 2003, while liberalisation in the data and IP market has been longstanding. The domestic voice telecommunications market is now fully
liberalised with three licensed operators, none of which were active at 31 March 2005. International
services were liberalised in February 2005 with two licences issued and both operators active in
the market using their own international facilities. Three mobile licences have been issued to competitors
in Barbados and two are currently active in the market. Seven ISPs offer internet services to end
customers over Cable & Wireless network.
Cayman Islands
Cable and Wireless (Cayman Islands) Limited (Cable & Wireless Cayman Islands), a wholly
owned subsidiary of Cable & Wireless, is the incumbent operator and provides domestic and international fixed and mobile voice and data services
and IP services to residential and business customers in the Cayman Islands. Cable & Wireless
Cayman Islands generated 11 per cent of the Caribbeans turnover in 2005. Cable & Wireless
Cayman Islands is the largest telecommunications company in the Cayman Islands.
The Cayman Islands market was fully liberalised in early 2004. At 31 March 2005, 18 new entrants have been licensed in various telecommunications, broadcasting and
other communication market sectors. Most licensees have multiple licences. In addition to Cable & Wireless Cayman Islands, there are currently two active competitors in the mobile sector
(out of the six licensed); two active ISPs; three active fixed-wireless providers; and one active
reseller of telephony services.
Trinidad and Tobago
Telecommunications Services of Trinidad and Tobago Limited (TSTT), a 49 per cent equity
investment of Cable & Wireless, is the incumbent operator and provides domestic and international
fixed and mobile voice and data services and IP services to residential and business customers. TSTT
is the largest telecommunications company in Trinidad and Tobago.
The process of liberalisation is under way in the Trinidad and Tobago market although no additional
licences have been issued. TSTT and Cable & Wireless are in negotiations with the government
of
Trinidad and Tobago to ensure an orderly liberalisation.
Panama
Panama 2005 Turnover by serviceTotal turnover: £257
million
1.  International Voice 
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherCable & Wireless Panama S.A. (Cable & Wireless Panama), a subsidiary of Cable &
Wireless, is the incumbent operator and provides domestic and international voice, data and IP services
to residential and business customers in Panama. Cable & Wireless Panama is the
largest telecommunications company in Panama.
The telecoms market in Panama
    has been liberalising since 2003. International and domestic fixed line services
    are now fully liberalised, whilst Cable & Wireless Panama operates in a duopoly
    in the mobile market (with Telefonica) until 2008. Competition in fixed line
    voice services is concentrated in international and long distance services with
    56 and 32 operators licensed in each segment, respectively. IP services have
  been liberalised for many years with 84 licensees.
In light of the increased competition
    and in line with customer demand Cable & Wireless Panama
continues to focus on the development of its mobile and IP capabilities as well as
    maintaining high standards in customer service and retaining its market leading
  position in fixed line services.
In the year to March 2005,
    Cable & Wireless Panama continued its investment in GSM services to
enable an expansion of capacity in order to meet the increase in demand for its services.
    Total mobile customers increased to 634,000 at 31 March 2005, an increase of
  25 per cent over the prior year.
Cable & Wireless Panama
    has also invested in DSL services in the year. This investment has enabled the
    launch of a range of bundled IP solutions for business as well as an increase
    in access for residential customers. At the 31 March 2005, DSL customer numbers
  were 38,000 an increase of over 123 per cent in the year.
During the year to March 2005,
    Cable & Wireless Panama has continued to focus on retaining its
market leading position in fixed line. Activities have focused on customer service
    improvement and customer retention. Fixed line customers in Panama have increased
  from 360,000 at 31 March 2004 to 383,000 at 31 March 2005.
2005 Annual Report
    15Back to Contents
Business overviewGeographic operations

Macau
Macau 2005 Turnover by serviceTotal turnover: £117
million
1.  International Voice
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherCompanhia de Telecomunicações de Macau S.A.R.L. (CTM), a subsidiary of Cable
& Wireless, is the incumbent operator in Macau offering international and domestic
fixed and mobile voice and data and IP services to business and residential customers.
In addition, CTM provides an international transit service through its nodes in Hong
Kong and Singapore serving national and international carriers. CTM is the largest
telecommunications company in Macau.
CTM is the exclusive provider of domestic fixed voice services in Macau, with the licence expiring
in 2011. The remaining market segments are fully liberalised with active competition in most sectors
from local and international operators.
In the mobile market Macau has issued two further licences for GSM technology and one other licence
for CDMA technology.
The internet market was liberalised in October 2000. CTM is the leading provider with only one competitor
in the dial-up internet access market, at present there is no active competition in the broadband
DSL access market.
In response to changes in the competitive environment and customer demand, CTM continues to focus on
enhancing its fixed line voice and data services whilst further developing capabilities in mobile
and IP services.
The Macau government is considering
    the issue of a Third Generation Wireless (3G) licence.
Licensing procedures for 3G are expected to be announced in the fourth quarter of
  calendar 2005.
Monaco Telecom
Monaco Telecom 2005 Turnover by serviceTotal turnover £100 million (9.5 months)
1.  International Voice
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherMonaco Telecom S.A.M. (Monaco Telecom), a subsidiary of Cable & Wireless,
    was acquired on 18 June 2004. Monaco Telecom was created in 1997 following the
    privatisation of the incumbent operator. Monaco Telecom provides fixed and mobile
    voice and data services as well as IP services. It holds an exclusive licence
    to provide domestic and international fixed and mobile voice services, internet
  access and cable services in Monaco until 2023.
The focus within Monaco is on the quality of service while maintaining pricing parity with neighbouring
countries. Outside Monaco, it is developing its international activities in network management and
satellite services.
The primary growth opportunities within Monaco are focused on mobile and DSL. Since acquisition, mobile
subscribers have increased 21 per cent to 35,000. During the same period, the DSL lines have increased
17 per cent to 7,500.
Monaco Telecom is also focused on maintaining its fixed turnover contribution from fixed to mobile
substitution by creating value added services, customer service improvements, and high value product
bundles. In addition, Monaco Telecom intends to leverage its wide portfolio of telecommunication services in the Principality by offering convergent communication
services and billing.
Outside the Principality, Monaco Telecom has provided network services to a mobile network in Kosovo
under a management contract since 2000. At the beginning of 2003, Monaco Telecom was awarded the second GSM licence in Afghanistan as the strategic partner in a consortium 51 per cent
owned by the Aga Khan Fund for Economic Development. These contracts are included in Other turnover
for financial reporting purposes.
16
    2005 Annual ReportBack to Contents
ProfileRest of the World
Rest of the World 2005 Turnover by serviceTotal turnover: £167 million
1.  International Voice
  2.  Domestic Voice
  3.  Data
  4.  IP
  5.  Mobile
  6.  OtherOverview
Rest of the World comprises Cable & Wireless subsidiary operations in Guernsey and the Maldives
together with smaller operations in the Seychelles, Bermuda, Sakhalin in Russia, Diego Garcia, Falkland
Islands, Fiji, Ascension, St Helena, Vanuatu, Solomon Islands, Jersey and the Isle of Man. Cable
& Wireless also has an associate holding in Bahrain. Guernsey and the Maldives
account for 60 per cent of the Rest of the World turnover.
In the geographies where Cable & Wireless
    operates, it is typically the incumbent operator, providing domestic and international
    fixed and mobile voice and data services as well as IP services. The status of
    liberalisation across the Rest of the World is varied. Most businesses however
    are currently in transition to liberalised markets. Further details on the liberalisation
    status of the Rest of the World can be found in the regulatory section on page
  22.
Guernsey
Cable & Wireless operates in Guernsey through its wholly owned subsidiary Cable and Wireless Guernsey
Ltd (Cable & Wireless Guernsey). Cable & Wireless Guernsey is
the incumbent operator in Guernsey providing domestic and international fixed and
mobile voice and data services and IP services to all residential, business and government
customers.
The States of Guernsey liberalised the market in 2002. 
  At 31 March 2005, in addition to Cable & Wireless Guernsey, there were two
  competitors for domestic and international voice and one competitor for mobile.
Maldives
Cable & Wireless operates in the Maldives through its subsidiary Dhivehi Raajjeyge Gulhun Private
Limited (Dhiraagu). Dhiraagu is the incumbent operator and provides domestic
and international voice and mobile services and IP services to residential and business
customers.
The Maldives began liberalisation in 2002. At 31 March 2005, in addition to Dhiraagu, there was one
competitor in the IP market and one licence issued in the mobile market with competition expected
to begin in the next fiscal year.
Bahrain
  Cable & Wireless operates in Bahrain through its associate Bahrain Telecommunications Company B.S.C. (Batelco).
  Batelco provides domestic and international fixed and mobile voice and data and
  IP services to residential and business customers.
In Bahrain, competition in domestic mobile, in the form of MTC Vodafone, was introduced in 2003. Internet services were liberalised on a similar timeframe. In the summer of 2004 the market for international services and facilities was liberalised. In the second half of 2004 a licence to provide national fixed line services was put up for sale but as yet no additional licences have been awarded, resulting in Batelco currently being the only licence holder for the provision of domestic fixed line services and IP.
2005 Annual Report
    17Back to Contents
Business overviewServices


Cable & Wireless 2005 Turnover by service(Continuing operations)Total turnover: £3,023 million
  1.  Voice
      2.  Data
      3.  IP
      4.  Mobile
      5.  OtherCable & Wireless provides voice, data, and IP services to business and residential customers across
the world. The Group delivers these services over fixed line and mobile networks. The majority of
services are delivered over traditional legacy platforms, with a small but growing proportion being
delivered over IP-based platforms.
The term legacy platform generally refers to the existing communications and transmission infrastructure
that underpins most telecom operator networks across the world that were deployed up until the late
1990s. Each family of service delivered over legacy technology generally requires a proprietary
platform to deliver service, resulting in multiple overlapping telecommunication networks.
The term internet protocol (IP) generally refers to a set of protocols or rules that govern
how interconnected devices communicate. IP-based devices share data in packets, or discrete
bundles of data. IP networks allow the delivery of voice, video and data over the same network, allowing
simplification of network design and operation, and supporting the delivery of new integrated services.
Historically, in many operations, Cable & Wireless was the incumbent operator, focusing on voice
and data services over fixed lines on legacy platforms. Today, most markets in which Cable & Wireless operates have liberalised. New voice and data services delivered over mobile and
IP networks are growing and over time, replacing services on our fixed line networks.
New IP-based platforms allow Cable & Wireless to deliver new types of integrated service that blur
the old boundaries between voice and data/fixed and mobile and deliver seamless integrated communications
to end users.
Voice servicesFixed voiceCable & Wireless offers domestic and international voice services to residential, corporate and
other telecommunication companies and service providers. In the UK, Cable & Wireless also provides
services to non-telecommunication companies who provide residential telephony, but do not have their
own network infrastructure.
The majority of fixed voice turnover is delivered over legacy platforms, using traditional copper telephone
lines and switch networks.
Cable & Wireless also offers IP-based voice services, such as voice over IP (VoIP). These services can provide enhanced end user functionality (for example,
providing better integration between customers own voice and data networks) at reduced cost.
Mobile voiceCable & Wireless offers domestic and international mobile voice services to residential and business
customers outside the United Kingdom. Cable & Wireless delivers voice services to mobile handsets
through wireless technologies such as GSM.
Global system for mobile communications (GSM) is a standard for digital mobile telephone transmissions that allows global roaming and enhanced features for data
transmission as compared with time division multiple access (TDMA) networks. Because of the increased turnover potential
associated with GSM technologies, Cable & Wireless has been expanding its GSM networks throughout
the National Telcos in recent years.
Data services
Fixed dataCable & Wireless offers data services to businesses that operate over fixed-line networks using
legacy platforms, including leased line services, and networking services based on Frame Relay and asynchronous transfer mode (ATM)
technology.
Leased line services predominantly utilise a technology known as synchronous digital hierarchy (SDH) to deliver data from point-to-point.
Frame Relay and ATM services provide an additional layer of intelligence and functionality beyond leased lines, allowing customers to build and manage complex
networks across multiple locations and to prioritise traffic flows through their network.
Cable & Wireless also offers next generation data services, such as IP virtual private
networks (IP-VPN) and internet services that are delivered over IP-based networks.
IP-VPN allows customers to replace traditional private data networks with virtual private networks
(VPN) which can reduce the expense and complexity of private networks, while providing enhanced services such as the bundling
of voice, video and data.
18
    2005 Annual ReportBack to Contents
ProfileMobile dataCable & Wireless
offers a range of data services for its mobile customers utilising SMS and MMS based
technologies.
IP ServicesCable & Wireless provides customised services to many of its large corporate
customers. Typically, these involve the development of integrated voice, data transmission
and/or data storage solutions that are uniquely configured for individual customers.
Increasingly, these service solutions are offered using IP-based platforms and technologies and include
voice services such as VoIP and data services such as IP-VPN.
IP access solutions provide
    security services (such as managed firewalls), intrusion detection, scanning
    and analysis (such as email virus protection), and authentication and encryption
  services to control access into customers networks.
IP contact centres enable our customers to manage all contact with their customers including incoming
and outbound calls, emails or web contact requests.
Bulldog and the National Telcos provide broadband services that include voice and internet access as
well as dial-up narrowband internet access, that allow business and residential customers to access
the internet from their business or home.
2005 Annual Report
    19Back to Contents
Business overviewRegulatory framework


Cable & Wireless, like other international telecommunication providers around the world, faces
various regulatory and market access constraints in various countries resulting from laws, public
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 move towards liberalisation. Generally, specialist telecommunications regulation is administered through enforcement of conditions contained in authorisations or
in operating and service licences held by the Group and its subsidiaries.
Most of the markets in which
    Cable & Wireless operates are fully liberalised although some are
in transition to competitive markets, and a few small geographies are expected to remain monopolies
for the foreseeable future. Where countries have moved to competitive environments, Cable & Wireless
has actively engaged with governments in order to facilitate an orderly transition
to a fully competitive environment. The discussions involve negotiating fair regulatory
arrangements that provide for equal treatment during
the transitional period and beyond.
In all jurisdictions where
    it operates, Cable & Wireless is required to comply with regulations that
    affect its business. The Group believes it complies in all material respects
    with all material regulatory obligations and where regulatory compliance issues
  emerge it takes action to ensure compliance.
LicensingCable & Wireless provides international and domestic telecommunications services under general
authorisation regimes or 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 10 to 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 or profits arising from the licence.
In 2003 the European Union
    established a harmonised framework for licensing laid out under the electronic
    communications directives. This has been transposed into national law by most
    of the member states. As a result these member states will no longer issue individual
    telecommunications licences to companies except in exceptional circumstances
    such as the allocation of spectrum. Therefore, for Cable & Wireless, most
    of the telecommunications licences it holds in EU member states, including those
    in the UK, have been revoked and replaced by the relevant general authorisations
  under the new
regulatory  regime. Cable & Wireless will continue to offer telecommunications services subject to obligations
  set forth in general conditions as dictated by the relevant electronic communications directive and individual
  member states.
Outside the European Union, Cable & Wireless operates in Guernsey, the Isle of Man, Monaco, Norway,
Russia and Switzerland with relevant licences and authorisations.
Some licences provide that, upon their termination, the relevant government may purchase, or have the
option to purchase, the property, plant and equipment of the licensee in that territory at a fair market value. In some cases, where the Group owns an operating company jointly with government,
that government has the right to purchase, at specified times, the whole or part of the Groups
shareholding in the operating company.
The international trend is for telecommunications liberalisation and the replacement of exclusive licences
with non-exclusive licences alongside rules governing competition between operators. Jurisdictions
that currently support monopoly provision may also decide to promote competition, and Cable & Wireless anticipates that some existing exclusive licences will not be renewed on an exclusive basis,
or that governments will seek to withdraw their exclusivity before the licence expires, replacing
the current operating licence with a non-exclusive licence.
The Group is committed to participating in discussions on the introduction of competition in any territory
where its 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 jurisdictionThe regulatory institutions and policies of the jurisdictions in which the Group operates are varied.
EuropeThe regulatory framework in member states of the European Union is harmonised by EU directives, though there are divergences in regulatory policy and practice
between member states. Many member states have implemented, or are implementing, the directives of
the European Union 2003 electronic communications package. This package seeks to harmonise telecommunications
across the European Union, and involves 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. This speed
of adoption of the electronic communications package varies significantly across the EU and this
can affect the ability of the non-incumbents to compete.
20
    2005 Annual ReportBack to Contents
ProfileUnited KingdomThe telecommunications market in the United Kingdom is
governed by the EU communications package (described above) which has been transposed
into national law by the Communications Act 2003 (UK Comms Act). The UK Comms Act sets the framework for the regulation of telecommunications
and broadcasting markets as well as the civilian use of spectrum in the United Kingdom. Insofar as it applies to telecommunications markets, it updates the Telecommunications Act 1984 and transposes the EU electronic communications directives into UK law. It also lays out the powers and duties of the industry regulator, the Office of Communications (Ofcom).
Following reviews by Ofcom,
    BT has been designated as having Significant Market Power in a number of markets.
    BT is therefore required to provide cost-based interconnection for switched voice
    services and leased line access circuits (Partial Private Circuits) to providers
    of public electronic communications networks such as Cable & Wireless on
    non-discriminatory terms. Such services are subject to network charge controls.
    The network charge controls applying to BT are in the process of being reviewed.
    It is not yet clear what form the new controls will take given that over the
    likely four-year period of the next cap BT will be migrating from legacy to next
  generation networks.
Following the review of wholesale
    International Direct Dial (IDD) markets, Cable &
Wireless has a designation of Significant Market Power on wholesale IDD routes from the United Kingdom
to four destinations: Ascension, Diego Garcia, Montserrat and Turks & Caicos.
The obligations associated with this designation are minimal.
In addition, in common with
    all other providers of fixed public voice networks in the United Kingdom, Cable & Wireless has been designated as having Significant Market Power (SMP)
    in the markets for geographic call termination on the UK network. As this designation
    has been applied to all operators, obligations are likely to be minimal and the
  Group expects that there will be little or no impact.
In early 2004, Ofcom undertook
    a Strategic Review of the UK Telecommunications market. This review is nearly
    complete, with Ofcom now consulting on its decision to accept BTs voluntary
    undertakings in lieu of a reference to the Competition Commission pursuant to
  Section 154 of the Enterprise Act 2002.
BTs undertakings offer to provide a number of existing regulated products on an Equivalence of
Inputs (EoI) basis. This means that BTs own business and other communications providers
(such as Cable & Wireless) would be supplied with the same product, at the same
price, using the same operational processes and systems. Where products are provided
on an EoI basis, other communications providers would be in a position to compete
more effectively with BT than today. The timetable for implementation of the Strategic
Review recommendations is scheduled to continue to 2010.
BT has committed to provide products delivered over its Next Generation Network that are in markets
where BT has been designated with SMP on an EoI basis. This is subject to some restrictions where
provision of those products on an EoI basis would not be reasonably practical.
In addition, BT has committed to set up an Access Services Division under separate management, which
would control and operate the local access network separately from other network assets.
BTs undertakings, if
    accepted by Ofcom, would become legally binding, with breaches enforced through
  the High Court.
In those markets where BT has been designated with SMP and is subject to regulatory obligations, the
designation and obligations will continue to remain in force subject to the standard process for
removal of such obligations.
The CaribbeanCable & Wireless has businesses in 16 countries in the Caribbean. Whilst in the past Cable &
Wireless was exclusively licensed in the majority of these territories, nearly all are now either
fully liberalised or are in transition to competitive markets. Cable & Wireless
is engaged in ongoing dialogues with host governments and regulators to ensure that
the regulatory environment is fair and consistent.
The regulatory frameworks in
    which the most significant Cable & Wireless Caribbean businesses operate
  are described in this section.
Cable & Wireless Jamaica
    operates in a fully liberalised market, regulated by the Office of Utilities
  Regulation.
Cable & Wireless Barbados
    is now operating in a fully liberalised market since the issuance of international
    licences to competitors in February 2005. The regulatory authority for fixed
    telecommunications in Barbados is the Fair Trading Commission. The Ministry of
  Industry and International Business regulates mobile telecommunications.
Cable & Wireless Cayman Islands operates in a fully liberalised market. Cable & Wireless Cayman
Islands is subject to the regulation of the Information and Communications Technology Authority. Five member states of the Organisation of Eastern Caribbean States (Dominica, Grenada, St Kitts and Nevis, St Lucia, St Vincent and the Grenadines) are contracted
in a single jurisdiction for telecommunications regulation with a regional regulator, the Eastern
Caribbean Telecoms Authority (ECTEL), and are also subject to the jurisdiction
of national regulators, the National Telecoms Regulatory Committees. Telecommunications
markets in the ECTEL states are fully liberalised.
JapanFollowing the sale of Cable & Wireless IDC Inc., Cable & Wireless UK applied for its own telecommunications
registration with the Japanese Ministry of Internal Affairs and Communications. Cable & Wireless
UK (Japan branch) was registered in September 2004 and
2005 Annual Report
    21Back to Contents
Business overviewRegulatory framework


is authorised to provide certain telecommunications services in Japan including international and domestic data services, IP access and leased circuits.
The separation of telecommunication business licences between Type I (facilities) and Type II (services)
was abolished in 2004. Telecommunication licences now are classified as notified or registered telecommunication licences.
United StatesCable & Wireless Americas Operations, Inc. provides international communications services to customers
who require service to, from or through the United States. Under US law, the Federal Communications Commission (FCC)
regulate interstate and international telecommunications services while state commissions regulate
intrastate services. Non-dominant service providers such as CWAO are subject to a lesser degree of
regulation than designated dominant service providers. CWAO also provides information services, which
generally are not regulated in the United States.
The regulated telecommunications services provided by CWAO may be classified as either common carrier
or private carrier services depending upon the nature of the service offering. As a general matter,
US law requires that common carrier services be offered (a) upon reasonable request, (b) on rates,
terms and classifications which are just and reasonable, (c) without unjust discrimination or undue
preferences basis, and (d) pursuant to authorisation of the FCC. Private carriers generally are not
subject to these requirements, but are required to make contributions to the federal universal service
fund based on international and interstate telecommunications revenues, in the same manner as common
carriers. Intrastate telecommunications services are subject to regulation by the relevant
state public utility commission and may be subject to licensing requirements, tariffs, and/or subsidy mechanisms.
Other marketsCable & Wireless Panama operates in a partially liberalised market. The regulator is Ente Regulador
De Los Servicios Publicos. Cable & Wireless Panama is a full service provider across fixed line and mobile markets for business
and residential customers. There has been increasing regulatory activity on the broadband front in
2005 with wholesale broadband services already being available and plans in place to introduce local loop unbundling. In the area of mobile the regulator has recently
sought to introduce indirect access over mobile.
CTM has an exclusive concession agreement to provide fixed national and international services until
2011, however, a review will be undertaken in 2006 to determine the way forward in 2011. Mobile and IP services were liberalised
in 2001. CTM is subject to the regulation of the Office for the Development of Telecommunications and Information Technology.
Cable & Wireless acquired Monaco Telecom in June 2004 with exclusive rights to provide fixed line,
mobile, IP and cable services in Monaco. Monaco Telecom is regulated by the Direction de Telecommunications de Monaco, which is within
the Ministry of State of the Principality of Monaco.
Batelco, a Cable & Wireless associate company in which Cable & Wireless has a holding of 20 per cent, operates in Bahrain where the market has been liberalised
since July 2003. The Telecommunications Regulatory Authority regulates Batelco.
Cable & Wireless has smaller operations and interests in other countries, which are at varying
stages of liberalisation.
22
    2005 Annual ReportBack to Contents
ProfileBusiness overviewHistory and development of Cable & Wireless

Cable & Wireless is an international telecommunications business with customers in some 80 countries.
Its principal operations are in the United Kingdom, the Caribbean, Panama, Macau and Monaco. Cable
& Wireless provides voice, data, and IP services to business and residential
customers and wholesale services to fixed and mobile telecommunications operators,
and content, application and internet providers.
For 130 years, Cable & Wireless
    has provided telecommunications services, networks and equipment to customers
    around the world. Except for 34 years as a state-owned company after the Second
    World War, Cable and Wireless plc has been incorporated in England and Wales
  as a public limited company.
Historically, in many of our
    operations, Cable & Wireless was the sole telecommunications provider (incumbent operator), focusing on switched voice and data services delivered over traditional phone lines (legacy
platforms). Today, most markets in which Cable & Wireless operates have opened to competition (liberalised)
and market trends are moving away from these legacy platforms, toward new services
delivered over IP networks.
Recent eventsOn 9 September 2005, Cable & Wireless announced that it intends to terminate its American Depository
Receipt (ADR) programme on 13 December 2005 and to delist voluntarily from the New York
Stock Exchange. ADR holders will be able to exchange their ADRs for Ordinary Shares in accordance
with the timetable set out in the announcement as available on the Companys
website.
Following consumer issues in
    July and August, on 31 August 2005, the UK regulator Ofcom opened an investigation
    into Bulldog which will consider whether Bulldog contravened either General Condition
    11.1, which prohibits Communications Providers from billing customers for services
    that have not beeen provided, or General Condition 14.2, which requires Communications
    Providers to establish and maintain complaints-handling procedures that conform
    to a Code of Practice. Cable & Wireless does not anticipate the outcome
of this investigation will have a material effect on the results of the Group.
On 17 August 2005, Cable & Wireless announced that its subsidiary Great Eastern Telecommunications Limited (GET) signed a conditional agreement for the sale of its entire shareholding in MobileOne Limited (M1)
representing approximately 12.1% of the issued and paid up capital of M1, for a total consideration
of S$260.8 million (£87 million) of which S$133 million (£44.4 million) relates to Cable
& Wireless 51% holding in GET.
Completion is conditional upon the purchaser obtaining approval for the acquisition of the stake in
M1 from The Infocomm Development Authority of Singapore, which is anticipated by the end of September.
On 16 August 2005, Cable & Wireless
    announced an agreement to acquire 100% of the issued share capital of Chelys
  Limited
(Energis) on a debt and cash
  free basis save for Energis £37 million of finance lease obligations, for an initial cash consideration of £594 million.
  In addition, Cable & Wireless has agreed to pay contingent consideration of up to £80
  million in the third year after completion. Completion of the acquisition is subject
  to Office of Fair Trading approval.
The contingent consideration
    will be paid in either cash or Cable & Wireless shares at the option of Cable & Wireless and will be determined by the level of Cable & Wireless share price in the third year after completion.
On completion of the acquisition, Cable & Wireless may inject up to £35 million in cash
to meet Energis short-term working capital needs.
Energis reports under UK GAAP and therefore the information available to prepare the following forward
looking information is in accordance with UK GAAP. The combined entity will report under IFRS for
fiscal year 2006. As a result, the forward looking information presented may differ on an IFRS basis.
The combination of Cable & Wireless UK operation and Energis is expected to enable total annual synergies of approximately £55 million in 2007 (£40 million
operating cost and £15 million capital expenditure) rising to £80 million in 2008 (£55
million operating cost and £25 million capital expenditure) and to reduce headcount
by around 700 by March 2008.
The expected capital expenditure
    synergies were determined on the basis that the two legacy networks would not
    be integrated but that the single NGN platform, being developed by Cable & Wireless,
    would serve the customer base of the combined business. The full potential of
  synergy benefits will be realised with completion of NGN in 2009.
One-off costs to realise the
    synergy benefits are expected to be between £75 million and £100 million
  over three years.
  In 2005, Energis had revenue
    of £720 million and gross assets of £670 million. Cable & Wireless
    expects the performance of the Group in the second half of the 2005/06 financial
    year to be impacted by the transaction in the following ways:

Elimination
    of the inter-company trading between the Group and Energis of approximately £10
    million;
A
    reduction in combined UK earnings before interest, tax, depreciation and amortisation
    of approximately £5 million, due to the potential loss of certain dual sourcing
    reseller customers, likely retail customer terminations, initial disruption on
    order intake due to short-term uncertainty during integration together with a
    planned review of unprofitable commercial contracts following completion;
Realisation
  of estimated capital expenditure synergies of £15 million;
2005 Annual Report
    23Back to Contents

Business overviewHistory and development of Cable & Wireless


Integration
    charges of £40 million; and
A
    reduction in depreciation of Energis fixed assets of approximately £5 million to
£10 million, subject to review following completion.Although Cable & Wireless continues to implement the previously announced cost reduction programmes,
the integration of Energis is expected to delay some of the benefits of these initiatives. For this
reason, savings in the UK and corporate are expected to be reduced by £15 million
in the second half of the year.
As at 31 March 2005, Cable & Wireless had completed £75 million of its £250
    million share repurchase programme, outlined in November 2004. Following the
    Energis acquisition the programme will remain in place but is unlikely to be
  used in the short term.
On completion of the Energis
    acquisition, John Pluthero will be appointed Executive Director UK Business and
    will join the Board of Cable & Wireless. He will be responsible for the combined UK operations of Cable & Wireless
  and Energis, excluding Bulldog Communications.
On 13 July 2005, Cable & Wireless announced the sale of its 61.4% interest in closed joint stock
company Sakhalin Telecom Mobile (STM) and its participation interest of 60% in the limited
liability company joint venture Sakhalin Telecom Limited (ST) to open joint stock company
Vimpel-Communications for total consideration of £25 million (US$44 million), £23.8 million
(US$41.8 million) of which was cash and £1.2 million (US$2.2 million) of which
was a loan to be repaid within 70 days of completion.
On 17 February 2005, Cable & Wireless sold its Japanese domestic business, Cable & Wireless
IDC Inc. (IDC) to Softbank Corp, for a consideration of £71.7 million comprising
£62.3 million of cash and the assumption by Softbank of debt of £9.4 million.
Results for IDC are included in discontinued operations.
On 28 January 2005, Cable & Wireless sold its 3.4 per cent stake in Intelsat (the satellite communications company) for cash consideration of £56
  million (US$104.8 million).
On 18 June 2004, Cable & Wireless acquired 55 per cent of Monaco Telecom S.A.M. (Monaco Telecom),
a Monaco based telecommunication service provider from Vivendi Universal, for a total consideration
of £108 million (162 million).
Simultaneously with the acquisition,
    Cable & Wireless transferred legal ownership of six per cent
of the shares of Monaco Telecom to Compagnie Monegasque de Banque S.A.M. (CMB), an unrelated third party. Cable & Wireless
contractually retained voting and economic rights in the shares as part of the arrangement. In addition,
the six per cent interest is subject to certain put and call options that, together with the retained
voting and economic rights, provide full management control of Monaco Telecom to Cable & Wireless.
Cable & Wireless has also entered into a shareholders agreement with the Principality of
Monaco, which contains, among other provisions, a prohibition on either Cable & Wireless or the
Principality (subject to certain limited exceptions) selling their shares in Monaco Telecom for five
years, mutual pre-emption rights on transfer of shares and certain other limited rights in favour
of the Principality. The Principality has a put option entitling it to put its 45 per cent shareholding in Monaco Telecom to Cable & Wireless
at certain times after 1 January 2008. The exercise price under the put option is
fair market value, taking into account the nature of the minority stake in Monaco
Telecom.
Results for Monaco Telecom are discussed separately in the Operating and financial review.
On 28 May 2004, Cable & Wireless acquired 100 per cent of Bulldog Communications Limited (Bulldog),
a company specialising in providing residential and business broadband services over its own network
in the UK, for a consideration of £18.6 million. Results for Bulldog are discussed
separately in the Operating and financial review.
In June 2003, Cable & Wireless announced that it planned to withdraw from the US domestic market.
At the request of the purchaser of the Groups US assets, certain of the Groups US subsidiaries
(Cable & Wireless Internet Services, Inc. and Cable & Wireless USA, Inc., collectively referred
to as CWA) filed for Chapter 11 bankruptcy protection under the US Bankruptcy
Code.
As a result of the subsequent
    auction process, on 23 January 2004, SAVVIS Communications Corporation (SAVVIS)
    entered into an agreement with CWA for SAVVIS to acquire substantially all of
    the assets of CWA for a sum of US$155 million in cash and approximately US$12.4
  million of assumed liabilities.
In order to provide US connectivity
    for data and IP services to Cable & Wireless multinational
customers based in the United Kingdom and other regions, Cable & Wireless continues to operate
in the United States through its subsidiary Cable & Wireless Americas Operations, Inc. (CWAO).
On 13 July 2004, as part of
    the ongoing bankruptcy process to which CWA is subject, the US Bankruptcy Court
    confirmed a bankruptcy Plan of Liquidation (the Liquidation Plan) which provided
for the transfer of the assets remaining in the bankruptcy estate to a liquidating trust for the
benefit of creditors, named the Omega Liquidating Trust. The Omega Liquidating Trusts
operating committee includes a representative of Cable and Wireless plc. The Omega
Liquidating Trust is in the process of determining final claim amounts and distributing
the assets of the bankruptcy estate to the creditors. The process is expected to
continue through 2006 and possibly beyond.
24
    2005 Annual ReportBack to Contents
ProfileAlso, on 13 July 2004, as part
    of the Plan of Reorganisation (Reorganisation Plan), the
US Bankruptcy Court approved a Global Settlement Agreement between Cable and Wireless plc and certain of its affiliates (collectively referred to as the Named Participants), CWA
and the committee of unsecured creditors. Pursuant to the Global Settlement Agreement, as implemented
by the Reorganisation Plan, the Named Participants agreed to reduce certain of their claims against
CWA in exchange for releases from any liability from CWA and to assign a portion of the distributions
to which they would otherwise be entitled in respect of their remaining claims to individual unsecured
creditors who would grant the Named Participants individual releases for any claims they might have
against them. More than 90 per cent in value of the unsecured claimants agreed to provide the release
to the Named Participants. Under the asset purchase agreement with SAVVIS (completed on 8 March 2004 following SAVVIS success in the Chapter 11 based auction process for CWA assets),
the Named Participants agreed to remain contingently liable until 5 September 2007 (subject to the earlier occurrence of certain events) for up to approximately US$104 million of guarantees and
letters of credit in favour of CWA landlords, which SAVVIS has agreed in the asset purchase agreements to reimburse in the event of
a call for payment. SAVVIS has also agreed to replace the Named Participants guarantees
and letters of credit with direct SAVVIS guarantees and letters of credit by 23 July
2007.
Organisational structureCable & Wireless
is a consolidated group of companies comprising subsidiaries, associates and joint
ventures around the world. The companies listed below represent the largest of these:
Country of
      incorporation
    
    Ownership
      interest
      per centSubsidiaryaBulldog Communications Limited
    
    England
    
    100Cable & WirelessAmericas Operations, Inc.
    
    USA
    
    100Cable & Wireless(Barbados) Limited
    
    Barbados
    
    81Cable and Wireless(Cayman Islands) Limited
    
    Cayman Islands
    
    100Cable and Wireless Guernsey Ltd
    
    Guernsey
    
    100Cable & Wireless
      Jamaica Limited
    
    Jamaica
    
    82Cable & Wireless
      Panama, S.A.
    
    Panama
    
    49Cable & Wireless
      UK
    
    England
    
    100Companhia de Telecomunicacoesde Macau, S.A.R.L.
    
    Macau
    
    51Dhivehi Raajjeyge Gulhun Private Limited
    
    Maldives
    
    45Monaco Telecom S.A.M.
    
    Monaco
    
    49Joint venturebTelecommunications Services of
    
    Trinidad andTrinidad and Tobago Limited
    
    Tobago
    
    49AssociatecBahrain TelecommunicationsCompany B.S.C.
    
    Bahrain
    
    20a Subsidiaries are
    entities that Cable & Wireless controls through a majority of voting rights,
    a majority of representation on the Board or through the right or actual exercise
    of management control over the operating and financial policies of the subsidiary
    with a view to gaining economic benefit from its activities. Results are consolidated
  for financial reporting purposes.
b Joint ventures
    are entities in which Cable & Wireless holds an interest on a long-term basis
and are jointly controlled by Cable & Wireless and one or more others under
a contractual arrangement. Results are accounted for under the gross equity method
for financial reporting purposes. The gross equity method differs from the equity method only in that
it requires additional disclosures of the share of gross assets and liabilities of Interest
in net assets of joint ventures and Turnover of the Group including its share of joint
ventures on the face of the balance sheet and profit
and loss account respectively.
c. Associates are
    entities for which Cable & Wireless has at least a 20 per cent interest
  in the voting rights of the entity, held on a long-term basis and over which Cable & Wireless
  exercises significant influence, but not management control. Results are accounted
  for under the equity method for financial reporting purposes.
2005 Annual Report
    25Back to Contents
Corporate
    governanceCorporate governance27
    
    Corporate and social responsibility report31
    
    Board of Directors33
    
    Directors report42
    
    Directors remuneration report55
    
    Statement of Directors responsibilitiesBack to Contents
Corporate governanceCorporate governanceCorporate and social responsibility report

Cable & Wireless is committed to effective
          management of social, ethical and environmental matters.The Board manages
          and monitors corporate responsibility through the Corporate Responsibility
          Steering Group, chaired by the Executive Deputy Chairman, Lord Robertson
  of Port Ellen.
  Business principlesThe Cable & Wireless Board Code of Business Principles, (December 2004)
  provides standards and guidelines for business conduct across the Group. It commits
  the business to ethical conduct and includes clear guidance on:
    corporate governance;  community investment; 
  employee relations and development;
  human rights; 
  management of the Groups environmental impact;
  occupational health & safety; and  supplier, customer and other stakeholder relations.
    The Board additionally has a Code of Ethics specifically applicable to the Chief
    Executive Officer and senior financial officers. Employees are encouraged to
    report any breach of the codes and can do so confidentially and anonymously through
    the Groups whistle-blowing procedures. Both codes are available on the Companys
    website.Community investmentCable & Wireless is committed to contributing positively to the communities around it.The Groups
    community investments are run in partnership with voluntary and community based
    organisations, governments and charities and directed by a cross Group Community
  Investment Committee.
  In 2005, Cable & Wireless total Group-wide community contributions were valued at £7.7 million, of which £6.4 million were cash charitable contributions. Of the total, £1.7
  million was spent in the UK.
  Most of Cable & Wireless business units undertake charitable and community initiatives with significant activity at Group level and in the UK, Barbados, Jamaica and Panama. Cable & Wireless
  has established charitable foundations in Panama, Jamaica and the Seychelles.
  The Cable & Wireless community investment programme currently focuses on three main areas: addressing the digital divide; promoting safety and security in the use of the internet and information and communication technologies (ICT);
  and encouraging positive use of ICT.
Addressing the digital divide
  Cable & Wireless works with governments, charities and voluntary organisations
  to enable those from underprivileged communities to use and benefit from access
  to ICT.

  
      Bracknells popular Cable & Wireless After School ICT Academy is based at the Groups head office in Bracknell and helps 11 to 14 year olds to develop confidence in the use of technology and gain new skills. Cable & Wireless staff
          are volunteer mentors to the scheme;
      through
          WebPlay, Cable & Wireless enabled more than 3,000 underprivileged 8 to 12 year olds to learn through the creative use of ICT. The initiative supports national curriculum targets in literacy, technology and citizenship.Volunteer mentors from Cable & Wireless
      support the project;
      in
          October 2004, Cable & Wireless supported Age Concerns four-week
          Silver Surfers Festival.This provided free internet taster sessions for
      older people across 100 Age Concern centres in the UK;
      the
          Cable & Wireless Panama Foundation works with the Ministry of Education to provide PCs and internet connectivity for 20,000 pupils in 14 schools across the country.The Foundation helped create a new IT suite in a rural primary school in Pacora, hailed by the Minister of Education as the countrys first Technological Innovation Classroom.The
      government hopes to replicate the model in schools across Panama; and
      Cable & Wireless
          India has worked with the Christel House School, Bangalore to provide pupils
      with an internet-ready, fully equipped and maintained computer laboratory.Using the internet safelyThe internet offers exciting opportunities but can have hidden dangers. Cable & Wireless
  works with its partners to protect children from unsuitable content and raise understanding
  of internet safety.
  Run with internet charity Childnet
      International, the Cable & Wireless Childnet Academy 2005 highlighted positive
      use of the internet by young people, through an international web development
      competition for young people which attracted entries from 49 countries.The
      programme offered specialist web support, technical advice and leadership training.The
  winning websites can be seen at www.childnetacademy.org
  Alongside the Childnet Academy
      2005, the Cable & Wireless Jamaica Foundation, Childnet International and the British Council hosted a 180 strong policy conference to examine safe use of the internet by children and young people in Jamaica in March 2005. Policy makers, teachers and industry representatives shared best practice to ensure that young people in the Caribbean can use the internet safely.The Kidsmart Internet safety programme, supported by Cable & Wireless,
  offered internet safety guidelines to teachers, parents and pupils.
2005 Annual Report
    27Back to Contents
Corporate governanceCorporate and social responsibility report

Disaster responseFollowing Hurricane Ivan in the Caribbean
    and the Asian Tsunami, Cable & Wireless made two US$1 million donations during
    2005.
      The first provided relief
          and reconstruction work in Cayman, Grenada and Jamaica following the devastation
          in September 2004. Cable & Wireless also provided immediate humanitarian
          supplies, telecoms equipment and expert help in the immediate aftermath
          of the hurricane and sent 30 tonnes of relief supplies to the affected
      region.
      The second donation was
          made towards the reconstruction of the Maldives following the Tsunami in
          December 2004. Again this was in addition to support from Cable & Wireless engineers in restoring the communications networks to the devastated islands.The Maldives national telecommunications company, Dhiraagu, which is 45 per cent owned by Cable & Wireless,
      made a further US$1 million donation.
      Employment 
      Workforce profileAt 31 March 2005, Cable & Wireless had 14,781 employees comprising  UK
      (4,499), US (41), Europe (423), Asia (221), Bulldog (505), Caribbean (4,147),
      Panama (1,818), Macau (932), Monaco (458), Rest of the World (1,411) and Other
      (326). In March 2005, across the Group, the male/female mix of the workforce
      was 66 per cent male to 34 per cent female.
      Employment policiesCable & Wireless employment policies comply with local requirements and meet standards of occupational health, safety and environment (OHSE),
      business ethics, diversity, disability, performance management and employee
      relations.
      Cable & Wireless is
          committed to providing a working environment in which employees can realise
          their potential and contribute to business success.The Group aims to ensure
          that no employee, job applicant, customer or supplier is discriminated
      against.
      The Groups employment
          philosophy is underpinned by the principles of fostering diversity in its
          workforce.This enables the business to access the broadest possible pool
          of talent and sustain high-performance teams and to meet its aim of offering
      opportunities to all the local cultures in which we operate.
  Employee consultation and employee relationsCable & Wireless has formal and informal channels for employee consultation and communication.The Group values the participation of its employees and keeps them informed about the Groups development. Cable & Wireless undertakes regular surveys to ascertain employee satisfaction and feeds back results to employees. In the UK and Europe employees are represented through the Employee Consultation Forum (ECF).There
  were no strikes or formal disputes during 2005.
Employees may join employee
      representative bodies or trade unions. Cable & Wireless recognises unions
      for collective bargaining purposes in some, but not all, the countries in which
  it operates.
  Career developmentWe have introduced personal development plans for employees to help them reach their career development goals.The Group offers training and development opportunities to employees at all levels.
  Human rightsCable & Wireless supports the Universal Declaration of Human Rights and
  the ILO Core Conventions relating to freedom of association, the abolition of forced
  labour and the elimination of child labour.
  Occupational health, safety and environmentCable & Wireless has a comprehensive occupational health, safety and environmental programme to minimise the risks detailed below. OHSE process is the responsibility of the Groups
  Corporate Responsibility Steering group chaired by the Executive Deputy Chairman,
  Lord Robertson.
  The integrated OHSE Management
      System sets common Group standards, based on international standards (OHSAS
      18001 and ISO 14001).These are supported by detailed local policies and procedures
      to ensure compliance with local legal requirements. The Groups continual
  risk assessment procedures identify and manage potential hazards appropriately.
  Performance targetsCable & Wireless has identified key OHSE risks. In 2004 the Group set OHSE
  objectives in each of these areas:
  
      zero occupational health, safety, fire or environment prosecutions or notices from enforcing authorities;
      zero fatal injuries to employees, customers, partners or contractors;
      major injuries and lost time accidents to be reduced by 20 per cent before 2010 (against the 2003 baseline);
      at least 25 per cent of National Businesses to attain ISO 14001 Environmental Management Standard certification by the end of 2008;
      reduce energy consumption by 5 per cent during 2005 based on the 2003 baseline consumption;
      increase the procurement of renewable energy to 25 per cent by 2010 (from 2004);
      develop and report progress on plans to remove all HCFCs Group-wide by the end of 2010;
      remove all CFCs and Halons Group-wide by the end of 2010;
28
    2005 Annual ReportBack to Contents

Corporate
          governance
      assess suppliers of defined goods and services to ensure their ability to manage OHSE risks; and
      complete and report OHSE internal audits of all substantial national businesses.Performance DataOHSE performance is measured via an
  annual data collection exercise. In 2005, Cable & Wireless recognised that,
  due to significant change in the business, a new approach to data collection was
  required. Accordingly, we limited data collection to four main areas of the business;
  UK, Caribbean, Panama and Macau.Thirteen of our businesses submitted data, equivalent
  to 79 per cent of the total business by turnover and 75 per cent of the total business
  by number of employees.
This change in the data collection process brings improved efficiency but means figures are not directly comparable with previous years results.
  Further information can be found in the Cable & Wireless Occupational Health and Safety Report (OHSE) 2005, which will be available on the Companys website in July 2005.
  Performance against targets during 2005 is summarised as follows:
Target
    
    2005
    Actual1a
    
    2004
    Actual1b
    
    On targetOccupational Health and SafetyProsecutions
    
    0
    
    0
    
    0
    
    YesEnforcement notices
    
    0
    
    1
    2
    0
    
    NoFatal injury accidents (Cable & Wireless employees)
    
    0
    
    0
    3a
    0
    3b
    YesLost time incident rate (per 10,000 employees)4
    
    Reduce by 20% byend 2010 over 2003 baseline
    
    67.6
    5
    88.4
    
    YesEnvironmental managementPer cent of businesses by turnover with ISO14001
    
    25% of businesses withcertification by end 2008
    
    12.4%
    
    8.3%
    
    YesEnergy and transportCO2 per unit turnover (tonnes CO2/£1million turnover)
    
    Reduce by 5% in 2004/2005against 2003 baseline
    
    74.9
    
    59.0
    
    NoPer cent of electricity from renewable energy
    
    Increase use to 25% by 2010
    
    14.3%
    
    
    
    YesHCFCs stored (kg)
    
    Remove all by 2010
    
    13,535
    
    31,500
    
    YesCFCs stored (kg)
    
    Remove all by 2010
    
    4,122
    
    5,900
    
    YesHalons stored (kg)
    
    Remove all by 2010
    
    27,544
    
    52,400
    
    YesSupplier and business unit assessmentPer cent of suppliers of defined goods audited
    
    Assess 100% of suppliers ofdefined goods
    
    100%
    
    10.8%
    
    YesPer cent of businesses by turnover conductingOHSE internal audits
    
    Audit 100% of substantialbusinesses
    
    94.5%
    
    
    
    YesNotes:1a  All normalised data is normalised against, or shown as a per cent of, the turnover of businesses participating in the data collection exercise.1bAll normalised data is normalised against the turnover of the total Group businesses.2   Cable & Wireless UK was served with one improvement notice in October 2004 (see Significant OHSE Incidents).3a There were no fatalities in
    Cable & Wireless businesses during the 2005 financial year. One incident was reported in which a contractor died as a result of a fall while working at one of Cable & Wireless sites in St Lucia. A full investigation following the accident demonstrated that Cable & Wireless bore no responsibility.3b There were no fatalities in Cable & Wireless businesses during the 2004 financial year. Although an incident was reported in which two contractor employees died in a mud slide on a road, the full investigation showed that the employees were not engaged in work on behalf of Cable & Wireless, though the contractor had undertaken work for us in the past.4   A lost time incident (LTI) is defined as any incident which results in an employee being absent for one day or more due to incapacity or ill health arising out of the incident and occurring within 24 hours of the incident.The lost time incident rate is defined as the number of LTIs in the past 12 months divided by the working population, expressed as a rate per 10,000 employees.5  This lost time incident rate is comparable with other telecom industry performance.2005 Annual Report
    29Back to Contents
Corporate governanceCorporate and social responsibility report

Significant OHSE incidentsCable & Wireless was served an improvement notice in October 2004
    relating to
    the use of a domestic extractor within a UK office building. Although Cable & Wireless has fully complied with the improvement notice,
    the
    Company understands that the local council has initiated proceedings against
    the Company in respect of this incident. An internal investigation has been
    conducted and all recommendations for improvement have been implemented.
  In January 2005 an oil spill
      occurred at a Cable & Wireless technical site in the UK. Cable & Wireless
      co-operated fully with the Environment Agency in the clean-up operation. An
      internal investigation into the incident has been conducted and recommendations
  for improvement are being implemented.
  Purchasing and supply chainCable & Wireless is committed to fair relations with suppliers, customers and business partners.The Groups purchasing and supply chain function has made significant effort in 2005 to encourage suppliers to respect the Groups
  business principles and maintain high standards of social, ethical and environmental
  conduct.
  The Groups
      Responsible Procurement Policy is being piloted from April 2005. Suppliers
      and contractors will be requested to comply with the policy through amended
  contract terms.
  All new suppliers will be required
      to comply with the policy and Cable & Wireless will work with existing suppliers unable to comply with the policy to help them to meet its requirements over a reasonable period.The full policy can be found on the Companys
  website.
  The Cable & Wireless Supplier
      Related Ethics Policy sets out rules and guidelines to ensure that all dealings
      with suppliers are entirely ethical.This policy has been communicated to all
  relevant UK employees and will be rolled out across the Group during 2006.
  Mobile phone safetyCable & Wireless monitors and manages issues related to concerns about
  possible adverse effects to human health from mobile phone use.
  The Group tracks 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.
Internet acceptable useCable & Wireless has an Internet Acceptable Use Policy (AUP). This confirms the sole responsibility of Cable & Wireless customers for their content and messages. It defines the activities which customers are prohibited from undertaking, such as those which violate the law or threaten the integrity of any network or computer system.The AUP is available on the Companys
  website.
  Stakeholder dialogueCable & Wireless engages with many external organisations, including non-governmental organisations, fund managers and rating agencies, regarding the Groups
  corporate responsibility performance.
  Cable & Wireless continues to be a constituent member of the FTSE4Good Index. Cable & Wireless performance during 2005 led to an improvement in the Groups corporate responsibility rating by two of Europes
  leading rating agencies,Vigeo and Core Ratings.
  Cable & Wireless scored
      84.5 per cent in the Business in the Environment 2004 Index of Corporate Environmental
  Engagement. The average index score was 79 per cent.
30
    2005 Annual ReportBack to Contents
Corporate
          governanceCorporate governanceBoard of Directors

The following are the Companys Directors and
  Company Secretary as at the date of this report.
  Richard LapthorneN(62)Non-executive Chairman; Chairman, Nominations Committee
  Richard Lapthorne was appointed Chairman in January 2003. He is a Non-executive Chairman of Morse PLC, Arlington Securities Ltd and the New Look Group. He is a Non-executive Director of Oasis International Leasing in Abu Dhabi. Mr Lapthorne joined the Board of Amersham International plc in 1988 as a Non-executive Director and was Chairman from 1999 until May 2003. He was Finance Director of British Aerospace plc from July 1992 and Vice Chairman from April 1998 until he retired in September 1999 having previously been Finance Director of Courtaulds plc from 1986 to 1992. Richard Lapthorne was awarded the CBE for services to the British aerospace industry in 1997.
  Francesco CaioN(48) 
  Chief Executive Officer
  Francesco Caio was appointed Chief Executive Officer in April 2003. Prior to his
  appointment, Francesco Caio founded Netscalibur Italia, the European business telecommunications
  and internet service provider, in 2000 having previously been Chief Executive Officer
  of Merloni Elettrodomestici from 1997 to 2000. In 1996 he was Chief Executive Officer
  of Olivetti having previously headed its telecommunications and multimedia divisions.
  He led the creation and launch of Omnitel Pronto, Italys second largest mobile
  phone company before its acquisition by Vodafone, and was its first Chief Executive
  Officer from 1994 to 1996. He has also worked with McKinsey in London. He is a
  Non-executive Director of Netscalibur Italia SpA and a former Non-executive Director
  of Equant from 1998 to 2000, of Merloni Elettrodomestici from 2000 to 2004, and
  of Motorola from 2000 to 2003.
  The Right Honourable Lord Robertson of 
  Port Ellen KT, GCMG(59) Executive Deputy Chairman
  Lord Robertson of Port Ellen was appointed Executive Deputy Chairman in February 2004. He was Secretary General of NATO and Chairman of the North Atlantic Council from October 1999 to December 2003, Secretary of State for Defence from 1997 to 1999 and Member of Parliament for Hamilton and Hamilton South from 1978 to 1999. He is a Non-executive Director of the Weir Group PLC and Smiths Group PLC, Strategic Advisor to the Royal Bank of Canada, Europe, a member of the Advisory Board of Englefield Capital and an advisor to BP plc.
Robert (Rob) Rowley(56) 
Executive Deputy Chairman
  Rob Rowley was appointed a Non-executive Director in September 2002 and became Chairman of the Audit Committee on 1 January 2003. Following a restructuring of the Board, he relinquished chairmanship of the Audit Committee and was appointed as Executive Deputy Chairman on 21 January 2003. He is a Non-executive Director of Prudential plc, where he is also Chairman of the Audit Committee,Taylor Nelson Sofres plc and Liberty International plc. He was on the Board of Reuters Group plc from 1990, serving as Finance Director from 1990 until 2000, then as Chief Executive of Reuterspace until he retired in 2001.
  George Battersby(59)Executive Director, Human ResourcesGeorge Battersby was appointed as Executive Director of Human Resources in July
    2004. He has held senior human resources positions in a number of FTSE 100 companies
    over the past 20 years. Prior to joining Cable & Wireless he was Group Human
    Resources Director and a member of the Board of Amersham International plc. He
    is a Non-executive Director of SHL Group plc, a leading international HR consultancy,
    where he is Chairman of the Remuneration Committee and the Senior Independent
  Director.
  Charles Herlinger(49) 
  Chief Financial Officer
  Charles Herlinger was appointed Chief Financial Officer in December 2003. Prior
  to joining Cable & Wireless, he worked for Siemens AG, most recently as Corporate Vice President and Group Controller. He joined the Siemens Group in 1987 and was Director of the Overseas Mergers and Acquisitions Group between 1990 and 1993, Controller of Siemens Corporation from 1993 to 1995 and Chief Financial Officer and Executive Vice President of Siemens Energy and Automation from 1995 to 1998. From 1985 to 1987 he was Assistant Controller of LOréal
  in the United States. He qualified as a chartered accountant in the United Kingdom
  and as a certified public accountant in the United States with KPMG, for whom he
  worked from 1977 to 1985.
  Harris Jones(43)Executive Director, International BusinessHarris Jones was appointed as Executive Director of International Business in December 2004. He has international experience in the telecoms industry as Chief Executive Officer of T-Mobile UK after its acquisition by Deutsche Telekom and, previously, as a senior executive with Omnipoint Communications and Sprint Spectrum. He is a Non-executive Director of Caracal, Inc.
2005 Annual Report
    31Back to Contents

Corporate governance
Board of Directors

Bernard GrayA N R(44)Non-executive Director; Chairman, Remuneration CommitteeBernard Gray was appointed a Non-executive Director in January 2003. He is Chief
Executive of CMP Information, the UK publishing and events division of United Business
Media and United Advertising Publications (UBM). Previous roles have included Special Adviser to the Secretary of State for Defence from 1997 to 1999 during the UKs
Strategic Defence Review and almost ten years with the Financial Times Group, including
two years on the Lex column. He began his career in capital markets in London and
New York.
  Graham HoweA N R(44)Non-executive Director; Senior Independent DirectorGraham Howe was appointed a Non-executive Director in May 2003. Until 30 April 2003 he was Deputy Chief Executive Officer and Chief Operating Officer of Orange S.A., having joined them in 1992 as a founding Director. His previous experience includes senior positions at Hutchison Telecom, First Pacific Company and Touche Ross Management Consultants. He is also Chairman of Promethean Technologies Group Limited.
  Kate NealonA R(52) 
  Non-executive Director
  Kate Nealon was appointed a Non-executive Director on 18 January 2005. She is a US-qualified lawyer and has practised international banking and regulatory law in New York. She was Group Head of Legal and Compliance for Standard Chartered plc until 2004 and is currently Non-executive Director of HBOS plc, Monitor (the independent regulator of the NHS Foundation trusts) and a senior associate of the Judge Institute of Management at Cambridge University.
  Anthony (Tony) RiceA N(53)Non-executive Director; Chairman, Audit CommitteeTony Rice was appointed a Non-executive Director and Chairman of the Audit Committee in January 2003. He was a member of the Remuneration Committee until 1 May 2005. He has been Chief Executive of Tunstall Holdings Ltd since 2002. Prior to this role his career was largely spent with British Aerospace plc where he was Group Treasurer, Group Managing Director Commercial Aircraft and was involved in the financing and flotation of Orange SA.
  Kasper RorstedA(43)Non-executive Director, Chairman, Community Investment CommitteeKasper Rorsted was appointed a Non-executive Director in May 2003. He was a member of the Remuneration and Nominations Committees until 22 February 2005. He is Executive Vice President at Henkel KGaA having previously been Senior Vice President and General Manager, EMEA for Hewlett Packard following its merger with Compaq. He held various other senior management positions with Compaq since 1995 and has previous experience with Oracle, Digital and Ericsson.
Agnès
          TouraineA(50) 
Non-executive Director
Agnès Touraine was appointed a Non-executive Director on 18 January 2005. Based in France, Agnès
  is Managing Partner of Act III Consultants, a Board member of Fondation de France
  and a Non-executive Director of Lastminute.com. She was previously Chairman and
  CEO of Vivendi Universal Publishing and held various senior executive positions
  with Lagardere Group. She began her career with McKinsey in Paris.
  Clive ButlerA R(59) 
  Non-executive Director
  Clive Butler was appointed a Non-executive Director on 1 May 2005. He was Corporate
  Development Director at Unilever until May 2005 and had served on the main board
  since 1992. During that period he also undertook the roles of Personnel Director
  and Category Director for Unilevers Home and Personal Care division. He was
  a Non-executive Director of the Lloyds TSB group from 1996 until 2003 following
  the acquisition by Lloyds Bank of the TSB group, where he had been a Non-executive
  Director since 1993. He joined Unilever in 1970 and has worked with the company
  ever since, in a variety of marketing and general management roles, including positions
  in the USA, Zimbabwe and The Philippines.
  Dr. Janet MorganRetired 22 July 2004.
  Kevin LoosemoreResigned 1 December 2004.
  Andrew Garard(38)Group General Counsel and Company SecretaryAndrew Garard was appointed Company Secretary in May 2004.
  ADenotes membership of Audit CommitteeNDenotes membership of Nominations CommitteeRDenotes membership of Remuneration Committee
32
    2005 Annual ReportBack to Contents
Corporate
          governanceCorporate governanceDirectors report

The Directors submit their report and accounts for
      Cable and Wireless plc, together with the consolidated accounts of the Cable & Wireless Group of companies, for the year ended 31 March 2005. The Directors corporate
  governance and remuneration reports are set out on pages 35 and 42 respectively.
  Principal activities and business reviewCable & Wireless is an international telecommunications company. Its principal operations are in the United Kingdom, the Caribbean, Panama, Macau and Monaco. 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.
  Details of the Groups performance during the
  year are contained in the Operating and financial review on pages 59 to 65.
  Overseas trading branches of the Company exist in Ascension, Diego Garcia, Falkland Islands, Singapore and St. Helena.
  Share capitalDetails of shares issued during the year are shown in Note 23 to the accounts.
  Acquisitions and disposalsDetails of acquisitions and disposals in the year are set out in Business overview  Recent
  acquisitions and disposals on pages 23 to 24.
  Results and dividendsThe Groups profit for the year after taxation and minority interests amounted to £302
  million.
  The Board recommended a final dividend for 2005 of
      2.64 pence per Ordinary Share which was approved by shareholders at the 2005
      Annual General Meeting (AGM), and was paid on 11 August 2005 to
      shareholders on the register at 8 July 2005. The total dividend for the year
  is 3.8 pence per Ordinary Share.
  The Company offered a Scrip Dividend alternative for
      the final dividend payable on 11 August 2005. Full details are contained in
      the Scrip Dividend brochure which can be obtained from the Companys Registrar, from the Company Secretary or from the Companys
  website.
DirectorsThe following served as Directors of the Company during the year and subsequent to the year-end:
  Richard Lapthorne 
  Francesco Caio 
    Lord Robertson of Port Ellen 
  Rob Rowley
    George Battersby (appointed 27 July 2004) 
  Charles Herlinger 
  Harris Jones (appointed 1 December 2004) 
  Bernard Gray 
  Graham Howe 
  Kate Nealon (appointed 18 January 2005) 
  Tony Rice 
  Kasper Rorsted 
  Agnès Touraine (appointed 18 January 2005) 
  Clive Butler (appointed 1 May 2005) 
  Kevin Loosemore (resigned 1 December 2004) 
  Dr Janet Morgan (retired 22 July 2004)
  Biographical details for the current Directors are set out on pages 31 to 32.
    In accordance with the Companys Articles, any Director appointed since the last AGM is required to retire and seek election by the shareholders at the next following AGM. Accordingly, George Battersby, Clive Butler, Harris Jones, Kate Nealon and Agnès
      Touraine, having been appointed Directors since the 2004 AGM retired at the
      2005 AGM and, being eligible, were elected. The unexpired portion of the service
  contracts for George Battersby and Harris Jones is disclosed on page 46.
  The Articles also require all Directors to retire every third year from when last elected by shareholders. In view of the fact that the Board of Directors has been reconstituted since January 2003, and to help stagger the re-election of Directors going forward, Francesco Caio, Bernard Gray and Tony Rice were re-elected as Directors of the Company at the 2005 AGM. All three are now subject to re-election at the 2008 AGM. The unexpired portion of the service contract for Francesco Caio is disclosed on page 46.
  Disclosable interestsThe 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 48.
  Employment policiesDetails of employment policies are set out in Corporate and social responsibility
  report  Employment.
2005 Annual Report
    33Back to Contents
Corporate governance
Directors report

Charitable and political donationsDetails of charitable donations made during the year are given on page 27 in
  the Corporate and social responsibility report  Community investment.
  The Group does not make any political donations and has no intention of making donations to what are generally regarded as political parties. As a precautionary measure and in light of the wide definitions of political organisations in The Political Parties, Elections and Referendums Act 2000 (the Act), a resolution to permit the Company to make political donations and incur political expenditure was passed at the 2004 AGM. The purpose of the resolution was to ensure that the Company did not unintentionally breach the Act.That resolution is valid for a period of four years from 22 July 2004 or until the date of the 2008 AGM, if earlier.
  Payments to suppliersIn 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 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 according to a standard which deals specifically
  with the payment of suppliers.The Groups e-procurement procedure which is
  being adopted worldwide, standardises the procedures for procuring goods and services
  and the internal authorisations required to approve spending and supplier selection.
  The Company had 53 days purchases (2004  65 days purchases)
      outstanding at 31 March 2005 based on the average daily amount invoiced by
  suppliers during the year ended 31 March 2005.
  Acquisition of own sharesFollowing completion of the Groups exit from the US, its decision to exit Japan and the realisation of cash through the sale of other investments, the Board decided to return £250 million to shareholders through a rolling share buyback programme. Following receipt of shareholder approval at the 2004 AGM, the Company commenced the share buyback programme on 16 November 2004. Between 16 November 2004 and 31 March 2005, the Company acquired 60,500,000 Ordinary Shares in the Company for an aggregate cost of £75 million.This number of Ordinary Shares represents 2.53 per cent of the Companys
  total issued share capital as at 31 March 2005. As at 31 March 2005 and 26 August
  2005, all Ordinary Shares purchased are held in treasury.
  Substantial shareholdingsExcept for the holdings of Ordinary Shares listed below, the
  Directors are not aware of any person or organisation holding 3 per cent or more of the Ordinary Share capital of the Company as at 26 August 2005, the latest practicable date prior to the issue of this report. Comparative figures for 2004 and 2003 are also given.
2005
      Number of
  Cable & Wireless
      Ordinary Shares
      
      Percentage of
      Issued Ordinary
      Share capitalShareholderThe Trustees of the BTPension Scheme
      
      107,151,284
      
      
      4.46Legal & General Group plc
      
      75,783,472
      
      
      3.152004
      Number of
  Cable & Wireless
      Ordinary Shares
      
      Percentage of
      Issued Ordinary
      Share capitalShareholderLegal & General Group plc
      
      106,545,863
      
      
      4.47The Trustees of the BTPension Scheme
      
      79,356,278
      
      
      3.332003
     Number of
  Cable & Wireless
Ordinary Shares
     
     Percentage of
Issued Ordinary
Share capitalShareholderFranklin Resources, Inc.
     
     108,105,460
        
     
     4.54FMR Corporation & FidelityInternational Ltd.
     
     93,127,830
        
     
     3.91Legal & General InvestmentManagement
     
     80,687,822
        
     
     3.39The Companys major shareholders do not have different voting rights from other holders of the Companys Ordinary Shares.
  Related Party Transactions
    Transactions with joint ventures and associated companiesAll transactions with joint ventures and associated companies arise in the normal course of business and primarily relate to fees for use of Cable & Wireless products and services, network and access charges.The aggregate transactions recorded by Cable & Wireless with joint ventures and associated companies, which are considered to be material, are disclosed below and in Notes 17, 19, 21 and 32 to the Financial statements.
  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 Note 32 to the Financial statements.
  Transactions with Directors
  Except as disclosed in the Directors remuneration report, as of 26 August 2005, 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 child under 18 years of age of a Director or Executive Officer had or was to have a direct or indirect material interest.
  During the years ended 31 March 2003, 31 March 2004 and 31 March 2005, and as of 26 August 2005, 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.
34
    2005 Annual ReportBack to Contents
Corporate
          governanceCorporate governanceThe Company is listed on the London
  Stock Exchange and also has a secondary listing on the New York Stock Exchange.
  As such, it is required to comply with the listing rules of the United Kingdom
  Listing Authority (UKLA) and with many of the provisions of the Sarbanes-Oxley Act (Sarbanes-Oxley) as well as the New York Stock Exchanges
  corporate governance rules.
  The Financial Services Authority
      requires UK listed companies to disclose whether they have complied with the
      provisions set out in section 1 of the UKLAs Combined Code on Corporate Governance (Combined Code)
      and, where the provisions have not been complied with, to provide an explanation.
      Companies are also required to explain how they have applied the principles
  set out in the Combined Code.
  The Board confirms that the
      Company was fully compliant with all the provisions of section 1 of the Combined
      Code throughout the period except as explained below.The Statement of Directors responsibilities
      in respect of the preparation of the financial statements is set out on page
  55.
  The BoardThe Board firmly believes in good corporate governance and particularly that
  strong governance controls improve the performance of the business and enhance
  shareholder value.The Boards role includes:
  
      deciding and reviewing on the strategy of the Group;
      increasing shareholder value by assessing business opportunities and measuring and controlling associated risks;
      ensuring compliance with legal, regulatory and corporate governance requirements;
      promoting
          and maintaining good corporate citizenship and high standards of ethical
          behaviour by the Groups
      employees;
      providing the Chief Executive Officer with appropriate support to drive and improve the performance of the Group;
      setting and monitoring challenging performance objectives and benchmarks for the Chief Executive Officer and the executive team;
      setting an appropriate control environment within which executive management can operate;
      constituting subcommittees of the Board covering remuneration, nominations and audit matters; and
      the appointment and removal of the Company Secretary.The Board is chaired by Richard Lapthorne and Francesco Caio is the Chief Executive Officer. Rob Rowley and Lord Robertson of
Port Ellen are both Executive Deputy Chairmen. Charles
      Herlinger is Chief Financial Officer, George Battersby is Group Human Resources
      Director and Harris Jones is Executive Director of International Business.
      During the year to 31 March 2005, there were seven independent Non-executive
      Directors, namely: Bernard Gray, Graham Howe, Dr Janet Morgan (retired 22 July
      2004), Kate Nealon (appointed 18 January 2005),Tony Rice, Kasper Rorsted and
      Agnès Touraine (appointed 18 January 2005). Clive Butler was appointed
      as an additional Non-executive Director on 1 May 2005. The Senior Independent
      Director is Graham Howe who is available to shareholders should they have concerns
      which contact through the normal channels of Chairman, Chief Executive Officer
      or Chief Financial Officer has failed to resolve or for which such contact
      is inappropriate. Full biographical details of each of the Directors are set
  out on pages 31 to 32.
  The Combined Code states that at least half the Board, excluding the Chairman, should comprise Non-executive Directors determined by the Board to be independent.The Company did not comply with this provision for the period from 22 July 2004 to 17 January 2005.
  During the period from 1 April 2004 to 22 July 2004 the Board comprised five Executive Directors namely, Francesco Caio, Charles Herlinger, Kevin Loosemore, Lord Robertson of Port Ellen and Rob Rowley and five Non-executive Directors, namely Bernard Gray, Graham Howe, Dr Janet Morgan,Tony Rice and Kasper Rorsted.
  Dr Janet Morgan retired from the Board on 22 July
      2004 at the conclusion of the Companys 2004 AGM, on 27 July 2004 George
      Battersby was appointed as an additional Executive Director and on 1 December
  2004, Harris Jones replaced Kevin Loosemore on the Board.
  During the period from 22 July 2004 to 17 January
      2005 the Nominations Committee undertook a formal and rigorous process to identify
      additional Non-executive candidates who possessed the skills, knowledge and
      experience required by the Company. Following the conclusion of that process
      Kate Nealon and Agnès Touraine were appointed as Non-executive Directors
  of the Company on 18 January 2005.
  The Chairmans role is to lead and manage the business of the Board of Directors in setting the strategy and delivering performance of the Group to its shareholders and other key stakeholders.The Chief Executive Officer is responsible for the performance of the Group to its shareholders and other key stakeholders.The division of responsibilities between the Chairman and Chief Executive Officer has been approved by the Board of Directors and is set out in writing. A copy of this is available from the Company Secretary or the Companys
      website.The Board has nine scheduled meetings a year concentrating on strategy,
      financial and business performance. Additional Board meetings may be called
      as required to deal with specific matters. During the year under review there
  were no additional Board meetings.
  The agendas for Board meetings are set by the Chairman in consultation with the Chief Executive Officer, Chief Financial Officer
2005 Annual Report
    35Back to Contents

Corporate governance
Directors report

and Company Secretary. Formal minutes recording decisions of all Board and Committee meetings are prepared and circulated to each Director as appropriate. If a Director objects to a particular proposal this will be recorded in the minutes of Board or Committee meetings.There were no such objections during the year under review.
  The Board considers that all
      of the Non-executive Directors who served during the year ended 31 March 2005,
      namely Bernard Gray, Graham Howe, Dr Janet Morgan (retired 22 July 2004), Kate
      Nealon (appointed 18 January 2005),Tony Rice, Kasper Rorsted and Agnès
      Touraine (appointed 18 January 2005) are independent. The Non-executive Directors
      come from diverse business backgrounds and have unique expertise covering finance,
      telecoms, IT and government relations. Each of the Non-executive Directors
      is of independent mind and character and actively contributes to the effective
      performance of the Board and its Committees.This combination of skills and
      expertise materially enhances the judgement and overall performance of the
  Board.
  To enable Directors to perform their duties properly and to ensure the effective functioning of the Board and its Committees, they are given full and timely access to all relevant information. In addition, each of the Directors has access to the advice and services of the Company Secretary.
  The Board has also adopted
      a procedure whereby Directors, including Non-executive Directors, may, in the
      furtherance of their duties, take independent professional advice on any matter
  at the Companys expense.
  On the appointment of a new Director, the Chairman is responsible for ensuring that an appropriate induction, involving meetings with other Directors, senior management and key advisers, is undertaken. In addition, the new Directors are provided with appropriate background materials covering the business, the financial performance of the Group and the legal and corporate governance environment. The Directors further receive appropriate ongoing briefings and information to enable them to perform their roles both on the Board and its principal Committees, involving internal briefings and external training where appropriate. On request, the Company is prepared to offer major shareholders the opportunity to meet new Non-executive Directors.
  The Company maintains Directors and Officers liability
  insurance.
  The Board has a formal schedule of matters reserved to it for decision including approval of matters such as:
  
      strategy and management;
      structure and capital;
      financial reporting and controls;
      internal controls;

      contracts and expenditure over a certain financial limit;
      Board membership and other senior management appointments;
      Director and senior executive remuneration;
      delegation of authority; and
      corporate governance.A copy of the formal schedule
      of matters reserved for the Board is available from the Company Secretary or
      the Companys
  website.
  The Board has delegated the responsibility for the day-to-day management of the Group to the Chief Executive Officer.The Chief Executive Officer is supported in this by the Executive Committee, which he chairs.The Executive Committee comprises all the Executive Directors of the Company together with the Group Director Strategy and Business Development, the Group Director Corporate and Public Affairs, the Group General Counsel, the Group Director Operations, the Group Director Sales and Marketing and the Head of Wholesale.
  Additionally, specific responsibilities have been delegated to the Audit, Remuneration and Nominations Committees.
  Under the direction and control of the Chairman, the Board considers its performance both as a group, as individual members and its various sub-committees.This involves regular discussions between the individual Board members and external support where necessary.
  As part of the evaluation process,
      the Non-executive Directors meet independently to consider management performance
      and succession issues. The independent Non-executive Directors also appraise
      the Chairmans
      performance and review the relationship between the Chairman and Chief Executive
      Officer to ensure that the relationship is working to promote the creation
  of shareholder value.
  Statement from Independent Directors
    During the year ended 31 March
    2005, the Independent Directors met three times, in addition to Board meetings,
    to formally discuss governance issues: once with the Chairman and Chief Executive
    Officer present, once with the Chairman present and once on their own. After
    the third meeting, as during the previous year, Graham Howe, Senior Independent
    Director, provided feedback to the Board on the Independent Directors collective
    views of the following:
  
      the perceived quality of the relationship between the Chairman and the Chief Executive Officer;
      the degree of openness between the Chief Executive Officer and the Board;
36
    2005 Annual ReportBack to Contents
Corporate
          governance
      the visibility
      of checks and balances within the Executive Directors team; and
      whether all questions asked by the Non-executive Directors in the Board have been adequately addressed.The Independent Directors believe that the Company has an effective Board.
  During the year under review, there has been greater emphasis placed on tackling real business issues rather than fire fighting on legacy which has led to a greater clarity of direction. Significant progress has also been made to create a more balanced management team both at the Board and the level below. Challenges remain, particularly around the pace that will be required to execute the priorities identified for the Group.
  The Independent Directors believe that the quality of the relationship between the Chairman and the Chief Executive Officer remains a good one, characterised by mutual trust and frankness. The Chairman and Chief Executive Officer have complementary skill sets creating a balanced partnership.Their relationship continues to evolve as more of the initiative for strategic direction has now transferred to the Chief Executive Officer.
  The Independent Directors continue to be comfortable with the degree of openness between the Chief Executive Officer and the Board.The quality of papers circulated to the Board prior to meetings and the presentations made at Board meetings have improved allowing more time to be allocated to discussion and debate.
  During the year, the Executive team has been strengthened with Charles Herlinger, Chief Financial Officer, being in place for the full year (thereby improving internal procedures and financial disciplines), by the appointment of George Battersby as Group Human
Resources Director and by the appointment of Harris Jones to provide leadership to the Groups international businesses. A Group Executive has been reconstituted to provide a formal framework for the Executive Directors to provide checks and balances on each other but at the Board this role is still largely undertaken by the Chairman and Chief Executive Officer.
  The Independent Directors believe that all questions asked by them in the Board have been answered in an honest and constructive manner.Where some uncertainty has existed around questions not capable of being fully answered, the Independent Directors believe the answers given were appropriate to the circumstances.
  Throughout the year ended 31 March 2005, a continued period of change for the Company, the significant efforts of the Board of Directors, its principal committees and the senior management team have satisfied the Independent Directors that the appropriate corporate governance controls have been effective.
  An annual audit of investor opinion was commissioned on behalf of the Board.The audit took the form of structured interviews with individual, mainly institutional, investors through an independent external adviser.The report gathered opinion on strategy, operational performance, corporate governance and management capability from investors in the UK, Europe and North America. The non-attributable opinions, which were subsequently reported to the Board, gave the Board direct access to investor feedback.
  AttendanceThe Board requires all members to use their best endeavours to attend Board and Committee meetings and to devote sufficient time to the work of the Board to discharge their duties. A schedule setting out the attendance of Directors at Board and Committee meetings during the year (including those Directors who resigned during the year) is given below.
Board 
    meetings
    
    
    
    Remuneration
    Committee meetings
    
    
    
    Nominations
    Committee meetings
    
    
    
    Audit 
    Committee meetingsAttended
    
    Possible
    
    Attended
    
    Possible
    
    Attended
    
    Possible
    
    Attended
    
    PossibleRichard Lapthorne
    
    9
    
    9
    
    
    
    
    
    
    
    4
    
    4
    
    
    1
    
    1Francesco Caio
    
    9
    
    9
    
    
    
    
    
    
    
    4
    
    4
    
    
    
    
    Lord Robertson of Port Ellen
    
    9
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rob Rowley
    
    8
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    George Battersby
    
    6
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Charles Herlinger
    
    9
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Harris Jones
    
    4
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bernard Gray
    
    9
    
    9
    
    
    5
    
    5
    
    
    4
    
    4
    
    
    5
    
    5Graham Howe
    
    9
    
    9
    
    
    5
    
    5
    
    
    4
    
    4
    
    
    5
    
    5Kate Nealon
    
    2
    
    2
    
    
    1
    
    1
    
    
    
    
    
    
    
    1
    
    1Tony Rice
    
    9
    
    9
    
    
    5
    
    5
    
    
    4
    
    4
    
    
    5
    
    5Kasper Rorsted
    
    9
    
    9
    
    
    4
    
    4
    
    
    4
    
    4
    
    
    4
    
    5Agnès Touraine
    
    2
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    1Kevin Loosemore
    
    5
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Janet Morgan
    
    3
    
    3
    
    
    2
    
    2
    
    
    1
    
    1
    
    
    2
    
    22005 Annual Report
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Corporate governanceDirectors report

Board Committees
  Remuneration CommitteeThe Remuneration Committee determines and recommends to the Board the framework
  or broad policy for the remuneration and long-term incentive arrangements of the
  Companys Chairman, Executive Directors and senior executives.The Remuneration Committees full terms of reference are available either from the Company Secretary or the Companys
  website.
  During the year ended 31 March 2005, the membership of the Remuneration Committee comprised Bernard Gray (Chairman), Graham Howe, Kate Nealon (appointed 22 February 2005), Dr Janet Morgan (resigned 22 July 2004),Tony Rice and Kasper Rorsted (resigned 22 February 2005). Subsequent to the year-end, Clive Butler was appointed and Tony Rice resigned from the Remuneration Committee on 1 May 2005.
  The Chairman, Chief Executive Officer, Chief Financial
      Officer and Group Human Resources Director may be invited to attend and speak
      at meetings of the Remuneration Committee, but do not participate in any matter
      which impacts upon their own remuneration arrangements. Representatives from
      the Companys remuneration consultants, New Bridge Street Consultants,
      attend meetings by invitation. Meetings are scheduled in February, March, May
      and June each year but may be held at other times.There were five meetings
  in the year ended 31 March 2005.
  The Remuneration Committee is authorised to engage
      the services of external advisors as it deems necessary at the Companys
  expense in order to carry out its function.
  The Directors remuneration report on pages 42
      to 54 includes details on remuneration policy, practices and the remuneration
  of the Directors.
  Nominations CommitteeThe Nominations Committee reviews the composition of, and succession to, the Board and recommends to the Board appointments of Executive and Non-executive Directors following a formal and rigorous review process.This involves an ongoing assessment of the overall balance and performance of the Board and its individual members ensuring a strong executive and independent non-executive team, taking account of existing and proposed corporate governance requirements and emerging best practice.
  The Nominations Committee in particular considers the experience and skills of individuals who may be suitable as Directors.
  Members of the Nominations Committee abstain when matters affecting their own appointments are discussed.
  The Nominations Committees full terms of reference are available either from the Company Secretary or the Companys
  website.
  The Nominations Committee is authorised to engage
      the services of external advisors as it deems necessary at the Companys
  expense in order to carry out its function.
Until 22 February 2005, the Nominations Committee comprised Richard Lapthorne, who chairs the Nominations Committee, Francesco Caio (Chief Executive Officer) and any three of the following independent Non-executive Directors: Bernard Gray, Graham Howe, Kasper Rorsted and Tony Rice. From 22 February 2005 the composition of the Nominations Committee was amended to Richard Lapthorne (Chairman of the Committee), Francesco Caio (Chief Executive Office), Bernard Gray, Graham Howe and Tony Rice.
  The Nominations Committee met four times during the year under review.
  Audit CommitteeThe Audit Committee comprises all the independent Non-executive Directors of
  the Company, namely:Tony Rice (Chairman), Clive Butler (appointed 1 May 2005),
  Bernard Gray, Graham Howe, Dr Janet Morgan (retired 22 July 2004), Kate Nealon
  (appointed 18 January 2005), Kasper Rorsted and Agnès Touraine (appointed 18 January 2005).The Companys
  Chairman, Richard Lapthorne, was a member of the Audit Committee until 5 May 2004
  and the Company was not therefore compliant with the Combined Code principle on
  the membership of Audit Committees during the period 1 April to 5 May 2004. Since
  5 May 2004 the Chairman and Executive Directors attend Audit Committee meetings
  by invitation but are not members.The Group Director of Internal Audit, Group General
  Counsel and representatives of the external auditors also attend by invitation.
  Other employees of the Company may be invited to attend as and when required.
  The Combined Code requires the Board to be satisfied that at least one member of the Audit Committee has recent and relevant financial experience.The Board considers that there is a strong breadth of financial expertise across the Audit Committee and that, collectively, the members have the requisite skills and attributes to enable the Audit Committee to properly discharge its responsibilities, so it has concluded that it will not name any single member as having such experience.
  The Audit Committee is authorised
      to engage the services of external advisers, as it deems necessary, at the
      Companys expense
  in order to carry out its function.
  The Audit Committees
  objectives are:
  
      to assist the Company in meeting its responsibilities in ensuring an effective system of internal control and compliance and accurate external financial reporting; and
      to assist
          management in conducting and reporting the effective risk management of
          the Company and Groups
      activities.The full written terms of reference
      of the Audit Committee are available from the Company Secretary or from the
      Companys website.
    In summary the Audit Committee:
  
      reviews the financial integrity of the financial statements of the Company;
38
    2005 Annual ReportBack to Contents
Corporate
          governance
      reviews
          the Companys compliance
          with legal and regulatory requirements arising from its listings in London
      and New York;
      reviews
          material complaints regarding accounting, internal controls and auditing
          raised by the Companys
      employees;
      monitors
          the Companys whistle-blowing
      procedures;
      reviews the internal audit programme and considers the effectiveness of the internal audit function;
      makes
      recommendations to the Board on the appointment of the Companys auditors;
      determines
          the level of audit fees and the scope of the audit in accordance with the
      authority given by the Companys shareholders at every AGM;
      assesses the independence of the auditors; and
      reviews and agrees the process of the approval of audit and non-audit services provided by the auditors.Meetings
  The Audit Committee met five times during the year under review. Attendance at these meetings is shown in the table on page 37.
  Prior to each meeting, the Chairman of the Audit Committee meets with the Group Director of Internal Audit, Director of Group Accounting Services and with the external auditors without the presence of Executive management.The Chairman of the Audit Committee also has private meetings with the Chief Financial Officer before each Audit Committee meeting. In addition, the entire Committee will meet (i) the external auditors without the presence of management, and (ii) management without the presence of external auditors, at least annually.
  The Audit Committee receives the following standing reports at each scheduled meeting:
  
      Report of the Chief Financial Officer;
      Report of the external auditors;
      Report of the Group Director of Internal Audit; and
      Litigation Report,In addition, during the year under review, the Audit Committee considered and discussed the business set out below and made recommendations to the Board where appropriate:
  
      the full year results and Press Release together with the Annual Report and Accounts;

      half year results and Press Release and quarterly trading statements;
      presentation
          of the Groups
      opening IFRS balance sheet in March 2005;
      Group Risk Review updates;
      the effectiveness
          of the employee whistle-blowing programme
          and resolution of matters raised through the whistle-blowing line and other
      channels;
      corporate governance developments in UK and US arising from the revised Combined Code and the Sarbanes-Oxley Act 2002 including regular updates on the work being undertaken in connection with section 404 of the Sarbanes-Oxley Act;
      developments in accounting standards including the preparation for adoption of International Financial Reporting Standards;
      register of interests for Board and Senior Management; and
      the effectiveness of the Internal Audit function and the external auditors.The Committee also received presentations on business continuity, fraud control, security and health and safety issues.
  Financial reporting
  The Audit Committee reviews and, where necessary, challenges the actions and judgements of management in relation to the interim and full year financial statements before submission to the Board. Particular attention is paid to critical accounting policies and practices and any changes; clarity of disclosure; compliance with accounting standards, stock exchange and other legal and regulatory requirements. In this, the Audit Committee is assisted by the Disclosure Committee, which is primarily responsible for identifying and considering disclosure control issues in connection with the preparation of all releases containing material financial information.
  Internal audit
  The Group monitors its internal controls through a programme of internal audits.The
      Internal Audit function is headed by the Group Director of Internal Audit who
      is supported by a team of auditors based in the UK and Jamaica.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 Audit Committee and reporting to the Audit Committee is achieved through
      the submission and discussion of regular formal reports as well as private
      meetings between the Chairman of the Audit Committee and the Group Director
  of Internal Audit.
  External audit
  KPMG Audit Plc has acted as auditors for the Company since 1991. The Audit Committee has established a policy which is intended to
2005 Annual Report
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Corporate governanceDirectors report

maintain the independence of the Companys auditors when acting as auditor of the Group accounts.The policy governs the provision of audit and non-audit services provided by the auditor and its associates to the Company and its subsidiaries.The policy clearly identifies those services which are permitted, and those which are prohibited from being provided by the auditor. In addition, the policy clearly sets out the procedure to be followed for the approval of all audit and non-audit services; all engagements with an expected value in excess of £250,000 require the prior approval of the Chairman of the Audit Committee. For the year ended 31 March 2005, fees for audit and audit related services of £4.6 million, of which £0.3 million related to the prior year, were approved by the Audit Committee. During the year, fees for non-audit work of £1.5
  million were approved.The non-audit work mainly comprised tax compliance services.
  Annual General MeetingThe Companys Annual General Meeting (AGM) was held at the
  Queen Elizabeth II Conference Centre in London on 22 July 2005. Business at the
  Companys AGM covered the Annual Report and Accounts, Directors Remuneration
  Report, final dividend, election/re-election of Directors, re-appointment of the
  auditors and authorisation for the Directors to set the auditors fees.
  Special business covered amendments to the rules of the Incentive Plan and Deferred
  Short Term Incentive Plan, a share buy back authority, an increase in the cap on
  total fees to Directors and amendments to the Articles of Association.
  Full details and an explanation of these resolutions
      are set out in the Chairmans Letter and Notice of AGM. At the AGM, a business review was presented to shareholders by the Chief Executive Officer. All Directors including the Chairman of the Audit and Remuneration Committees attended and were available to answer shareholders questions. All resolutions at the AGM were approved on a poll, in accordance with best practice. Results were announced to the London Stock Exchange and published on the Companys
  website.
  Apart from the AGM, the Company communicates with
      its shareholders by way of the Annual Report and Accounts or the Annual Review
      and Summary Financial Statements and interim financial statements.The Companys website contains investor relations material including results presentations, dividends and share capital history. Additionally, the Company communicates with its institutional shareholders via regular briefings throughout the year but particularly at the time of the interim and year-end results. 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
          managementThe Board is responsible for the Groups system of internal control and
  for reviewing its effectiveness on an ongoing basis.The Board 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. Reviews of the Groups
      systems of internal control are undertaken to improve them 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 in each of the major business units.The Risk Review Boards comprise the Chief Executive Officer, Chief Financial Officer and other relevant senior executives of the business unit. A schedule of the Groups
      risks, which covers significant operational, financial and strategic risks,
  is reviewed by the Audit Committee.
  The past few years have been transitional ones for the Group, with the Company making a number of acquisitions and disposals and having undergone a number of restructurings. As with all acquisitions or reorganisations, the Company has dedicated resource to embed processes and controls across its businesses consistent with the standards acceptable to the Group. Over the last year this has been supported by the roll-out of a Financial Controls Toolkit to reinforce the standardisation of financial controls across the Group. Business units are now required to sign off compliance with the requirements of the Financial Controls Toolkit on an annual basis.
  A control self-assessment exercise is conducted annually to complement the work of Group Internal Audit, the risk management framework and the external auditors.This exercise requires management to assess the effectiveness of their fundamental operating controls over all aspects of their operations, in addition to the financial controls covered by the Financial Controls Toolkit. Group Internal Audit considers the results of this exercise in planning their work for the forthcoming year.
  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  Corporate and social responsibility report on
  page 27.
40
    2005 Annual ReportBack to Contents
Corporate governanceThese procedures reflect the Groups commitment to ensuring it has policies in place that ensure high standards of integrity and transparency throughout its operations. Further, when these procedures detect unauthorised management practices, the Group is committed to the correction of such events. The Group is also committed to analysing its internal controls to make them more robust and further limit the risk of such incidents. The Board believes such action properly reflects the Groups commitment to financial discipline and integrity at all levels.
  The responsibility for internal control procedures within joint ventures and associates rests, on the whole, with the senior management of those operations. Cable & Wireless monitors its investments and exerts influence through Board representation.
    Under the US Sarbanes-Oxley Act of 2002, new and enhanced standards of corporate governance, and business and financial disclosure, apply to US public companies and non-US companies, including the Company, with securities registered in the United States. Where applicable the Group has developed policies and procedures to enable it to comply with the provisions of the Sarbanes-Oxley Act. The Group also has ongoing programmes in place, relating in particular to section 404, to enable it to comply with provisions of the Sarbanes-Oxley Act that will come into force in the future.Going concernAfter 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 97 to 152.
  By order of the Board of Directors.
  Andrew S GarardCompany Secretary 
  3 June 2005
Controls and proceduresThe Company carried out an evaluation under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of 31 March 2005.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 the Companys evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures as of 31 March 2005 were effective.
  There were no changes in the Companys internal control over financial reporting during the year ended 31 March 2005 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
2005 Annual Report
    41Back to Contents
Corporate governanceDirectors remuneration report


This report sets out the policy and disclosures in relation to Directors remuneration. The Remuneration
Report was approved at the Annual General Meeting (AGM) of the Company held on 22 July 2005 in accordance with the Directors Remuneration Report Regulations 2002. Full details
of the resolution are set out
in the Notice of AGM.
Composition and terms of reference of the 
  Remuneration CommitteeThe 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 Chairman
and Executive Directors. The Remuneration Committee also monitors remuneration paid to members of
the Executive Committee. During the year the Board approved all recommendations from the Remuneration
Committee without amendment. The terms of reference for the Remuneration Committee are obtainable
from the Companys website or from the Company Secretary.
During the year ended 31 March 2005, the Remuneration Committee was comprised of independent Non-executive
Directors, namely: Bernard Gray (Chairman), Graham Howe, Dr Janet Morgan (retired 22 July 2004),
Tony Rice, Kasper Rorsted (until 22 March 2005) and Kate Nealon (from 22 March 2005).
In forming their recommendations, the Remuneration Committee received advice and information from the
Chairman, the Chief Executive Officer, the Group Human Resources Director and the Group Director
of Performance and Reward. The Remuneration Committee has appointed independent consultants, New
Bridge Street Consultants LLP (NBSC), to provide advice on remuneration and share plans
both for Executive Directors and the wider executive population. In addition they provide the Company
with measurement of its relative total shareholder return (TSR) performance. NBSCs
terms of engagement are available on request from the Company Secretary.
The Chairman, Executive Directors and officers attending a meeting abstain from any discussion or decision
on their own remuneration.
Statement of remuneration policyRemuneration philosophy
Cable & Wireless is an international company, trading in some 80 countries around the world. Attracting,
retaining and motivating high quality people is key to the Groups success. Remuneration arrangements
are designed to enable the Group to maintain a competitive position in each country in a cost-effective
way and are reviewed annually 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 Group competes. The Groups competitive position is regularly monitored by independent analysis against comparator groups of companies selected on the basis of relevant size, business and geographic focus;
      fixed salaries and benefits should be set with reference to the mid-market level compared with similar types of company;
      the majority of total remuneration should only be receivable as a result of the Group achieving demanding performance targets;
      an appropriate mix of short and long-term incentives should be set so that Directors are incentivised to maximise performance over both the short and medium term; and
      the remuneration structure for Directors should be cascaded down to other senior executives in a consistent manner.During the year, the Remuneration Committee reviewed the current remuneration structure. A number of
changes are proposed as a result of this review. These changes have been discussed with leading shareholders
and their representative bodies, who have been generally supportive. In summary, proposals (outlined
more fully below) comprise:
  
      Fixed remuneration (i.e. salary and pension)  frozen;
      Annual bonus  potential unchanged;
      Long-term incentives  restructured. Principal changes are a reduction in the proportion of awards vesting for median performance, the granting of performance shares to selected senior executives and an enhanced potential share match to encourage executive share investment.The overall impact of these changes is illustrated in the graph below for Francesco Caio. The graph
demonstrates that for target performance, total remuneration would be enhanced by no more than a
five per cent increase in base salary, however superior levels of performance would merit higher levels of reward.
Illustration of impact of proposal for Francesco CaioTotal Remuneration (£000)

Lower Quartile

Median

Upper Quartile

Upper Decile

£1,000

£2,000

£7,000

£6,000

£5,000

£4,000

£3,000

Proposal (2/3rds of bonus invested)

Proposal (1/3rd of bonus invested)

Current + 5% salary increase
42
    2005 Annual ReportBack to Contents
Corporate governance
Elements of remunerationExecutive Directors remuneration consists of salary, pension and other benefits, annual bonus
and long-term incentives.
The Remuneration Committee believes that the majority of Executive Directors potential remuneration
should be performance related. The appropriate mix and level of performance related awards may vary
from year to year and between each Executive Director according to the judgement of the Remuneration
Committee. The actual value delivered is dependent upon the achievement of stretching performance
conditions. The chart below illustrates the average proportion of Executive Directors potential remuneration
for 2006 that will be performance related.
Split of potential total remuneration
1.  Salary
      2.  Pension
      3.  Performance-related 
           annual bonus
      4.  Performance-related
          long-term incentivesFigures reflect on-target payment potential under the annual bonus plan and the expected
value of long-term incentive awards at the time of grant. It is assumed that one-third of the annual
bonus is deferred into shares under the Deferred Short Term Incentive Plan.
Base salaryBase salaries are reviewed by reference to the mid-market of comparator groups of companies selected
on the basis of comparable size, geographic spread and business focus. Individual salary decisions
take into account personal contribution, business performance and the level of salary increases across
the Group as a whole. Salaries are generally reviewed on an annual basis to take effect from 1 July or following a significant change in responsibilities.
Salaries were not increased in 2004 or on 1 July 2005 following the latest review. Accordingly, salaries
for the forthcoming year will be:
Francesco Caio
    £
    700,000Harris Jones
    £
    500,000Charles Herlinger
    £
    400,000George Battersby
    £
    350,000Rob Rowley
    £
    250,000Lord Robertson of Port Ellen
    *£
    250,000* With effect from 1 March 2005, the Company increased the minimum working days for Lord Robertson
from 80 to 100 per annum, resulting in a pro-rata salary increase from £200,000 to £250,000
per annum.
Executive Directors pensions are based only on their base salaries.
Short Term Incentive Plan and Deferred Short Term 
  Incentive Plan
Short Term Incentive Plan (STIP)
Individual awards under the STIP for 2006 will be based upon individual performance targets and annual
performance against the following objective financial targets: profit before tax, revenue and net
cash flow. 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.
The structure of the STIP for 2006 is set out below:Financial performance1Maximum
bonus
potential1Director
Personal
  performance1
  
  Target
  
  
  MaximumFrancesco Caio/
      Harris Jones
    up to 37.5
    %
    67.5
    %
    
    112.5
    %
    
    150
    %Other Executive
      Directors
    up to 25
    %
    45
    %
    
    75
    %
    
    100
    %1   As a percentage of salary.
2005 Annual Report
    43Back to Contents
Corporate governance
Directors remuneration report

Deferred Short Term Incentive PlanCurrently the Executive Directors and selected senior executives may elect to re-invest up to half
of any STIP bonus into the Deferred Short Term Incentive Plan (Deferred STIP). Shareholder
approval was obtained at the AGM to adjust the plan so that this executive population is required
to compulsorily invest a third of any STIP bonus into the Deferred STIP and is given the opportunity
to invest up to a further third.
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 up to two matching shares for every one purchased share based on the
relative TSR performance of the Company measured over a three-year period (see Performance conditions
for share based awards). 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.
Currently the matching award is provided on a net of tax basis. Shareholder approval was obtained at
the AGM to adjust the plan so that the match is provided on a gross basis i.e. for every £100
of gross of tax bonus invested in the Deferred STIP, participants would be able to receive matching
shares worth up to £200.
Long-term incentive awards under the 
  Incentive Plan 2001Under the Incentive Plan 2001, the Remuneration Committee can make awards of share options, performance
shares and restricted shares to Executive Directors and other senior executives. The Remuneration
Committees intended award policy for 2006, which has been determined after considering personal
and Group performance and total reward within comparator companies is outlined below.
Share Option Plan (SOP)The SOP is the principal vehicle for long-term retention and incentivisation of the Executive Directors
and other senior executives.
The plan rules limit the face value of shares that can be optioned to an individual in any year to
600 per cent of salary for the Chief Executive and 400 per cent of salary for other Executive Directors.
For the 2006 financial year, the Remuneration Committee currently intends to grant options over shares
worth 300 per cent of salary to the Chief Executive and 250 per cent of salary to the other Executive
Directors shortly after the AGM.
The vesting of share options granted under the SOP is subject to relative TSR performance conditions
(see Performance conditions for share based awards).
Performance Share Plan (PSP)Under the PSP, Executive Directors and other senior executives can receive awards of performance shares
at nil cost.
The plan rules limit the value of shares that can be granted to an individual in any year to 100 per
cent of salary. For the 2006 financial year, the Remuneration Committee currently intends to award
shares worth 50 per cent of salary to Executive Directors shortly after the AGM.
The vesting of performance shares is subject to relative TSR performance conditions (see Performance
conditions for share based awards). 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.
Restricted Share Plan (RSP)The RSP provides for awards of restricted shares, primarily as a retention or a recruitment tool to
compensate for the forfeiture of long-term incentive arrangements when transferring to the Company.
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 awards. There
is currently no intention to make awards to any Executive Director in the forthcoming financial year.
Other plansThe Stock Appreciation Rights Plan (SARP) 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 legal issues preclude the use of real shares or share options. No Executive Director
has ever received awards under this plan.
Performance conditions for share based awardsTSR is the main performance measure used in the SOP, the Deferred STIP and the PSP as it provides an
objective external 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 a comparator group comprising the FTSE Global Telecoms Sector Index (FTSE GTSI),
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 performance period. This moderates the effect
of short-term share price volatility.
44
    2005 Annual ReportBack to Contents
Corporate governance
Awards vest depending upon the Companys TSR ranking relative to the comparator group at the end
of a single three-year performance period.
Following feedback from leading investors, the vesting schedules outlined below for future SOP and
PSP awards have been made significantly more challenging than was previously the case under these
plans.

Future vesting scheduleLevel of vesting underRanking
  Deferred STIP
  
  SOP
  
  PSPBelow median
    
    No match
    
    
    0
    %
    
    0
    %Median
    
    1:2 match
    
    
    33.33
    %
    
    33.33
    %Upper quartile
    
    2:1 match
    
    
    100
    %
    
    100
    %Previous vesting scheduleLevel of vesting underRanking
  Deferred STIP
  
  SOP
  
  PSPBelow median
    
    No match
    
    
    0
    %
    
    0
    %Median
    
    1:2 match
    
    
    50
    %
    
    40
    %Upper quartile
    
    2:1 match
    
    
    100
    %
    
    100
    %In order for any matching shares, share options or performance shares to vest, the Remuneration Committee
  has now decided that it must also be satisfied that the underlying financial performance of the Group
  warrants the release of the shares determined by the Companys TSR performance. The Committee
  has up to 12 months after the end of the performance period to judge the underlying performance.
  Specific Committee decisions will be explained in future Remuneration Reports.
Changes to the 2001 Incentive Plan to incorporate these tougher targets were approved by shareholders
at the AGM.
Performance graphsThe graph below shows the change in value of a hypothetical £100 holding in the Companys
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.
Total shareholder return
    Source: Thomson FinancialValue (£)


£120

£80

£100

£60

£40

£20

£0

31 Mar 00

31 Mar 01

31 Mar 02

31 Mar 03

31 Mar 04

31 Mar 05

C & W

FTSE 100
This graph looks at the value, by 31 March 2005, of £100 invested in Cable & Wireless on 31 March 2000 compared with the value of £100 invested in the FTSE 100 Index. The other points plotted are the values at intervening financial year-ends.The following graph shows the change in value of a hypothetical £100 holding in Cable & Wireless
Ordinary Shares over four years against the FTSE GTSI. The FTSE GTSI is the comparator group against
which relative performance is assessed under the SOP, Deferred STIP and PSP. This index was only
created in February 2001, therefore comparative TSR performance can only be provided for the last
four financial years
Total shareholder return
    Source: Thomson FinancialValue (£)

£0

£20

£100

£80

£60

£40

31 Mar 01

31 Mar 05

31 Mar 02

31 Mar 03

31 Mar 04

C & W

FTSE 100
This graph looks at the value, by 31 March 2005, of £100 invested in Cable & Wireless on 31 March 2001 compared with the value of £100 invested in the FTSE Global Telecoms Index. The other points plotted are the values at intervening financial year-ends.DilutionThe 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.
As at 31 March 2005, 2.7 per cent of the issued shared capital was available for issue under the
Companys share-based plans.
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 Plan Trust,
are subject to a limit of 5 per cent of the issued Ordinary Share capital of the Company.
Pension and other benefitsFrancesco Caio, Harris Jones, Charles Herlinger and George Battersby participate in the Cable &
Wireless Lifetime Benefits Plan,
2005 Annual Report
    45Back to Contents
Corporate governance
Directors remuneration report


a defined contribution scheme approved by the Inland Revenue. Robert Rowley and Lord Robertson of Port
  Ellen do not receive any Company provided pension benefits. Further details of the pension benefits
  earned in the year to 31 March 2005 can be found in the Directors Remuneration table on pages
  49 to 50.
The Executive Directors are eligible to participate in employee benefit programmes including life,
disability and health insurance plans and, where appropriate, receive relocation expenses. The value
of these benefits is included in the Directors Remuneration table on pages 49 to 50.
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 23 to the Financial Statements.
Executive Directors service contracts
PolicyThe Remuneration Committees policy is 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 after two years.
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 Remuneration 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 granted at the discretion of the Remuneration Committee
and therefore 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.
Current DirectorsDirectors service contracts continue until their normal retirement date.
The service contracts of Executive Directors contain a clause that governs a change of control. In
the event of a change of control of the Company, if the executives employment is adversely
changed, then a change of control provision will be triggered.
In these circumstances, the executive will receive a payment equal to their notice period and a pro-rated
bonus under the STIP (to the extent that the executive would have been awarded a bonus in respect
of the year during which their employment terminates). The executives entitlements under the
Deferred STIP, the PSP, the SOP and the RSP will be those applicable in the case of termination of
employment by reason of redundancy or early retirement under the prevailing rules of each plan.
The Executive Directors service contracts contain no other provisions for compensation payable
on early termination.
Former DirectorsKevin Loosemores contract was dated 2 April 2003 and continued until his departure as an employee
on 31 March 2005. The notice period under contract was two years until 2 April 2005 and one year
thereafter, however he agreed to a reduced period of one year. He resigned from the Board on 1 December
2004.
ChairmanThe Chairman, Richard 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. Richard Lapthorne receives an annual fee of £386,000, which is fixed for the three-year
term.
The Chairman is committed to retaining at least 500,000 Ordinary Shares throughout his service as a
Director.
If Richard Lapthornes appointment is terminated by reason of death
Current DirectorsDate of contract
    
    Notice periodFrancesco Caio
    2 April 2003
    
    One yearHarris Jones
    29 November 2004
    
    Two years until June 2005, reducing to one year by June 2006Charles Herlinger
    26 July 2003
    
    Two years until December 2005, one year thereafterGeorge Battersby
    27 July 2004
    
    One yearLord Robertson of Port Ellen
    1 February 2004
    
    Fixed term until February 2007, one year thereafterRob Rowley
    1 February 2003
    
    Fixed term until August 2005, six months thereafter46
    2005 Annual ReportBack to Contents
Corporate governance
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.
Non-executive DirectorsThe Non-executive Directors do not have service contracts with the Company, but instead have letters
of appointment, which are available at the Companys registered office. 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 2005 are set out in the Directors
Remuneration table and the associated notes on pages 49 to 50. The Non-executive Directors do not
receive any pension.
Base fees paid to each Non-executive Director have been fixed for a three-year period from 1 March
2004 or date of appointment if later than 1 March 2004 at the following levels:
Tony Rice
  £
  90,000
  1Bernard Gray
    £
    75,000
    2Graham Howe
    £
    65,000Kasper Rorsted
    £
    65,000Kate Nealon
    £
    65,000Agnès Touraine
    £
    65,0001   Includes £25,000 for role as Chairman of the Group Audit Committee2   Includes £10,000 for role as Chairman of the Remuneration 
    Committee
Bernard Gray and Tony 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.
Graham Howe and Kasper 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.
Kate Nealon and Agnès Touraine have been appointed for a three-year term commencing on 18 January
2005, 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.
None of the Non-executive Directors are entitled to any compensation if their appointment is terminated.
Of these Non-executive Directors the following have undertaken to purchase the following number of
Ordinary Shares in the Company
on 4 June 2004, 4 June 2005 and 4 June 2006 at 103.5 pence per Ordinary
  Share:
  Director
    Number of Ordinary SharesBernard Gray
    
    100,000Graham Howe
    
    100,000Tony Rice
    
    100,000Kasper Rorsted
    
    30,000The Non-executive Directors are expected to hold the purchased Ordinary Shares for a minimum period
of three years from the
date of purchase and to hold a minimum of 30,000 shares throughout their service as a Director. None
of the benefits under the arrangement is pensionable. There is no intention to offer
similar share purchase arrangements to Non-executive Directors
in the future.
Executive Directors shareholding requirementThe Company operates a policy of encouraging Executive Directors (including the Chief Executive) 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.
External DirectorshipsThe Company allows Executive Directors to hold Non-executive directorship and retain the fees received
from that role. Full time Executive Directors including the CEO, are only entitled to hold up to one external directorship.
The following provides details of Non-executive directorships held, and the annual fees for the financial
year 2004/05.
Francesco CaioNon-executive Director of Netscalibur Italia SpA
    
    No feeHarris JonesNon-executive Director of Caracal Inc
    
    No feeLord RoberstonNon-executive Director of Weir Group Plc includingmembership of the Nomination Committee
    £
    32,000Non-executive Director of Smiths Group Plcincluding membership of the Audit andNomination Committee
    £
    40,000Rob RowleyNon-executive Director of Prudential Plc includingChairmanship of the Audit Committee
    £
    90,000Non-executive directorship of Liberty International Plc,including membership of the Chairmans Committee
    £
    24,390Non-executive directorship of Taylor Nelson Sofres plcincluding membership of the Audit, Remuneration andNomination Committees and senior IndependentDirectorship
    £
    38,750George BattersbyNon-executive Director of SHL Group Plc includingChairmanship of the Remuneration Committee
    £
    25,000
2005 Annual Report
    47Back to Contents
Corporate governanceDirectors remuneration report




Directors shareholdingsThe beneficial interests of the Directors and their immediate families in the Ordinary Shares of the
Company were as follows:
Director
    As at
      1 April 2004
      (or date of
      appointment
      if later)
    
    Shares
      acquired
    
    As at
      31 March
      2005
    
    Per cent
      of classRichard Lapthorne2
    2,600,000
    
    
    
    
    
    2,600,000
    
    *Francesco Caio1 3
    383,632
    
    
    41,667
    
    
    425,299
    
    *Lord Robertson of Port Ellen1 3
    
    
    
    3,009
    
    
    3,009Rob Rowley1 3
    436,214
    
    
    61,156
    
    
    497,370
    
    *George Battersby1
    
    
    
    1,318
    
    
    1,318Charles Herlinger1 3
    
    
    
    31,401
    
    
    31,401Harris Jones1
    220,750
    
    
    
    
    
    220,750Bernard Gray
    
    
    
    100,000
    
    
    100,000Graham Howe
    
    
    
    100,000
    
    
    100,000Kate Nealon
    
    
    
    
    
    
    Tony Rice
    
    
    
    100,000
    
    
    100,000Kasper Rorsted
    
    
    
    30,000
    
    
    30,000Agnès Touraine
    
    
    
    
    
    
    1 As potential beneficiaries from outstanding awards, which may be satisfied by shares held by the Cable
& Wireless Employee Share Ownership Trust, Francesco Caio, Charles Herlinger, Harris Jones, George
Battersby, Lord Robertson of Port Ellen and Rob Rowley are deemed, by the Companies Act 1985, to
have an interest in all of the Ordinary Shares held by the Trust, which at 31 March 2005, amounted
to 54,759,057 shares.
2 1,000,000 of Richard Lapthornes shares will be returned to the Company if, before 10 January
2006, he ceases to be Chairman of the Company or fails to retain beneficial ownership of the 1,000,000
Ordinary Shares he acquired on 10 January 2003.
3 Included in the shares acquired during the year are shares purchased under the Deferred STIP and any
dividends received on the purchased shares which are converted into additional shares.
* Less than one per cent
Between 31 March 2005 and 26 August 2005 there were the following changes to the Directors shareholdings:
Rob Rowley purchased 479 Ordinary Shares, Charles Herlinger purchased 21 Ordinary Shares and George
Battersby purchased 22 Ordinary Shares all under the Share Purchase Plan.


48
    2005 Annual ReportBack to Contents
Corporate governance
Directors remunerationThe following sections of the Directors Remuneration Report have been subject to audit.Name of Director
    Salary and
      fees
£
    
    Bonuses
£
    
    Other
      benefits
      Note 2
£
    
    Compensation
      for loss of
      office
£
    
    Pension
      cash
      allowance
      Note 5
£
    
    Total 2005
£
    
    Total 2004
£
    
    Employer
      pension
      contribution
      2005
      Note 5
£
    
    Employer
      pension
      contribution
      2004
£ChairmanRichard Lapthorne
    
    386,000
    
    
    
    
    
    10,520
    
    
    
    
    
    
    
    
    396,520
    
    
    394,949
    
    
    
    
    
    Current Executive DirectorsFrancesco Caio
    
    700,000
    
    
    854,000
    
    
    195,907
    
    
    
    
    
    175,000
    
    
    1,924,907
    
    
    2,188,278
    
    
    
    
    
    116,666Harris Jones
    
    170,454
    
    
    197,137
    
    
    55,956
    
    
    
    
    
    42,614
    
    
    466,161
    
    
    
    
    
    
    
    
    (from 1 December 2004)Charles Herlinger
    
    400,000
    
    
    320,000
    
    
    408,487
    
    
    
    
    
    56,000
    
    
    1,184,487
    
    
    278,112
    
    
    44,012
    
    
    14,666Note 6George Battersby
    
    238,636
    
    
    283,500
    
    
    11,070
    
    
    
    
    
    31,023
    
    
    564,229
    
    
    
    
    
    32,136
    
    
    (from 27 July 2004)Note 7Lord Robertson of Port Ellen
    
    204,167
    
    
    202,500
    
    
    14,934
    
    
    
    
    
    
    
    
    421,601
    
    
    64,800
    
    
    
    
    
    Rob Rowley
    
    250,000
    
    
    202,500
    
    
    184
    
    
    
    
    
    
    
    
    452,684
    
    
    958,673
    
    
    
    
    
    Current Non-executive DirectorsBernard Gray
    
    75,000
    
    
    
    
    
    1,204
    
    
    
    
    
    
    
    
    76,204
    
    
    58,098
    
    
    
    
    
    Graham Howe
    
    65,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,000
    
    
    43,674
    
    
    
    
    
    Kate Nealon (from 18 January 2005)
    
    13,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,412
    
    
    
    
    
    
    
    
    Tony Rice
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,000
    
    
    76,250
    
    
    
    
    
    Kasper Rorsted
    
    65,000
    
    
    
    
    
    1,824
    
    
    
    
    
    
    
    
    66,824
    
    
    43,674
    
    
    
    
    
    Agnès Touraine (from 18 January 2005)
    
    13,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,412
    
    
    
    
    
    
    
    
    Former DirectorsKevin Loosemore
    
    326,667
    
    
    367,500
    
    
    34,741
    
    
    612,500
    
    
    77,681
    
    
    1,419,089
    
    
    1,238,424
    
    
    4,000
    
    
    6,000(until 1 December 2004)Note 3Dr Janet Morgan
    
    20,189
    
    
    
    
    
    134
    
    
    
    
    
    
    
    
    20,323
    
    
    51,365
    
    
    
    
    
    (until 22 July 2004)Totals
    
    3,017,937
    
    
    2,427,137
    
    
    734,961
    
    
    612,500
    
    
    382,318
    
    
    7,174,853
    
    
    5,396,297
    
    
    80,148
    
    
    137,3322005 Annual Report
    49Back to Contents
Corporate governanceDirectors remuneration report

Notes1. The aggregate emoluments of the Directors, which exclude compensation for loss of office, were £6,562,353
(2004  £6,319,991).
2. In compliance with the Companies Act 1985, Other benefits includes the reimbursement
of costs associated with staff entertaining, relocation and the value of benefits in kind relating
to Company provided life assurance, professional advice, travel and accommodation.
3. Kevin Loosemore resigned as a Director of the Company on 1 December 2004 but remained as an employee
until 31 March 2005. The figures in the table above represent his earnings as a director. He also
received salary of £163,333 and pension and other benefits of £41,124 (excluding bonus)
as an employee during this financial year. Kevin Loosemore was contractually entitled to compensation
for a notice period of two years but agreed to a reduced settlement. Compensation for loss of office
in the table above, therefore, represents one years salary and employers pension contributions.
4. David Prince resigned as a Director of the Company on 30 November 2003 but remained an employee
until 3 June 2004. He received a salary of £72,212, pension benefits of £16,236 and annual
bonus of £201,771 as an employee during this financial year.
5. Employer pension contributions list the Company contributions paid into Directors
defined contribution pension plans. Company pension contributions that would otherwise have breached
the Inland Revenues funding limit have instead been paid to the Director as an annual cash
allowance. An amount of £12.5 million (2004  £12.1 million) is included in provisions
to cover the cost of former Directors pension entitlements.
6. Charles Herlinger was reimbursed for relocation and moving related expenses during the financial
year that were incurred in 2003/04.
7. The performance bonus for George Battersby has not been pro-rated for the nine months that he served
as a director. The Remuneration Committee felt that this was appropriate given the significant amount
of time that he spent on Company business in the months prior to joining the Board on 27 July 2004
and for which he did not receive payment.
50
    2005 Annual ReportBack to Contents
Corporate governance
Directors share optionsName of Director
    Scheme
    
    Grant date
    
    Date from
      which first
      exercisable
    
    Date
      of expiry
      of option
    
    Exercise 
      price 
      (pence)
    
    Shares under
      option at
      1 April 2004
      (or date of
      appointment
      if later)
    
    Granted 
      between 
      1 April 2004
      and 
      31 March 
      2005
    
    Exercised
    
    Lapsed 
      cancelled or 
      forfeited
    
    Shares under
      option at 
      31 March 2005
      (or date 
      of leaving 
      if earlier)Francesco CaioSOP Approved
    
    26/6/03
    
    26/6/06
    
    25/6/10
    
    103.7
    
    28,929
    
    
    
    
    
    
    
    28,929SOP Unapproved
    
    26/6/03
    
    26/6/06
    
    25/6/10
    
    103.7
    
    2,671,167
    
    
    
    
    
    
    
    2,671,167SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    1,946,000
    
    
    
    
    
    1,946,000SAYE
    
    4/7/03
    
    1/9/06
    
    28/2/07
    
    89
    
    10,393
    
    
    
    
    
    
    
    10,3932,710,489
    
    1,946,000
    
    
    
    
    
    4,656,489Harris Jones
    SOP Approved
    
    1/12/04
    
    1/12/07
    
    30/11/11
    
    113.55
    
    26,420
    
    
    
    
    
    
    
    26,420(from 1 December 2004 )
    SOP Unapproved
    
    1/12/04
    
    1/12/07
    
    30/11/11
    
    113.55
    
    1,734,918
    
    
    
    
    
    
    
    1,734,9181,761,338
    
    
    
    
    
    
    
    1,761,338Charles Herlinger
    SOP Approved
    
    15/12/03
    
    15/12/06
    
    14/12/10
    
    135.7
    
    22,107
    
    
    
    
    
    
    
    22,107SOP Unapproved
    
    15/12/03
    
    15/12/06
    
    14/12/10
    
    135.7
    
    1,156,964
    
    
    
    
    
    
    
    1,156,964SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    927,000
    
    
    
    
    
    927,000SAYE
    
    30/6/04
    
    1/9/07
    
    29/2/08
    
    102.6
    
    
    
    9,186
    
    
    
    
    
    9,1861,179,071
    
    936,186
    
    
    
    
    
    2,115,257George Battersby
    SOP Approved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    27,777
    
    
    
    
    
    27,777(from 27 July 2004 )
    SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    783,223
    
    
    
    
    
    783,223
    
    811,000
    
    
    
    
    
    811,000Kevin Loosemore
    SOP Approved
    
    26/6/03
    
    26/6/06
    
    25/6/10
    
    103.7
    
    28,929
    
    
    
    
    
    
    
    28,929(until 1 December 2004 )
    
    
    
    
    
    
    
    
    
    
    Note 4SOP Unapproved
    
    26/6/03
    
    26/6/06
    
    26/6/10
    
    103.7
    
    1,861,139
    
    
    
    
    
    
    
    1,861,139Note 4SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    1,135,000
    
    

    
    (914,306)
    
    220,694
    
    Note 4SAYE
    
    4/7/03
    
    1/9/06
    
    28/2/07
    
    89
    
    10,393
    
    
    
    
    
    
    
    10,393Note 41,900,461
    
    1,135,000
    
    
    
    (914,306)
    
    2,121,155Lord Robertson of Port Ellen
    SOP Approved
    
    6/2/04
    
    6/2/07
    
    5/2/11
    
    143.25
    
    20,942
    
    
    
    
    
    
    
    20,942SOP Unapproved
    
    6/2/04
    
    6/2/07
    
    5/2/11
    
    143.25
    
    537,522
    
    
    
    
    
    
    
    537,522SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    463,000
    
    
    
    
    
    463,000558,464
    
    463,000
    
    
    
    

    
    1,021,464Rob Rowley
    SOP Approved
    
    26/6/03
    
    26/6/06
    
    25/6/10
    
    103.7
    
    28,929
    
    
    
    
    
    
    
    28,929SOP Unapproved
    
    26/6/03
    
    26/6/06
    
    25/6/10
    
    103.7
    
    935,391
    
    
    
    
    
    
    
    935,391SOP Unapproved
    
    3/8/04
    
    3/8/07
    
    2/8/11
    
    108
    
    
    
    579,000
    
    
    
    
    
    579,000SAYE
    
    4/7/03
    
    1/9/08
    
    28/2/09
    
    89
    
    17,893
    
    
    
    
    
    
    
    17,893982,213
    
    579,000
    
    
    
    
    
    1,561,2132005 Annual Report
    51Back to Contents
Corporate governanceDirectors remuneration report

Notes1. SOP Approved and Unapproved  Inland Revenue approved and unapproved grants respectively made
under the Share Option Plan (see page 44 for details). The vesting of options awarded under the SOP
is subject to relative TSR performance conditions. Full vesting occurs only if the Companys
TSR performance ranks at or above the upper quartile of a comparator group comprising FTSE Global
Telecoms companies. For median ranking, 50 per cent of the award vests. A sliding scale operates
between median and upper quartile, and nothing vests for TSR performance below the median. For awards
granted after May 2004, performance will be measured over a single three-year performance period.
For earlier grants, performance is able to be re-tested until the fifth anniversary of the grant.
2. 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.
3. Nil price was paid by Directors for the award of the options listed in the table above.
4. In accordance with the rules of the SOP prevailing at the date of grant, the 2003 option grant for
Kevin Loosemore is exercisable for 12 months until 31 March 2006. The outstanding 2004 option grant
has been time pro-rated and will be exercisable for 24 months following the end of the normal performance
period but only to the extent that the TSR performance condition is satisfied. In accordance with
the rules of the SAYE scheme, these options are exercisable for 6 months until 30 September 2005.
5. The closing mid-market price of an Ordinary Share on 31 March 2005 was 129.25 pence. The highest
closing mid-market price of an Ordinary Share during the year was 133.5 pence and lowest closing
mid-market price was 96.50 pence.
6. No Directors had any gains on the exercise of share options in the years ended 31 March 2004 or
31 March 2005.
7. On 25 August 2005 the following Directors were granted Share Options in accordance with the Cable
& Wireless Incentive Plan (see page 43 for details). The Options are exercisable from 25 August
2008 to 24 August 2012 subject to performance conditions during the performance period starting on
1 July 2005 and ending on 30 June 2008.
Francesco Caio
    
    1,364,522Harris Jones
    
    812,215Charles Herlinger
    
    649,772George Battersby
    
    568,551Rob Rowley
    
    406,107Lord Robertson of Port Ellen
    
    406,10752
    2005 Annual ReportBack to Contents
Corporate governanceDirectors Deferred Short Term Incentive Plan (STIP) and Restricted Share Plan AwardsName of Director
    Scheme
    
    Award 
      date
    
    Vesting
      date
    
    Market price 
      on date of 
      award 
      (pence)
    
    Shares under 
      award at 
      1 April 2004 
      (or date of 
      appointment 
      if later)
    
    Shares 
      awarded 
      between 
      1 April 2004
      and 
      31 March 
      2005
    
    Shares 
      vested
    
    Shares 
      lapsed, 
      cancelled 
      or forfeited
    
    Shares under 
      award at 31 
      March 2005 
      (or date of 
      cessation if 
      earlier)Francesco Caio
    Restricted
    
    4/6/03
    
    4/6/06
    
    97.75
    
    383,632
    
    
    
    
    
    
    
    383,632Share Plan
    
    
    
    
    
    
    
    Note 1Deferred STIP
    
    17/08/04
    
    25/6/07
    
    105.75
    
    
    
    80,182
    
    
    
    
    
    80,182(matching shares)
    
    
    
    
    
    
    
    
    
    Note 6Deferred STIP
    
    13/8/04
    
    25/6/07
    
    102.25
    
    
    
    2,340
    
    
    
    
    
    2,340(matching dividend shares)Deferred STIP
    
    11/2/05
    
    25/6/07
    
    130
    
    
    
    812
    
    
    
    
    
    812(matching dividend shares)383,632
    
    83,334
    
    
    
    
    
    466,966Harris Jones
    Restricted
    
    1/12/04
    
    1/12/07
    
    113
    
    220,750
    
    
    
    
    
    
    
    220,750(from 1 December 2004)
    Share Plan
    
    
    
    
    
    
    
    Note 2(matching shares)Restricted share plan
    
    1/12/04
    
    1/12/07
    
    113
    
    441,500
    
    
    
    
    
    
    
    441,500(performance shares)
    
    
    
    
    
    
    
    Note 3662,250
    
    
    
    
    
    
    
    662,250Charles Herlinger
    Restricted
    
    15/12/03
    
    1/12/06
    
    135.7
    
    250,000
    
    
    
    
    
    
    
    250,000Share Plan
    
    
    
    
    
    
    
    Note 4Deferred STIP
    
    17/08/04
    
    25/6/07
    
    105.75
    
    
    
    57,944
    
    
    
    
    
    57,944(matching shares)
    
    
    
    
    
    
    
    
    
    Note 6Deferred STIP
    
    13/8/04
    
    25/6/07
    
    102.25
    
    
    
    1,691
    
    
    
    
    
    1,691(matching dividend shares)Deferred STIP
    
    11/2/05
    
    25/6/07
    
    130
    
    
    
    586
    
    
    
    
    
    586(matching dividend shares)250,000
    
    60,221
    
    
    
    
    
    310,221Kevin Loosemore
    Restricted
    
    4/6/03
    
    4/6/06
    
    97.75
    
    383,632
    
    
    
    383,632
    
    
    
    (until 1 December 2004)
    Share Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Note 7Note 7Restricted
    
    31/7/03
    
    31/7/06
    
    113.5
    
    110,132
    
    
    
    110,132
    
    
    
    Share Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Note 7Deferred STIP
    
    17/08/04
    
    25/6/07
    
    105.75
    
    
    
    85,186
    
    
    
    63,890
    
    21,296(matching shares)
    
    
    
    
    
    
    
    
    
    Note 6Deferred STIP
    
    13/8/04
    
    25/6/07
    
    102.25
    
    
    
    2,486
    
    
    
    
    
    2,486(matching dividend shares)Deferred STIP
    
    11/2/05
    
    25/6/07
    
    130
    
    
    
    862
    
    
    
    
    
    862(matching dividend shares)493,764
    
    88,534
    
    493,764
    
    63,890
    
    24,644Rob Rowley
    Restricted
    
    4/6/03
    
    4/6/06
    
    97.75
    
    383,632
    
    
    
    
    
    
    
    383,632Share Plan
    
    
    
    
    
    
    
    Note 5Deferred STIP
    
    17/08/04
    
    25/6/07
    
    105.75
    
    
    
    115,104
    
    
    
    
    
    115,104(matching shares)
    
    
    
    
    
    
    
    
    
    Note 6Deferred STIP
    
    13/8/04
    
    25/6/07
    
    102.25
    
    
    
    3,360
    
    
    
    
    
    3,360(matching dividend shares)Deferred STIP
    
    11/2/05
    
    25/6/07
    
    130
    
    
    
    1,166
    
    
    
    
    
    1,166(matching dividend shares)383,632
    
    119,630
    
    
    
    
    
    503,262Lord Robertson of Port Ellen
    Deferred STIP
    
    17/08/04
    
    25/6/07
    
    105.75
    
    
    
    5,792
    
    
    
    
    
    5,792(matching shares)
    
    
    
    
    
    
    
    
    
    Note 6Deferred STIP
    
    13/8/04
    
    25/6/07
    
    102.25
    
    
    
    169
    
    
    
    
    
    169(matching dividend shares)Deferred STIP
    
    11/2/05
    
    25/6/07
    
    130
    
    
    
    58
    
    
    
    
    
    58(matching dividend shares)
    
    6,019
    
    
    
    
    
    6,0192005 Annual Report
    53Back to Contents
Corporate governanceDirectors remuneration report

Notes1. Subject to Francesco Caio remaining an employee of the Company and retaining beneficial ownership
until 4 June 2006 of the 383,632 Ordinary Shares he acquired on 4 June 2003, the Company will deliver
these restricted shares to him. No performance conditions are attached to this award since it represents
compensation for arrangements forfeited on leaving his previous employer.
2. Subject to Harris Jones remaining an employee of the Company and retaining beneficial ownership
until 1 December 2007 of the 220,750 Ordinary Shares he acquired on 1 December 2004, the Company
will deliver these restricted shares to him. No performance conditions are attached to this award,
as it was part of the terms felt to be necessary to secure his employment with the Company.
3. These performance share awards will be delivered by the Company to Harris Jones on the third anniversary
of grant if he is still an employee of the Company, if he has retained beneficial ownership of the
220,750 Ordinary Shares he acquired on 1 December 2004 and if the Companys TSR performance
against a comparator group of FTSE Global Telecoms companies has been at least upper quartile. If
TSR performance has been median, 25 per cent of the shares will be delivered, for performance between
median and upper quartile, shares will be delivered on a pro-rata basis. No shares will be delivered
for below median performance.
4. Subject to Charles Herlinger remaining an employee of the Company until December 2006 the Company
will deliver these restricted shares to him. No other performance conditions are attached to this
award.
5. Subject to Robert Rowley remaining an employee of the Company and retaining beneficial ownership
until 4 June 2006 of the 383,632 Ordinary Shares he acquired on 4 June 2003, the Company will deliver
these restricted shares to him. No other performance conditions are attached to this award.
6. These Deferred STIP matching awards will be delivered by the Company to the executive on the third
anniversary of grant if the executive is still an employee of the Company, if the executive has retained
beneficial ownership of the required number of Ordinary Shares and if the Companys TSR performance
against a comparator group of FTSE Global Telecoms companies has been at least upper quartile. The
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 performance at upper quartile or above.
No matching shares are awarded for below median performance. A dividend award supplement also operates
on the Plan. Dividends that would have been paid on purchased shares and the actual award of matching
shares during the performance period are re-invested in additional shares.
7. Following the cessation of Kevin Loosemores employment on 31 March 2005, the Restricted Share
Award with a value of £638,190 vested in full. The outstanding Deferred STIP awards (matching
and dividend shares) were time pro-rated and remains subject to a TSR condition and will vest at
the end of the performance period only to the extent that the condition is satisfied.
8. On 25 August 2005 the following Directors were granted performance share awards in accordance with
the Cable & Wireless Incentive Plan (see page 43 for details). These awards will vest from 30
June 2008 subject to the performance conditions during the performance period starting on 1 July
2005 and ending on 30 June 2008.
Francesco Caio
    
    227,420Harris Jones
    
    162,443Charles Herlinger
    
    129,954George Battersby
    
    113,710Rob Rowley
    
    81,221Lord Robertson of Port Ellen
    
    81,221On behalf of the Board
Bernard Gray
Chairman, Remuneration Committee
3 June 2005
54
    2005 Annual ReportBack to Contents
Corporate governanceStatement of 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 Company or the Group will continue in business.The Directors are also responsible for keeping proper accounting records which disclose, with reasonable
accuracy at any time, the financial position of the Company and of the Group 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.
The Directors confirm that they have complied with the above requirements in preparing the financial
statements, and having a reasonable expectation that the Company has adequate resources to continue
in operational existence for the foreseeable future, continue to adopt the going concern basis in
preparing the financial statements.
2005 Annual Report
    55Back to Contents

PerformanceOperating and
      financial review57
    
    Overview59
    
    Group financial performance66
    
    Review by division75
    
    Acquisitions76
    
    Review by division  summary77
    
    Liquidity and capital resources79
    
    Capital expenditure80
    
    Cash flow81
    
    Property and network infrastructure82
    
    Disclosures about market risk83
    
    Five year summary84
    
    Critical accounting policies87
    
    Reconciliation of US GAAP and of non-GAAP measures89
    
    Risk factors93
    
    Legal proceedings96
    
    Report of the independent public 
      accounting firmFinancial statements97
    
    Consolidated profit and loss accounts100
    
    Consolidated balance sheets101
    
    Company balance sheets102
    
    Consolidated cash flow statements103
    
    Consolidated statements of total 
      recognised gains and losses104
    
    Reconciliation of movements in 
      consolidated equity shareholders funds104
    
    Reconciliation of movements in equity 
    shareholders funds for the Company105
    
    Statement of accounting policies109
    
    Notes to the financial statementsBack to Contents
PerformanceOverview


The following discussion on Operating and financial performance should be read in conjunction with
the Business overview, the Financial statements and the notes thereto.
The Groups continuing operations reported a profit before taxation and exceptional items of £361
million in 2005 as compared with £319 million in 2004 and £96 million in 2003. The Board
has recommended the payment of a full year dividend of 3.8 pence per share. This represents a 21
per cent increase in the total dividend for 2005 compared with 2004.
Continuing operations12005
£m
    
    2004
£m
    
    2003
£mGroup turnover
    
    3,023
    
    
    3,130
    
    
    3,377Profit before taxation and
  exceptional items
    
    361
    
    
    319
    
    
    961The full profit and loss account for the Group, which is prepared in accordance with UK GAAP, and from which the information above is extracted, is set out on pages 97 to 99 of the Financial statements. A reconciliation of Continuing operations  Profit/(loss) before taxation and exceptional items to Total Group  Profit/(loss) on ordinary activities before taxation for the three years presented, is set out on page 87 of the Operating and financial review.The markets in which the Group operates continued to suffer from excess capacity and price pressure.
In this context, the Group has set priorities in efficiency and cost cutting as well as investing
to continue to shift its revenue mix toward broadband, IP and mobile services.
In the year ended 31 March 2005, the Group completed the exit of its US domestic business, sold its
Japanese business and entered the UK broadband market through the acquisition of Bulldog Communications
Limited (Bulldog).
In the UK, the business has been reshaped around three customer-focused segments  Enterprise,
Business and Carrier Services with Bulldog focused on the SoHo/Consumer segment. UK customers are also supported by the Groups operations in Europe, Asia, and the US (CWAO), which are managed
centrally from the UK.
The National Telcos have become more proactive in dealing with competition and have focused efforts
on competing profitably in mobile and broadband, while continuing to pursue cost reduction. The National
Telcos are seeking to reduce costs through a variety of initiatives including the ongoing consolidation
of property portfolios and data centres, outsourcing the mobile supply chain in the Caribbean and leveraging the strengths of Group wide procurement.
Acquisitions and disposalsOn 28 May 2004, the Group acquired Bulldog for a consideration of £18.6 million. Bulldog contributed
turnover of £11 million and a total operating loss of £34 million for the period from acquisition
to 31 March 2005.
On 18 June 2004, the Group acquired a 55 per cent economic interest in Monaco Telecom S.A.M (Monaco Telecom) for a total consideration of £108 million (162 million). Monaco Telecom contributed turnover of £100 million and a total operating profit of £17 million for the period from acquisition to 31 March 2005.
On 17 February 2005, the Group completed the sale of its Japanese business, Cable & Wireless IDC
  Inc. (IDC) to Softbank Corp. for a consideration of £71.7 million comprising £62.3
  million of cash and Softbanks assumption of £9.4 million of debt. IDC contributed turnover
  of £199 million and a total operating profit of £13 million, from 1 April 2004 to disposal.
On 28 January 2005, the Group sold its 3.4 per cent stake in Intelsat (the satellite communications
company) for cash consideration of £56 million (US$104.8 million).
United KingdomTotal operating profit before exceptional items increased by £50 million to £82 million in
2005. The improvement in performance reflected reductions in operating costs and a lower depreciation
charge following impairment write downs in the prior year. Turnover at £1,602 million was £59
million lower than 2004 primarily due to regulatory changes in fixed to mobile termination rates.
To reduce costs and protect margins, an in-depth review of the UK network was carried out and a programme
was designed to address operating costs, interconnection costs and loading. As a result it is expected
that the first phase of the programme will cut costs by £50 million in 2006. The Group believes
these savings will mitigate the impact of continued pricing pressure.
This network review also supported the Groups view of the benefits that can be achieved by moving
to IP-based Next Generation Network architecture, and the associated IT systems and processes. In
April 2005 we announced a programme to invest £190 million over three years to transform the
core UK network into a single integrated IP platform. A large proportion of the planned expenditure
is expected to replace expenditure that would otherwise have been necessary to maintain legacy UK
systems. As a result the incremental spend associated with this Next Generation Network over the
next three years is expected to be £35 million. The Group believes the benefit of this investment
will give the ability to deliver next generation customer services over a less complex, highly scalable
network capable of accommodating significant growth with lower operating and maintenance costs. The
Group also believes the UK Next Generation Network will support customer demand for new services
providing greater functionality and customised solutions on a competitive basis.
2005 Annual Report
    57Back to Contents
Operating and financial review
  Overview

BulldogThe acquisition of Bulldog was an important step in advancing the Groups access strategy. Local
loop unbundling (LLU) strengthens Cable & Wireless presence in the access network
market and addresses the needs of the SoHo/Consumer customer segment. The additional traffic would
also increase the use of the existing core UK network.
LLU allows Bulldog to put its own equipment inside BTs local exchanges to take control of the
last mile copper link (the local loop) to the customers home or office.
The Group believes access
to the last mile improves end-to-end control of the network resulting in lower outpayments
to BT and, hence, higher gross margins. The Group further believes this allows it to innovate, differentiate
and control the end-to-end quality of services to business and residential customers.
In May 2005, Bulldog reached its initial target of unbundling 400 exchanges giving Bulldog coverage
of 30 per cent of UK households.
It is now planned to unbundle an additional 200 exchanges by March 2006 and a further 200 exchanges
in the first half of 2006/07 bringing the total number of exchanges unbundled to 800. This will increase
the Groups planned investment and start-up losses in 2006.
National TelcosThe National Telco markets are at different stages of liberalisation and each has its own customer
profile, but their competitive challenges are similar. We expect to continue to respond to these
challenges by:

    reducing the costs of legacy services, where margins are under pressure;
    investing further in the key growth services of broadband, IP and mobile; and
    developing sales and marketing skills to stay ahead of the competition.Many of the countries in which the National Telcos operate have relatively low take-up levels for broadband
and IP. Cable & Wireless believes it is well positioned to offer services that assist customers
in the transition. The Group has started to invest in IP backbones in those countries where traffic
volumes justify the expenditure, including in the Caribbean where hurricane damage accelerated infrastructure
replacement. Network upgrades are also under way in Monaco, Macau, the Cayman Islands and Grenada.
Hurricane Ivan adversely impacted Cayman and Grenada and, to a lesser extent, Jamaica. This resulted
in exceptional operating costs of £18 million together with £3 million of asset write-offs
and adversely impacted the Caribbeans total operating profit before exceptional items by approximately
£11 million.
Presentation of resultsThe analysis and commentary included in this Operating and financial review is based on the Groups
geographic operations and reflects the manner in which the business has been organised and managed.
The results for IDC have been classified as discontinued and prior periods have been amended accordingly.
The Groups operations are all considered to fall into one class of business, namely telecommunications.
The following sections set out, for each of the three years ended 31 March 2005, turnover, operating
costs and operating profit or loss of the Group and of the operations: United Kingdom; CWAO; Europe;
Asia; Bulldog; Caribbean; Panama; Macau; Monaco and Rest of the World.
58
    2005 Annual ReportBack to Contents
PerformanceGroup financial performancea

2005
£m
    
    2004
£m
    
    2003
£mTurnoverContinuing operations
    
    3,023
    
    
    3,130
    
    
    3,377of which: continuing operations
    
    2,912
    
    
    3,130
    
    
    3,377acquisitions1
    
    111
    
    
    
    
    
    Discontinued operations2
    
    199
    
    
    541
    
    
    1,014Group turnover
    
    3,222
    
    
    3,671
    
    
    4,391Outpayments and network costs
    
    (1,763
    )
    
    (2,005
    )
    
    (2,453
    )Staff costs
    
    (554
    )
    
    (664
    )
    
    (915
    )Other
    
    (413
    )
    
    (554
    )
    
    (689
    )Operating costs before depreciation, amortisation and exceptional items
    
    (2,730
    )
    
    (3,223
    )
    
    (4,057
    )Depreciation (before exceptional items)
    
    (194
    )
    
    (252
    )
    
    (735
    )Amortisation (before exceptional items)
    
    (7
    )
    
    3
    
    
    (126
    )Share of operating profits in joint ventures and associates
    
    40
    
    
    41
    
    
    75Total operating profit/(loss) before exceptional items
    
    331
    
    
    240
    
    
    (452
    )of which: continuing operations (including 2005 acquisitions of (loss of £17 million))
    
    317
    
    
    272
    
    
    (15
    )discontinued operations
    
    14
    
    
    (32
    )
    
    (437
    )Exceptional operating costs: depreciation
    
    (8
    )
    
    (526
    )
    
    (2,381
    ) amortisation
    
    
    
    
    (10
    )
    
    (2,725
    ) other operating costs
    
    (145
    )
    
    (244
    )
    
    (442
    )Total operating profit/(loss)
    
    178
    
    
    (540
    )
    
    (6,000
    )of which: continuing operations (including 2005 acquisitions of (loss of £17 million))
    
    165
    
    
    (361
    )
    
    (3,936
    )discontinued operations
    
    13
    
    
    (179
    )
    
    (2,064
    )Profit less (losses) on sale or termination of operations: non exceptional
    
    3
    
    
    
    
    
    exceptional
    
    116
    
    
    250
    
    
    (147
    )Profit less (losses) on disposal of fixed assets: non-exceptional
    
    5
    
    
    25
    
    
    exceptional
    
    23
    
    
    28
    
    
    62Exceptional amounts written off investments
    
    
    
    
    
    
    
    (274
    )Profit/(loss) on ordinary activities before interest
    
    325
    
    
    (237
    )
    
    (6,359
    )Net interest and other similar income/(charges)
    
    38
    
    
    13
    
    
    102Profit/(loss) on ordinary activities before taxation
    
    363
    
    
    (224
    )
    
    (6,257
    )Tax on profit/(loss) on ordinary activities
    
    14
    
    
    12
    
    
    (36
    )Profit/(loss) on ordinary activities after taxation
    
    377
    
    
    (212
    )
    
    (6,293
    )Equity minority interests
    
    (75
    )
    
    (25
    )
    
    (124
    )Profit/(loss) for the financial year
    
    302
    
    
    (237
    )
    
    (6,417
    )1The Group acquired interests in Monaco Telecom and Bulldog Communications during the year. The effect of these acquisitions on the results for the year is set out on page 75.2The Group sold its holdings in Cable & Wireless IDC Inc. (IDC) in Japan effective 17 February 2005. Under FRS 3  Reporting Financial Performance, this business has been classified as discontinued. Comparatives for the years ended 31 March 2004 and 31 March 2003 have been amended accordingly.aOperating costs before depreciation, amortisation and exceptional items is presented on the face of the profit and loss account. This is a non-UK GAAP financial measure which is used by management as a key performance measure. A reconciliation of the non-UK GAAP financial measure Operating costs before depreciation, amortisation and exceptional items to the GAAP financial measure of Total operating costs, by major geography, is set out on page 88 of the Operating and financial review. In accordance
with guidance from the US Securities and Exchange Commission, as the Company presents an income statement with subtotals that exclude depreciation and amortisation, a reformatted condensed income statement in accordance with UK GAAP is included in the Summary of differences between United Kingdom and United States GAAP in Note 35.2005 Annual Report
    59Back to Contents
Operating and financial review
  Group financial performance

Year ended 31 March 2005 compared with year ended
  31 March 2004
Cable & Wireless reported a profit for the year of £302 million compared with a loss for the
year of £237 million in 2004, an improvement of £539 million. Depreciation and amortisation
charges were £576 million lower in 2005 following significant impairment charges in 2004. The
results in 2005 were further improved because of reduced other exceptional costs in 2005 at £145
million, compared with £244 million in 2004. Against this, the Group recorded exceptional credits
of £116 million in 2005 compared with £250 million in 2004.
Continuing operations achieved a total operating profit before exceptional items of £317 million
in 2005, compared with £272 million in 2004, an improvement of £45 million. The main drivers
of the Groups improved performance were the stronger UK performance together with the contribution
from Monaco Telecom. These improvements were partially offset by the £11 million adverse impact
on total operating profit before exceptional items in the Caribbean from Hurricane Ivan.
Total operating profit before exceptional items for discontinued operations was £14 million compared
with losses of £32 million in 2004. In 2004, discontinued operations included the results of
the Groups operations in Japan (£(2) million), the US (£(40) million) and TeleYemen
(£10 million).
Year ended 31 March 2004 compared with year ended
  31 March 2003
Cable & Wireless reported a loss for the year of £237 million in 2004 compared with £6,417
million in 2003.
The Groups total operating loss was £540 million in 2004, £5,460 million lower than
in 2003 of which £1,885 million was attributable to the discontinued operations, mainly the
United States.
Continuing operations reported a total operating loss of £361 million compared with £3,936
million in 2003. Tangible fixed asset and goodwill impairment charges of £414 million were recognised
at 31 March 2004 and principally related to the businesses in the Caribbean, £207 million, the
United Kingdom, £119 million and Panama, £65 million. This compares with tangible fixed
asset and goodwill impairment charges of £3,770 million for continuing operations in 2003. In 2004,
competition in the Caribbean and the consequent acceleration of the GSM roll-out led to a downward
revision of expected cash flows from older TDMA assets. In the United Kingdom under-utilised cabling
was written-down.
Total operating profit before exceptional items for continuing operations was £272 million in
2004 compared with a total operating loss before exceptionals in 2003 of £15 million. Charges
for depreciation and amortisation before exceptional items decreased by £449 million, mainly
reflecting the lower fixed asset base following asset impairments in 2003. Operating profit in continuing
operations, before depreciation, amortisation and exceptional items was £453 million, £128
million or 22 per cent
lower than in 2003. A significant element of the National Telcos turnover
  and costs are denominated in currencies that are linked to the US dollar. As a consequence, reported
  results were adversely impacted by a 9 per cent strengthening of sterling against the US dollar and
  a 31 per cent strengthening against the Jamaica dollar. At constant currency, operating profit from
  continuing operations before exceptionals in 2004 more than doubled when compared with 2003.
Group turnover2005
£m
    
    2004
£m
    
    2003
£mUnited Kingdom
    
    1,602
    
    
    1,661
    
    
    1,684CWAO
    
    16
    
    
    11
    
    
    Europe
    
    186
    
    
    262
    
    
    304Asia
    
    39
    
    
    32
    
    
    79Bulldog
    
    11
    
    
    
    
    
    National TelcosCaribbean
    
    550
    
    
    633
    
    
    756Panama
    
    257
    
    
    265
    
    
    279Macau
    
    117
    
    
    128
    
    
    146Monaco
    
    100
    
    
    
    
    
    Rest of the World
    
    167
    
    
    161
    
    
    159Total National Telcos
    
    1,191
    
    
    1,187
    
    
    1,340Inter-segment turnover
    
    (22
    )
    
    (23
    )
    
    (30
    )Continuing operations
    
    3,023
    
    
    3,130
    
    
    3,377Discontinued operations
    
    199
    
    
    541
    
    
    1,014Group turnover
    
    3,222
    
    
    3,671
    
    
    4,391Year ended 31 March 2005 compared with year ended
  31 March 2004
Group turnover at £3,222 million in 2005 was £449 million, or 12 per cent, lower than in 2004. Turnover from continuing operations at £3,023 million, including
£111 million from acquisitions made in the year, was £107 million or 3 per cent, lower
in 2005 compared with 2004. At constant currency turnover from continuing operations was stable year
on year.
Turnover in the United Kingdom at £1,602 million was £59 million lower in 2005 compared with
2004. This was principally due to the decline in Carrier Services turnover by 4 per cent to £733
million in 2005 following the regulated reduction in mobile termination rates from 1 September 2004. Business
turnover in 2005 declined by 11 per cent, to £394 million, reflecting the high price erosion
and churn levels experienced in this customer segment.
These reductions were partly offset by Enterprise turnover, which increased by 5 per cent to £475
million in 2005 as a result of continued expansion of sales to key financial services customers.
60
    2005 Annual ReportBack to Contents
Performance
The Caribbean turnover at £550 million in 2005 decreased by  £83 million, or 13 per cent, compared with 2004. At constant currency, the Caribbeans turnover decreased by 3 per cent in 2005 compared with 2004, reflecting the decline in international and domestic voice turnover throughout the year as well as the adverse impact of Hurricane Ivan, offset by growth in mobile turnover in 2005.
  In Panama, international voice turnover fell by 22 per cent
    (14 per cent at constant currency) to £18 million and domestic voice turnover fell by 16 per cent (8 per cent at constant currency) to £117 million in 2005 due to increasing competition following the liberalisation of international and domestic voice services from
  2 January 2003. These declines were in part offset by continued strong growth in mobile turnover which increased by 35 per cent (48 per cent at constant currency) to £77 million in 2005 reflecting strong growth in GSM mobile subscribers and an increase in the mobile market penetration in Panama. Data and IP and other turnover remained broadly stable at £45 million in 2005.
  European turnover fell from £262 million in 2004 to £186 million primarily due to the full year impact of disposals of certain domestic businesses in continental Europe in 2004.
  In 2005, discontinued operations included the turnover from
    the Groups business in Japan. In 2004 and 2003, discontinued operations included the turnover of the Groups discontinued operations in Japan, the US and Yemen.
  Year ended 31 March 2004 compared with year ended

    31 March 2003Group turnover in 2004 was £3,671 million; £720 million or 16
  per cent lower than in 2003. Of total turnover, £541 million related to discontinued operations in Japan, the United States and Yemen. Turnover from continuing operations decreased by £247 million, or 7 per cent, to £3,130 million in 2004 compared with 2003.
  Caribbean turnover at reported rates was £123 million, or 16 per cent, lower in 2004 compared with 2003. At constant currency
  rates there was an underlying decrease of 1 per cent. International turnover at constant currency was 26 per cent lower reflecting increased competition in Jamaica following liberalisation and pre-emptive tariff reductions in other markets. There were offsetting increases in mobile, where the rollout of GSM in all major regions supported an increase in customer numbers, and domestic, due to rate rebalancing and increased volumes of interconnect as the number of competitors increased.
  Turnover in Europe was £42 million or 14 per cent lower than in 2003. Increased Enterprise turnover was more than offset by a decline in Carrier Services and Business as a result of increased competition and the sale of domestic operations in some countries.
  Turnover in the United Kingdom in 2004 was broadly in line with 2003 following several years of decline. Increased Carrier Services and Enterprise turnover was offset by reduced turnover from the Business segment.
Operating costs before depreciation, amortisation 
and exceptional items2005
£m
      
      2004
£m
      
      2003
£mOutpayments and network costs1
      
      1,763
      
      
      2,005
      
      
      2,453Staff costs
      
      554
      
      
      664
      
      
      915Other
      
      413
      
      
      554
      
      
      689Total
      
      2,730
      
      
      3,223
      
      
      4,057of which:United Kingdom
      
      1,452
      
      
      1,560
      
      
      1,568CWAO
      
      21
      
      
      27
      
      
      Europe
      
      198
      
      
      268
      
      
      347Asia
      
      33
      
      
      33
      
      
      100Bulldog
      
      39
      
      
      
      
      
      National TelcosCaribbean
      
      388
      
      
      442
      
      
      467Panama
      
      151
      
      
      156
      
      
      143Macau
      
      67
      
      
      70
      
      
      86Monaco
      
      73
      
      
      
      
      
      Rest of the World
      
      85
      
      
      89
      
      
      79Total National Telcos
      
      764
      
      
      757
      
      
      775Other and eliminations
      
      40
      
      
      32
      
      
      6Continuing operations
      
      2,547
      
      
      2,677
      
      
      2,796Discontinued operations
      
      183
      
      
      546
      
      
      1,261Total
      
      2,730
      
      
      3,223
      
      
      4,0571
      Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with 31 March 2004.
  Total operating costs before depreciation, amortisation and exceptional items were £2,730 million in 2005, £493 million or 15 per cent lower than 2004. Excluding discontinued operations, there was a decrease in 2005 of £130 million or 5 per cent compared with 2004.
  Outpayments and network costs for continuing operations at £1,649 million were £96 million, or 6 per cent lower in 2005 compared with 2004. The increase of £68 million of outpayments and network costs associated with the consolidation of Monaco Telecom and Bulldog was more than offset by reductions in the United Kingdom (£92 million), Europe (£55 million) and Caribbean (£20 million). The reduction in costs was driven by reducing interconnect prices (regulatory and competition), cost savings initiatives and the full year impact of disposal of certain domestic businesses in continental Europe in 2004.
  Staff costs for continuing operations increased marginally from £524 million in 2004 to £527 million in 2005, including £25 million of costs associated with Bulldog and Monaco Telecom. Adjusting for this, staff costs reduced by 4 per cent in 2005 compared with 2004.
  Other costs for continuing operations fell by £37 million, or 9 per cent to £371 million, before adjusting for the impact of consolidating
2005 Annual Report
    61Back to Contents

Operating and financial reviewGroup financial performance

Monaco Telecom and Bulldog (£19 million). The reduction predominantly related to one-off charges in 2004 together
with the result of cost reduction initiatives across the Group.
  Year ended 31 March 2004 compared with 31 March 2003Total operating costs before depreciation, amortisation and exceptional items were £3,223 million in 2004, £834 million or 21 per cent lower than 2003. Excluding discontinued operations, there was a decrease in 2004 of £119 million or 4 per cent compared with 2003.
  Outpayments and network costs for continuing operations at £1,745 million were £64 million lower in 2004 compared with 2003. Reductions in Europe (£44 million), Asia (£62 million) and the Caribbean (£37 million), were partly offset by a £48 million increase in the United Kingdom and a £23 million increase in respect of the newly created CWAO network. In Europe, network costs and outpayments fell reflecting the exit from domestic business and network rationalisation. The decrease in the Caribbean was primarily due to the impact of currency translation. UK network costs included £34 million in relation to an IBM contract that was terminated.
  Staff costs for continuing operations at £524 million in 2004 were £67 million, or 11 per cent, lower than in 2003 reflecting the benefit of a 3,150 net reduction in headcount across the Group. In the UK, headcount at 31 March 2004 was 1,284 lower than at 31 March 2003 despite recruitment of an additional 603 staff to enhance the skills mix.
  Other costs for continuing operations were broadly consistent year on year.
Headcount  continuing operations12005
        
        
        2004
        
        
        2003United Kingdom
        
        4,499
        
        
        4,398
        
        
        5,682CWAO
        
        41
        
        
        60
        
        
        Europe
        
        423
        
        
        519
        
        
        1,136Asia
        
        221
        
        
        173
        
        
        240Bulldog
        
        505
        
        
        
        
        
        National TelcosCaribbean
        
        4,147
        
        
        4,254
        
        
        5,073Panama
        
        1,818
        
        
        1,881
        
        
        2,218Macau
        
        932
        
        
        881
        
        
        947Monaco
        
        458
        
        
        
        
        
        Rest of the World
        
        1,411
        
        
        1,414
        
        
        1,449Total National Telcos
        
        8,766
        
        
        8,430
        
        
        9,687Other
        
        326
        
        
        285
        
        
        270Total
        
        14,781
        
        
        13,865
        
        
        17,0151Headcount in the table above is stated at 31 March. Employee numbers set out in Note 6 to the Financial statements are based on the average monthly number of employees in each business, as required by the UK Companies Act.The increase in the United Kingdom headcount from 1 April 2004 to 31 March 2005 is attributable to the insourcing of an IT contract during the year together with the transfer of the Group IT department to the United Kingdom towards the end of 2005.
  The net increase in the headcount for Other during the year is due to the formation of a National Telcos head office function, the insourcing of Coventry College, a training facility for the Group, and other one-off projects.
62
    2005 Annual ReportBack to Contents

Performance
Depreciation before exceptional items2005
£m
        
        
        2004
£m
        
        
        2003
£mUnited Kingdom
        
        60
        
        
        68
        
        
        413Europe
        
        
        
        
        1
        
        
        28Asia
        
        1
        
        
        1
        
        
        3Bulldog
        
        2
        
        
        
        
        
        National TelcosCaribbean
        
        58
        
        
        76
        
        
        74Panama
        
        31
        
        
        39
        
        
        45Macau
        
        15
        
        
        18
        
        
        18Monaco
        
        6
        
        
        
        
        
        Rest of the World
        
        18
        
        
        20
        
        
        22Total National Telcos
        
        128
        
        
        153
        
        
        159Other
        
        1
        
        
        2
        
        
        3Continuing operations
        
        192
        
        
        225
        
        
        606Discontinued operations
        
        2
        
        
        27
        
        
        129Total
        
        194
        
        
        252
        
        
        735Year ended 31 March 2005 compared with year ended
    31 March 2004Depreciation before exceptional items at £194 million in 2005 was £58 million, or 23 per cent lower than in 2004. This decrease was mainly attributable to the lower fixed asset base following the impairments recorded in previous years.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Depreciation before exceptional items at £252 million in 2004 was £483 million lower than in 2003. This decrease was mainly attributable to the lower fixed asset base following the impairments in September 2002 and March 2003.
Goodwill and other intangibles amortisation before exceptional items2005
£m
        
        
        2004
£m
        
        
        2003
£mUnited Kingdom
        
        
        
        
        
        
        
        62Asia
        
        
        
        
        
        
        
        4Bulldog
        
        4
        
        
        
        
        
        National TelcosCaribbean
        
        
        
        
        
        
        
        1Monaco
        
        5
        
        
        
        
        
        Rest of the World
        
        (2
        )
        
        (3
        )
        
        (2
        )Total National Telcos
        
        3
        
        
        (3
        )
        
        (1
        )Continuing operations
        
        7
        
        
        (3
        )
        
        65Discontinued operations
        
        
        
        
        
        
        
        61Total
        
        7
        
        
        (3
        )
        
        126Year ended 31 March 2005 compared with year ended
  31 March 2004An amortisation charge of £9 million was recorded in respect of the goodwill and other intangibles arising on the acquisition of Monaco Telecom and Bulldog in 2005. The amortisation credit of £2 million relates to the negative goodwill arising on the acquisition of Guernsey in 2003.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Following the write-off of substantially all of the Groups goodwill at 31 March 2003, the Group reported a goodwill credit of £3 million. The credit mainly relates to the amortisation of negative goodwill arising on the acquisition of Guernsey in 2003.
  Share of operating profits in joint ventures and associates2005
£m
        
        
        2004
£m
        
        
        2003
£mUnited Kingdom
        
        (8
        )
        
        (1
        )
        
        National TelcosCaribbean
        
        19
        
        
        30
        
        
        33Monaco
        
        1
        
        
        
        
        
        Rest of the World
        
        28
        
        
        12
        
        
        29Total National Telcos
        
        48
        
        
        42
        
        
        62Other
        
        
        
        
        
        
        
        13Total
        
        40
        
        
        41
        
        
        75Year ended 31 March 2005 compared with year ended
  31 March 2004The Groups share of operating profits in joint ventures and associates decreased by £1 million from £41 million in 2004 to £40 million in 2005. In the UK the loss of £8 million was primarily due to the impairment of a sub-sea cable held by the Apollo joint venture.
2005 Annual Report
    63Back to Contents

Operating and financial reviewGroup financial performance

TSTT, the Groups joint venture in Trinidad and Tobago recorded a redundancy provision in the second half of 2005. The Groups share of this charge was £11 million. This accounted for the decline in the reported results for the Caribbean.
  The increase in Rest of the World is due to the strong performance of Batelco, the Groups associate in Bahrain.
  Year ended 31 March 2004 compared with year ended
    31 March 2003The Groups share of operating profits in joint ventures and associates fell by £34 million from £75 million in 2003 to £41 million in 2004. Rest of the World declined from £29 million in 2003 to £12 million mainly due to lower contribution from associates in Bahrain and Fiji reflecting increased competition and an impairment in the carrying value of associates.
  Exceptional operating costs before taxation2005
£m
        
        
        2004
£m
        
        
        2003
£mDepreciation
        
        8
        
        
        526
        
        
        2,381Amortisation
        
        
        
        
        10
        
        
        2,725Other
        
        145
        
        
        244
        
        
        442Total
        
        153
        
        
        780
        
        
        5,548United Kingdom
        
        66
        
        
        266
        
        
        3,570CWAO
        
        (6
        )
        
        
        
        
        Europe
        
        38
        
        
        7
        
        
        298Asia
        
        1
        
        
        8
        
        
        16National TelcosCaribbean
        
        21
        
        
        245
        
        
        19Panama
        
        
        
        
        73
        
        
        14Macau
        
        
        
        
        2
        
        
        Rest of the World
        
        1
        
        
        1
        
        
        1Total National Telcos
        
        22
        
        
        321
        
        
        34Other
        
        31
        
        
        31
        
        
        3Continuing operations
        
        152
        
        
        633
        
        
        3,921Discontinued operations
        
        1
        
        
        147
        
        
        1,627Total
        
        153
        
        
        780
        
        
        5,548Year ended 31 March 2005 compared with year ended
  31 March 2004Exceptional other operating costs of £145 million were charged in 2005. These costs include £68 million in respect of redundancy costs in continuing operations (United Kingdom £29 million, Europe £29 million, Asia £1 million, Other £9 million), £54 million in respect of property costs principally relating to the United Kingdom and Europe.
  Hurricane Ivan and the Asian tsunami adversely impacted the Groups operations in the Caribbean and Maldives, respectively. Exceptional restoration costs of £19 million were incurred in rectifying damage caused to the network and other assets of these operations.
In addition to the exceptional restoration charges noted above, the Group wrote off £3 million of assets that were damaged by the hurricane and tsunami and a further impairment charge of £5 million relating to the fixed assets of the Groups European operations.
  Year ended 31 March 2004 compared with year ended
  31 March 2003Exceptional operating costs of £780 million were charged in 2004. Fixed assets were impaired by a further £526 million: TDMA assets were impaired across the Caribbean and in Panama as the roll-out of GSM was accelerated to improve service levels; in Japan over-capacity and price reductions led to a downwards reassessment of future cash flows and in the United Kingdom under-utilised cabling was written off. Other exceptional operating costs of £244 million in 2004 related to the cost of restructuring Group businesses and included £113 million of redundancy costs and £92 million of property costs.

  Exceptional profit/(loss) on disposal or termination
        of operations2005
£m
        
        
        2004
£m
        
        
        2003
£mProfit/(loss) on disposal or
   termination of operations
        
        116
        
        
        250
        
        
        (147
        )Year ended 31 March 2005 compared with year ended
  31 March 2004The Group realised an exceptional profit on disposal of its operations in Japan of £42 million in 2005. An exceptional credit of £66 million was recorded in respect of US domestic operations that were discontinued in the year ended 31 March 2004, principally comprising cash refunded to the Group as part of the Chapter 11 process. In addition, a gain of £8 million was recorded in respect of the sale or termination of Group operations being the net of previously accrued costs no longer required of £42 million partially offset by additional charges in the year of £34 million.
  Year ended 31 March 2004 compared with year ended
    31 March 2003The Group realised an exceptional profit on disposal or termination of operations of £250 million in 2004, of which £191 million relates to the exit from the US business. In addition, £57 million of accrued costs relating to disposals in previous years, principally the disposal of the Groups former UK cable business, have been released.

64
    2005 Annual ReportBack to Contents
Performance
Profits less (losses) on disposal of fixed assets2005
£m
        
        
        2004
£m
        
        
        2003
£mNon-exceptional
        
        5
        
        
        25
        
        
        Exceptional
        
        23
        
        
        28
        
        
        62Total
        
        28
        
        
        53
        
        
        62Year ended 31 March 2005 compared with year ended

    31 March 2004Non-exceptional profits on disposal of fixed assets largely relate to the sale of various trade investments and associates including the Groups 3.4 per cent stake in Intelsat (the satellite communications company) and RTC, a Bulgarian associate.
  The exceptional profit on disposal of fixed assets primarily relates to the disposal of a trade investment by the Japanese business prior to its disposal by the Group.
  Year ended 31 March 2004 compared with year ended

    31 March 2003Non-exceptional profits on disposal of fixed assets primarily relate to the sale of various satellite interests and other investments. The exceptional profit on disposal of fixed assets includes £16 million, relating to the disposal of certain properties in the United States as part of the restructuring of the US business prior to its filing for Chapter 11, and £12 million mainly relating to the sale of properties in the United Kingdom and the Caribbean as part of the Groups restructuring.
  Exceptional amounts written off investments2005
£m
        
        
        2004
£m
        
        
        2003
£mExceptional amounts written
          off investments
        
        
        
        
        
        
        
        (274
        )Total
        
        
        
        
        
        
        
        (274
        )Year ended 31 March 2005 compared with year ended
  31 March 2004There were no exceptional amounts written off investments during 2005.
  Year ended 31 March 2004 compared with year ended
    31 March 2003There were no exceptional amounts written off investments during 2004.
  The current asset investments principally relating to PCCW Limited were written down by £274 million to market value at 31 March 2003. The PCCW shares were sold during the year ended 31 March 2004 for consideration of £229 million resulting in a loss of less than £1 million.
The profit and loss account in 2003 has been amended to reverse the £116 million impairment in respect of the Companys Employee Share Option Plan Trust (ESOP) following the change in UK accounting rules in respect of ESOPs. See Note 24 of the Financial statements for further explanation.
  Taxation2005
£m
        
        
        2004
£m
        
        
        2003
£mProfit/(loss) on ordinary activitiesbefore taxation
        
        363
        
        
        (224)
        
        
        (6,257)Tax credit/(charge) on profit/(loss)on ordinary activities
        
        14
        
        
        12
        
        
        (36)Effective tax rate
        
        (3.9)%
        
        
        5.4%
        
        
        (0.6)%Year ended 31 March 2005 compared with year ended

    31 March 2004Including the impact of exceptional items, the effective tax rate for 2005 was (3.9) per cent compared to an effective tax rate in 2004 of 5.4 per cent. The effective tax rates excluding the impact of exceptional items and an exceptional tax credit in 2005 were 19.9 per cent in 2005 and 21.9 per cent in 2004.
  The principal reason for the difference in the rates is the mix of profits and losses between countries with different tax rates.
  The exceptional tax credit of £85 million relates to the settlement and clarification of various longstanding overseas tax items at less than their expected cost.
  Year ended 31 March 2004 compared with year ended

    31 March 2003Tax credits of £12 million were generated in 2004 on a loss before tax of £224 million. The main reason for the tax rate of 5.4 per cent being lower than the UK standard rate of tax of 30 per cent was due to tax losses for which no benefit had been recognised in the year as realisation of the benefit was not considered probable. The losses were carried forward to future periods. Exceptional items on which tax relief is denied were lower than 2003 resulting in a positive tax rate in 2004 compared to a negative tax rate in 2003.
2005 Annual Report
    65Back to Contents
Operating and financial reviewReview by division

This section provides a discussion of Cable & Wireless results
  by division.

  United Kingdom2005
£m
        
        
        2004
£m
        
        
        2003
£mTurnover
        
        1,602
        
        
        1,661
        
        
        1,684CostsOutpayments and network costs1
        
        (1,066
        )
        
        (1,158
        )
        
        (1,110
        )Staff costs
        
        (248
        )
        
        (254
        )
        
        (292
        )Other
        
        (138
        )
        
        (148
        )
        
        (166
        )(1,452
        )
        
        (1,560
        )
        
        (1,568
        )Depreciation before exceptional items
        
        (60
        )
        
        (68
        )
        
        (413
        )Amortisation before exceptional items
        
        
        
        
        
        
        
        (62
        )Joint ventures and associates
        
        (8
        )
        
        (1
        )
        
        Total operating profit/(loss)
  before exceptional items
        
        82
        
        
        32
        
        
        (359
        )Exceptional operating items depreciation
        
        
        
        
        (119
        )
        
        (1,302
        ) amortisation
        
        
        
        
        
        
        
        (2,194
        ) other costs
        
        (66
        )
        
        (147
        )
        
        (74
        )Total operating profit/(loss)
        
        16
        
        
        (234
        )
        
        (3,929
        )1Outpayments and network costs include customer acquisition costs and the cost of goods sold.
  Year ended 31 March 2005 compared with year ended

  31 March 2004Total operating profit before exceptional items was £82 million in 2005 compared to £32 million in 2004. This improvement was primarily due to increased focus on cost savings during 2005. In addition, total operating profit before exceptional items was positively impacted by an £8 million depreciation benefit from the impairment taken in prior years.
  Turnover at £1,602 million decreased by £59 million, or 4 per cent, in 2005 compared with 2004. Growth in Enterprise turnover was more than offset by declines in Carrier Services and Business turnover.
  Enterprise turnover increased by 5 per cent to £475 million in 2005 as a result of the continued expansion of sales to key financial services customers. Against this, Business turnover declined to £394 million, a decrease of 11 per cent, compared with 2004 reflecting the high price erosion and churn levels experienced in this customer segment. Notwithstanding the
difficult trading conditions, recent initiatives undertaken in the UK have resulted in some noteworthy wins. For example, in April 2005 the UK executed a three-year contract with Scottish and Newcastle plc, valued at £2.1 million, to provide IP-VPN quality of service to integrate 66 of its manufacturing, distribution and sales sites to a single data network. Management anticipates the key areas of focus in Enterprise in 2006 include increased upselling to existing customers, particularly with new IP-based services.
  Carrier Services turnover also declined from £763 million in 2004 to £733 million in 2005. This reduction was largely due to the regulated reduction in mobile termination rates in the UK from September 2004. Adjusting for this, Carrier Services turnover was stable in 2005 compared with 2004. To combat the loss of turnover following the reduction in mobile termination rates, the UK will seek to increase volumes in most of the key product sets and has extended contracts with existing customers such as Centrica and the Post Office in fixed line voice services. In 2006, management anticipates Carrier Services will continue to exploit its geographical reach and focus on driving improvements to cash margins.
  Outpayments and network costs declined by 8 per cent in 2005 compared with 2004, due to the reduction in mobile termination rates referred to above and an increased focus on cost savings through network efficiency and vendor renegotiation programmes.
  While staff and other costs declined by approximately 4 per cent in 2005 compared with 2004, staff costs increased in the second half of 2005 as a result of the transfer of costs relating to Cable & Wireless Group IT staff to the UKs operating cost base.
  The reduction in the non-exceptional depreciation charge from £68 million in 2004 to £60 million in 2005 is primarily attributable to the lower fixed asset base following the impairment of assets in 2004.
  The loss of £8 million arising on joint ventures and associates was primarily due to the impairment of a sub-sea cable held by one of the UKs joint ventures.
  The UK reported a total operating profit of £16 million in 2005 compared with operating losses of £234 million in 2004. This was primarily due to a reduction in the total amount of exceptional charges from £266 million in 2004 to £66 million in 2005 together with the benefit of cost initiatives as set out above. The exceptional charges in 2005 relate to the costs of the ongoing restructuring of the UK business. This restructuring will continue through 2006.

66
    2005 Annual ReportBack to Contents
Performance
Year ended 31 March 2004 compared with year ended
  31 March 2003The UK reported a total operating profit before exceptional items of £32 million in 2004 compared with losses of £359 million in 2003. This improvement was primarily driven by the decrease in non-exceptional depreciation and amortisation charges in 2004 compared with 2003 (attributable to the reduced asset base following exceptional impairment charges in 2003) and the reduction in staff costs in 2004 compared with 2003 following the reduction in headcount year-on-year.
  Turnover at £1,661 million in 2004 was broadly in line with 2003. Turnover in the six months to 31 March 2004 was £836 million, 1 per cent higher than in the first half of 2004.
  A £79 million decline in Business turnover was partly offset by improvements in Carrier Services and Enterprise segments (£39 million and £17 million respectively).
  The decline in UK Business turnover reflected the continued impact of customer churn and tariff erosion. However, action taken in the year, including increased investment in the sales acquisition team and the launch of new simplified products, stopped the downward trend of the last two years with second half 2004 Business turnover broadly in line with the first half.
  Carrier Services turnover were £39 million higher in 2004 than in 2003. Voice was 5 per cent higher mainly reflecting increases in mobile transit traffic and sales to 118 (directory enquiry) service providers. The benefit of these increases was partly reduced by lower telebusiness and data services.
  Operating costs before depreciation, amortisation and exceptional operating items were £8 million lower at £1,560 million in 2004.
  Outpayments and network costs were £48 million higher in 2004 and included £34 million relating to an IBM contract. Staff costs were £38 million lower in 2004 compared with 2003 mainly due to the headcount reduction programme. Headcount at 31 March 2004 was 4,398 compared with 5,682 at 31 March 2003. Other costs were £18 million lower than in 2003 and included an £8 million reduction in property costs reflecting the benefits of property rationalisation. Depreciation and amortisation charges before exceptional items were £407 million lower in 2004 than 2003, largely due to the lower asset base following the 2003 impairment charges.
  Total operating losses at £234 million in 2004 were £3,695 million lower than in 2003, primarily due to a £3,377 million reduction in the charge for fixed asset and goodwill impairments. Exceptional operating costs of £147 million in 2004 arose primarily as a consequence of the UK restructuring and related to property exit costs and severance payments.
CWAO2005
£m
        
        
        2004
£m
        
        
        2003
£mTurnover
        
        16
        
        
        11
        
        
        CostsOutpayments and network costs1
        
        (14
        )
        
        (23
        )
        
        Staff costs
        
        (4
        )
        
        (4
        )
        
        Other
        
        (3
        )
        
        
        
        
        (21
        )
        
        (27
        )
        
        Total operating loss before exceptional items
        
        (5
        )
        
        (16
        )
        
        Exceptional operating items other costs
        
        6
        
        
        
        
        
        Total operating profit/(loss)
        
        1
        
        
        (16
        )
        
        1Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
  31 March 2004Cable & Wireless Americas Operations, Inc (CWAO) started trading on 1 September 2003.
  The US reported a total operating profit before exceptional items of £1 million in 2005 compared with losses of £16 million in 2004. The improvement in performance was primarily due to the successful migration of customers from the former Cable & Wireless US network (now owned by SAVVIS Communications) to CWAOs purpose built network together with the release of £6 million of provisions held in respect of costs associated with the exit of the Groups domestic US business in 2004.
  Turnover in 2005 was £16 million, an increase of 45 per cent at reported rates (59 per cent at constant currency) compared with 2004. This was driven by a longer trading period in 2005, the successful migration of customers as noted above and the acquisition of Enterprise and Carrier customers.
  Outpayments and network costs in 2005 declined by 39 per cent (33 per cent at constant currency) to £14 million compared with 2004. Taking into account the longer period in 2005 this significant reduction in cost followed the migration of the CWAO network.
  Staff costs were stable at reported rates and declined by 9 per cent at constant currency due to headcount reductions during the year, offset by the longer trading period.
2005 Annual Report
    67Back to Contents
Operating and financial reviewReview by division

Year ended 31 March 2004In line with its strategy to withdraw from its US domestic operations, Cable & Wireless formalised the ongoing commercial dealings between its US business (CWA) and the rest of the Cable & Wireless Group in September 2003. Under these arrangements, each party agreed to provide certain services to the other, including network capacity, for an interim period.
  To facilitate the separation of CWA from the Group, Cable & Wireless incorporated a wholly owned subsidiary, Cable & Wireless Americas Operations, Inc. (CWAO) to provide ongoing US connectivity for data and IP services to Cable & Wireless multinational customers based in other regions (primarily those served by the UK, Europe and Asia operations). In addition, CWAO built a core network in the US comprising seven nodes in five cities and entered into access arrangements with third party carriers in order provide end-to-end services.
  CWAO turnover of £11 million was derived from the provision of services to CWA from October 2003 together with the provision of services to other Cable & Wireless Group customers. Outpayments and network costs of £23 million included within operating costs represent the costs of CWAOs core network plus amounts paid to CWA in accordance with the interim service arrangements described above.
Europe2005
£m
        
        
        2004
£m
        
        
        2003
£mTurnover
        
        186
        
        
        262
        
        
        304CostsOutpayments and network costs1
        
        (143
        )
        
        (198
        )
        
        (242
        )Staff costs
        
        (31
        )
        
        (40
        )
        
        (55
        )Other
        
        (24
        )
        
        (30
        )
        
        (50
        )(198
        )
        
        (268
        )
        
        (347
        )Depreciation before exceptional items
        
        
        
        
        (1
        )
        
        (28
        )Total operating loss before
  exceptional items
        
        (12
        )
        
        (7
        )
        
        (71
        )Exceptional operating items depreciation
        
        (5
        )
        
        
        
        
        (262
        ) other costs
        
        (33
        )
        
        (7
        )
        
        (36
        )Total operating loss
        
        (50
        )
        
        (14
        )
        
        (369
        )1Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
  31 March 2004Total operating losses before exceptional operating items for 2005 were £12 million compared to £7 million in 2004 due primarily to the decline in turnover, particularly in the Enterprise and Carrier Services customer segments.
  Turnover for the year fell by £76 million to £186 million, a decline of 29 per cent compared with 2004. Enterprise turnover for the year declined by 45 per cent, or £18 million, to £22 million, reflecting the loss of a major contract and the full year impact of disposals of domestic operations in Sweden, Belgium, the Netherlands, Italy, Switzerland, France and Germany and the domestic data business in Russia. Business turnover also declined from £14 million in 2004 to £9 million in 2005 as a result of the full year impact of the disposals.
  Carrier Services turnover at £155 million decreased by £53 million, or 25 per cent, in 2005 compared with 2004 as a result of aggressive price competition together with a shift in turnover mix from high turnover to low turnover destinations. Despite this decline, Europe has continued to market to new customers, recently winning a new contract with Belgacom to provide carrier multi-protocol label switching (MPLS) services.
  Outpayments and network costs declined by £55 million, or 28 per cent, to £143 million in 2005 compared with 2004. This reduction in costs was primarily due to increased focus on cost savings through network efficiency and vendor renegotiation programmes as well as the impact of reducing the scale of operations in Europe.
68
    2005 Annual ReportBack to Contents
Performance
Staff costs at £31 million fell by £9 million, or 23 per cent compared with 2004 due to the full year impact of staff reductions achieved in 2005. Headcount in Europe has been reduced by 18 per cent from 1 April 2004 to 31 March 2005.
  The fall in other costs in 2005 compared with 2004 reflects the reduction in the scale of operations in continental Europe.
  Europes total operating loss increased from £14 million in 2004 to £50 million in 2005. The exceptional costs of £33 million recorded in 2005 related to the restructuring of the European operations to focus on Carrier Services. An exceptional depreciation charge of £5 million was recognised as a consequence of the restructuring. A headcount reduction of 46 per cent was announced in November 2004 and is scheduled to be completed by March 2006. Further reductions planned through 2006 are expected to lower costs in Europe by an annualised £15 million by end of 2006.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Total operating losses before operating exceptional items were £64 million lower in 2004 at £7 million: a £27 million reduction in the non-exceptional depreciation charge reflecting the prior year asset impairments, together with a £20 million reduction in other costs, more than offset a £42 million reduction in turnover.
  Turnover in continental Europe in 2004 was £42 million, or 14 per cent, lower than in 2003. A £21 million increase in Enterprise turnover, reflecting the roll out of major contracts, was more than offset by declines in Carrier Services and Business as a result of increased competition and the disposal of domestic operations in Sweden, Belgium, the Netherlands, Italy, Switzerland, France and Germany and the domestic data business in Russia.
  Continental Europes operating costs before depreciation, amortisation and exceptional operating items were £79 million or 23 per cent lower in 2004 than 2003. At constant currency rates, there was an underlying reduction of 29 per cent. Cost savings were achieved as a result of a reduction in employee numbers, property disposals and network rationalisation as well as the exit from domestic operations as described above. Headcount in continental Europe was 519 at 31 March 2004 compared with 1,136 at 31 March 2003.
  Total operating losses at £14 million in 2004 were £355 million lower than in 2003 of which £262 million reflected exceptional asset impairments in 2003 that were not repeated in 2004.
Asia2005
£m
      
      
      2004
£m
      
      
      2003
£mTurnover
      
      39
      
      
      32
      
      
      79CostsOutpayments and network costs1
      
      (19
      )
      
      (21
      )
      
      (83
      )Staff costs
      
      (7
      )
      
      (8
      )
      
      (10
      )Other
      
      (7
      )
      
      (4
      )
      
      (7
      )(33
      )
      
      (33
      )
      
      (100
      )Depreciation before exceptional items
      
      (1
      )
      
      (1
      )
      
      (3
      )Amortisation before exceptional items
      
      
      
      
      
      
      
      (4
      )Total operating profit/(loss)
  before exceptional items
      
      5
      
      
      (2
      )
      
      (28
      )Exceptional operating items depreciation
      
      
      
      
      (4
      )
      
      (10
      ) other costs
      
      (1
      )
      
      (4
      )
      
      (6
      )Total operating profit/(loss)
      
      4
      
      
      (10
      )
      
      (44
      )1Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
  31 March 2004Following the disposal of the Groups Japanese subsidiary, Cable & Wireless IDC Inc., on 17 February 2005, the Group continues to conduct business in the Enterprise and Carrier Services segments in Australia, China, Hong Kong, India, Japan and Singapore, together referred to as Asia.
  Asia reported a total operating profit before exceptional items of £5 million in 2005 against losses of £2 million in 2004. The improvement in performance was predominantly driven by growth in turnover together with maintenance of the cost base through tight cost control. Asias total operating loss of £10 million in 2004 was after exceptional charges of £8 million in that year. In 2005 Asia reported a total operating profit of £4 million.
  Turnover at £39 million, increased by 22 per cent (34 per cent at constant currency) compared to 2004. The growth in turnover was driven by a strong performance in both the Carrier Services and Enterprise customer segments. Enterprise turnover increased by £7 million to £34 million in 2005 due to improved marketing including the launch of new multi-protocol label switching (MPLS) and Managed Network Services within the region. Carrier Services turnover increased by £2 million to £5 million in 2005. The Business segment was sold as part of Cable & Wireless IDC Inc., resulting in a loss of £2 million of turnover year on year.
2005 Annual Report
    69Back to Contents
Operating and financial reviewReview by division

Outpayments and network costs declined by 10 per cent (1 per cent at constant currency) from 2005 compared with 2004 due to cost reduction initiatives. These initiatives also enabled a reduction in staff costs which declined by 13 per cent (4 per cent at constant currency) year on year.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Total operating losses before exceptional items for Asia were £2 million in 2004 compared with £28 million in 2003, a reduction of £26 million. The reduction was primarily due to the termination of the provision of local services in Hong Kong and the benefit of a reduction in headcount in 2004 compared with 2003. These factors together with the reduction in exceptional operating costs in 2004 compared with 2003 contributed to the reduction in total operating losses from £44 million in 2003 to £10 million in 2004.
  Turnover fell from £79 million in 2003 to £32 million in 2004, a reduction of £47 million. The decline in turnover was primarily due to the termination of the provision of local services in Hong Kong and pricing pressures on globally managed contracts.
  The migration of legacy accounts noted above also drove the fall in outpayments and network costs in 2004 compared with 2003 together with the benefit of a 28 per cent reduction in headcount from 1 April 2003 to 31 March 2004, lower property costs and a reduction in the bad debt charge.
Caribbean2005
£m
      
      
      2004
£m
      
      
      2003
£mTurnover
      
      550
      
      
      633
      
      
      756CostsOutpayments and network costs1
      
      (183
      )
      
      (203
      )
      
      (240
      )Staff costs
      
      (92
      )
      
      (97
      )
      
      (120
      )Other
      
      (113
      )
      
      (142
      )
      
      (107
      )(388
      )
      
      (442
      )
      
      (467
      )Depreciation before exceptional items
      
      (58
      )
      
      (76
      )
      
      (74
      )Amortisation before exceptional items
      
      
      
      
      
      
      
      (1
      )Joint ventures and associates
      
      19
      
      
      30
      
      
      33Total operating profit before
  exceptional items
      
      123
      
      
      145
      
      
      247Exceptional operating items depreciation
      
      (3
      )
      
      (197
      )
      
       amortisation
      
      
      
      
      (10
      )
      
       other costs
      
      (18
      )
      
      (38
      )
      
      (19
      )Total operating profit/(loss)
      
      102
      
      
      (100
      )
      
      2281Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
  31 March 2004Total operating profit before exceptional items declined from £145 million in 2004 to £123 million in 2005, a reduction of £22 million. In particular, the Caribbeans performance was adversely affected by Hurricane Ivan with total operating profit before exceptional items being adversely impacted in the year by approximately £11 million. In addition, TSTT, a joint venture in Trinidad and Tobago, recorded a redundancy provision in the second half of 2005. The Groups share of this charge was £11 million, further explaining the decline in the Caribbeans total operating profit before exceptional items in 2005 compared with 2004.
  The Caribbeans turnover decreased to £550 million, a decrease of £83 million, or 13 per cent, in 2005 compared with 2004. At constant currency, the Caribbeans turnover decreased by 3 per cent in 2005 compared with 2004. International voice turnover fell by £37 million, or 23 per cent (15 per cent at constant currency) to £123 million in 2005. This reflects the ongoing pressure on international settlement rates across all Caribbean markets and, specifically, a full years competition in Cayman, rate reductions in the East Caribbean as well as the regulatory reductions in international settlement rates implemented in Jamaica in June 2004. The Group expects continued pressure on international settlement rates as competition and the number of liberalised markets increase.
70
    2005 Annual ReportBack to Contents
Performance
Domestic voice turnover declined by £26 million to £178 million, a fall of 13 per cent (3 per cent at constant currency) compared to 2004 due to rate reductions in the East Caribbean as well as fixed to mobile substitution across the Caribbean. Patterns in more competitively mature markets indicate that fixed to mobile substitution is likely to continue.
  Mobile turnover at £136 million increased by 6 per cent at constant currency (a 5 per cent decline at reported rates) compared with 2004. The East and North Caribbean delivered the strongest performances reflecting growth in GSM customer numbers and increases in international call turnover. Enhanced roaming capabilities and partnerships have also driven strong growth in roaming turnover across the Caribbean. Data and IP turnover at £71 million increased by 1 per cent (13 per cent at constant currency) in 2005 compared with 2004, due to ongoing growth in dial-up and ADSL customers partially offset by the impact of Hurricane Ivan. Against this, other turnover declined to £42 million in 2005 compared with £56 million in 2004.
  Total operating costs before depreciation, amortisation and exceptional operating items were £388 million in 2005, a decline of 12 per cent (2 per cent at constant currency) compared with 2004. In line with the National Telcos broader objectives, the Group is working to continue to reduce operating costs going forward.
  Outpayments and network costs were stable against 2004 at constant currency compared to a 3 per cent decline in turnover year on year, at constant currency, primarily reflecting increasingly aggressive international competition.
  Staff costs at £92 million in 2005 decreased by 5 per cent at reported rates compared with 2004. At constant currency staff costs increased by 5 per cent in 2005 compared with 2004. This reflects efforts to increase the skill base of employees, together with wage inflation in Jamaica.
  Other operating costs at £113 million fell by 20 per cent (12 per cent at constant currency) in 2005 compared with 2004. Adjusting for one-off charges in 2004, other operating costs were broadly flat at constant currency in 2005 compared with 2004.
  Non-exceptional depreciation fell from £76 million in 2004 to £58 million in 2005, a decrease of £18 million, or 24 per cent. This reduction is attributable to the lower fixed asset base following the impairment of assets in 2004.
  Total operating profit was £102 million in 2005 compared with losses of £100 million in 2004. The improvement was primarily due to a £204 million reduction in the charge for exceptional fixed asset and goodwill impairments in 2005 compared with 2004. The exceptional operating costs of £18 million in 2005 related to restoration of damage caused by Hurricane Ivan. In addition, exceptional asset write-downs of £3 million were recorded in respect of assets damaged by the hurricane.
Year ended 31 March 2004 compared with year ended
    31 March 2003Reported total operating profit before exceptional items in 2004 was £145 million, £102 million or 41 per cent lower than in 2003. Many of the Caribbean businesses operate in territories that have currencies linked directly or indirectly to the US dollar. Consequently, a 9 per cent strengthening of sterling against the US dollar and a 31 per cent strengthening against the Jamaica dollar had a significant impact on the reported results of the Caribbean. At constant currency, total operating profit before exceptional items in 2004 was 32 per cent lower than in 2003.
  Turnover in 2004 was £633 million, 16 per cent lower than 2003 at reported rates and 1 per cent lower at constant currency.
  International turnover declined by 26 per cent at constant currency reflecting increased competition following the liberalisation of the international fixed line market in Jamaica on 1 March 2003 and pre-emptive tariff reductions in other markets. Domestic turnover increased by 5 per cent at constant currency reflecting the impact of rate rebalancing and increased volumes of interconnect traffic driven by increasing numbers of competitors in the market. Mobile turnover increased by 19 per cent at constant currency due to increased customer numbers, supported by the launch of GSM services in all major regions. The mobile customer base at 31 March 2004 was 1,141,000 compared to 943,000 at 31 March 2003. Data and IP continued to deliver strong growth with turnover rising by 17 per cent at constant currency.
  Operating costs before depreciation, amortisation and exceptional operating items at £442 million in 2004, were £25 million, or 5 per cent, lower than in 2003. At constant currency rates there was an underlying increase of 12 per cent compared with 2003.
  Outpayments and network costs increased by 2 per cent at constant currency rates reflecting increased mobile handset subsidy costs as a result of intensified competition and the launch of GSM services in major regions.
  Staff costs were £23 million lower in 2004 compared with 2003. At constant currency rates, staff costs were 6 per cent lower than 2003 reflecting the reduction in headcount to 4,254 from 5,073 in the prior year.
  The Caribbean recorded a total operating loss of £100 million in 2004 compared with a profit of £228 million in 2003. Exceptional items of £245 million were charged in 2004 comprising a £197 million impairment charge, primarily due to the write-off of TDMA assets following the accelerated GSM roll-out in the region, and £38 million of restructuring costs.
2005 Annual Report
    71Back to Contents
Operating and financial review
  Review by division

Panama2005
£m
      
      2004
£m
      
      2003
£mTurnover
      
      257
      
      
      265
      
      
      279CostsOutpayments and network costs1
      
      (90
      )
      
      (74
      )
      
      (69
      )Staff costs
      
      (23
      )
      
      (27
      )
      
      (33
      )Other
      
      (38
      )
      
      (55
      )
      
      (41
      )(151
      )
      
      (156
      )
      
      (143
      )Depreciation before exceptional items
      
      (31
      )
      
      (39
      )
      
      (45
      )Total operating profit beforeexceptional items
      
      75
      
      
      70
      
      
      91Exceptional operating items depreciation
      
      
      
      
      (65
      )
      
       other costs
      
      
      
      
      (8
      )
      
      (14
      )Total operating profit/(loss)
      
      75
      
      
      (3
      )
      
      771Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
    31 March 2004Panama reported a total operating profit before exceptional items of £75 million in 2005 compared with £70 million in 2004.
  Turnover at £257 million decreased by £8 million, or 3 per cent, in 2005 compared with 2004. At constant currency, turnover increased by 6 per cent in 2005 compared with 2004. This overall increase represents growth in Panamas mobile and data and IP turnover during the year.
  Domestic turnover fell by £22 million, or 16 per cent to £117 million and international turnover fell by £5 million, or 22 per cent to £18 million in 2005 compared with 2004. This was due to increasing competition following the liberalisation of international and domestic voice services from 2 January 2003. In addition, domestic voice turnover was adversely affected by fixed to mobile substitution, which particularly impacted payphone turnover.
  The decline in international and domestic turnover was offset by continued strong growth in mobile turnover which increased by £20 million, or 35 per cent (48 per cent at constant currency) to £77 million in 2005 reflecting strong growth in GSM mobile subscribers and an increase in the mobile market penetration in Panama.
Data and IP turnover rose by 13 per cent at constant currency (3 per cent increase at reported rates) to £30 million in 2005 due to the completion of a number of major corporate projects now generating turnover and continued strong growth in internet turnover, particularly in ADSL service.
  Operating costs before depreciation and exceptional items were £151 million, in 2005, a decrease of 3 per cent compared with 2004. At constant currency operating costs increased by 6 per cent in 2005 compared with 2004.
  Outpayments and network costs increased by 22 per cent compared with 2004, reflecting changes in the sales mix as higher margin voice turnover was substituted for lower margin mobile and data and IP turnover. Further, competition has driven an increase in outpayments as more traffic now terminates on third party networks.
  Staff costs fell by 15 per cent to £23 million in 2005 reflecting the impact of a 3 per cent reduction in headcount in 2005 compared with 2004 together with a reduction in temporary payroll.
  Other costs at £38 million in 2005 decreased by £17 million, or 31 per cent compared with 2004. This reduction in costs is primarily due to cost reduction initiatives and the effect of a one-off charge for legal costs in 2004 associated with the settlement of legal proceedings in that year.
  Non-exceptional depreciation fell by 21 per cent to £31 million in 2005 compared with 2004 due to the reduction in the fixed asset base following the impairment of assets in 2004. Nevertheless, there was an increase of 10 per cent at constant currency in the second half of 2005 as a result of new investments in GSM and ADSL networks.
  Total operating profits of £75 million were reported in 2005 against losses of £3 million in 2004. The 2004 exceptional losses were after including exceptional charges of £73 million.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Total operating profit before exceptional items at £70 million in 2004 was £21 million, or 23 per cent, lower than in 2003. At constant currency rates, there was an underlying reduction of 16 per cent.
  Turnover fell by 5 per cent in the year to £265 million but, at constant currency rates, rose by 4 per cent. Strong growth in mobile, reflecting the introduction of GSM, and data and IP turnover was only partly offset by lower international and domestic turnover due to increased competition following the liberalisation of these markets from January 2003.

72
    2005 Annual ReportBack to Contents
Performance
Operating costs before depreciation and exceptional items in 2004 were £13 million, or 9 per cent, higher than in 2003. There was an underlying increase of 19 per cent at constant currency rates. Outpayments and network costs increased by 17 per cent at constant currency rates reflecting changes in the sales mix and a consequent increase in mobile subscriber acquisition costs, and higher outpayments as more traffic terminated on third party networks following the introduction of competition. Staff costs fell as headcount was reduced from 2,218 to 1,881. Other costs in 2004 included a one-off £9 million cost associated with the settlement of a lawsuit.
  Panama reported a total operating loss of £3 million in 2004 compared with a profit of £77 million in the prior year, mainly due to a £65 million exceptional impairment of fixed assets in 2004, together with an £8 million exceptional charge relating to staff rationalisation. These charges were required to write down assets and reduce staff costs to mitigate the absence of universal service law protection in Panama.
Macau2005
£m
      
      2004
£m
      
      2003
£mTurnover
      
      117
      
      
      128
      
      
      146CostsOutpayments and network costs1
      
      (48
      )
      
      (51
      )
      
      (57
      )Staff costs
      
      (11
      )
      
      (12
      )
      
      (15
      )Other
      
      (8
      )
      
      (7
      )
      
      (14
      )(67
      )
      
      (70
      )
      
      (86
      )Depreciation before exceptional items
      
      (15
      )
      
      (18
      )
      
      (18
      )Total operating profitbefore exceptional items
      
      35
      
      
      40
      
      
      42Exceptional items depreciation
      
      
      
      
      (2
      )
      
      Total operating profit
      
      35
      
      
      38
      
      
      421Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
    31 March 2004Total operating profit before exceptional items at £35 million decreased by £5 million, or 13 per cent, at reported rates in 2005 compared with 2004. At constant currency, total operating profit declined by 4 per cent year on year.
  Turnover decreased by £11 million, or 9 per cent, to £117 million in 2005. At constant currency turnover was flat year on year.
  Operating costs before depreciation and exceptional items at £67 million, decreased by 4 per cent in 2005 compared with 2004. At constant currency operating costs before depreciation and exceptional items increased by 5 per cent compared with 2004. In 2005, outpayments and network costs rose by 3 per cent at constant currency due to an increase in cost of sales relating to enterprise solutions and mobile handsets sales. Staff costs were broadly consistent at constant currency. Other costs increased by 25 per cent at constant currency from 2004 due to higher marketing costs and repairs and maintenance.
  Year ended 31 March 2004 compared with year ended
    31 March 2003Total operating profit before exceptional items in Macau fell by 5 per cent from £42 million in 2003 to £40 million in 2004. Turnover declined by 12 per cent or 4 per cent at constant currency rates reflecting increased competition.
  Operating costs before depreciation, amortisation and exceptional items were £16 million lower in 2004 or 11 per cent at constant currency rates. This reduction included the benefit of lower marketing costs, reduced headcount, and general tightening of other operating expenses.
2005 Annual Report
    73Back to Contents

Rest of the World2005
£m
      
      2004
£m
      
      2003
£mTurnover
      
      167
      
      
      161
      
      
      159CostsOutpayments and network costs1
      
      (39
      )
      
      (40
      )
      
      (35
      )Staff costs
      
      (27
      )
      
      (27
      )
      
      (28
      )Other
      
      (19
      )
      
      (22
      )
      
      (16
      )(85
      )
      
      (89
      )
      
      (79
      )Depreciation before exceptional items
      
      (18
      )
      
      (20
      )
      
      (22
      )Amortisation before exceptional items
      
      2
      
      
      3
      
      
      2Joint ventures and associates
      
      28
      
      
      12
      
      
      29Total operating profit
  before exceptional items
      
      94
      
      
      67
      
      
      89Exceptional operating items
      
      (1
      )
      
      (1
      )
      
      (1
      )Total operating profit
      
      93
      
      
      66
      
      
      881Outpayments and network costs include customer acquisition costs and the cost of goods sold.Year ended 31 March 2005 compared with year ended
    31 March 2004Rest of the World comprises Cable & Wireless businesses in Guernsey, Bahrain and the Maldives, together with smaller operations in the Seychelles, Bermuda, Sakhalin in Russia, Diego Garcia, Falkland Islands, Fiji, Ascension, St Helena, Vanuatu and Solomon Islands. Guernsey and the Maldives account for 60 per cent of the Rest of the World turnover.
  Rest of the World reported a total operating profit before exceptional items of £94 million in 2005 compared with £67 million in 2004, an increase of £27 million, or 40 per cent. The increase was primarily due to a strong performance from Batelco, in Bahrain, an associate of the Group together with growth in turnover in the period.
  Turnover increased by £6 million, or 4 per cent (11 per cent at constant currency), in 2005 compared with 2004. This turnover growth was due to the ongoing demand for mobile services in Sakhalin, the Maldives and Guernsey which offset a decline in international voice turnover.
  Operating costs before depreciation, amortisation and exceptional items at £85 million, decreased by 4 per cent. However, at constant currency, total operating costs were broadly in line with 2004.
Year ended 31 March 2004 compared with year ended
    31 March 2003The total operating profit before exceptional items for the Rest of the World was £67 million in 2004 compared with £89 million in 2003.
  Operating costs before depreciation, amortisation and exceptional items increased by 13 per cent from £79 million in 2003 to £89 million in 2004, including an increase in licence fee payments and administrative costs. The income from joint ventures and associates fell by 59 per cent from £29 million to £12 million due to increased competition and the impairment in carrying value of associates.
74
    2005 Annual ReportBack to Contents
PerformanceAcquisitions

Bulldog2005
£mTurnover
      
      11CostsOutpayments and network costs1
      
      (13
      )Staff costs
      
      (12
      )Other
      
      (14
      )(39
      )Depreciation before exceptional items
      
      (2
      )Amortisation before exceptional items
      
      (4
      )Joint ventures and associates
      
      Total operating loss before exceptional items
      
      (34
      )Exceptional operating items
      
      Total operating loss
      
      (34
      )1Outpayments and network costs include customer acquisition costs and the cost of goods sold.Cable & Wireless acquired Bulldog Communications on
    28 May 2004.
  Turnover for the ten months to 31 March 2005 was £11 million, reflecting strong demand in the SoHo/Consumer (small office or home office) and customer market for the high speed broadband services offered by Bulldog. In particular, Bulldog has seen high demand for its Inter@ctive and Super@ctive products both of which provide 4 Mbps broadband plus national and local phone calls.
  Outpayments and network costs of £13 million represent the costs of Bulldogs UK broadband network, including payments to Cable & Wireless UK for the utilisation of its voice and backbone network.
  Staff costs of £12 million represent the recruitment and salary costs of the employee base that has grown significantly since the companys acquisition.
  Bulldogs investment in advertising and marketing to increase its brand awareness, as well as the costs of external expertise engaged to review and develop Bulldogs operational processes, are the most substantial components of the £14 million within other costs.
  The depreciation charge of £2 million relates to the capital investment being made in the expansion of Bulldogs local loop unbundled network and associated systems.
  The amortisation charge of £4 million relates to the goodwill arising on the acquisition of Bulldog.
Monaco2005
£mTurnover
      
      100CostsOutpayments and network costs1
      
      (55
      )Staff costs
      
      (13
      )Other
      
      (5
      )(73
      )Depreciation before exceptional items
      
      (6
      )Amortisation before exceptional items
      
      (5
      )Joint ventures and associates
      
      1Total operating profit before exceptional items
      
      17Exceptional operating items
      
      Total operating profit
      
      171Outpayments and network costs include customer acquisition costs and the cost of goods sold.Cable & Wireless acquired a 55 per cent economic interest in Monaco Telecom on 18 June 2004. Monaco Telecom is the national telecom operator in Monaco and reported a total operating profit before exceptional items of £17 million.
  Monaco Telecoms turnover for the nine months to 31 March 2005 of £100 million was derived from the provision of domestic fixed line, mobile and cable TV services together with the provision of mobile services in Afghanistan and Kosovo, as well as satellite and call centre services.
  International and domestic voice turnover of £17 million were affected by fixed to mobile substitution within the Monaco Telecom customer base, as well as the reduction in internet dial-up as customers migrated from this service offering to the companys ADSL offering (Data and IP turnover was £8 million). Mobile turnover at £19 million was driven by an increase in both prepaid and postpaid subscribers. Additionally, turnover of £56 million was earned from Monaco Telecoms managed service contracts in Afghanistan and Kosovo together with satellite and call centre activities.
  The outpayments and network costs of £55 million represent the costs of Monaco Telecoms domestic and international network including payments to other operators for interconnect and roaming charges.
  The staff and other costs of £18 million represent the salary costs of the employee base, as well as general administrative costs.
  Depreciation of £6 million relates to the domestic and international networks of Monaco.
  The amortisation charge of £5 million relates to the goodwill and other intangibles recorded on the acquisition of Monaco Telecom.
2005 Annual Report
    75Back to Contents
Operating and financial reviewReview by division  summary

The table below sets out a summary of the turnover and operating profit/(loss) before non-operating items, interest and taxation for continuing and discontinued operations.

Turnover and total operating profit/(loss) before non-operating items, interest and taxation by division2005
    
    2004
    
    2003Turnover
£m
    
    Total
      operating
      profit/(loss)
£m
    
    Turnover
£m
    
    Total
      operating
      profit/(loss)
£m
    
    Turnover
£m
    
    Total
      operating
      profit/(loss)
£mUnited Kingdom
    
    1,602
    
    
    16
    
    
    1,661
    
    
    (234
    )
    
    1,684
    
    
    (3,929
    )CWAO
    
    16
    
    
    1
    
    
    11
    
    
    (16
    )
    
    
    
    
    Europe
    
    186
    
    
    (50
    )
    
    262
    
    
    (14
    )
    
    304
    
    
    (369
    )Asia
    
    39
    
    
    4
    
    
    32
    
    
    (10
    )
    
    79
    
    
    (44
    )Bulldog
    
    11
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    National TelcosCaribbean
    
    550
    
    
    102
    
    
    633
    
    
    (100
    )
    
    756
    
    
    228Panama
    
    257
    
    
    75
    
    
    265
    
    
    (3
    )
    
    279
    
    
    77Macau
    
    117
    
    
    35
    
    
    128
    
    
    38
    
    
    146
    
    
    42Monaco
    
    100
    
    
    17
    
    
    
    
    
    
    
    
    
    
    
    Rest of the World
    
    167
    
    
    93
    
    
    161
    
    
    66
    
    
    159
    
    
    88Total National Telcos
    
    1,191
    
    
    322
    
    
    1,187
    
    
    1
    
    
    1,340
    
    
    435Other
    
    (22
    )
    
    (94
    )
    
    (23
    )
    
    (88
    )
    
    (30
    )
    
    (29
    )Continuing operations
    
    3,023
    
    
    165
    
    
    3,130
    
    
    (361
    )
    
    3,377
    
    
    (3,936
    )Discontinued operations
    
    199
    
    
    13
    
    
    541
    
    
    (179
    )
    
    1,014
    
    
    (2,064
    )Total
    
    3,222
    
    
    178
    
    
    3,671
    
    
    (540
    )
    
    4,391
    
    
    (6,000
    )76
    2005 Annual ReportBack to Contents
PerformanceLiquidity and capital resources

Treasury policyThe Groups treasury operations are managed on the basis of objectives, policies and authorities approved by Cable and Wireless plcs Board of Directors.
  Day-to-day management of treasury activities is delegated to the Chief Financial Officer and the Group Treasurer, within specified financial limits for each type of transaction and counterparty.
  To the extent that subsidiary operating companies undertake treasury transactions, these are governed by Group policies and delegated authorities. Material subsidiary positions are approved and monitored by the Group treasury function. Where appropriate, each position and transaction is reported to the Board. All subsidiaries are required to report details of their cash, debt and hedging positions to Group treasury on a monthly basis.
  The key responsibilities of the treasury function include funding, investment of cash and the management of interest rate and foreign currency risk. The majority of the Groups funding (approximately 89 per cent at 31 March 2005) and cash resources (approximately 86 per cent at 31 March 2005) are managed centrally.
  Wherever possible individual companies in the Group are funded in, and operate in, their functional currency, many of which are linked, directly or indirectly, to the US dollar.
  Cable & Wireless only uses derivatives and financial instruments including forward foreign exchange contracts, interest rate swaps, cross currency swaps and options in the management of its foreign currency and interest rate exposures in accordance with strategies agreed from time to time by the Treasury Management Committee (comprising of the Chief Financial Officer, Group Treasurer and other senior financial managers as required) and subject to policies approved by the Board. Derivatives are not used for trading or speculative purposes and all material derivative transactions and positions are monitored and reported to the Board on a monthly basis. The Group does not have material derivative positions outstanding at 31 March 2005 as detailed in Note 25 to the Financial Statements.
  LiquidityAt 31 March 2005, Cable & Wireless had Cash, Current asset investments and short-term deposits of £2,166 million (2004  £2,367 million). This amount included £14 million (2004  £12 million) of treasury instruments and £80 million (2004  £50 million) of Credit Linked Notes.
  This cash is a significant component of the Groups overall liquidity and capital resources.
  At 31 March 2005, approximately 86 per cent of the Groups cash is held centrally and is predominantly invested in short-term bank deposits, commercial paper up to one year in maturity and AAA-rated money market funds.
In certain circumstances, it has been efficient to use surplus funds to repurchase bonds. To date £19.9 million of the £200 million 8.625 per cent bonds due 2019 have been bought back at an average price of 99.83 pence and £16 million of the £200 million 8.75 per cent bonds due 2012 have been bought back at an average price of 101.625 pence.
  During 2005 the Group purchased £80 million of Credit Linked Notes issued by AA-rated banks 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 20 to the Financial statements.
  Certain foreign subsidiaries operate in jurisdictions which restrict the ability to repatriate cash to the parent company. £55 million of cash held in restricted jurisdictions is not included in Cash, current asset investments and short-term deposits at 31 March 2005 (2004  £40 million). Included within short-term deposits are £42 million which is pledged as a cash collateral against bank loans and guarantees and £30 million held in the Groups insurance subsidiary Pender against potential claim settlements.
  FundingAt 31 March 2005, Cable & Wireless had gross debt of £824 million (2004  £919 million, 2003  £1,546 million).
  The Groups debt comprises both bank debt and publicly quoted bonds. Cable & Wireless debt has an average maturity of approximately seven years.
  Approximately 75 per cent of the Groups debt is represented by public bonds denominated in sterling. Two sterling denominated bonds of £184 million (after bonds bought back of £16 million) and £180 million (after bonds bought back of £20 million) mature in 2012 and 2019 respectively. The Group anticipates that the Groups £258 million Unsecured Convertible Bonds will be redeemed at their principal amount in 2010 unless purchased, redeemed or converted to ordinary shares prior to maturity.
  The remainder of the Groups debt is made up of a loan of £121 million maturing in 2006, with the balance being mainly amortising loans.
  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.
  Share Buy-Back ProgrammeDuring the year, a £250 million share buy-back programme was initiated. Shares repurchased are held as treasury shares. To date 60.5 million shares have been bought back at an average price of 124.41 pence (£75 million).

2005 Annual Report
    77Back to Contents
Operating and financial review
  Liquidity and capital resources

Interest rate managementAt 31 March 2005, approximately 82 per cent of Group debt has been raised at fixed rates of interest with approximately 75 per cent raised as fixed rate bonds. As at 31 March 2005 the Group did not have any derivative contracts outstanding in relation to interest rate exposures arising from its debt (2004  £10 million).

  The Groups cash resources currently earn interest at floating rates. In prior years, in a falling interest rate environment, the Group has actively hedged its return on cash resources with the use of interest rate swaps and forward rate agreements. No such hedges were used during 2005 and as at 31 March 2005 there are no derivative contracts outstanding in relation to the Groups investments.
  Exchange rate managementAs at 31 March 2005 the Group has £23 million (2004  £50 million, 2003  £12 million) notional value of forward foreign exchange contracts for the purchase of currencies and £6 million (2004  £28 million, 2003  £nil) notional value of forward foreign exchange contracts for the sale of currencies.
  As at 31 March 2005 the Group has £121 million (2004  £121 million, 2003  £502 million) notional value of cross currency swaps used in the management of its foreign currency debt obligations.
  Borrowing facilitiesThe Group does not have any significant undrawn committed facilities as at 31 March 2005.
  Credit ratingsThe Companys long-term credit ratings remained below investment grade during the year. Credit ratings at 26 August 2005 are detailed in the table below:
  Cable and Wireless plcs debt ratingsStandard & Poors
      
      BBMoodys
      
      Ba3Fitch
      
      BB+Credit ratings below investment grade may limit future access to the debt capital markets and may increase both 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.
  The credit ratings do not have any impact on the interest cost of existing debt.
Other loans and contractual obligations under leasesCable & Wireless loans and contractual obligations under finance and operating leases are analysed in Notes 21 and 27 to the Financial statements.
  None of the above funding arrangements and facilities have covenants that are expected to restrict normal business activities.
  Off-balance sheet arrangements
    Operating leasesIn 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 set out in the contractual obligations table below.
  Other commitments and contingent liabilitiesOther commitments and contingent liabilities that have or are reasonably likely to have a current or future material effect on the Groups financial condition, changes in financial condition, turnover
  or expenses, results of operations, liquidity, capital expenditures or capital resources are set out in Note 26 to the Financial Statements.
  Contractual obligationsThe following table sets out the Groups known contractual obligations as at 31 March 2005:Payments due by periodTotal
£m
      
      Less
        than
        1 year
£m
      
      2-3
        years
£m
      
      4-5
        years
£m
      
      After
        5 years
£mLong-term debt,
  including current
  maturities
      
      823
      
      
      22
      
      
      158
      
      
      13
      
      
      630Capital lease obligations
      
      1
      
      
      1
      
      
      
      
      
      
      
      
      Operating leases
      
      446
      
      
      89
      
      
      121
      
      
      85
      
      
      151Other
      
      49
      
      
      49
      
      
      
      
      
      
      
      
      Total
      
      1,319
      
      
      161
      
      
      279
      
      
      98
      
      
      781Operating lease commitments represent future minimum rental payments required under operating leases that have initial or remaining non cancellable lease terms in excess of one year at 31 March 2005.
  The Group enters into a number of arrangements with other international carriers relating to the reciprocal transfer of telecommunications traffic between countries. Under these arrangements both parties are committed to transferring a minimum level of International Direct Dial traffic for termination on the other partys network. Typically there is no net outflow of cash as a result of these transactions. These transactions are not included in the above table.

78
    2005 Annual ReportBack to Contents
PerformanceCapital expenditure

Capital expenditure on plant, equipment and property totalled £344 million in 2005 compared with £342 million in 2004 and £810 million in 2003.
  All capital expenditure has been funded internally.2005
£m
      
      2004
£mUnited Kingdom
      
      138
      
      
      101CWAO
      
      
      
      
      Europe
      
      2
      
      
      7Asia
      
      2
      
      
      3Bulldog
      
      27
      
      
      aNational TelcosCaribbean
      
      86
      
      
      134Panama
      
      41
      
      
      27Macau
      
      9
      
      
      16Monaco
      
      5
      
      
      aRest of the World
      
      20
      
      
      18Total National Telcos
      
      161
      
      
      195Other
      
      2
      
      
      20Continuing operations
      
      332
      
      
      326Discontinued operations
      
      12
      
      
      16Group capital expenditure
      
      344
      
      
      342aAcquired in 2005, therefore no 2004 or 2003 capital expenditure.2003 capital expenditure (as previously reported) was £544 million in Cable & Wireless Global (United Kingdom, CWAO, Europe and Asia), £264 million in Cable & Wireless Regional (Caribbean, Panama, Macau and Rest of the World) and £2 million in Other.
  Contracts placed for ongoing capital expenditure totalled £49 million at 31 March 2005.
  The UK spent £138 million (2004  £101 million) on capital expenditure in 2005 of which £48 million was spent on network, £39 million was spent on equipment required to connect customers to the network, £24 million was spent on business process transformation and £27 million was spent on other related business projects.
  Asia spent £2 million (2004  £3 million) on capital expenditure in 2005.
  Bulldog spent £27 million on capital expenditure in 2005 on the expansion of its LLU network across the UK.
  National Telcos spent £161 million (2004  £195 million) on capital expenditure in 2005. Capital expenditure was primarily related to expanding and upgrading the existing GSM mobile and IP services.
In the next three years, Cable & Wireless plans to invest £190 million in a UK Next Generation Network (NGN), with £80 million planned to be spent in 2006. It is expected a large proportion of the NGN expenditure will replace legacy expenditure that the Group believes would otherwise have been required to maintain the efficiency of the current network. As a result, over the three-year period the Group expects a net increase in capital expenditure of approximately £35 million associated with NGN.
2005 Annual Report
    79Back to Contents
Operating and financial reviewCash flow

Summary consolidated cash flow statement2005
£m
      
      2004
£m
      
      2003
£mNet cash inflow from 
   operating activities
      
      346
      
      
      73
      
      
      95Dividends, return on investments
        and servicing of finance
      
      15
      
      
      (32
      )
      
      65Taxation paid
      
      (60
      )
      
      (43
      )
      
      (438
      )Capital expenditure
      
      (344
      )
      
      (342
      )
      
      (810
      )Financial investment
      
      76
      
      
      301
      
      
      595Acquisitions and disposals
      
      (35
      )
      
      (118
      )
      
      110Equity dividends paid
      
      (97
      )
      
      
      
      
      (119
      )Movement in liquid resources
      
      75
      
      
      932
      
      
      (1,040
      )Net financing repaid
      
      (153
      )
      
      (582
      )
      
      (578
      )(Decrease)/increase in cash
        in the year
      
      (177
      )
      
      189
      
      
      (2,120
      )Year ended 31 March 2005 compared with year ended
    31 March 2004The decrease in cash of £177 million in the year is principally reflective of an equity dividend paid of £97 million, financing repayments of £153 million and £75 million of cash transferred from liquid resources.
  Other operating and investing activities resulted in a broadly cash neutral position, including cash inflows from operating activities of £346 million, cash inflows from financial investment of £76 million, cash outflows in respect of capital expenditure £344 million and taxation paid £60 million.
  Operating activities generated £346 million of cash in 2005, an increase of £273 million against the prior period principally due to improved performance following the exit of the Groups US domestic operations.
  Tax paid in 2005 relates in the main to settlement of liabilities in the Caribbean and other overseas businesses.
  Capital expenditure of £344 million in the year was in line with 2004. In 2005, the Group continued to expand and enhance its mobile networks across the National Telcos in response to continued growth in customer demand. There has also been a shift to investment in fixed network, in particular in respect of local loop unbundling by Bulldog. Further, the Groups focus on its restructuring and transformation has driven spend on systems improvements.
  The cash inflow of £76 million in respect of financial investments relates to the disposal of non-core trade investments including the Groups 3.4 per cent interest in Intelsat. In 2004 £229 million of financial investment cash inflows related to the proceeds on disposal of the Groups shareholding in PCCW Limited.
The Group reinstated dividends in 2004 and in 2005 paid £97 million to its shareholders in respect of the final 2004 dividend and interim 2005 dividend.
  Net financing repaid in 2005 of £153 million included the repurchase of shares for £74 million together with the repayment or repurchase of debt of £86 million.
  Year ended 31 March 2004 compared with year ended
    31 March 2003The increase in cash of £189 million in the year principally reflects the transfer from liquid resources of cash totalling £932 million and the realisation of financial investments of £301 million, net of finance repayments of £582 million, capital expenditure of £342 million and net disposal costs of £118 million.
  Operating activities generated £73 million of cash in 2004, a decline of £22 million against the prior period principally due to a reduction in working capital.
  Tax paid in 2004 relates in the main to settlement of liabilities in the Caribbean and Rest of the World.
  Capital expenditure of £342 million declined by £468 million from 2003. This reflects continued focus on the management of capital expenditure and its ability to generate a satisfactory return on investment.
  Investment in the year included GSM networks rollout of £111 million in the Caribbean and Panama, together with expenditure on billing systems, network management systems, customer premises equipment and network terminating equipment.
  Financial investment generated net cash of £301 million in 2004 of which £229 million related to the proceeds on disposal of the Groups shareholding in PCCW Limited.
  Liquid resources decreased by £932 million in 2004. On 1 April 2003 £1.5 billion held in escrow was released into cash.
  Net financing repaid in 2004 of £582 million included long-term debt repayments of £863 million offset by long-term debt issued of £280 million.
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    2005 Annual ReportBack to Contents

PerformanceProperty and network infrastructure

As at 31 March 2005, Cable & Wireless and its subsidiaries leased or owned some 241 principal properties. The
majority of these properties are located in the United Kingdom, Panama and the Caribbean although
the spread of properties extends across continental Europe, Asia, and islands in the Atlantic and
Indian Oceans.
  In addition to these properties, Cable & Wireless owns or leases in excess of 2,000 small technical
sites that house equipment necessary to support its operations. In general, Cable & Wireless
technical properties enjoy the protection of telecommunications legislation, which has the aim of
ensuring the continuity of Cable & Wireless networks.
The size of Cable & Wireless property portfolio has increased marginally from the last financial
year primarily as a consequence of the acquisition of additional technical sites in the Caribbean
for the purposes of GSM rollout. Additional properties were also incorporated into the portfolio
through the acquisition of Monaco Telecom.
A continuing rationalisation programme is still ongoing generally focusing on reducing office space
to match Cable & Wireless reduced headcount and ongoing operational requirements, including
the closure of the Groups London headquarters and relocation to Bracknell. Acquisition of both
office and technical sites occurs where required as referred to above.
In the Caribbean, Panama, Macau, Monaco and Rest of the World, Cable & Wireless typically operates
as the domestic incumbent, owning and operating the domestic legacy switched voice networks and associated
international interconnect facilities. Cable & Wireless also has international and domestic network
facilities in the United Kingdom, Europe and the United States.
Cable & Wireless operates significant international submarine cable, and satellite systems. Many
of Cable & Wireless subsidiaries and associates also own and operate mobile networks. Examples
include Jamaica (GSM and TDMA) and Trinidad and Tobago (GSM and TDMA) in the Caribbean as well as
Panama (GSM and TDMA), Macau (GSM), Monaco (partly owns and operates GSM, owns, but does not yet
operate, UMTS), the Maldives (GSM) and Bahrain (GSM).
Cable & Wireless companies operate 20 data centres within its national and international operations
offering a wide selection of web-based and hosting services.

2005 Annual Report
    81Back to Contents
Operating and financial reviewDisclosures about market risk


Credit riskCash 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 all but a small proportion of the Groups financial instruments are entities
rated A1 short-term and/or AA- long-term by Standard and Poors (or equivalent by Moodys
and/or Fitch). The credit rating of these counterparties is monitored on an ongoing basis. The types
of instrument used for investment of funds are prescribed in Group treasury policies approved by
the Board with limits on the exposure to any one counterparty.
Interest rate riskThe Group is exposed to movements of interest rates on its debt, cash balances and derivative instruments.
The treasury function seeks to reduce volatility by fixing a proportion of this interest rate exposure
whilst taking account of prevailing market conditions as appropriate. There were no derivatives in
place as at 31 March 2005 to manage the interest rate exposure on the Groups investments or
debt.
The Group has net floating rate investments of £2,020 million (£2,166 million of investments
less £146 million of debt) hence, a 50 basis point decrease in average interest rates to which
the Group is exposed (predominantly sterling) would reduce net interest income by approximately £10
million, impacting both earnings and cash flow. By way of illustration, between 31 March 2004 and
31 March 2005 sterling 3 month LIBOR increased from approximately 4.36 per cent to 4.98 per cent.
A reduction in interest rates would have an unfavourable impact upon the fair value of the Groups
fixed rate debt. However, no debt is held for trading purposes and it is intended that it will be
kept in place until maturity, hence the exposure to fair value loss has not been modelled.
Exchange rate riskCable & Wireless trades in some 80 countries and much of its turnover 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 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.
Where appropriate the Group manages its exposure to movements in exchange rates on a net basis and
uses forward foreign exchange contracts and other derivative and financial instruments to reduce
the exposures created where currencies do not naturally offset in the short term.
Where it is deemed appropriate the Group will undertake hedges to minimise the exposure to individual
transactions that create significant foreign exchange exposures for the Group. In addition, overseas
subsidiaries are generally financed in their domestic currency to minimise the impact of translation
of foreign currency denominated borrowings.
As at 31 March 2005, the Group had in place net forward foreign exchange contracts amounting to £17
million, being £23 million bought and £6 million sold in the same currency against sterling.
Consequently, there is no material exposure to movements in exchange rates on these instruments.
The reported profits of the Group are translated at average rates of exchange ruling during the year.
Overseas earnings are predominantly in US dollars or currencies linked to the US dollar. In broad
terms, based on the 2005 mix of profits, if the average sterling : US dollar rate for the year had
been 5 cents higher, the effect would have been to reduce the reported operating profit before exceptional
items by approximately £8 million. The Group does not undertake profit translation hedging activities.
As part of the overall policy of managing the exposure arising from foreign exchange movements relating
to the net carrying value of overseas investments, the Group may, from time to time, elect to match
certain foreign currency liabilities against the carrying value of foreign investments. Currently
there are no external foreign currency liabilities matched against the carrying value of foreign
investments.
The Group currently does not undertake any hedges of long-term currency trading flows.
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    2005 Annual ReportBack to Contents
Performance
Five year summary
2005
£m
    
    20045
£m
    
    20035
£m
    
    20025
£m
    
    20015
£m(in £m except per share and per ADR data)Profit and loss account year ending 31 MarchAmounts in accordance with UK GAAP1Group turnover
    
    3,222
    
    
    3,671
    
    
    4,391
    
    
    5,748
    
    
    7,851Group operating profit/(loss)
    
    138
    
    
    (581
    )
    
    (6,075
    )
    
    (5,025
    )
    
    (382
    )Profit/(loss) before taxation
    
    363
    
    
    (224
    )
    
    (6,257
    )
    
    (4,549
    )
    
    3,516Profit/(loss) after taxation
    
    377
    
    
    (212
    )
    
    (6,293
    )
    
    (4,860
    )
    
    2,996Minority interests
    
    (75
    )
    
    (25
    )
    
    (124
    )
    
    (94
    )
    
    (258
    )Profit/(loss) for the financial year
    
    302
    
    
    (237
    )
    
    (6,417
    )
    
    (4,954
    )
    
    2,738Basic earnings/(loss) per share (EPS)
    
    13.0
    p
    
    (10.2
    )p
    
    (275.4
    )p
    
    (181.2
    )p
    
    100.3
    pBasic earnings/(loss) per ADR2
    
    39.0
    p
    
    (30.6
    )p
    
    (826.2
    )p
    
    (543.6
    )p
    
    300.9
    pDiluted EPS
    
    12.3
    p
    
    (10.2
    )p
    
    (275.4
    )p
    
    (181.2
    )p
    
    99.2
    pDiluted earnings/(loss) per ADR2
    
    36.9
    p
    
    (30.6
    )p
    
    (826.2
    )p
    
    (543.6
    )p
    
    297.6
    pDividends per share3
    
    3.8
    p
    
    3.15
    p
    
    1.6
    p
    
    16.5
    p
    
    16.5
    pDividends per ADR2
    
    11.4
    p
    
    9.45
    p
    
    4.8
    p
    
    49.5
    p
    
    49.5
    pAmounts in accordance with US GAAP1Net profit/(loss)
    
    333
    
    
    (371
    )
    
    (6,239
    )
    
    (5,371
    )
    
    2,716Basic EPS
    
    14.3
    p
    
    (15.9
    )p
    
    (267.8
    )p
    
    (196.5
    )p
    
    99.5
    pBasic earnings/(loss) per ADR2
    
    42.9
    p
    
    (47.7
    )p
    
    (803.3
    )p
    
    (589.5
    )p
    
    298.5
    pDiluted EPS
    
    12.5
    p
    
    (15.9
    )p
    
    (267.8
    )p
    
    (196.5
    )p
    
    98.4
    pDiluted earnings/(loss) per ADR2
    
    37.5
    p
    
    (47.7
    )p
    
    (803.3
    )p
    
    (589.5
    )p
    
    295.2
    pIncome from Continuing Operations6Group turnover
    
    3,023
    
    
    3,130
    
    
    3,377
    
    
    3,758
    
    
    3,720Group operating profit/(loss)
    
    125
    
    
    (402
    )
    
    (4,011
    )
    
    (2,641
    )
    
    (309
    )Group profit before taxation and exceptional items7
    
    361
    
    
    319
    
    
    96
    
    
    240
    
    
    316Balance sheet data as at 31 MarchAmounts in accordance with UK GAAP1Current assets4
    
    3,017
    
    
    3,280
    
    
    4,906
    
    
    7,890
    
    
    10,480Total assets
    
    5,000
    
    
    4,926
    
    
    7,324
    
    
    16,074
    
    
    24,240Net assets
    
    2,137
    
    
    1,952
    
    
    2,482
    
    
    9,234
    
    
    16,356Loans and obligations under finance leases: amounts falling due within one year
    
    23
    
    
    44
    
    
    825
    
    
    237
    
    
    567 amounts falling due after more than one year
    
    801
    
    
    875
    
    
    721
    
    
    2,022
    
    
    2,364Other creditors falling due within one year
    
    1,511
    
    
    1,624
    
    
    2,450
    
    
    3,734
    
    
    4,069Creditors and provisions
    
    2,863
    
    
    2,974
    
    
    4,842
    
    
    6,840
    
    
    7,884Equity shareholders funds
    
    1,818
    
    
    1,703
    
    
    2,111
    
    
    8,835
    
    
    15,225Number of shares issued (million of shares)
    
    2,395
    
    
    2,385
    
    
    2,383
    
    
    2,382
    
    
    2,801Amounts in accordance with US GAAP1Shareholders equity
    
    1,987
    
    
    1,787
    
    
    2,125
    
    
    9,158
    
    
    16,1901   The Financial Statements are prepared in accordance with UK GAAP, which differs in significant respects from US GAAP. See Note 35 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.4Current assets exclude debtors due after more than one year.5The balance sheets for 2004, 2003, 2002 and 2001 have been amended to reflect the change in accounting for ESOPs in light of the adoption of UITF 38 Accounting for ESOP trusts. The profit and loss account in 2003 has also been amended to reverse the £116 million impairment in the ESOP recognised in this year. The adoption of UITF 17 Employee share schemes did not have a material impact on the Groups profit and loss account for the four years ended 31 March 2004. Accordingly, the profit and loss account has not been amended for the adoption of UITF 17.6   The Group sold its Japanese operations effective 17 February 2005. Under FRS 3 Reporting Financial Performance, these businesses have been classified as discontinued. Comparatives for the years ended 31 March 2001 to 31 March 2004 have been adjusted accordingly.7   This is a non-UK GAAP financial measure which is used by management as a key performance measure. A reconciliation is set out on page 87.2005 Annual Report
    83Back to Contents
Operating and financial reviewCritical 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 particular policies require subjective and complex judgements, often
as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The policies below distinguish between UK GAAP and US GAAP accounting treatments where there are significant
differences.
Valuation of tangible fixed assets and intangible assets (excluding goodwill)Under UK GAAP, Cable & Wireless assesses the impairment of fixed assets and intangible assets (excluding
goodwill) whenever events or changes in circumstances indicate that the carrying value may not be
recoverable or otherwise as required by accounting standards. 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 changes in technology and regulatory environments;
    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 realisable
value and the present value of the future cash flows obtainable as a result of an assets continued
use). During 2005, Cable & Wireless impaired tangible fixed assets by £8 million (2004 
£526 million, 2003  £2,381 million). The impairment represented the amount by which
the carrying value exceeded the present value of the estimated future cash flows.
Future cash flows were determined with reference to Cable & Wireless projections using discount
rates from 8 per cent to 40 per cent which represent the estimated weighted average cost of capital
for the respective businesses.
Under US GAAP, Cable & Wireless reviews long-lived assets, including property, plant and equipment
and amortising intangible assets, for impairment whenever events or changes in circumstances indicate
that the carrying value of an asset may not be recoverable.
Recoverability of assets that are held
  and used is measured by comparing the sum of the future undiscounted cash flows derived from an asset
  group to their carrying value. If the carrying value of the asset group exceeds the sum of the future
  undiscounted cash flows, impairment is considered to exist and an impairment charge is recognised
  for the amount by which the carrying value exceeds the present value of the estimated future cash flows.
The identification of impairment indicators, the estimation of future cash flows and the determination
of fair values for assets of reporting units requires management to make significant judgements concerning
the identification and validation of impairment indicators, the timing and amount of expected cash
flows and applicable discount rates.
Valuation of assets for purchase accountingCable & Wireless allocates the cost of acquired companies to tangible and identifiable intangible
assets and liabilities acquired by reference to their estimated fair values at the time of acquisition.
The remaining amount is recorded as goodwill. Any value assigned to the identifiable assets is determined
by reference to an active market, independent appraisal, or estimated by our management based on
cash flow projections which include estimates and judgment regarding expectations for the economic
useful lives of the products and technology acquired. In the latter situation, where appropriate,
third party valuation specialists are involved.
The allocation of costs to identifiable assets under US GAAP may differ from the allocation under UK
GAAP. Under UK GAAP, certain intangible assets are not distinguished by Cable & Wireless, such
as brand name and customer base. Under US GAAP, these elements are recognised as separate intangible
assets.
Accounting for valuation and recovery of goodwillGoodwill usually arises in business combinations as noted above. Under UK GAAP, the useful life assigned
to goodwill is an estimate that is based on the judgment of management at the time of acquisition.
Goodwill is then amortised on a straight-line basis over its useful life. For US GAAP, goodwill is
not amortised, but tested at least annually for impairment.
As noted above Cable & Wireless reviews, on a regular basis, the performance of its income generating
units. Under UK GAAP, goodwill is allocated to the relevant income generating unit and assessed for
impairment in the manner described under Valuation of tangible fixed assets and intangible
assets (excluding goodwill).
US GAAP requires that goodwill be tested for impairment at least annually using a two-step approach
at the reporting unit level. In the first step, the fair value of the reporting unit is compared
to its carrying value, including goodwill. The determination of fair value of each reporting unit,
which requires significant judgement, is generally based on the present value of future cash flows.
If the fair value exceeds the carrying value, no impairment loss is recognised. In the case that
the fair value of the reporting unit is less than its carrying value, a second step is performed,
which compares the implied fair
84
    2005 Annual ReportBack to Contents
Performance
value to the implied carrying value of the reporting units goodwill. The implied fair value of
goodwill is determined based upon the difference between the fair value of the reporting unit and
the fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair
value of goodwill is less than its carrying value, the difference is recorded as an impairment charge.
Depreciation and amortisation of fixed assetsCable & Wireless assigns useful lives to fixed assets based on periodic studies of actual asset
lives and the intended use for those assets for example, related to fixed assets purchased for specific
customer contracts. 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.
Revenue recognitionRevenue, which excludes value added tax or other sales taxes, represents the amount receivable in respect
of telecommunications services provided to customers and is accounted for on the accruals basis to
match revenue with provision of service. 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.
Managements judgement is required in assessing the application of the principles and the specific
guidance in respect of Group revenues, including the presentation of turnover as principal or as
agent in respect of income received from transmission of content provided by third parties.
Interconnection with other operatorsIn 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. These interconnect transactions are distinguished from capacity sales
which represent sales of Indefeasible Rights of Use (IRUs). IRUs give the purchaser the
right to use a cable fibre or wavelength for a specified period of time.
Provision for bad and doubtful debtsThe provision for bad and doubtful debts reflects managements estimate of losses arising from
the failure or inability of Cable & Wireless customers to make required payments. The provision
is based on the ageing of customer accounts, customer credit worthiness and Cable & Wireless
historical write-off
experience. Changes to the provision may be required if the financial condition
  of Cable & Wireless customers was to improve or deteriorate. An improvement in financial
  condition may result in lower actual write-offs. Historically, changes to the estimate of losses
  have not been material to the Groups financial position and results.
TaxationCable & Wireless tax charge on ordinary activities is the sum of the total current and deferred
tax charges. The calculation of Cable & Wireless total tax charge necessarily involves
a degree of estimation and judgement in respect of certain items whose tax treatment cannot be finally
determined until a formal resolution has been reached with the relevant tax authority or, as appropriate,
through a formal legal process. The final resolution of some of these items may give rise to material
profit and loss and/or cash flow variances.
The resolution of issues is not always within the control of Cable & Wireless and it is often dependent
on the efficiency of the administrative and legal processes in the relevant taxing jurisdictions
in which Cable & Wireless operates. Issues can, and therefore often do, take many years to resolve.
Payments in respect of tax liabilities for an accounting period result from payments on account and
on the final resolution of open items. As a result there can be substantial differences between the
tax charge in the profit and loss account and tax payments.
Recognition of deferred tax assetsThe recognition of deferred tax assets is based upon whether it is more likely than not that sufficient
and suitable taxable profits will be available in the future, against which the reversal of timing
differences can be deducted. Recognition therefore involves judgement regarding the future financial
performance of the particular legal entity or tax group in which the deferred tax asset has been
recognised.
Non-discounting of deferred tax assets and liabilitiesUK GAAP permits, and US GAAP prescribes, calculating deferred taxation assets or liabilities on an
undiscounted basis. It is Cable & Wireless accounting policy to measure deferred taxation
on an undiscounted basis.
2005 Annual Report
    85Back to Contents

Operating and financial review 
  Critical accounting policies


Exceptional itemsUnder UK GAAP, the Company classified the following income/(costs) as exceptional items:
2005
£m
    
    2004
£m
    
    2003
£mExceptional operating costs
    
    (145
    )
    
    (244
    )
    
    (442
    )Exceptional depreciation
    
    (8
    )
    
    (526
    )
    
    (2,381
    )Exceptional amortisation
    
    
    
    
    (10
    )
    
    (2,725
    )Exceptional profits less (losses) onsale or termination of operations
    
    116
    
    
    250
    
    
    (147
    )Exceptional amountswritten off investments
    
    
    
    
    
    
    
    (274
    )Exceptional profits on disposalof fixed assets
    
    23
    
    
    28
    
    
    62Exceptional tax credit
    
    85
    
    
    
    
    
    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 operating costsIn the year ended 31 March 2005 exceptional items included in other operating costs related principally
to redundancy and reorganisation costs incurred. These provisions are based on various assumptions,
including future severance costs, sublease or disposal costs and contractual termination costs. Such
estimates are judgemental and may change based on actual experience.
LiabilitiesThe 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
and liabilities are recognised in respect of tax, pensions, transactions and restructurings. Managements
judgement is required to quantify such amounts.
PensionsThe 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 Financial statements and
are estimates chosen from a range of possible actuarial assumptions which may not necessarily be
borne out in practice but are comparable to the median estimates in this regard used by other FTSE
100 companies. Changes to these assumptions could materially impact the size of the defined benefit
schemes deficits of £185 million, calculated under FRS 17, Retirement Benefits,
disclosed in Note 8.
International Financial Reporting Standards (IFRS)EU regulated companies are required to file consolidated financial statements that have been prepared
in accordance with IFRS for accounting periods beginning on or after 1 January 2005. Accordingly,
IFRS will apply for the first time to Cable & Wireless consolidated financial statements
for the year ending 31 March 2006. Consequently, all the Groups public reporting in respect
of accounting periods beginning on or after 1 April 2005 will be prepared in accordance with IFRS.
As reported last year, the Group has had in place a project to convert the Groups financial statements
together with the related underlying processes and systems to IFRS. The restatement of key financial
information for the years ended 31 March 2004 and 2005 to IFRS is well under way. Unaudited IFRS
financial information for the year ended 31 March 2004 was released on 31 March 2005 and is available
on the Companys website. Full 2005 IFRS information will be released before the Groups
interim announcement in November 2005.
The SEC has issued an accommodation for foreign private issuers preparing their first set of financial
statements under IFRS which allows issuers to file two rather than three years of information. Cable & Wireless expects to take advantage of the accommodation and hence the Groups date of
transition to IFRS will be 1 April 2004. As noted above, the Group previously issued unaudited information
to investors outlining the impact of the change to international standards on the financial statements
for the year ended 31 March 2004; this assumed a transition date of 1 April 2003. The change in transition
date to 1 April 2004 will have no effect on the net income from continuing activities reported under
IFRS for the year ended 31 March 2005 or on net assets as at that date.
86
    2005 Annual ReportBack to Contents
PerformanceReconciliation of US GAAP and of non-GAAP 
measures



US GAAP reconciliationThe Company prepares its consolidated financial statements in accordance with UK GAAP, which differs
  in significant respects from US GAAP, see Note 35 Summary of differences between United Kingdom
  and United States GAAP. A comparison of net loss and shareholders equity of Cable & Wireless when applying UK and US GAAP is provided in the table below:
  Net profit/(loss)
      UK GAAP
£m
      
      US GAAP
£mYear ended 31 March 2005
      
      302
      
      
      333Year ended 31 March 2004
      
      (237
      )
      
      (371
      )Year ended 31 March 2003
      
      (6,417
      )
      
      (6,239
      )Shareholders equity
      UK GAAP
£m
      
      US GAAP
£mAs at 31 March 2005
      
      1,818
      
      
      1,987As at 31 March 2004
      
      1,703
      
      
      1,787

Reconciliation of non-GAAP measuresInvestors should consider non-GAAP financial measures in addition to, and not as a substitute for or
  as superior to, financial measures presented in accordance with GAAP.
  Continuing operations  Profit/(loss) before taxation and exceptional itemsCable & Wireless uses Continuing operations  Profit/(loss) before taxation and exceptional
  items, a non-UK GAAP financial measure, as one of the key performance indicators for evaluating
  the underlying trading performance of the Group. Profit before taxation and exceptional items is
  also taken into account in assessing incentive payments. The Group believes that Continuing
  operations  Profit/(loss) before taxation and exceptional items provides an important
  measure of the underlying trading performance of the Group.
  The table below sets out a reconciliation of Continuing operations  Profit/(loss) before
  taxation and exceptional items to Total Group  Profit/(loss) on ordinary activities
  before taxation.
2005
    
    2004
    
    2003Continuing
£m
    
    Discon-
      tinued
£m
    
    Total
      Group
£m
    
    Continuing
£m
    
    Discon-
      tinued
£m
    
    Total
      Group
£m
    
    Continuing
£m
    
    Discon-
      tinued
£m
    
    Total
      Group
£mProfit/(loss) on ordinary activities
  before taxation and exceptional items
    
    361
    
    
    16
    
    
    377
    
    
    319
    
    
    (41
    )
    
    278
    
    
    96
    
    
    (446
    )
    
    (350
    )Less: Net interest and other similar
  income
    
    (39
    )
    
    1
    
    
    (38
    )
    
    (21
    )
    
    8
    
    
    (13
    )
    
    (111
    )
    
    9
    
    
    (102
    )Profit/(loss) on ordinary activities
  before interest, taxation and
  exceptional items
    
    322
    
    
    17
    
    
    339
    
    
    298
    
    
    (33
    )
    
    265
    
    
    (15
    )
    
    (437
    )
    
    (452
    )Exceptional operating costs
    
    (144
    )
    
    (1
    )
    
    (145
    )
    
    (219
    )
    
    (25
    )
    
    (244
    )
    
    (151
    )
    
    (291
    )
    
    (442
    )Exceptional depreciation
    
    (8
    )
    
    
    
    
    (8
    )
    
    (404
    )
    
    (122
    )
    
    (526
    )
    
    (1,574
    )
    
    (807
    )
    
    (2,381
    )Exceptional amortisation
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    (10
    )
    
    (2,196
    )
    
    (529
    )
    
    (2,725
    )Exceptional profits less (losses) on
  sale and termination of operations
    
    (14
    )
    
    130
    
    
    116
    
    
    2
    
    
    248
    
    
    250
    
    
    
    
    
    (147
    )
    
    (147
    )Exceptional profits less (losses) on
  disposal of fixed assets
    
    7
    
    
    16
    
    
    23
    
    
    12
    
    
    16
    
    
    28
    
    
    62
    
    
    
    
    
    62Exceptional asset writedown
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274
    )
    
    
    
    
    (274
    )Profit/(loss) on ordinary activities
  before interest and taxation
    
    163
    
    
    162
    
    
    325
    
    
    (321
    )
    
    84
    
    
    (237
    )
    
    (4,148
    )
    
    (2,211
    )
    
    (6,359
    )Net interest and other similar
  income/(charges)
    
    39
    
    
    (1
    )
    
    38
    
    
    21
    
    
    (8
    )
    
    13
    
    
    111
    
    
    (9
    )
    
    102Profit/(loss) on ordinary activities
  before taxation
    
    202
    
    
    161
    
    
    363
    
    
    (300
    )
    
    76
    
    
    (224
    )
    
    (4,037
    )
    
    (2,220
    )
    
    (6,257
    )2005 Annual Report
    87Back to Contents


Reconciliation of US GAAP and of non-GAAP 
measures


Operating costs before depreciation, amortisation and exceptional itemsAs noted earlier, the Group presents Operating costs before depreciation, amortisation and exceptional
items. This is a non-UK GAAP financial measure that is used by management as a key performance
measure. Cable & Wireless believes it appropriate to show operating costs excluding depreciation
and amortisation because these items are non-cash in nature. This presentation is also consistent
with the way that the Groups financial performance is
measured by management and Cable & Wireless believes this presentation allows a more meaningful comparison to be made of the trading
  results of the Group for the three years presented.
The reconciliation of the non-UK GAAP financial measure of Operating costs before depreciation,
amortisation and exceptional items to the GAAP financial measure of Total operating costs,
by major geography, is set out below:
Year ended 31 March 2005UK
    
    CWAO
    
    Europe
    
    Asia
    
    Bulldog
    
    National
      Telcos
    
    Other
    
    Discontinued
    
    Total
      GroupTotal operating costs before depreciation,
  amortisation and exceptional items
    
    1,452
    
    
    21
    
    
    198
    
    
    33
    
    
    39
    
    
    764
    
    
    40
    
    
    183
    
    
    2,730Exceptional items
    
    66
    
    
    (6
    )
    
    38
    
    
    1
    
    
    
    
    
    22
    
    
    31
    
    
    1
    
    
    153Depreciation
    
    60
    
    
    
    
    
    
    
    
    1
    
    
    2
    
    
    128
    
    
    1
    
    
    2
    
    
    194Amortisation
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    3
    
    
    
    
    
    
    
    
    7Total operating costs
    
    1,578
    
    
    15
    
    
    236
    
    
    35
    
    
    45
    
    
    917
    
    
    72
    
    
    186
    
    
    3,084Year ended 31 March 2004UK
    
    CWAO
    
    Europe
    
    Asia
    
    National
      Telcos
    
    Other
    
    Discontinued
    
    Total
      GroupTotal operating costs before depreciation,
  amortisation and exceptional items
    
    1,560
    
    
    27
    
    
    268
    
    
    33
    
    
    757
    
    
    32
    
    
    546
    
    
    3,223Exceptional items
    
    266
    
    
    
    
    
    7
    
    
    8
    
    
    321
    
    
    31
    
    
    147
    
    
    780Depreciation
    
    68
    
    
    
    
    
    1
    
    
    1
    
    
    153
    
    
    2
    
    
    27
    
    
    252Amortisation
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    (3
    )Total operating costs
    
    1,894
    
    
    27
    
    
    276
    
    
    42
    
    
    1,228
    
    
    65
    
    
    720
    
    
    4,252Year ended 31 March 2003UK
    
    CWAO
    
    Europe
    
    Asia
    
    National
      Telcos
    
    Other
    
    Discontinued
    
    Total
      GroupTotal operating costs before depreciation,
  amortisation and exceptional items
    
    1,568
    
    
    
    
    
    347
    
    
    100
    
    
    775
    
    
    6
    
    
    1,261
    
    
    4,057Exceptional items
    
    3,570
    
    
    
    
    
    298
    
    
    16
    
    
    34
    
    
    3
    
    

    1,627
    
    
    5,548Depreciation
    
    413
    
    
    
    
    
    28
    
    
    3
    
    
    159
    
    
    3
    
    
    129
    
    
    735Amortisation
    
    62
    
    
    
    
    
    
    
    
    4
    
    
    (1
    )
    
    
    
    
    61
    
    
    126Total operating costs
    
    5,613
    
    
    
    
    
    673
    
    
    123
    
    
    967
    
    
    12
    
    
    3,078
    
    
    10,46688
    2005 Annual ReportBack to Contents
PerformanceOperating and financial reviewRisk 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.
Risks specific to Cable & Wireless business1. The restructuring of the Group may not result in an improvement to performance and financial position.In June 2003 Cable & Wireless announced that it was undertaking, over a three year period, a restructuring
of its businesses to improve its position in a rapidly changing market place. Cable & Wireless
restructuring plans continue to be implemented and developed. In November 2004, a Group re-organisation
was announced, which is intended to result in £35 million annualised cost savings by March 2006.
Key elements of the reorganisation include a planned headcount reduction of 600 in the European business
and head office and it is also planned to reduce headcount in the UK sales channels by 480 over the
same period. Delays in implementation and integration of businesses may distract management from
being able to concentrate on developing their businesses with certainty, or to pursue opportunities
in their respective marketplaces. The forecast of savings for the year ending March 2006 was recently
revised downward to £20 million in connection with the recently announced proposed acquisition
of the share capital of Energis. As with the previously announced reorganisation, cost savings and
operating synergies anticipated from the proposed Energis acquisition may not be realised in full;
in addition, costs incurred in connection with integration and restructuring efforts may be higher than estimated.
In April 2005, Cable & Wireless announced the investment of £190 million, over the next three
years, on a Next Generation Network (NGN) in the UK. NGN is designed to, among other
things, protect margins in the UK. As highlighted in connection with the proposed acquisition of
Energis, Cable & Wireless intends to migrate Energis customers to NGN, and the corresponding
cost savings and capital expenditure synergies from the proposed acquisition therefore depend in
part on NGN. However, NGN may fail to achieve the cost savings and synergies expected either from
Cable & Wireless or Energis, costs incurred may be higher than expected and the efforts may fail
to attract and keep new customers. Furthermore, any delay in the development or implementation of
NGN could defer or reduce cost savings and synergies.
2. Transformation initiatives by the Group may not be successfully implemented.The Group has been in rapid transition in the past few years, acquiring and disposing of a number of
businesses, as well as adapting to a changing telecommunications business environment, and implementing
a number of reorganisation initiatives as a result. In June 2003 Cable & Wireless announced its
intention, over time, to expand its investment in national telecommunications operations, such as
the Groups investment in June 2004 in Monaco Telecom and its agreement to acquire the entire
issued share capital of Energis announced in August 2005. This may include acquiring further entities
and businesses.
The Group has in the past dedicated, 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 of both these elements is complex, time-consuming and expensive, and without proper
planning and execution, could significantly disrupt the Groups business.
In addition, the acquisition of Bulldog is an important step in advancing the Groups access strategy.
We believe LLU strengthens the Groups presence in the access network market by enabling Bulldog
to take control of the last mile copper link to the customers home or office. Our
initiatives with Bulldog and LLU could fail and our investment in LLU may not achieve the expected
return on investment or access to new markets.
The proposed acquisition of Energis is expected to generate significant synergy with the Groups
UK business, including through lower operating costs and capital expenditures for the combined business.
If the synergies and savings are not realised, the Group may not achieve the expected benefits from
the proposed acquisition.
3. Technological changes in communication and information technology may render the Groups products
and services obsolete or non-competitive resulting in an adverse impact on financial results.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 further 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.
In particular, Cable & Wireless is investing in a broadband access network through Bulldog and
a Next Generation Network in the UK, and has also invested in a GSM mobile network in the National
Telcos. Such new technologies that the Group chooses to invest in 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.
4. Network and critical IT system failures may expose the Group to potential liability or loss of customers.The Groups operations are dependent upon networks which may or may not be controlled by Cable
& Wireless. In addition, the Group is dependent on a number of critical IT systems to be able
to conduct its business and process financial information. Catastrophic network failure, a major
network interruption or an IT
2005 Annual Report
    89Back to Contents

Operating and financial review
Risk factors


system failure may occur as a result of natural disasters, a loss of a major element of the network,
security breaches, terrorist action or computer viruses. Such catastrophic failures or interruptions
could result in the loss of customers as well as exposure to potential claims from customers based
on the loss of service. A failure or interruption could also require expensive repairs or modifications
to the Groups assets and infrastructure.
5. Uninsured exposure to natural catastrophe (including Caribbean windstorm) insurance may continue
to increase.Due to increased levels of hurricane activity in certain areas in which the Group operates, the availability
of windstorm, flood and earthquake insurance has decreased. Insurance deductibles for windstorm,
flood and earthquake damage for certain areas in which the Group operates have increased and as a
result, uninsured exposure to such losses will be higher in fiscal year 2006 than in prior years.
In addition, certain other exclusions, including overhead cabling apply, which also increase the
Groups uninsured exposure.
Regulatory risk6. Unforeseen changes in regulation and government policy in the countries in which Cable & Wireless
operates may result in planned business objectives not being met.The Group operates in some highly regulated markets, and its flexibility to manage its business can
be constrained by regulation in these markets.
The Groups ability to provide telecommunications services depends, in most countries, on receiving
and maintaining government licences and authorisations.
Compliance with these licences and applicable local laws requires that Group companies obtain consents
or approvals from regulatory authorities for certain activities.
Furthermore, regulatory regimes in some countries in which the Group operates are less well established
than in other countries where competition in the telecommunications sector has been established for
longer. As a result, the Groups business in these countries 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. Failure
to acquire and retain such consents and approvals or in other ways to comply with regulatory requirements
could have a material adverse effect on its results or operations either in that jurisdiction or
in aggregate.
Future regulation may materially impact the Group, for example by resulting in changes to the terms
of interconnection agreements with other network operators and other similar agreements; imposing
market-access barriers; setting price caps or other forms of price regulation; imposing limitations
or investment obligations on construction of new facilities and restrictions on repatriation of cash.
The number of regulatory measures may also significantly increase, or become significantly more onerous
where jurisdictions in which the Group operates reform their telecommunications and related laws
and regulations. Complying with new or more onerous regulations and restrictions may be costly for
the Group, and may
have a material adverse effect on the Groups financial results.
In the UK, the LLU initiative through Bulldog is an important step in advancing the Groups access
strategy. Ofcoms commitment to ensuring equality of access is key to Bulldogs
success in LLU. However, there is no guarantee Ofcom will have the power to make the required changes
to the regulatory or competitive framework to be able to deliver the competitive environment necessary,
and therefore Bulldog may not reach the financial success it expects from LLU.
7. 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 are, in part, dependent upon access to networks that it does not own or
entirely control. In these cases, Cable & Wireless operations depend on network operators
to provide interconnection services for the origination, carriage 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 have a material adverse effect on the Groups financial results.
8. The Group may lose revenue if unlicensed operators are able to gain access to the Groups network.In certain markets where the Group operates, unlicensed operators may seek to gain access to the Groups
network unlawfully without paying for such access and/or usage. The Group has processes in place
to identify and prevent such occurrences, but actions available to it may be limited by local regulation.
To the extent that the Groups efforts to prevent the unlawful conduct are not wholly successful,
it may lose revenue and the Groups financial performance may be adversely impacted.
Risks specific to the telecommunications industry9. 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. The Group also believes the sector may experience consolidation in the
near future, which could result, amongst other things, in competitors with greater scale that would
make it more difficult for Cable & Wireless to compete effectively.
90
    2005 Annual ReportBack to Contents
Performance
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 is not
able to predict accurately the extent to which it will 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.
10. Continued overcapacity and other factors could lead to lower prices for the Groups products
and services.Many of the markets in which Cable & Wireless operates are experiencing considerable levels of
overcapacity. Coupled with low levels of demand growth this has contributed to a severe price decline
in these markets. This continuing trend could compel the Group to lower prices to prevent erosion
of its market share or to continue attracting new customers.
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
financial results.
11. 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, Macau and Monaco 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.Legal and Other12. The historic activities of the Groups insurance subsidiary may result in material claims.Pender Insurance Limited (Pender) is the companys Isle of Man domiciled captive insurance
company. Since its establishment in 1990 it has underwritten global insurances for both Cable & Wireless, and in later years, third party companies. It ceased to underwrite any new business from
April 2003.
The insurances provided included property damage, business interruption, natural catastrophe, general
liability, professional indemnity and directors and officers liability.
Pender purchased reinsurance for many of the risks it underwrote, including, from 2003, reinsurance
via a telecommunications insurance industry mutual (the Mutual). Pender remains liable
for all policies it underwrote in the first instance notwithstanding the reinsurances.
Pender has an independent board of directors and is managed by Thomas Miller Risk Management (Isle
of Man). Penders risk exposures are identified and regularly monitored by the directors.
The significant key risks identified are as follows:

    failure of reinsurance (including reinsurances secured via the Mutual post-April 2003);
    deterioration in known claims; and
    notification of new claims under long tail losses occurring liability policies.Certain of Penders re-insurers have instituted proceedings seeking a declaration that they are
entitled to avoid some of their re-insurance obligations.
If any of these risks materialise 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 financial condition of the Cable & Wireless Group.
The suit commenced by Cable and Wireless plc and Pender on 30 March 2004, against five companies and
six individuals (five of whom were former Cable & Wireless employees) has now been widened to
cover seven corporate defendants and nine individuals. Three of these defendants have lodged a counter-claim
against the Company. The Cable & Wireless Board continues to believe that the circumstances giving
rise to this suit have not had nor will have a material adverse effect on the Cable & Wireless
Group.
13. The ongoing US Securities Act Class action might adversely impact the Groups financial condition.The class action detailed in Operations and financial review  Legal proceedings on
page 93 was filed against the Company in the
2005 Annual Report
    91Back to Contents

Operating and financial review 
Risk factors


United States. If the settlement agreement for which all parties are seeking the Courts approval
does not reach the stage of receiving final Court approval for any reason, the plaintiffs may seek
to appeal the initial decision of the District Court.
In addition, Cable & Wireless is from time to time involved in other material litigation, which
if decided adversely to the Group could, individually or in the aggregate, adversely impact its financial
condition or reputation.
14. The Groups withdrawal from the US domestic market may result in unforeseen claims against
Cable & Wireless.Details of the Groups withdrawal from the US domestic market through a Chapter 11 bankruptcy
process of its US subsidiaries are set out in the Business overview  Acquisitions and disposals
on page 23.
Although the Plan of Liquidation is ongoing and, as part of that plan, Cable and Wireless has taken
measures to reduce its exposure to third party claims (by means of measures including the reduction
of its claims against CWA in exchange for releases from any liability from CWA; and the assignment
of a portion of the distributions, to which it would otherwise have been entitled, to individual
unsecured creditors in exchange for individual releases for claims against the Company), there is
no guarantee that Cable and Wireless plc will not be the target of claims from third parties who
believe they might have contractual or other rights enforceable directly against the Company. In
addition, despite the existence of contractual rights in its favour from SAVVIS in relation to the
guarantees and letters of credit in favour of CWA landlords (as described in the Business overview),
Cable and Wireless plc is subject to the risk that SAVVIS is unable to meet its contractual obligations
to reimburse it for payments made under those guarantees and letters of credit.
15. Changes in the pension regulatory framework and volatility in the financial markets may require
the Group to provide further cash funding to its pension funds.Cable & Wireless currently maintains a number of 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
performance of the financial markets, interest rates and expected longevity/mortality. 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 the UK, which has the most significant defined benefit scheme,
changes to the regulatory environment, and the introduction of the Pension Act 2004 may also lead
to an increasingly conservative actuarial valuation approach and investment strategy. If the Group
is required to make significant contributions to fund the defined benefit plans, the financial position
could be materially and adversely affected and the cash flow available for other uses may be significantly reduced.
16. Fluctuations in currency exchange rates in the countries where Cable & Wireless operates may
adversely affect the Groups reported results and financial condition.A significant percentage of Cable & Wireless business is conducted outside the United Kingdom.
The Group is thus exposed to movements in exchange rates in relation to foreign currency receipts
and payments, dividend and other income from foreign subsidiaries, reported profits of foreign subsidiaries
and the net asset carrying value of foreign investments.
The Group manages its exposure to movements in exchange rates on a net basis, and where appropriate,
uses forward foreign exchange contracts and other derivative and financial instruments to reduce
the exposure.
To the extent that this hedging activity does not cover the exposure, then the Groups results
of operations, cash generation and financial condition may be negatively impacted by currency exchange
rate movements.
92
    2005 Annual ReportBack to Contents
PerformanceOperating and financial review Legal proceedings


Class 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 the cases into one action, styled as In re Cable and Wireless
plc Securities Litigation, Civil Action No. 02-1860-A.
In May 2003, the lead plaintiffs filed a consolidated complaint that alleged violations of certain
sections of the Securities and Exchange Act of 1934 and the rules promulgated thereunder. A central
allegation was 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 appeared in an agreement
reached in 1999 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 alleged
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 sought unspecified money damages in their complaints.
The Company and the individual defendants filed motions to dismiss the class action complaint, which
were heard on 31 October 2003. In March 2004 the Court issued orders granting the Companys
and the individual defendants motions to dismiss the complaint (but denying the defendants motion to dismiss the claims of foreign (non-US) purchasers for lack of subject matter jurisdiction).
On 4 May 2004 and 5 June 2004, the Court issued memoranda opinions with regard to its previous orders.
On 15 June 2004, the Court entered judgement for the Company and the individual defendants consistent
with its March 2004 orders and memoranda opinions.
On 16 April 2004, plaintiffs filed an appeal of the District Courts decision to the US Court
of Appeals for the Fourth Circuit. On 3 May 2004, defendants filed a notice of cross-appeal with
respect to the District Courts order denying their motion to dismiss the claims of foreign
(non-US) purchasers for lack of subject matter jurisdiction. While the case was pending on appeal,
on 7 January 2005, the parties reached a preliminary agreement to settle the complaint on the basis
of the defendants making a payment of US$7 million (£3.7 million) to the plaintiff class (with
the support of the Companys insurers) in full and final settlement of the complaint.
On 1 March 2005, the parties filed a stipulation with the Court of Appeals requesting that the Court
of Appeals remand the case to the District Court for the limited purpose of considering the parties
settlement. The Court of Appeals accordingly referred the case back to the District Court on 21 March
  2005, for consideration of the settlement agreement. The District Court granted preliminary approval
  of the settlement by order dated 13 May 2005 and final approval by order dated 23 July 2005 thereby
  bringing the proceedings to a close.
Claim against the Minister of Finance and Economy, PanamaOn 16 December 2002, a complaint was filed by two Panamanian lawyers exercising a public action at
the Third Chamber of the Supreme Court of Justice of Panama questioning the law governing and rules
of Public Bid No. 06 96 won by INTEL, S.A. (now Cable & Wireless Panama, S.A.). Complaints filed
at the Third Chamber of the Supreme Court of Justice must be filed against the public officer who
enacted the relevant regulation or act. This complaint was filed against the Minister of Finance
and Economy in Panama specifically 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.
The Operating Agreement enables Cable & Wireless Panama, S.A. to use the technical and management
know-how of Cable and Wireless (CALA Management Services) Limited to fulfil more effectively its
obligations under the concession granted to it by the Government of Panama to install, operate and
exploit telecommunication services in Panama. Cable & Wireless Panama, S.A., due to its close
interest in the outcome of the complaint, requested recognition by the Court and permission to participate
in the proceedings. The Court agreed to this.
On 21 March 2003, the Court permitted the claim to proceed. Cable & Wireless Panama, S.A. filed
an appeal against the admission of the claim to proceed, however the Court confirmed its decision
to permit the claim to proceed on 17 March 2004.
As required by Panamanian law, the Administrations General Attorney has provided an opinion to the
Court in defence of the law or regulation, which is the subject of the complaint. The Administrations
General Attorney has opined that the Operating Agreement complied with all the requirements established
by the law and by the rules of Public Bid No. 06 96 and was countersigned by the General Comptroller
acting with due authorisation.
On 1 April 2005, Cable & Wireless Panama, S.A. tendered its response to the claim and submitted
evidence for consideration by the Court. The plaintiff has requested that the effect of the Operating
Agreement be suspended temporarily  an issue which the Court rejected on 10 March 2005. On
7 September 2005, the submission of evidence before the Court was completed. The Court is currently
waiting to hear closing arguments.
2005 Annual Report
    93Back to Contents

Operating and financial review 
Legal proceedings


Panamanian counsel considers 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 is party to
the complaint. If the complaint were to be successful, the concession under which Cable & Wireless
Panama, S.A. operates would not be affected. However the Operating Agreement could be declared null
and void and 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 on 20 May 1997. This would amount to approximately £60 million. In the event that
this complaint should be successful, Cable & Wireless and its subsidiaries intend to vigorously
pursue any legal recourse available to them.
Telecarrier Inc. vs. Cable & Wireless Panama, S.A.On 5 May 2004, Telecarrier Inc. lodged a claim in the Sixth Circuit Civil Court of Panama alleging
non-compliance by Cable & Wireless Panama, S.A. (Cable & Wireless Panama) with
the Interconnection Agreement between the parties in connection with the invoicing and collection
process. Telecarrier Inc. requested the Court to order the continued provision of a pre-determined
billing and charging process and to prevent Cable & Wireless Panama from using an alternative
process. They also claimed US$18 million (£9.6 million) damages and costs.
On 9 September 2004, Cable & Wireless Panama submitted a defence to the claim and on 30 December
2004, the parties presented a petition for suspension of the process for a period of 45 days to allow
them to negotiate with each other. In a resolution dated 30 December 2004, the Court admitted the
petition and negotiations with the plaintiff were initiated. The suspension period has expired. Negotiations
between Cable & Wireless Panama and Telecarrier Inc. concluded and no agreement was reached.
The Court re-opened proceedings on 13 May 2005. The process is pending the submission of evidence
to the Court. On 25 August 2005, Telecarrier Inc. petitioned the Court to join the unjust enrichment
claim brought by Cable & Wireless Panama with its non-compliance claim against Cable & Wireless
Panama discussed above.
In a separate action, on 25 August 2004, Cable & Wireless Panama lodged a claim against Telecarrier
Inc. in the Seventeenth Circuit Civil Court of Panama claiming unjustified enrichment by Telecarrier
Inc. through the use of Cable & Wireless Panamas fixed telephone network to allow the rerouting
of traffic for internet public use. Cable & Wireless Panama is claiming US$14 million (£7.5
million).
The claim was admitted by the Court on 2 September 2004. On 23 December 2004, the parties agreed to
suspend the process for a period of 30 days to allow for a period of negotiation  a move endorsed
by the Court on 23 December 2004. Negotiations between Cable & Wireless Panama and Telecarrier
Inc. concluded and no agreement was reached. The proceedings are pending the submission of evidence
before the Court.
Arbitration between PT Cable, Inc., Cable and Wireless plc, Cable & Wireless IDC, Inc. and othersPT Cable, Inc., (PT Cable) the US end owner of NPC Cable System (spanning from the United
States to Japan), initiated an ICC arbitration proceeding against Cable and Wireless plc, Japan Telecom
IDC, Inc. (IDC) and other users of capacity on that system for unpaid operations and
maintenance fees with respect to the US end. Cable & Wireless and all 14 other US end owners
counter-claimed against PT Cable for overcharging operation and maintenance fees. PT Cable then cross-claimed
against Cable & Wireless and IDC in their capacity as maintenance authorities and alleges that
Cable & Wireless and IDC should be liable to contribute to any damages the Arbitrator may award
against PT Cable.
Potential exposure of PT Cable is between US$13 million (£6.9 million) and US$33 million (£17.6
million). PT Cables counter-claim against Cable & Wireless and IDC is for an unquantified
proportion of that amount.
PT Cable failed to pay its arbitration filing fees and earlier this year was placed into Chapter 7
liquidation proceedings. The arbitration is therefore currently stayed.
On 28 January 2005, AT&T Corp and Alascom, Inc. (Claimants) filed a Request for Arbitration
before the ICC against Cable and Wireless plc and IDC (Respondents) relating to the Respondents
alleged duties as Founding Signatories and Maintenance Authorities under the Construction and Maintenance
Agreement for the NPC. The Claimants allege breach of contract, fraud, breaches of fiduciary duty
and similar claims against the Respondents in connection with alleged overcharging of operations
and maintenance fees by PT Cable. The complaint is for unquantified damages. The Companys US
Counsel has advised that, in their opinion, all of the Claimants claims are weak. The Company
has filed its Answer to the Request for Arbitration and arbitrators are currently being selected.
As far as quantum of damages is concerned, AT&Ts claim is duplicative of the counter-claim
by PT Cable in the first arbitration above (save that AT&T has claimed punitive damages). Therefore
Cable & Wireless believes its exposure remains within the parameters of the estimate set out
above.
Cable & Wireless will continue to vigorously defend its position in each of the arbitration proceedings
brought against it.
94
    2005 Annual ReportBack to Contents
PerformancePender Insurance LimitedAustralia-Japan Cable Limited (AJC), a policyholder of Pender Insurance Limited (Pender)
has brought proceedings in London against Pender and Cable & Wireless. AJC claims that it is
entitled to insurance cover for loss of revenue following damage caused to an undersea cable by a
cargo vessel. It also claims that, if it does not have such cover, Pender or Cable & Wireless
is liable for its losses because of representations made to AJC that it was entitled to such insurance
cover. The claim is for US$92 million (£49 million). Pender and Cable & Wireless have been
advised by legal council that the claim is unmeritorious and accordingly are defending it vigorously.
Certain of Penders re-insurers of the AJC risk have instituted proceedings seeking a declaration
that they are entitled to avoid their obligations. Pender is also vigorously defending these proceedings.
On 3 June 2005, QBE International Insurance Limited (QBE) issued Pender with a request
for arbitration on account of insurance premium payments of £36 million allegedly outstanding.
Pender has received advice that this claim is substantially without merit and intends to defend it
vigorously.
Pender has also been advised that, in the unlikely event of QBE recovering any funds as a result of
this claim, it would be contractually obliged to pass such funds (less a small fee) under retrocession
arrangements to Messenger Insurance PCC Limited (Messenger), one of the defendants to
the proceedings brought by Pender and Cable and Wireless plc described on page 91. Pender has been
advised that, given the strength of its misfeasance claims against Messenger, it would have a strong
chance of recovering any such sums paid by QBE to Messenger arising out of the subject matter of
the arbitration request.
Other litigationFrom time to time, the Company and its subsidiaries are subject to legal or regulatory claims, proceedings,
investigations or reviews. Other than the above, there are no pending claims, proceedings, investigations
or reviews 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 operations.

2005 Annual Report
    95Back to Contents

Report of the independent public accounting firm


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 2005 and 2004, and 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 2005. 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 the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement.
An audit includes 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 audits provide 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 2005 and 2004 and the results of their operations and cash flows for each of the years
in the three-year period ended 31 March 2005 in conformity with generally accepted accounting principles
in the United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in certain significant respects
from accounting principles generally accepted in the United States of America. Information relating
to the nature and effect of such differences is presented in Note 35 to the consolidated financial
statements.
KPMG Audit PlcChartered AccountantsRegistered AuditorLondon
3 June 2005, except Note 35 to the consolidated Financial
Statements which is as of 9 August 2005.

96
    2005 Annual ReportBack to Contents
  PerformanceConsolidated profitand
      loss accounts
For the year ended 31 March

Note
    
    
    2005
£m
    
    
    2004
£m
    
    
    2003
£mTurnover
        of the Group including its share of joint ventures and associates
    
    3
    
    
    3,409
    
    
    3,868
    
    
    4,651Share of turnover
        of  joint ventures
    
    17
    
    
    (127
    )
    
    (136
    )
    
    (195
    ) associates
    
    17
    
    
    (60
    )
    
    (61
    )
    
    (65
    )Group
        turnover*
    
    3, 4
    
    
    3,222
    
    
    3,671
    
    
    4,391Operating costs
        before depreciation, amortisation and exceptional items
    
    5
    
    
    (2,730
    )
    
    (3,223
    )
    
    (4,057
    )Exceptional operating
        costs
    
    5, 10
    
    
    (145
    )
    
    (244
    )
    
    (442
    )Operating costs
        before depreciation and amortisation
    
    
    
    
    (2,875
    )
    
    (3,467
    )
    
    (4,499
    )Depreciation
        before exceptional items
    
    5, 16
    
    
    (194
    )
    
    (252
    )
    
    (735
    )Exceptional depreciation
    
    5, 10, 16
    
    
    (8
    )
    
    (526
    )
    
    (2,381
    )Depreciation
    
    
    
    
    (202
    )
    
    (778
    )
    
    (3,116
    )Amortisation
        before exceptional items
    
    5, 15
    
    
    (7
    )
    
    3
    
    
    (126
    )Exceptional amortisation
    
    5, 10
    
    
    
    
    
    (10
    )
    
    (2,725
    )Amortisation
    
    
    
    
    (7
    )
    
    (7
    )
    
    (2,851
    )Total
        operating costs
    
    5
    
    
    (3,084
    )
    
    (4,252
    )
    
    (10,466
    )Group
        operating profit/(loss)*
    
    
    
    
    138
    
    
    (581
    )
    
    (6,075
    )Share of operating
        profits in joint ventures
    
    17
    
    
    16
    
    
    23
    
    
    53Share of operating
        profits in associates
    
    17
    
    
    24
    
    
    18
    
    
    22Total
        operating profit/(loss)
    
    
    
    
    178
    
    
    (540
    )
    
    (6,000
    )Profits less
        (losses) on sale and termination of operations before
    exceptional items
    
    
    
    
    3
    
    
    
    
    
    Exceptional items
    
    10
    
    
    116
    
    
    250
    
    
    (147
    )Profits less
        (losses) on sale and termination of operations
    
    
    
    
    119
    
    
    250
    
    
    (147
    )Profits less
        (losses) on disposal of fixed assets before exceptional items
    
    9
    
    
    5
    
    
    25
    
    
    Exceptional items
    
    10
    
    
    23
    
    
    28
    
    
    62Profits less
        (losses) on disposal of fixed assets
    
    
    
    
    28
    
    
    53
    
    
    62Exceptional amounts
        written off investments
    
    10
    
    
    
    
    
    
    
    
    (274
    )Profit/(loss)
        on ordinary activities before interest
    
    
    
    
    325
    
    
    (237
    )
    
    (6,359
    )Net interest and other similar income/(charges) Group
    
    11
    
    
    38
    
    
    13
    
    
    103 Joint
        ventures and associates
    
    17
    
    
    
    
    
    
    
    
    (1
    )Total net interest
        and other similar income
    
    
    
    
    38
    
    
    13
    
    
    102Profit/(loss)
        on ordinary activities before taxation
    
    
    
    
    363
    
    
    (224
    )
    
    (6,257
    )Tax on profit/(loss)
        on ordinary activities
    
    12
    
    
    14
    
    
    12
    
    
    (36
    )Profit/(loss)
        on ordinary activities after taxation
    
    
    
    
    377
    
    
    (212
    )
    
    (6,293
    )Equity minority
        interests
    
    
    
    
    (75
    )
    
    (25
    )
    
    (124
    )Profit/(loss)
        for the financial year
    
    
    
    
    302
    
    
    (237
    )
    
    (6,417
    )Dividends
    
    13
    
    
    (87
    )
    
    (73
    )
    
    (37
    )Profit/(loss)
        for the year retained
    
    24
    
    
    215
    
    
    (310
    )
    
    (6,454
    )Basic earnings/(loss)
        per Ordinary Share
    
    14
    
    
    13.0
    p
    
    (10.2
    )p
    
    (275.4
    )pDiluted earnings/(loss)
        per Ordinary Share
    
    14
    
    
    12.3
    p
    
    (10.2
    )p
    
    (275.4
    )pDividends
        per Ordinary Share
    
    
    
    
    3.8
    p
    
    3.15
    p
    
    1.6
    pThe accompanying
    notes are an integral part of these Financial statements.*
    Refer
        to page 98 for continuing operations analysis and page 99 for discontinued
    operations analysis.2005 Annual Report
    97Back to Contents


Consolidated profit and loss accounts: 
Continuing operations
For the year ended 31 March

Note
    
    Continuing
      operations
£m
    
    Continuing
      operations
      Acquisitions
£m
    
    2005
      Continuing
      operations
      Total
£m
    
    2004
      Continuing
      operations
£m
    
    2003
      Continuing
      operations
£mTurnover
          of the Group including its share of joint ventures and associates
    
    3
    
    
    3,099
    
    
    111
    
    
    3,210
    
    
    3,327
    
    
    3,637Share of turnover
        of  joint ventures
    
    17
    
    
    (127
    )
    
    
    
    
    (127
    )
    
    (136
    )
    
    (195
    ) associates
    
    17
    
    
    (60
    )
    
    
    
    
    (60
    )
    
    (61
    )
    
    (65
    )Group
          turnover
    
    3, 4
    
    
    2,912
    
    
    111
    
    
    3,023
    
    
    3,130
    
    
    3,377Operating costs
        before depreciation, amortisation and exceptional items
    
    5
    
    
    (2,435
    )
    
    (112
    )
    
    (2,547
    )
    
    (2,677
    )
    
    (2,796
    )Exceptional operating
        costs
    
    5, 10
    
    
    (144
    )
    
    
    
    
    (144
    )
    
    (219
    )
    
    (151
    )Operating costs
        before depreciation and amortisation
    
    
    
    
    (2,579
    )
    
    (112
    )
    
    (2,691
    )
    
    (2,896
    )
    
    (2,947
    )Depreciation
        before exceptional items
    
    5,16
    
    
    (184
    )
    
    (8
    )
    
    (192
    )
    
    (225
    )
    
    (606
    )Exceptional depreciation
    
    5, 10, 16
    
    
    (8
    )
    
    
    
    
    (8
    )
    
    (404
    )
    
    (1,574
    )Depreciation
    
    
    
    
    (192
    )
    
    (8
    )
    
    (200
    )
    
    (629
    )
    
    (2,180
    )Amortisation
        before exceptional items
    
    5, 15
    
    
    2
    
    
    (9
    )
    
    (7
    )
    
    3
    
    
    (65
    )Exceptional amortisation
    
    5, 10
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    (2,196
    )Amortisation
    
    
    
    
    2
    
    
    (9
    )
    
    (7
    )
    
    (7
    )
    
    (2,261
    )Total
          operating costs
    
    5
    
    
    (2,769
    )
    
    (129
    )
    
    (2,898
    )
    
    (3,532
    )
    
    (7,388
    )Group
          operating profit/(loss)
    
    
    
    
    143
    
    
    (18
    )
    
    125
    
    
    (402
    )
    
    (4,011
    )Share of operating
        profits in joint ventures
    
    17
    
    
    15
    
    
    1
    
    
    16
    
    
    23
    
    
    53Share of operating
        profits in associates
    
    17
    
    
    24
    
    
    
    
    
    24
    
    
    18
    
    
    22Total
          operating profit/(loss)
    
    
    
    
    182
    
    
    (17
    )
    
    165
    
    
    (361
    )
    
    (3,936
    )Exceptional profits
        less (losses) on sale and termination of operations
    
    10
    
    
    (14
    )
    
    
    
    
    (14
    )
    
    2
    
    
    Profits less
        (losses) on disposal of fixed assets before exceptional items
    
    9
    
    
    5
    
    
    
    
    
    5
    
    
    26
    
    
    Exceptional items
    
    10
    
    
    7
    
    
    
    
    
    7
    
    
    12
    
    
    62Profits less
        (losses) on disposal of fixed assets
    
    
    
    
    12
    
    
    
    
    
    12
    
    
    38
    
    
    62Exceptional amounts
        written off investments
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274
    )Profit/(loss)
          on ordinary activities before interest
    
    
    
    
    180
    
    
    (17
    )
    
    163
    
    
    (321
    )
    
    (4,148
    )The
    accompanying notes are an integral part of these Financial statements.98
    2005 Annual ReportBack to Contents

PerformanceConsolidated profit and loss accounts: 
Discontinued operations
For the year ended 31 March

Note
    
    2005
      Discontinued
      operations£m
    
    2004
      Discontinued
      operations£m
    
    2003
      Discontinued
      operations£mTurnover
          of the Group including its share of joint ventures and associates
    
    3
    
    
    199
    
    
    541
    
    
    1,014Share of turnover
        of  joint ventures
    
    17
    
    
    
    
    
    
    
    
     associates
    
    17
    
    
    
    
    
    
    
    
    Group
          turnover
    
    3, 4
    
    
    199
    
    
    541
    
    
    1,014Operating costs
        before depreciation, amortisation and exceptional items
    
    5
    
    
    (183
    )
    
    (546
    )
    
    (1,261
    )Exceptional operating
        costs
    
    5, 10
    
    
    (1
    )
    
    (25
    )
    
    (291
    )Operating costs
        before depreciation and amortisation
    
    
    
    
    (184
    )
    
    (571
    )
    
    (1,552
    )Depreciation
        before exceptional items
    
    5, 16
    
    
    (2
    )
    
    (27
    )
    
    (129
    )Exceptional depreciation
    
    5, 10, 16
    
    
    
    
    
    (122
    )
    
    (807
    )Depreciation
    
    
    
    
    (2
    )
    
    (149
    )
    
    (936
    )Amortisation
        before exceptional items
    
    5, 15
    
    
    
    
    
    
    
    
    (61
    )Exceptional amortisation
    
    5, 10
    
    
    
    
    
    
    
    
    (529
    )Amortisation
    
    
    
    
    
    
    
    
    
    
    (590
    )Total
          operating costs
    
    5
    
    
    (186
    )
    
    (720
    )
    
    (3,078
    )Group
          operating profit/(loss)
    
    
    
    
    13
    
    
    (179
    )
    
    (2,064
    )Share of operating
        profits in joint ventures
    
    17
    
    
    
    
    
    
    
    
    Total
          operating profit/(loss)
    
    
    
    
    13
    
    
    (179
    )
    
    (2,064
    )Profits less
        (losses) on sale and termination of operations 
        before exceptional items
    
    
    
    
    3
    
    
    
    
    
    Exceptional items
    
    10
    
    
    130
    
    
    248
    
    
    (147
    )Profits less
        (losses) on sale and termination of operations
    
    
    
    
    133
    
    
    248
    
    
    (147
    )Profits less
        (losses) on disposal of fixed assets before exceptional items
    
    9
    
    
    
    
    
    (1
    )
    
    Exceptional items
    
    10
    
    
    16
    
    
    16
    
    
    Profits less
        (losses) on disposal of fixed assets
    
    
    
    
    16
    
    
    15
    
    
    Profit/(loss)
          on ordinary activities before interest
    
    
    
    
    162
    
    
    84
    
    
    (2,211
    )The
    accompanying notes are an integral part of these Financial statements.2005 Annual Report
    99Back to Contents
Consolidated balance sheets
At 31 March

Note
    
    2005£m
    
    2004£mFixed
          assetsIntangible assets
    
    15
    
    
    91
    
    
    (9
    )Tangible assets
    
    16
    
    
    1,379
    
    
    1,214Interest in net
        assets of joint ventures*
    
    17
    
    
    128
    
    
    132Investments in
        associates
    
    17
    
    
    80
    
    
    75Loans to joint
        ventures and associates
    
    17
    
    
    1
    
    
    1Other investments
    
    17
    
    
    20
    
    
    58Total fixed asset
        investments
    
    
    
    
    229
    
    
    2661,699
    
    
    1,471Current
          assetsStocks
    
    18
    
    
    35
    
    
    38Debtors  due
        within one year
    
    19
    
    
    816
    
    
    875 due
        after more than one year
    
    19
    
    
    284
    
    
    1751,100
    
    
    1,050Current asset
        investments and shortterm deposits
    
    20
    
    
    2,031
    
    
    2,229Cash at bank
        and in hand
    
    
    
    
    135
    
    
    1383,301
    
    
    3 ,455Creditors:
          amounts falling due within one year
    
    21
    
    
    (1,534
    )
    
    (1,668
    )Net
          current assets
    
    
    
    
    1,767
    
    
    1,787Total
          assets less current liabilities
    
    
    
    
    3,466
    
    
    3,258Creditors:
        amounts falling due after more than one yearConvertible debt
    
    21
    
    
    (252
    )
    
    (252
    )Other creditors
    
    21
    
    
    (549
    )
    
    (623
    )(801
    )
    
    (875
    )Provisions
          for liabilities and charges
    
    22
    
    
    (528
    )
    
    (431
    )(1,329
    )
    
    (1,306
    )Net
          assets
    
    
    
    
    2,137
    
    
    1,952Capital and
          reservesCalled up share
        capital
    
    23
    
    
    599
    
    
    596Share premium
        account
    
    24
    
    
    8
    
    
    2Special reserve
    
    24
    
    
    1,736
    
    
    1,745Capital redemption
        reserve
    
    24
    
    
    105
    
    
    105Profit and loss
        account
    
    24
    
    
    (630
    )
    
    (745
    )Equity
          shareholders funds
    
    
    
    
    1,818
    
    
    1,703Equity
          minority interests
    
    
    
    
    319
    
    
    249Capital
          employed
    
    
    
    
    2,137
    
    
    1,952*
    Interests in
        net assets of joint ventures include the Groups share of gross assets
        of joint ventures of £189 million (2004  £190 million)
        and the Groups
share of gross liabilities of joint ventures of £61 million (2004  £58
million)  see Note 17The accompanying
    notes are an integral part of these Financial statements.100
    2005 Annual ReportBack to Contents
PerformanceCompany balance sheets
At 31 March

Note
    
    2005£m
    
    2004£mFixed
          assetsTangible assets
    
    16
    
    
    11
    
    
    11Investments
        in subsidiaries
    
    17
    
    
    20,412
    
    
    19,700Investments in
        associates
    
    17
    
    
    19
    
    
    21Loans
        to joint ventures and associates
    
    17
    
    
    1
    
    
    1Other investments
    
    17
    
    
    
    
    
    28Total
        fixed asset investments
    
    
    
    
    20,432
    
    
    19,75020,443
    
    
    19,761Current
          assetsDebtors  due
        within one year
    
    19
    
    
    148
    
    
    123 due
        after more than one year
    
    19
    
    
    142
    
    
    102290
    
    
    225Current
        asset investments and shortterm deposits
    
    20
    
    
    1,819
    
    
    2,133Cash at bank
        and in hand
    
    
    
    
    11
    
    
    352,120
    
    
    2,393Creditors:
          amounts falling due within one year
    
    21
    
    
    (332
    )
    
    (515
    )Net
          current assets
    
    
    
    
    1,788
    
    
    1,878Total
          assets less current liabilities
    
    
    
    
    22,231
    
    
    21,639Creditors:
          amounts falling due after more than one yearConvertible debt
    
    21
    
    
    (252
    )
    
    (252
    )Other
        creditors
    
    21
    
    
    (18,686
    )
    
    (18,106
    )(18,938
    )
    
    (18,358
    )Provisions
          for liabilities and charges
    
    22
    
    
    (184
    )
    
    (174
    )(19,122
    )
    
    (18,532
    )Net
          assets
    
    
    
    
    3,109
    
    
    3,107Capital
          and reservesCalled
        up share capital
    
    23
    
    
    599
    
    
    596Share premium
        account
    
    24
    
    
    8
    
    
    2Special
        reserve
    
    24
    
    
    1,736
    
    
    1,745Capital redemption
        reserve
    
    24
    
    
    105
    
    
    105Profit
        and loss account
    
    24
    
    
    661
    
    
    659Equity
          shareholders funds
    
    
    
    
    3,109
    
    
    3,107The
    accompanying notes are an integral part of these Financial statements.2005 Annual Report
    101Back to Contents

Consolidated cash flow statements
For the year ended 31 March

Note
    
    2005£m
    
    2004£m
    
    2003£mNet
          cash inflow from operating activities
    
    28
    
    
    346
    
    
    73
    
    
    95Dividends
          from joint ventures and associatesDividends
        from joint ventures
    
    
    
    
    11
    
    
    12
    
    
    13Dividends from
        associates
    
    
    
    
    14
    
    
    13
    
    
    1525
    
    
    25
    
    
    28Returns
          on investments and servicing of financeInterest
        and similar income received
    
    
    
    
    89
    
    
    103
    
    
    197Interest paid
    
    
    
    
    (68
    )
    
    (89
    )
    
    (88
    )Net
        interest element of finance lease rentals paid
    
    
    
    
    
    
    
    (1
    )
    
    (2
    )Dividends paid
        to minority interests
    
    
    
    
    (35
    )
    
    (75
    )
    
    (70
    )Income
        received from other investments
    
    
    
    
    4
    
    
    5
    
    
    (10
    )
    
    (57
    )
    
    37Taxation
    
    
    
    
    (60
    )
    
    (43
    )
    
    (438
    )Capital
          expenditure and financial investmentPurchase
        of tangible fixed assets
    
    
    
    
    (344
    )
    
    (342
    )
    
    (810
    )Sale of tangible
        fixed assets
    
    
    
    
    9
    
    
    38
    
    
    15Purchase
        of current asset investments
    
    
    
    
    (1
    )
    
    (1
    )
    
    (3
    )Purchase of investments
    
    
    
    
    
    
    
    (4
    )
    
    (38
    )Sale
        of current asset investments
    
    
    
    
    
    
    
    229
    
    
    600Sale of investments
    
    
    
    
    68
    
    
    39
    
    
    11Investment
        in joint venture
    
    
    
    
    
    
    
    
    
    
    10(268
    )
    
    (41
    )
    
    (215
    )Acquisitions
          and disposalsDisposal of subsidiary
        undertakings
    
    
    
    
    96
    
    
    (120
    )
    
    14Purchase
        of shareholdings in subsidiary undertakings
    
    
    
    
    (131
    )
    
    (5
    )
    
    2Receipts from
        sale of associates
    
    
    
    
    7
    
    
    7
    
    
    94Purchase
        of associate undertakings
    
    
    
    
    (7
    )
    
    
    
    
    (35
    )
    
    (118
    )
    
    110Equity
          dividends paid to shareholders
    
    
    
    
    (97
    )
    
    
    
    
    (119
    )Management
          of liquid resourcesMovement
        in liquid resources (net)
    
    30
    
    
    75
    
    
    932
    
    
    (1,040
    )FinancingPurchase of own
        shares
    
    
    
    
    (74
    )
    
    
    
    
    Issue
        of ordinary share capital
    
    
    
    
    6
    
    
    2
    
    
    1Capital element
        of finance lease rental repayments
    
    
    
    
    
    
    
    (1
    )
    
    (18

    )Other
        long term debt issued
    
    
    
    
    1
    
    
    280
    
    
    88Long term debt
        repaid
    
    
    
    
    (86
    )
    
    (863
    )
    
    (649
    )(153
    )
    
    (582
    )
    
    (578
    )(Decrease)/increase
          in cash in the year
    
    29
    
    
    (177
    )
    
    189
    
    
    (2,120
    )The accompanying
    notes are an integral part of these Financial statements.102
    2005 Annual ReportBack to Contents

PerformanceConsolidated statements oftotal
      recognised gains and losses
For the year ended 31 March

2005£m
    
    2004£m
    
    2003£mProfit/(loss) for the financial
        year
    
    302
    
    
    (237
    )
    
    (6,417
    )Currency translation differences
        on foreign currency net investments and 
        related borrowings
    
    (37
    )
    
    (97
    )
    
    (240
    )Total gains/(losses)
        relating to the period
    
    265
    
    
    (334
    )
    
    (6,657
    )Prior year adjustment (Note
        24)
    
    119Total
        losses recognised since last annual report
    
    384The accompanying
        notes are an integral part of these Financial statements.2005 Annual Report
    103Back to Contents

Reconciliation
of movements in 
consolidated equity shareholders funds
For the year ended 31 March
2005£m
    
    2004£m
    
    2003£mProfit/(loss) for the financial
        year
    
    302
    
    
    (237
    )
    
    (6,417
    )Dividends  interim
    
    (27
    )
    
    
    
    
    (37
    ) final
    
    (60
    )
    
    (73
    )
    
    Profit/(loss) for the year
        carried forward
    
    215
    
    
    (310
    )
    
    (6,454
    )Other recognised gains and
        losses relating to the year
    
    (37
    )
    
    (97
    )
    
    (240
    )New share capital issued
    
    9
    
    
    2
    
    
    1Purchase of own shares (Note
        23)
    
    (75
    )
    
    
    
    
    Own shares purchased and
        held in ESOP trust
    
    
    
    
    (4
    )
    
    (38
    )Own shares released on vesting
        of share awards
    
    3
    
    
    1
    
    
    7Net increase/(decrease)
        in equity shareholders funds
    
    115
    
    
    (408
    )
    
    (6,724
    )Opening
        equity shareholders funds (prior year adjusted  Note 24)
    
    1,703
    
    
    2,111
    
    
    8,835Closing
        equity shareholders funds
    
    1,818
    
    
    1,703
    
    
    2,111Reconciliation of movements
in equity 
shareholders funds for the Company
For the year ended 31 March

2005£m
    
    2004£m
    
    2003£mProfit/(loss) for the financial
        year
    
    152
    
    
    585
    
    
    (7,523
    )Dividends  interim
    
    (27
    )
    
    
    
    
    (37
    ) final
    
    (60
    )
    
    (73
    )
    
    Profit/(loss) for the year
        carried forward
    
    65
    
    
    512
    
    
    (7,560
    )Other recognised gains relating
        to the year
    
    
    
    
    
    
    
    17Revaluation
    
    
    
    
    (1,020
    )
    
    223New share capital issued
    
    9
    
    
    2
    
    
    1Purchase of own shares (Note
        23)
    
    (75
    )
    
    
    
    
    Own shares purchased and
        held in ESOP trust
    
    
    
    
    (4
    )
    
    (38
    )Own shares released on vesting
        of share awards
    
    3
    
    
    1
    
    
    7Net decrease
        in equity shareholders funds
    
    2
    
    
    (509
    )
    
    (7,350
    )Opening equity shareholders funds
        (prior year adjusted  Note 24)
    
    3,107
    
    
    3,616
    
    
    10,966Closing
        equity shareholders funds
    
    3,109
    
    
    3,107
    
    
    3,616The accompanying
    notes are an integral part of these Financial statements.104
    2005 Annual ReportBack to Contents

PerformanceStatement of accounting policies

Basis of preparationThe
    Financial Statements are prepared in accordance with applicable accounting standards
    and the provisions of the Companies Act, 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
    material respects from generally accepted accounting principles in the United
    States (US GAAP) (see Note 35 Summary of differences between United
Kingdom and United States GAAP).
The consolidated profit and loss
    accounts on pages 97 and 99 comply with UK GAAP and UK Companies Act requirements
    and the directors believe they are in the most appropriate format for shareholders
    to understand the results of our business. Depreciation and amortisation (including
    exceptional amounts) are presented on the face of the profit and loss accounts
    because these items are non-cash income. Exceptional operating costs are also
    presented on the face of the profit and loss accounts because these amounts relate
    to events that are not expected to recur. This presentation is also consistent
    with the way that the financial performance is measured by management and Cable & Wireless
    believes this presentation allows a more meaningful comparison to be made of
the trading results of the Group for the three years presented.
Use of estimatesThe
    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 these estimates.
FRS 18, Accounting policies requires
    that a description of the impact of any change in estimation techniques should
    be provided where the change has a material impact on the reported results for
the period.
New accounting
    standardsThe following
new accounting standards were adopted during the year:
The Group has adopted Urgent
    Issues Task Force (UITF) 38, Accounting for ESOP trusts and
UITF 17 (revised), Employee share schemes in these Financial Statements.
This has resulted in the adoption of a revised accounting policy for employee share
awards in the year. Details of the effect of prior year adjustments are given in
Note 24.
The adoption of UITF 38 resulted
    in a decrease to shareholders funds representing the reclassification
of shares by the ESOP trust held from fixed asset investments to the profit and loss
reserve.
Under the revised UITF 17 accounting
    policy, the estimated cost of share awards is charged to the profit and loss
    account over the period from the grant date to the date of expected vesting (where
    there are no performance conditions) or the performance period where relevant.
    The accrued employee entitlement is recorded as a credit within shareholders funds.
    The estimated cost of awards is based upon the market value of the shares at
    the grant date or the difference between the exercise price and the market price
    at the date of granting the award, adjusted to reflect the impact of performance
conditions where applicable.
Where shares are satisfied by
    on-market purchases the cost of acquiring the shares is deducted from shareholders funds.
    The difference between the consideration paid for the shares and the cost of
the awards is transferred to retained earnings when the shares vest unconditionally.
In prior years the estimated cost of share awards was initially charged to profit and recorded as a
provision using the market value of shares at the grant date. Where awards were satisfied by on-market
purchases, the cost was subsequently adjusted to the actual consideration for shares purchased.
The Group has elected not to
    early adopt FRS 20, Share based payment for the year ended
31 March 2005.
Basis of consolidationThe
    Group Financial Statements 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. In the year ended 31
    March 2004 Cable & Wireless USA, Inc. and Cable & Wireless
Internet Services, Inc. (together with certain of their affiliates), were deconsolidated
on 8 December 2003 (the date on which these companies filed for Chapter 11 bankruptcy
protection under the US Bankruptcy Code).
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.
Foreign currenciesAverage
    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.
2005 Annual Report
    105Back to Contents

Statement of accounting policies

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 depreciationTangible
    fixed assets are stated at cost less depreciation. The cost of fixed assets includes
    directly  attributable labour and overhead costs. Interest that is directly attributable
    and 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. Where
    the Group has a legal or constructive obligation to dismantle  and remove its
    assets and restore the relevant sites, a provision is made for the estimated
    costs  of the asset retirement obligation. The present value of the asset retirement
obligation is capitalised  as part of the initial cost of the asset.
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. Depreciation commences when the assets are ready for use. Assets lives are:
LivesCables
    up
        to 20 yearsNetwork equipment
    3 to 25 yearsDucting
    40 yearsFreehold buildings
    40 yearsLeasehold land and buildings
    up to 40 years
        or
      term of lease if lessProfits and losses on disposals of tangible fixed assets are determined by reference to sale proceeds
and net book values.
Intangible fixed
    assetsFrom 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. This
goodwill has been written off as a matter of accounting policy. 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 impairmentIntangible
    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.
Fixed asset
    investmentsJoint 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
    investmentsCurrent asset
investments are stated at the lower of cost and net realisable value.
TaxThe
    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.
106
    2005 Annual ReportBack to Contents

PerformanceExcept where otherwise required by accounting standards, full provision without discounting is made
for all timing differences that have arisen but not reversed at the balance sheet date.
StocksStocks
    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
    operationsThe Group complies
    with FRS 3 Reporting financial performance,
in determining the classification of operations as discontinued or continuing.
Group turnoverGroup
    turnover, which excludes discounts, value added tax and similar sales taxes,
    represents the amount  receivable in respect of telecommunications services and
    equipment provided to customers and is accounted  for on the accruals basis.
    It includes sales to joint ventures and associated companies but does  not include
sales by joint ventures and associated companies or sales between Group companies.
Turnover from voice, data and IP services is recognised as the services are provided. In respect of
services invoiced in advance, amounts are deferred until provision of the service.
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 continual review.
    Turnover generated through the provision of these services is accounted for gross
    of any amounts payable to other telecommunications operators for interconnect
fees.
Mobile turnover comprises amounts charged to customers in respect of monthly access charges, airtime
usage, messaging, the provision of other mobile telecommunications services, including data services
and information provision and turnover from the sale of equipment, including handsets.
The Group earns revenue from the transmission of content on its network originated by third-party providers.
The Group assesses whether revenue should be recorded gross as principal or net as agent, based on
the features of such arrangements including the following indicators:
 whether the Group holds itself out as an agent; establishment of the price; provision of customer remedies; performance of part of the service; and assumption of credit risk.Mobile monthly access charges are invoiced and recorded as part of a periodic billing cycle. Airtime,
either from contract customers as part of the invoiced amount, or from pre-paid customers through
the sale of pre-paid top-up cards, is recorded in the period in which the customer uses the service.
Unbilled turnover resulting from mobile services provided to contract customers from the billing
cycle date to the end of each period is accrued. Unearned monthly access charges relating to periods
after each accounting period are deferred.
Turnover from sales of telecommunication equipment is recognised upon delivery to the customer.
The total consideration on arrangements with multiple turnover-generating activities (generally the
sale of telecom equipment and ongoing service) is allocated to those components that are capable
of operating independently based on the fair value of the components. Turnover from the sale of the
telecom equipment and services is recognised on the basis set out above.
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:
 the purchasers right of use is exclusive and irrecoverable; 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 costs of carrying value can be measured reliably; no significant risks are retained by the Group; and the asset is identified as held for sale and categorised to stock.Turnover arising from the provision
    of other services, including maintenance contracts, is recognised evenly over
the periods in which the service is provided.
2005 Annual Report
    107Back to Contents

Statement of accounting policies

PensionsThe
    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 FRS 17 Retirement benefits and appropriate
additional disclosures have been included in Note 8.
Leased assetsWhere
    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 costsThe
    costs of issue of capital instruments are charged to the profit and loss account
    over the life  of the instrument. Debt issued is initially recorded net of these
issue costs.
DebtorsDebtors
    are stated at the invoiced amount less provisions for accounts that are estimated
    by management  to be doubtful. Provisions are maintained in respect of bad and
    doubtful debts for estimated losses  resulting from the inability of customers
    to make required payments. Estimates are based on the ageing  of the debt balances
and historical experience.
Derivatives
Swaps
    and forward rate agreements The
  net interest paid or received under any 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 certain foreign currency denominated
debt, and the related foreign currency interest flows.
Forward exchange contractsForward 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 lossesExchange gains
    and losses on revaluation and maturity of any forward exchange contracts and
cross currency  swaps are treated according to the underlying exposure they hedge:

for any contracts that 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 any contracts over underlying currency assets or liabilities the exchange gains and losses are
offset against the equal and opposite exchange gains or losses arising on the retranslation of the
underlying assets or liabilities;
for any contracts taken out to hedge overseas equity investments the exchange gains and losses are
taken to reserves to offset against the exchange differences arising on the retranslation of the
net assets of the investments on consolidation; and
  for
      any contracts that 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.
Liquid resourcesLiquid
    resources comprise current asset investments and short term deposits, which are
    readily convertible  into known amounts of cash at or close to their carrying
value.
Employee Share
    Option Plan Trust (ESOP)The
    financial statements of the Group include the assets and related liabilities
    of the Cable &
Wireless Employee Share Ownership Plan Trust. Under the requirements of UITF 38 Accounting
for ESOP trusts are stated at cost and deducted from equity shareholders funds.
108
    2005 Annual ReportBack to Contents



  
PerformanceNotes to the financial statements

1 Companys profit and loss accountThe Company has taken advantage
    of the exemption contained in s230 of the Companies Act 1985 from presenting
    its own profit and loss account. The profit for the year of the Company amounted
    to £152 million
(2004  £585 million, 2003  loss of £7,523 million).
2 Historical cost profits and lossesThere is no difference between the Group results as reported and on the historical cost bassis. Accordingly
no additional note of historical cost profits and losses has been prepared.
3 TurnoverThe Groups operations are
all considered to fall into one class of business, namely telecommunications.
4 Segmental informationCable & Wireless is an international
    telecommunications company. During the year ended 31 March 2005, the Group was
    organised into the following segments, namely the United Kingdom, CWAO, Europe
    (excluding Monaco), Asia, Bulldog (acquired during the year) and the National
    Telcos. Historically the results of Japan and Asia were reported as a separate
    segment. Following the disposal of Japan during the year, Asia is now reported
    as a separate segment. The results for Japan have been included in discontinued
operations for all three years presented.
United Kingdom, CWAO, Europe and Asia, provide communications solutions to business and wholesale customers
offering IP, data and voice products. Bulldog provides broadband and voice services to consumers
and small businesses in the UK. The National Telcos companies that are located in the Caribbean,
Panama, Macau, Monaco (acquired in the year), the Middle East, South East Asia and in the Pacific,
Indian and Atlantic Oceans provide a full range of telecommunications services to both consumer and
business customers, including fixed and mobile voice, data and IP.
Other and eliminations includes
    unallocated corporate expenses, inter-segment eliminations recorded on consolidation
    and net operating assets that are not allocated to segments. Turnover is reported
in the geography in which the services are delivered. The segmental information
      below has been presented on that basis and comparative information has been amended
      accordingly. The accounting policies adopted by each of the segments are described
in the Statement of Accounting Policies.
Details of Group turnover, contributions to profit/(loss) on ordinary activities before interest and
taxation, net operating assets/(liabilities) by geographical region are as follows:
TurnoverGeographical
        area
    2005
£m
    
    2004
£m
    
    2003
£mUnited
        Kingdom
    
    1,602
    
    
    1,661
    
    
    1,684CWAO
    
    16
    
    
    11
    
    
    Europe
    
    186
    
    
    262
    
    
    304Asia
    
    39
    
    
    32
    
    
    79Bulldog
    
    11
    
    
    
    
    
    National
        Telcos Caribbean
    
    550
    
    
    633
    
    
    756 Panama
    
    257
    
    
    265
    
    
    279 Macau
    
    117
    
    
    128
    
    
    146 Monaco
    
    100
    
    
    
    
    
     Rest of the World
    
    167
    
    
    161
    
    
    159Total National Telcos
    
    1,191
    
    
    1,187
    
    
    1,340Inter-segment
        turnover
    
    (22
    )
    
    (23
    )
    
    (30
    )Continuing
        operations
    
    3,023
    
    
    3,130
    
    
    3,377Discontinued
        operations
    
    199
    
    
    541
    
    
    1,014Group
        turnover
    
    3,222
    
    
    3,671
    
    
    4,391The Group turnover figure disclosed represents turnover of the Company and its subsidiaries allocated
to the location to which telecommunications services were delivered. International telecommunications
traffic which the Group may be responsible for carrying on part of its route would not necessarily
originate in that location. The Group does not have access to information on the original source
or ultimate destination of international telecommunications traffic.
2005 Annual Report
    109Back to Contents

Notes to the financial statements

Discontinued operations comprise
    sales in Japan £199 million (2004  Japan £254 million,
United States £242 million and Yemen £45 million, 2003  Japan £300 million,
United States £644 million and Yemen £70 million).
There were no capacity sales recorded within turnover in 2005, 2004 and 2003.
Profit/(loss)
        on ordinary activities before interest2005
    
    2004
    
    2003Profit/(loss)
      on ordinary
      operating
      activities
      before
      exceptional
      items and
      interest
£m
    
    Exceptional
      items
£m
    
    Profit/(loss)
      on ordinary
      activities
      before
      interest
£m
    
    Profit/(loss)
      on ordinary
      operating
      activities
      before
      exceptional
      items and
      interest
£m
    
    Exceptional
      items
£m
    
    Profit/(loss)
      on ordinary
      activities
      before
      interest
£m
    
    Profit/(loss)
      on ordinary
      operating
      activities
      before
      exceptional
      items and
      interest
£m
    
    Exceptional
      items
£m
    
    Profit/(loss) 
      on ordinary 
      activities 
      before
      interest
£mGeographical
          areaUnited Kingdom
    
    92
    
    
    (66
    )
    
    26
    
    
    33
    
    
    (256
    )
    
    (223
    )
    
    (359
    )
    
    (3,570
    )
    
    (3,929
    )CWAO
    
    (8
    )
    
    6
    
    
    (2
    )
    
    (16
    )
    
    
    
    
    (16
    )
    
    
    
    
    
    
    
    Europe
    
    (12
    )
    
    (38
    )
    
    (50
    )
    
    (4
    )
    
    (2
    )
    
    (6
    )
    
    (71
    )
    
    (298
    )
    
    (369
    )Asia
    
    5
    
    
    (1
    )
    
    4
    
    
    4
    
    
    (8
    )
    
    (4
    )
    
    (28
    )
    
    (16
    )
    
    (44
    )Bulldog
    
    (34
    )
    
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    National Telcos Caribbean
    
    108
    
    
    (24
    )
    
    84
    
    
    115
    
    
    (243
    )
    
    (128
    )
    
    214
    
    
    (19
    )
    
    195 Panama
    
    71
    
    
    
    
    
    71
    
    
    70
    
    
    (73
    )
    
    (3
    )
    
    91
    
    
    (14
    )
    
    77 Macau
    
    37
    
    
    
    
    
    37
    
    
    40
    
    
    (2
    )
    
    38
    
    
    42
    
    
    
    
    
    42 Monaco
    
    16
    
    
    
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
     Rest
        of the World
    
    66
    
    
    (1
    )
    
    65
    
    
    55
    
    
    (1
    )
    
    54
    
    
    60
    
    
    (1
    )
    
    59Total
          National Telcos
    
    298
    
    
    (25
    )
    
    273
    
    
    280
    
    
    (319
    )
    
    (39
    )
    
    407
    
    
    (34
    )
    
    373Other and eliminations
    
    (59
    )
    
    (35
    )
    
    (94
    )
    
    (40
    )
    
    (34
    )
    
    (74
    )
    
    (39
    )
    
    (269
    )
    
    (308
    )Joint
        ventures and associates
    
    40
    
    
    
    
    
    40
    
    
    41
    
    
    
    
    
    41
    
    
    75
    
    
    54
    
    
    129Continuing
        operations
    
    322
    
    
    (159
    )
    
    163
    
    
    298
    
    
    (619
    )
    
    (321
    )
    
    (15
    )
    
    (4,133
    )
    
    (4,148
    )Discontinued
        operations
    
    17
    
    
    145
    
    
    162
    
    
    (33
    )
    
    117
    
    
    84
    
    
    (437
    )
    
    (1,774
    )
    
    (2,211
    )339
    
    
    (14
    )
    
    325
    
    
    265
    
    
    (502
    )
    
    (237
    )
    
    (452
    )
    
    (5,907
    )
    
    (6,359
    )Discontinued operations include
    the profit/(loss) on ordinary activities before interest of Japan £71
million, United States £66 million, Other £22 million and Yemen £3 million (2004 
Japan £(127) million, United States £144 million, Other £57 million and Yemen £10
million, 2003  Japan £(222) million, United States £(2,091) million, Other £84
million and Yemen £18 million.
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)
has not been allocated to a geographic region.
110
    2005 Annual ReportBack to Contents

PerformanceNet operating
        assets/(liabilities)2005
£m
    
    2004
£mGeographical
          areaUnited Kingdom
    
    (33
    )
    
    (176
    )CWAO
    
    (7
    )
    
    (33
    )Europe
    
    (70
    )
    
    (57
    )Asia
    
    13
    
    
    12Bulldog
    
    49
    
    
    National Telcos Caribbean
    
    372
    
    
    370 Panama
    
    252
    
    
    287 Macau
    
    40
    
    
    48 Monaco
    
    72
    
    
     Rest
        of the World
    
    97
    
    
    88Total
        National Telcos
    
    833
    
    
    793Continuing operations
    
    785
    
    
    539Discontinued
        operations
    
    
    
    
    20Net
        operating assets
    
    785
    
    
    559Other
        and eliminations
    
    1,352
    
    
    1,393Net
        assets
    
    2,137
    
    
    1,952Other and
        eliminations comprise assets and liabilities that cannot practicably be divided
        between the segments. The assets and liabilities are:2005
£m
    
    2004
£mTangible assets
        (including projects under construction)
    
    247
    
    
    194Fixed asset investments
    
    229
    
    
    266Debtors
    
    215
    
    
    203Current asset
        investments and shortterm deposits
    
    2,031
    
    
    2,229Cash at bank
        and in hand
    
    5
    
    
    35Creditors: amounts
        falling due within one year
    
    (335
    )
    
    (448
    )Creditors: amounts
        falling due after more than one year
    
    (801
    )
    
    (875
    )Provisions
    
    (239
    )
    
    (211
    )1,352
    
    
    1,3935
          Operating costsProfit/(loss)
        on ordinary activities is stated after charging/(crediting):Continuing
        operations
      before exceptional 
      items
    
    Discontinued
      operations
      before
      exceptional
      items
    
    Operating
      exceptional
      items
      (Note 10)
    
    2005£m
    
    £m
    
    £m
    
    £m
    
    £mAcquisitionsOutpayments
        to other telecommunicationsadministrations
        and carriers
    
    1,054
    
    
    53
    
    
    93
    
    
    
    
    
    1,200Other
        network costs
    
    199
    
    
    14
    
    
    14
    
    
    8
    
    
    235Cost of sales
        relating to equipment sales and rentals
    
    259
    
    
    1
    
    
    5
    
    
    
    
    
    265Employee
        costs
    
    467
    
    
    25
    
    
    26
    
    
    70
    
    
    588Pension costs
    
    35
    
    
    
    
    
    1
    
    
    
    
    
    36Property
        rentals, taxes and utility costs
    
    70
    
    
    2
    
    
    15
    
    
    56
    
    
    143Depreciation
        and impairment of owned tangible fixed assets
    
    184
    
    
    8
    
    
    2
    
    
    8
    
    
    202Amortisation
        and impairment of capitalised goodwill
    
    (2
    )
    
    9
    
    
    
    
    
    
    
    
    7Operating lease
        rentals: network,
        plant and equipment
    
    69
    
    
    
    
    
    2
    
    
    
    
    
    71 other
    
    40
    
    
    1
    
    
    
    
    
    
    
    
    41Other
        operating costs
    
    242
    
    
    16
    
    
    27
    
    
    11
    
    
    2962,617
    
    
    129
    
    
    185
    
    
    153
    
    
    3,0842005 Annual Report
    111Back to Contents

Notes to the financial statements

Profit/(loss)
        on ordinary activities is stated after charging/(crediting):Continuing
      operations
      before
      exceptional
      items
£m
    
    Discontinued
      operations
      before
      exceptional
      items
£m
    
    Operating
      exceptional
      items
      (Note 10)
£m
    
    2004
£m
    
    Continuing
      operations
      before
      exceptional
      items
£m
    
    Discontinued
      operations
      before
      exceptional
      items
£m
    
    Operating
      exceptional
      items
      (Note 10)
£m
    
    2003
£mOutpayments to other telecommunications
    administrations and carriers
    
    1,100
    
    
    157
    
    
    
    
    
    1,257
    
    
    1,161
    
    
    514
    
    
    
    
    
    1,675Other network costs
    
    335
    
    
    21
    
    
    
    
    
    356
    
    
    275
    
    
    7
    
    
    
    
    
    282Cost of sales relating to
        equipment sales and rentals
    
    232
    
    
    1
    
    
    13
    
    
    246
    
    
    276
    
    
    18
    
    
    
    
    
    294Employee costs
    
    482
    
    
    135
    
    
    110
    
    
    727
    
    
    549
    
    
    303
    
    
    90
    
    
    942Pension costs
    
    43
    
    
    4
    
    
    3
    
    
    50
    
    
    42
    
    
    21
    
    
    
    
    
    63Property rentals, taxes
        and utility costs
    
    53
    
    
    38
    
    
    92
    
    
    183
    
    
    83
    
    
    103
    
    
    211
    
    
    397Depreciation and impairment
        of owned tangible fixed assets
    
    225
    
    
    27
    
    
    526
    
    
    778
    
    
    607
    
    
    118
    
    
    2,381
    
    
    3,106Depreciation of tangible
        fixed assets held under 
      finance
        leases (plant and equipment)
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    11
    
    
    
    
    
    10Amortisation and impairment
        of capitalised goodwill
    
    (3
    )
    
    
    
    
    10
    
    
    7
    
    
    65
    
    
    61
    
    
    2,725
    
    
    2,851Operating lease rentals: network, plant and
        equipment
    
    83
    
    
    87
    
    
    
    
    
    170
    
    
    85
    
    
    94
    
    
    
    
    
    179 other
    
    59
    
    
    34
    
    
    
    
    
    93
    
    
    52
    
    
    43
    
    
    28
    
    
    123Other operating costs
    
    290
    
    
    69
    
    
    26
    
    
    385
    
    
    273
    
    
    158
    
    
    113
    
    
    5442,899
    
    
    573
    
    
    780
    
    
    4,252
    
    
    3,467
    
    
    1,451
    
    
    5,548
    
    
    10,466The remuneration of the auditors
    and their associates in respect of audit services provided to the  Group during
    the year was £3.2 million, including £0.3 million relating to 2004
    (2004 
£3.2 million, 2003  £4.9 million), and includes £0.8 million
(2004  £0.8
million, 2003  £1.1 million) for the Company. Regulatory reporting fees
principally related  to compliance with International Financial Reporting Standards
and the review of interim financial  statements. 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 £0.9 million (2004  £1.6
million, 2003  £3.6 million) and to overseas subsidiaries £0.6 million
(2004 
£1.5 million, 2003  £1.4 million) as summarised below:
2005
£m
    
    2004
£m
    
    2003
£mAudit
        services Statutory
        audit services
    
    3.2
    
    
    3.2
    
    
    4.9 Audit-related
        regulatory reporting
    
    1.4
    
    
    0.4
    
    
    4.6
    
    
    3.6
    
    
    4.9Further assurance
        services
    
    0.2
    
    
    0.8
    
    
    1.3Tax
        services  Compliance
    
    1.0
    
    
    1.0
    
    
    1.1Tax services  Advisory
        services
    
    0.2
    
    
    1.2
    
    
    1.4Other
        services
    
    0.1
    
    
    0.1
    
    
    1.26.1
    
    
    6.7
    
    
    9.9These services are subject to the Companys
policy for approving audit and non-audit services as set out on pages 39 to 40.
112
    2005 Annual ReportBack to Contents
Performance6
          EmployeesThe average monthly number
        of persons employed by the Group during the year was:2005
      Number
    
    2004
      Number
    
    2003
      NumberUnited
        Kingdom
    
    4,485
    
    
    4,991
    
    
    6,147CWAO
    
    44
    
    
    34
    
    
    Europe
    
    474
    
    
    576
    
    
    1,002Asia
    
    221
    
    
    239
    
    
    236Bulldog
        (pro-rated)
    
    223
    
    
    
    
    
    National Telcos Caribbean
    
    4,149
    
    
    4,363
    
    
    5,198 Panama
    
    1,894
    
    
    1,983
    
    
    2,717 Macau
    
    908
    
    
    922
    
    
    947 Monaco
        (pro-rated)
    
    434
    
    
    
    
    
     Rest
        of the World
    
    1,426
    
    
    1,426
    
    
    1,073Total
        National Telcos
    
    8,811
    
    
    8,694
    
    
    9,935Other
    
    329
    
    
    237
    
    
    377Continuing operations
    
    14,587
    
    
    14,771
    
    
    17,697Discontinued
        operations (pro-rated)
    
    647
    
    
    2,659
    
    
    5,69415,234
    
    
    17,430
    
    
    23,391At the beginning of 2005, an IT contract was insourced, increasing the headcount within Other. Towards
the end of 2005, this group was transferred to the UK. The movement of these personnel to and from
Other during the year has led to the overall increase in the average number of employees within Other
2005 compared with 2004.

The aggregate
        remuneration and associated costs of Group employees, including amounts capitalised,
        were:2005
£m
    
    2004
£m
    
    2003
£mSalaries
        and wages
    
    505
    
    
    675
    
    
    895Social security
        costs
    
    44
    
    
    61
    
    
    71Pension
        costs Principal
        schemes (Note 8)
    
    23
    
    
    24
    
    
    31 Other
        costs including defined contribution schemes
    
    13
    
    
    26
    
    
    32585
    
    
    786
    
    
    1,0297 Directors remuneration and shareholdingsInformation 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,
Restricted Shares and Performance Share Plan) is included in the Directors remuneration
report on pages 42 to 54.
8 PensionsDefined benefit schemesThe Company and its principal
    subsidiaries operate pension and other retirement schemes that cover the majority
    of employees of the Group. These schemes include both the defined benefit type,
    whereby retirement benefits are based on the employees 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
Accounting for pension costs (SSAP 24).
2005 Annual Report
    113Back to Contents

Notes to the financial statements

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 contribution to the Scheme of £47 million in December
2002 in respect of the shortfall. The latest actuarial valuation of the UK defined benefit scheme
is in progress, based on the position at 31 March 2005. The Group contributed £100
million in February 2005 to the UK fund in anticipation of this valuation. 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 had 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 principal
        pension costs as shown in Note 6 comprise:2005
£m
    
    2004
£m
    
    2003
£mRegular
        costs
    
    17
    
    
    17
    
    
    22Variation from
        regular costs (including interest)
    
    6
    
    
    7
    
    
    923
    
    
    24
    
    
    31Pension schemes other than the
    Scheme are accounted for on the basis of local custom and practice. Pension prepayments
    relating to the Scheme of £202 million (2004  £102 million, 2003
 £112 million) are included in other prepayments and accrued income (Note
19). 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 22).
Defined contribution
    schemesThe pension cost
    for the year for the defined contribution schemes was £13 million (2004 
£26 million, 2003  £19 million).
Disclosures in
    respect of FRS 17  Retirement benefitsThe
    above figures have been prepared in accordance with the requirements of SSAP
    24. FRS 17 has been  published in the United Kingdom, 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 the 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:
114
    2005 Annual ReportBack to Contents

PerformanceQualified independent actuaries, Watson Wyatt LLP, updated the actuarial valuations of the major defined benefit schemes operated by the Group to 31 March 2005. The main financial assumptions in accordance with FRS 17 are as follows:At
        31 March 2005
    
    At
        31 March 2004
    
    At
        31 March 2003UK
      %
    
    Rest
        of
      Group
      %
    
    UK
      %
    
    Rest
        of
      Group
      %
    
    UK
      %
    
    Rest
        of
      Group
      %Inflation
        assumption
    
    2.7
    
    
    3.9
    
    
    2.8
    
    
    3.8
    
    
    2.5
    
    
    4.3Rate of increase
        in salaries
    
    3.2
    
    
    5.9
    
    
    4.6
    
    
    5.4
    
    
    4.3
    
    
    5.6Pension
        increases
    
    2.73.0
    
    
    2.9
    
    
    2.83.0
    
    
    3.5
    
    
    2.53.0
    
    
    3.6Discount rate
    
    5.4
    
    
    7.2
    
    
    5.5
    
    
    6.4
    
    
    5.5
    
    
    6.9Long
        term expected rate of return on:Equities
    
    8.0
    
    
    8.3
    
    
    8.0
    
    
    9.0
    
    
    8.5
    
    
    9.1Bonds
    
    4.9
    
    
    6.2
    
    
    5.0
    
    
    6.6
    
    
    5.0
    
    
    7.1Property
    
    6.5
    
    
    5.2
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    4.0
    
    
    4.6
    
    
    4.0
    
    
    4.8
    
    
    4.0
    
    
    4.8The 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.
The assets
        and liabilities in respect of the defined benefit schemes operated by the
        Group are as follows:At
        31 March 2005
    
    At
        31 March 2004
    
    At
        31 March 2003UK
£m
    
    Rest
        of
      Group
£m
    
    UK
£m
    
    Rest
        of
      Group
£m
    
    UK
£m
    
    Rest
        of
      Group
£mEquities
    
    879
    
    
    75
    
    
    965
    
    
    84
    
    
    855
    
    
    61Bonds
    
    539
    
    
    52
    
    
    353
    
    
    56
    
    
    246
    
    
    56Property
    
    94
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    103
    
    
    65
    
    
    90
    
    
    52
    
    
    53
    
    
    36Total fair value
        of scheme assets
    
    1,615
    
    
    216
    
    
    1,408
    
    
    192
    
    
    1,154
    
    
    153Present
        value of funded scheme liabilities
    
    (1,775
    )
    
    (172
    )
    
    (1,744
    )
    
    (213
    )
    
    (1,630
    )
    
    (207
    )(Deficit)/surplus
        in funded defined benefit schemes
    
    (160
    )
    
    44
    
    
    (336
    )
    
    (21
    )
    
    (476
    )
    
    (54
    )Unrecognisable
        surplus in funded defined benefit schemes
    
    
    
    
    (34
    )
    
    
    
    
    
    
    
    
    
    
    Deficit
        in unfunded schemes
    
    (20
    )
    
    (15
    )
    
    (20
    )
    
    (26
    )
    
    (18
    )
    
    (30
    )Total
          deficit in defined benefit schemes
    
    (180
    )
    
    (5
    )
    
    (356
    )
    
    (47
    )
    
    (494
    )
    
    (84
    )Deferred tax
        liability
    
    
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    Net
          liability
    
    (180
    )
    
    (8
    )
    
    (356
    )
    
    (47
    )
    
    (494
    )
    
    (84
    )At 31 March 2005, the pension
    deficit calculated under FRS 17 for the funded defined benefit pension schemes
    was £160 million in respect of the principal UK scheme (2004  £336 million,
2003  £476 million) and a surplus/(deficit) of £10 million in respect of the Rest
of the Group (2004  £(21) million, 2003  £(54) million). The deficit in unfunded
defined benefit schemes at 31 March 2005 was £35 million in respect of the Group
(2004  £46 million, 2003  £48 million), including £20 million in respect
of the UK (2004  £20 million, 2003  £18 million), and £15 million in respect
of the Rest of the Group (2004  £26 million, 2003  £30 million).
A deferred tax liability of £3
    million would be recognised at 31 March 2005 if the pension deficit of the Rest
of the Group was reflected in the Financial statements.
2005 Annual Report
    115Back to Contents

Notes to the financial statements

If the above amounts were recognised in the Financial Statements, the Groups shareholders funds at 31 March 2005, 31 March 2004 and 31 March 2003 would be as follows:2005
£m
    
    2004
£m
    
    2003
£mShareholders'
        funds as presented
    
    1,818
    
    
    1,703
    
    
    2,111Less: SSAP 24
        net assets
    
    (176
    )
    
    (52
    )
    
    (71
    )Shareholders'
        funds excluding SSAP 24 net assets
    
    1,642
    
    
    1,651
    
    
    2,040FRS 17 retirement
        benefits net liability
    
    (188
    )
    
    (403
    )
    
    (578
    )Shareholders'
        funds including FRS 17 retirement benefits net liability
    
    1,454
    
    
    1,248
    
    
    1,462Under 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.

Analysis of amounts that would be charged to operating profit for the years ended 31 March 2005, 31 March 2004 and 31 March 2003 in respect of defined benefit schemes is as follows:2005
    
    2004
    
    2003UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of 
      Group
£m
    
    Total
£mCurrent service
        cost
    
    21
    
    
    6
    
    
    27
    
    
    24
    
    
    10
    
    
    34
    
    
    27
    
    
    17
    
    
    44Past service
        cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    5
    
    
    
    
    
    
    
    
    Total
        charged to operating profit
    
    21
    
    
    6
    
    
    27
    
    
    24
    
    
    15
    
    
    39
    
    
    27
    
    
    17
    
    
    44Analysis of other amounts that would be charged to the profit and loss account for the years ended 31 March 2005, 31 March 2004, and 31 March 2003 is as follows:2005
    
    2004
    
    2003UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of 
      Group
£m
    
    Total
£mLoss/(gain)
        on curtailment
    
    1
    
    
    (2
    )
    
    (1
    )
    
    1
    
    
    (4
    )
    
    (3
    )
    
    
    
    
    (3
    )
    
    (3
    )Analysis of amounts that would be charged/(credited) to other finance income for the years ended 31 March 2005, 31 March 2004 and 31 March 2003 is as follows:2005
    
    2004
    
    2003UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of
      Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest
        of 
      Group
£m
    
    Total
£mInterest on
        pension scheme liabilities
    
    95
    
    
    12
    
    
    107
    
    
    90
    
    
    15
    
    
    105
    
    
    84
    
    
    14
    
    
    98Expected return
        on pension scheme assets
    
    (97
    )
    
    (16
    )
    
    (113
    )
    
    (86
    )
    
    (11
    )
    
    (97
    )
    
    (102
    )
    
    (12
    )
    
    (114
    )Net
        return
    
    (2
    )
    
    (4
    )
    
    (6
    )
    
    4
    
    
    4
    
    
    8
    
    
    (18
    )
    
    2
    
    
    (16
    )116
    2005 Annual ReportBack to Contents

PerformanceAnalysis of amounts that would be recognised in the statement of total recognised gains and losses for the years ended 31 March 2005, 31 March 2004 and 31 March 2003 is as follows:2005
    
    2004
    
    2003UK
£m
    
    Rest of
    Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest of
    Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest of 
    Group
£m
    
    Total
£mActual return
        less expected return on pension scheme assets
    
    45
    
    
    12
    
    
    57
    
    
    192
    
    
    41
    
    
    233
    
    
    (380
    )
    
    (16
    )
    
    (396
    )Experience gains/(losses)
        on scheme liabilities
    
    35
    
    
    9
    
    
    44
    
    
    47
    
    
    (8
    )
    
    39
    
    
    (18
    )
    
    (12
    )
    
    (30
    )Changes in the
        assumptions underlying the
      present
      value
      of the scheme liabilities
    
    (1
    )
    
    35
    
    
    34
    
    
    (91
    )
    
    (3
    )
    
    (94
    )
    
    (111
    )
    
    (7
    )
    
    (118
    )Gain arising
        from divestiture
    
    
    
    
    10
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Change in unrecognisable
        surplus
    
    
    
    
    (35
    )
    
    (35
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
        actuarial gain/(loss) recognised
        
      in the statement of total recognised
      
    gains and losses
    
    79
    
    
    31
    
    
    110
    
    
    148
    
    
    30
    
    
    178
    
    
    (509
    )
    
    (35
    )
    
    (544
    )History of experience gains and losses for the years ended 31 March 2005, 31 March 2004 and 31 March 2003 is as follows:2005UK
    
    Rest
        of Group
    
    Total£m
    
    %
    
    £m
    
    %
    
    £m
    
    %Difference between
        expected and actual
    return on scheme assets
    
    45
    
    
    3
    
    
    12
    
    
    6
    
    
    57
    
    
    3Experience gains/(losses)
        on scheme liabilities
    
    35
    
    
    2
    
    
    9
    
    
    5
    
    
    44
    
    
    3Total actuarial gain recognised
      in the statement of total recognised
    gains and losses
    
    79
    
    
    4
    
    
    31
    
    
    11
    
    
    110
    
    
    62004
    
    2003UK
    
    Rest
        of Group
    
    Total
    
    UK
    
    Rest
        of Group
    
    Total£m
    
    %
    
    £m
    
    %
    
    £m
    
    %
    
    £m
    
    %
    
    £m
    
    %
    
    £m
    
    %Difference between
        expected and actual
    return on scheme assets
    
    192
    
    
    14
    
    
    41
    
    
    21
    
    
    233
    
    
    15
    
    
    (380
    )
    
    (33
    )
    
    (16
    )
    
    (10
    )
    
    (396
    )
    
    (30
    )Experience gains/(losses)
        on scheme liabilities
    
    47
    
    
    3
    
    
    (8
    )
    
    (3
    )
    
    39
    
    
    2
    
    
    (18
    )
    
    (1
    )
    
    (12
    )
    
    (5
    )
    
    (30
    )
    
    (1
    )Total
        actuarial gain/(loss) recognised
        in the statement of total recognised
        gains and losses
    
    148
    
    
    8
    
    
    30
    
    
    12
    
    
    178
    
    
    9
    
    
    (509
    )
    
    (31
    )
    
    (35
    )
    
    (15
    )
    
    (544
    )
    
    (29
    )Analysis of movement in the balance sheet deficit as at 31 March 2005, 31 March 2004 and 31 March 2003 is as follows:2005
    
    2004
    
    2003UK
£m
    
    Rest of
  Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest of
  Group
£m
    
    Total
£m
    
    UK
£m
    
    Rest of 
  Group
£m
    
    Total
£mDeficit at beginning
        of the year
    
    (356
    )
    
    (47
    )
    
    (403
    )
    
    (494
    )
    
    (84
    )
    
    (578
    )
    
    (48
    )
    
    (28
    )
    
    (76
    )Contributions
        made
    
    117
    
    
    11
    
    
    128
    
    
    19
    
    
    19
    
    
    38
    
    
    72
    
    
    15
    
    
    87Current service
        costs
    
    (21
    )
    
    (6
    )
    
    (27
    )
    
    (24
    )
    
    (10
    )
    
    (34
    )
    
    (27
    )
    
    (17
    )
    
    (44
    )Past service
        costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    (5
    )
    
    
    
    
    
    
    
    Curtailment
        (loss)/gain
    
    (1
    )
    
    2
    
    
    1
    
    
    (1
    )
    
    4
    
    
    3
    
    
    
    
    
    3
    
    
    3Other finance
        (charge)/income
    
    2
    
    
    4
    
    
    6
    
    
    (4
    )
    
    (4
    )
    
    (8
    )
    
    18
    
    
    (2
    )
    
    16Actuarial gain/(loss)
    
    79
    
    
    31
    
    
    110
    
    
    148
    
    
    30
    
    
    178
    
    
    (509
    )
    
    (35
    )
    
    (544
    )Other movements
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )
    
    (6
    )
    
    
    
    
    (26
    )
    
    (26
    )Exchange gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    9
    
    
    
    
    
    6
    
    
    6Tax charge
    
    
    
    
    (3
    )
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deficit
        at end of the year
    
    (180
    )
    
    (8
    )
    
    (188
    )
    
    (356
    )
    
    (47
    )
    
    (403
    )
    
    (494
    )
    
    (84
    )
    
    (578
    )Other movements consist
        of acquisitions and certain immaterial overseas schemes, which had not previously
        been included.2005 Annual Report
    117Back to Contents

Notes to the financial statements

9 Profits less (losses) on disposal of fixed assetsProfits less (losses) on disposal
    of fixed assets before exceptional items amount to £5 million
(2004  £25 million, 2003  £nil). The tax charge attributable is £nil (2004
 £nil, 2003  £nil) and the minority interest is £1 million (2004 
£nil, 2003  £nil).
10 Exceptional
        itemsExceptional items before
        exceptional tax credit (see Note 12), in 2005, 2004 and 2003 comprise:2005
    
    2004Note
    
    Exceptional
      items
£m
    
    Taxation
£m
    
    Minority 
      interest
£m
    
    Total
£m
    
    Exceptional
      items
£m
    
    Taxation
£m
    
    Minority 
      interest
£m
    
    Total
£mOperating
        itemsOther operating
        costs
    (i),
        (v)
    
    (145
    )
    4
    
    3
    
    (138
    )
    (244
    )
    9
    
    9
    
    (226
    )Fixed asset impairment and amounts
      written off
    (ii), (vi)
    
    (8
    )
    
    
    
    
    (8
    )
    (526
    )
    64
    
    41
    
    (421
    )Goodwill impairment
        charge
    (vi)
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    
    
    (10
    )(153
    )
    4
    
    3
    
    (146
    )
    (780
    )
    73
    
    50
    
    (657
    )Non
        operating itemsProfits less
        (losses) on sale and termination
      of operations
    (iii), (vii)
    
    116
    
    
    
    
    
    116
    
    250
    
    
    
    
    
    250Profits less
        (losses) on disposal of fixed assets
    (iv), (viii)
    
    23
    
    
    
    
    
    23
    
    28
    
    
    
    
    
    28(14
    )
    4
    
    3
    
    (7
    )
    (502
    )
    73
    
    50
    
    (379
    )2003Note
    
    Exceptional
      items
£m
    
    Taxation
£m
    
    Minority 
      interest
£m
    
    Total
£mOperating
        itemsOther operating
        costs
    
    (ix)
    
    
    (442
    )
    
    10
    
    
    11
    
    
    (421
    )Fixed asset
        impairment and amounts written off
    
    (x)
    
    
    (2,381
    )
    
    48
    
    
    
    
    
    (2,333
    )Goodwill impairment
        charge
    
    (x)
    
    
    (2,725
    )
    
    
    
    
    
    
    
    (2,725
    )(5,548
    )
    
    58
    
    
    11
    
    
    (5,479
    )Non
        operating itemsProfits less
        (losses) on sale and termination of operations
    
    (xi)
    
    
    (147
    )
    
    
    
    
    
    
    
    (147
    )Profits less
        (losses) on disposal of  fixed assets
    
    (xii)
    
    
    62
    
    
    
    
    
    (33
    )
    
    29Investments
        amounts written of
    
    (xiii)
    
    
    (274
    )
    
    
    
    
    
    
    
    (274
    )(5,907
    )
    
    58
    
    
    (22
    )
    
    (5,871
    )Year ended 31 March 2005(i)
Exceptional items included in other operating costs principally relate to the cost of restructuring
Group businesses. These costs include £68 million in respect of redundancy costs in continuing
businesses (United Kingdom £29 million, Europe £29 million, Asia £1 million, Other
£9 million) and £54 million in respect of property costs (United Kingdom £23 million,
Europe £10 million and Other £21 million).Other exceptional operating costs include the net of provision releases of £15 million, charges
of £11 million relating to onerous network costs in the UK business and other restructuring
charges in the UK business of £8 million.Hurricane Ivan and Asian tsunami adversely impacted the Groups operations in the Caribbean and
Maldives, respectively. Exceptional restoration costs of £19 million were incurred in rectifying
damage caused to the network and other assets of these operations, comprising network related costs
£12 million, employee costs £2 million, property £2 million and other £3 million.(ii)
In addition to the exceptional restoration charges noted above, an impairment charge of £3 million
was recognised relating to fixed assets that were damaged by the hurricane and tsunami.As a consequence of the restructuring in the Groups European operations an impairment charge
of £5 million was recognised in respect of fixed assets. This charge has been
determined in accordance with FRS 11 Impairment of fixed assets
and goodwill as part of a Group-wide impairment review, which involved, amongst other factors,
using discount rates of 8 to 40 per cent depending on the cost of capital of the respective businesses.118
    2005 Annual ReportBack to Contents

Performance(iii)
On 17 February 2005, the Group disposed of its Japanese operations, Cable & Wireless IDC, Inc.
A gain of £42 million was recorded on disposal of this business within discontinued operations. An exceptional credit of £66 million was recorded
in respect of US domestic operations that were discontinued in the year ended 31 March 2004, principally
comprising cash refunded to the Group as part of the Chapter 11 process. In addition a net gain of
£8 million was recorded in respect of the sale or termination of Group operations, being the
net of previously accrued costs no longer required (£42 million) partially offset by additional
charges in the year (£34 million).(iv)
The gain on the disposal
of fixed assets comprises £16 million relating to the disposal of a trade investment by Cable
& Wireless, IDC Inc. prior to its disposal by the Group, £10 million relating to the release
of costs accrued on the disposal of investments in previous years no longer required offset by a
£3 million write-off of assets physically destroyed by Hurricane Ivan.Year ended 31 March 2004(v)
Exceptional items included in other operating costs principally relate to the cost of restructuring
Group businesses. These costs include £93 million in respect of redundancy costs in continuing
businesses (United Kingdom £48 million, Panama £7 million, Caribbean £25 million,
Japan £5 million, Other £8 million), £92 million in respect of property costs principally
relating to the United Kingdom and £24 million of other costs of restructuring incurred by the
UK and European businesses.Other exceptional costs include £13 million of customer acquisition costs no longer recoverable
in light of circumstances that have given rise to certain fixed asset impairments.Exceptional costs of restructuring the discontinued US business prior to its disposal totalled £22
million principally relating to employee costs.(vi)
The Group carried out a review to determine whether there has been an impairment of its fixed assets
and goodwill. The carrying values of fixed assets of each of the Groups income generating units
have been compared with their recoverable amounts, represented by their value in use to the Group.
The charge has been determined in accordance with FRS 11 Impairment of fixed assets and goodwill
which involved, amongst other factors, using discount rates of between 10.5 and 20 per cent depending
on the cost of capital of the respective businesses.The result of this
    assessment was a charge of £10 million in respect of goodwill in Jamaica
    and
£526 million in respect of depreciation of fixed assets throughout the Group.
Tax credits of £64 million are available on the National Telecommunications
 companies depreciation impairment charges.The depreciation impairment charge arose in the United Kingdom (£119 million), Japan (£126
million), Caribbean (£197 million), Panama (£65 million) and Macau and the Rest of the World (£19 million).(vii)
On 8 December 2003 the Groups
    US business filed for Chapter 11 bankruptcy protection under the US Bankruptcy
    Code. The effect of the filing for Chapter 11 together with the sale agreement
    with Gores was that the Groups ability
to control Cable & Wireless USA, Inc. and Cable & Wireless Internet Services, Inc. and their subsidiaries (CW America) was severely
restricted. Accordingly, the Group has deconsolidated Cable & Wireless USA, Inc. and Cable &
Wireless Internet Services, Inc. and their subsidiaries from 8 December 2003.The gain on the exit of the US business of £191 million reflects the deconsolidation of third
party net liabilities net of costs of exit.In addition, £57
    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.A £2 million gain arose on the disposal of certain European businesses after taking account of
the release of provisions relating to these businesses.(viii)
  The gain on the
      disposal of fixed assets comprises £16 million relating to the disposal
      of certain properties in the United States as part of the restructuring of
      the US business prior to deconsolidation, and £12 million principally
      comprising disposal of properties in the United Kingdom and the Caribbean as
    part of restructuring.Year ended 31 March 2003(ix)
The Group announced a restructuring in the United Kingdom, United States, Japan/Asia and Europe 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 the Caribbean, Panama and Macau, £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.2005 Annual Report
    119Back to Contents

Notes to the financial statements

(x)
The Group carried
    out a review 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 was compared to their recoverable amounts, represented by their
    value in use to  the Group. The charge was determined in accordance with FRS
    11 which involved, 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
    was
£12 million in respect of goodwill and £1,479 million in respect of fixed
assets. This  charge was 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 were
available on £191 million of the impairment charge, which was disclosed in the
2002 Group Financial  Statements.(xi)
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.(xii)
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.(xiii)
The current asset
    investments principally relating to PCCW Limited have been written down by £274
  million to market value at 31 March 2003.11 Net interest and other similar income/(charges)2005
£m
    
    2004
£m
    
    2003
£mInterest receivable and similar incomeDeposits and short-term loan interest and similar income
    
    103
    
    
    108
    
    
    198Exchange losses on retranslation of foreign currency denominated loans and deposits
    
    
    
    
    (5
    )
    
    (9
    )Dividends from fixed asset investments
    
    4
    
    
    
    
    
    107
    
    
    103
    
    
    189Interest payable and other similar chargesFinance charges on leases
    
    
    
    
    (1
    )
    
    (3
    )Bank loans and overdrafts
    
    (9
    )
    
    (21
    )
    
    (23
    )Other loans
    
    (61
    )
    
    (63
    )
    
    (62
    )Unwinding of discount in provisions
    
    (1
    )
    
    (8
    )
    
    (3
    )(71
    )
    
    (93
    )
    
    (91
    )Less: Interest capitalised
    
    2
    
    
    3
    
    
    5(69
    )
    
    (90
    )
    
    (86
    )Net interest and other similar income
    
    38
    
    
    13
    
    
    103Tax relief of £nil is available on interest capitalised in the year ended 31 March 2005 (2004  £nil, 2003  £nil). Interest has been capitalised at a rate of 6 per cent (2004  6 per cent, 2003  6 per cent).120
    2005 Annual ReportBack to Contents

Performance12 Tax on profit/(loss) on ordinary activitiesThe charge for tax, based on the Group profit/(loss) for the year, comprises:2005
    
    2004
    
    2003United Kingdom
    Taxation
      before
      exceptional
      tax credit
£m
    
    Exceptional
      tax credit
£m
    
    Total
£m
    
    £m
    
    £mCorporate tax at 30% (2004  30%, 2003  30%)Current
    
    4
    
    
    
    
    
    4
    
    
    28
    
    
    39Double taxation relief
    
    (4
    )
    
    
    
    
    (4
    )
    
    (28
    )
    
    (39
    )Deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    1Adjustments in respect of prior years current
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    (54
    ) deferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    (64
    )
    
    (60
    )OverseasCurrent
    
    51
    
    
    
    
    
    51
    
    
    42
    
    
    65Deferred
    
    8
    
    
    
    
    
    8
    
    
    (60
    )
    
    26Adjustments in respect of prior years current
    
    (11
    )
    
    (85
    )
    
    (96
    )
    
    63
    
    
    43 deferred
    
    16
    
    
    
    
    
    16
    
    
    (3
    )
    
    (51
    )64
    
    
    (85
    )
    
    (21
    )
    
    42
    
    
    83Joint ventures and associatesJoint ventures
    
    7
    
    
    
    
    
    7
    
    
    10
    
    
    137
    
    
    
    
    
    7
    
    
    10
    
    
    13Tax on profit/(loss) on ordinary activities
    
    71
    
    
    (85
    )
    
    (14
    )
    
    (12
    )
    
    36The Groups effective tax rate varies from the statutory tax rate as a result of the following factors:2005
    
    2004
    
    2003Taxation
      before
      exceptional
      tax credit
      %
    
    Exceptional
      tax
      credit
      %
    
    Total
      %
    
    %
    
    %UK corporation tax rate
    
    30.0
    
    
    
    
    
    30.0
    
    
    30.0
    
    
    30.0Income/expenses not taxable/allowable  permanent
    
    18.1
    
    
    
    
    
    18.1
    
    
    (16.9
    )
    
    (12.9
    )Income/expenses not taxable/allowable  timing
    
    (26.3
    )
    
    
    
    
    (26.3
    )
    
    (25.2
    )
    
    (17.4
    )Tax losses not utilised
    
    1.9
    
    
    
    
    
    1.9
    
    
    (27.6
    )
    
    (6.6
    )Tax rate differences
    
    (5.6
    )
    
    
    
    
    (5.6
    )
    
    13.1
    
    
    5.7Utilisation of tax losses brought forward
    
    (2.3
    )
    
    
    
    
    (2.3
    )
    
    3.5
    
    
    Adjustments to tax charge in respect of previous periods
    
    (2.9
    )
    
    (23.4
    )
    
    (26.3
    )
    
    0.4
    
    
    0.2Effective current tax rate on ordinary activities
    
    12.9
    
    
    (23.4
    )
    
    (10.5
    )
    
    (22.7
    )
    
    (1.0
    )The exceptional tax credit of £85 million relates to the settlement and clarification of various long-standing overseas tax items at less than their expected cost.

13 Dividends2005
£m
    
    2004
£m
    
    2003
£mInterim paid
    
    27
    
    
    
    
    
    37Final proposed
    
    60
    
    
    73
    
    
    87
    
    
    73
    
    
    37The Cable & Wireless Employee Share Ownership Plan Trust waived its right to dividends on the shares
held in the trust. During the year 14,076 of shareholders owning 105,537,992 of shares elected to
take all or part of their dividends in shares (see Note 23).
2005 Annual Report
    121Back to Contents

Notes to the financial statements

14 Earnings/(loss) per shareBasic earnings/(loss) per Ordinary Share is calculated by dividing the earnings attributable to ordinary
  shareholders by the weighted average number of Ordinary Shares in issue during the year, excluding
those held in the employee share trust and Treasury shares (Note 24) which are treated as cancelled.
For diluted earnings per Ordinary Share, the weighted average number of Ordinary Shares in issue is
adjusted to assume conversion of all dilutive potential Ordinary Shares. The Group has two classes
of dilutive potential Ordinary Shares: certain of the share options granted to employees and the
shares issuable on conversion of the Groups convertible debt.

The table below sets out the reconciliation of the earnings and weighted average number of shares used in the calculations:2005
£m
    
    2004
£m
    
    2003
£mProfit/(loss) for the financial year attributable to shareholders
    
    302
    
    
    (237
    )
    
    (6,417
    )Effect of diluted securitiesInterest saved
    
    8
    
    
    
    
    
    Adjusted profit/(loss) (diluted EPS)
    
    310
    
    
    (237
    )
    
    (6,417
    )Basic weighted average number of shares
    
    2,322,458,697
    
    
    2,327,738,940
    
    
    2,329,814,506Effect of diluted securitiesShare options
    
    27,511,135
    
    
    
    
    
    Convertible loan note
    
    177,733,748
    
    
    
    
    
    Diluted weighted average number of shares
    
    2,527,703,580
    
    
    2,327,738,940
    
    
    2,329,814,506Basic earnings/(loss) per Ordinary Share
    
    13.0
    p
    
    (10.2
    )p
    
    (275.4
    )pDiluted earnings/(loss) per Ordinary Share
    
    12.3
    p
    
    (10.2

    )p
    
    (275.4
    )pBasic and diluted loss per Ordinary Share are equal in periods where there is no impact of dilution
on the loss for the financial year nor the weighted average number of shares.
15 Intangible fixed assetsNegative
      goodwill
£m
    
    Positive
      goodwill
£m
    
    Licences
      and other
      intangibles
£m
    
    Total
£mCostAt 1 April 2004
    
    (14
    )
    
    3,889
    
    
    9
    
    
    3,884Acquisitions
    
    
    
    
    91
    
    
    12
    
    
    103Disposals
    
    
    
    
    (276
    )
    
    
    
    
    (276
    )Exchange adjustments
    
    
    
    
    4
    
    
    
    
    
    4At 31 March 2005
    
    (14
    )
    
    3,708
    
    
    21
    
    
    3,715AmortisationAt 1 April 2004
    
    5
    
    
    (3,889
    )
    
    (9
    )
    
    (3,893
    )Disposals
    
    
    
    
    276
    
    
    
    
    
    276Credit/(charge) for the year  amortisation
    
    2
    
    
    (7
    )
    
    (2
    )
    
    (7
    )At 31 March 2005
    
    7
    
    
    (3,620
    )
    
    (11
    )
    
    (3,624
    )Net book valueAt 31 March 2005
    
    (7
    )
    
    88
    
    
    10
    
    
    91At 31 March 2004
    
    (9
    )
    
    
    
    
    
    
    
    (9
    )Negative goodwill is being amortised on a straight-line basis over five years. The goodwill arising
on the acquisitions of Monaco Telecom and Bulldog (see Note 31) is being amortised on a straight-line
basis over 18.6 and 5 years, respectively. These periods are the periods over which the Directors
estimate that the values of the underlying businesses acquired are expected to exceed the value of
the underlying assets.
Other intangible assets include intellectual property and international managed service contracts recognised
in respect of the acquisition of XM Mobile B.V., and Monaco Telecom, respectively. These are being
amortised on a straight-line basis over their useful economic lives (between 1 and 5 years).
Disposals relate to goodwill that arose on the acquisition of Cable & Wireless IDC Inc. This goodwill
was fully impaired through the profit and loss account in prior years.
122
    2005 Annual ReportBack to Contents

Performance16 Tangible fixed assetsGroup
    
    CompanyLand and
      buildings
£m
    
    Plant and
      equipment
£m
    
    Projects
      under
      construction
£m
    
    Total
£m
    
    Land and
      buildings
£m
    
    Plant and
      equipment
£m
    
    Projects
      under
      construction
£m
    
    Total
£mCostAt 1 April 2004
    
    593
    
    
    7,803
    
    
    455
    
    
    8,851
    
    
    2
    
    
    76
    
    
    4
    
    
    82Additions
    
    2
    
    
    108
    
    
    288
    
    
    398
    
    
    
    
    
    2
    
    
    
    
    
    2Acquisitions
    
    
    
    
    33
    
    
    
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    (55
    )
    
    (583
    )
    
    (13
    )
    
    (651
    )
    
    
    
    
    
    
    
    
    
    
    Transfers
    
    4
    
    
    410
    
    
    (414
    )
    
    
    
    
    
    
    
    1
    
    
    (1
    )
    
    Exchange and other adjustments
    
    (7
    )
    
    (44
    )
    
    (7
    )
    
    (58
    )
    
    
    
    
    
    
    
    
    
    
    At 31 March 2005
    
    537
    
    
    7,727
    
    
    309
    
    
    8,573
    
    
    2
    
    
    79
    
    
    3
    
    
    84DepreciationAt 1 April 2004
    
    383
    
    
    7,100
    
    
    154
    
    
    7,637
    
    
    1
    
    
    70
    
    
    
    
    
    71Charge for the year
    
    13
    
    
    181
    
    
    
    
    
    194
    
    
    
    
    
    2
    
    
    
    
    
    2Impairment  exceptional depreciation
    
    
    
    
    6
    
    
    2
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    (26
    )
    
    (563
    )
    
    (12
    )
    
    (601
    )
    
    
    
    
    
    
    
    
    
    
    Transfers
    
    
    
    
    144
    
    
    (144
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exchange and other adjustments
    
    (2
    )
    
    (42
    )
    
    
    
    
    (44
    )
    
    
    
    
    
    
    
    
    
    
    At 31 March 2005
    
    368
    
    
    6,826
    
    
    
    
    
    7,194
    
    
    1
    
    
    72
    
    
    
    
    
    73Net book valueAt 31 March 2005
    
    169
    
    
    901
    
    
    309
    
    
    1,379
    
    
    1
    
    
    7
    
    
    3
    
    
    11At 31 March 2004
    
    210
    
    
    703
    
    
    301
    
    
    1,214
    
    
    1
    
    
    6
    
    
    4
    
    
    11Included in the cost of plant and equipment is £6 million (2004  £48 million) relating
to assets held under finance leases. Accumulated depreciation on these assets is £1 million
(2004  £46 million).
Included within additions is interest and own work capitalised of £2 million (2004  £3
million) and £43 million (2004  £42 million) respectively.
The cumulative amount of interest capitalised in the total cost above is £43 million (2004  £41 million).
Group
    
    Company2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£mLand and buildings at net book valueFreeholds
    
    120
    
    
    175
    
    
    1
    
    
    1Long leaseholds
    
    2
    
    
    2
    
    
    
    
    

    Short leaseholds
    
    47
    
    
    33
    
    
    
    
    
    169
    
    
    210
    
    
    1
    
    
    12005 Annual Report
    123Back to Contents

Notes to the financial statements

17 Fixed asset investmentsGroup
    
    CompanyJoint
      ventures and
      associates
£m
    
    Other
      investments
£m
    
    Total
£m
    
    Joint
      ventures and
      associates
£m
    
    Subsidiary
      undertakings
£m
    
    Other
      investments
£m
    
    Total
£mCost/valuationAt 1 April 2004  see Note 24
    
    71
    
    
    80
    
    
    151
    
    
    26
    
    
    16,272
    
    
    28
    
    
    16,326Additions
    
    14
    
    
    4
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    
    
    
    (41
    )
    
    (41
    )
    
    (2
    )
    
    
    
    
    (28
    )
    
    (30
    )Revaluation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exchange adjustments
    
    (1
    )
    
    (1
    )
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    At 31 March 2005
    
    84
    
    
    42
    
    
    126
    
    
    24
    
    
    16,272
    
    
    
    
    
    16,296LoansAt 1 April 2004
    
    1
    
    
    
    
    
    1
    
    
    1
    
    
    12,707
    
    
    
    
    
    12,708Additions
    
    
    
    
    
    
    
    
    
    
    
    
    
    790
    
    
    
    
    
    790Loans repaid and transferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40
    )
    
    
    
    
    (40
    )At 31 March 2005
    
    1
    
    
    
    
    
    1
    
    
    1
    
    
    13,457
    
    
    
    
    
    13,458Provisions and amounts written offAt 1 April 2004
    
    (40
    )
    
    (22
    )
    
    (62
    )
    
    (5
    )
    
    (9,279
    )
    
    
    
    
    (9,284
    )(Increase)/decrease in year
    
    (6
    )
    
    4
    
    
    (2
    )
    
    
    
    
    (38
    )
    
    
    
    
    (38
    )Disposals
    
    
    
    
    (4
    )
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    At 31 March 2005
    
    (46
    )
    
    (22
    )
    
    (68
    )
    
    (5
    )
    
    (9,317
    )

    
    
    
    
    (9,322
    )Share of post acquisition reservesAt 1 April 2004
    
    176
    
    
    
    
    
    176
    
    
    
    
    
    
    
    

    
    
    
    Share of retained profit
    
    8
    
    
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    (9
    )
    
    
    
    
    (9
    )
    
    
    
    
    
    
    
    
    
    
    Exchange adjustments
    
    (5
    )
    
    
    
    
    (5
    )
    
    
    
    
    
    
    
    
    
    
    At 31 March 2005
    
    170
    
    
    
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    Net book valueAt 31 March 2005
    
    209
    
    
    20
    
    
    229
    
    
    20
    
    
    20,412
    
    
    
    
    
    20,432At 31 March 2004
    
    208
    
    
    58
    
    
    266
    
    
    22
    
    
    19,700
    
    
    28
    
    
    19,750A list of the Companys subsidiary undertakings, joint ventures and associates is given in Note
34.
Group
    
    CompanyJoint ventures 
      and associates
    
    Other 
      investments
    
    Joint ventures
      and associates
    
    Other 
      investments2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£mInvestments at net book valueListed shares
    
    86
    
    
    77
    
    
    15
    
    
    19
    
    
    17
    
    
    17
    
    
    
    
    
    Unlisted shares
    
    122
    
    
    130
    
    
    5
    
    
    39
    
    
    2
    
    
    4
    
    
    
    
    
    28Loans
    
    1
    
    
    1
    
    
    
    
    
    
    
    
    1
    
    
    1
    
    
    
    
    
    209
    
    
    208
    
    
    20
    
    
    58
    
    
    20
    
    
    22
    
    
    
    
    
    28In accordance with UITF 38, the Group and Companys investment in its own shares through the ESOP
trust has been reclassified to the profit and loss reserve (see Note 24 for more details).
The market value of the Groups holdings in listed shares was £386 million (2004  £193
million) for joint ventures and associates and £77 million (2004  £55 million) for
other investments. The market value of the Companys holdings in listed shares of joint ventures
and associates was £386 million (2004  £193 million).
124
    2005 Annual ReportBack to Contents

PerformanceReconciliation of Group share of profits less (losses) of joint ventures and associates with post acquisition retained reservesJoint
      ventures
£m
    
    Associates
£m
    
    2005
£m
    
    Joint
      ventures
£m
    
    Associates
£m
    
    2004
£m
    
    Joint
      ventures
£m
    
    Associates
£m
    
    2003
£mShare of turnover
    
    127
    
    
    60
    
    
    187
    
    
    136
    
    
    61
    
    
    197
    
    
    195
    
    
    65
    
    
    260Operating costs
    
    (111
    )
    
    (36
    )
    
    (147
    )
    
    (113
    )
    
    (43
    )
    
    (156
    )
    
    (142
    )
    
    (43
    )
    
    (185
    )Operating profits less (losses)
    
    16
    
    
    24
    
    
    40
    
    
    23
    
    
    18
    
    
    41
    
    
    53
    
    
    22
    
    
    75Net interest
    
    (1
    )
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    1
    
    
    (1
    )Share of profits less (losses) before tax
    
    15
    
    
    25
    
    
    40
    
    
    23
    
    
    18
    
    
    41
    
    
    51
    
    
    23
    
    
    74Taxation charge
    
    (7
    )
    
    
    
    
    (7
    )
    
    (10
    )
    
    
    
    
    (10
    )
    
    (13
    )
    
    
    
    
    (13
    )Dividends paid to Group companies
    
    (11
    )
    
    (14
    )
    
    (25
    )
    
    (12
    )
    
    (13
    )
    
    (25
    )
    
    (13
    )
    
    (15
    )
    
    (28
    )Share of retained profits
    
    (3
    )
    
    11
    
    
    8
    
    
    1
    
    
    5
    
    
    6
    
    
    25
    
    
    8
    
    
    33Segmental analysis of Group share of turnover and operating profits/(losses) of joint ventures and associatesTurnover
    
    Operating profit/(loss)2005
£m
    
    2004
£m
    
    2003
£m
    
    2005
£m
    
    2004
£m
    
    2003
£mUnited Kingdom
    
    
    
    
    6
    
    
    6
    
    
    (8
    )
    
    (1
    )
    
    Caribbean
    
    107
    
    
    108
    
    
    111
    
    
    19
    
    
    30
    
    
    33Monaco
    
    1
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    52
    
    
    
    
    
    
    
    
    13Rest of the World
    
    79
    
    
    83
    
    
    91
    
    
    28
    
    
    12
    
    
    29187
    
    
    197
    
    
    260
    
    
    40
    
    
    41
    
    
    75Group share of net assets of joint ventures and associatesJoint
      ventures
£m
    
    Associates
£m
    
    2005
£m
    
    Joint
      ventures
£m
    
    Associates
£m
    
    2004
£mFixed assets
    
    140
    
    
    51
    
    
    191
    
    
    152
    
    
    55
    
    
    207Current assets
    
    49
    
    
    49
    
    
    98
    
    
    38
    
    
    39
    
    
    77Group share of gross assets
    
    189
    
    
    100
    
    
    289
    
    
    190
    
    
    94
    
    
    284Current borrowings
    
    (8
    )
    
    
    
    
    (8
    )
    
    (7
    )
    
    
    
    
    (7
    )Other current liabilities
    
    (36
    )
    
    (18
    )
    
    (54
    )
    
    (24
    )
    
    (18
    )
    
    (42
    )Long-term borrowings
    
    (12
    )
    
    
    
    
    (12
    )
    
    (16
    )
    
    (1
    )
    
    (17
    )Other long-term liabilities
    
    (5
    )
    
    (2
    )
    
    (7
    )
    
    (11
    )
    
    
    
    
    (11
    )Group share of gross liabilities
    
    (61
    )
    
    (20
    )
    
    (81
    )
    
    (58
    )
    
    (19
    )
    
    (77
    )Share of net assets
    
    128
    
    
    80
    
    
    208
    
    
    132
    
    
    75
    
    
    207Segmental analysis of the Group share of net assets of joint ventures and associatesJoint
      ventures
£m
    
    Associates
£m
    
    2005
£m
    
    Joint
      ventures
£m
    
    Associates
£m
    
    2004
£mCaribbean
    
    119
    
    
    
    
    
    119
    
    
    115
    
    
    
    
    
    115Monaco
    
    1
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    Rest of the World
    
    8
    
    
    80
    
    
    88
    
    
    17
    
    
    75
    
    
    92128
    
    
    80
    
    
    208
    
    
    132
    
    
    75
    
    
    20718 StocksStocks comprise network equipment and mobile handsets held for resale.
2005 Annual Report
    125Back to Contents

Notes to the financial statements

19 DebtorsGroup
    
    Company2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£mAmounts falling due within one yearTrade debtors
    
    565
    
    
    591
    
    
    2
    
    
    2Amounts owed by subsidiary undertakings
    
    
    
    
    
    
    
    93
    
    
    72Amounts owed by joint ventures and associates
    
    4
    
    
    5
    
    
    5
    
    
    5Other taxation and social security
    
    2
    
    
    7
    
    
    
    
    
    Other debtors
    
    138
    
    
    149
    
    
    19
    
    
    36Prepayments and accrued income
    
    107
    
    
    119
    
    
    29
    
    
    8Lease payments receivable
    
    
    
    
    4
    
    
    
    
    
    816
    
    
    875
    
    
    148
    
    
    123Amounts falling due after more than one yearDeferred taxation
    
    25
    
    
    28
    
    
    
    
    
    Other taxation and social security
    
    14
    
    
    17
    
    
    
    
    
    Other debtors
    
    20
    
    
    22
    
    
    
    
    
    Prepayments and accrued income
    
    224
    
    
    103
    
    
    142
    
    
    102Lease payments receivable
    
    1
    
    
    5
    
    
    
    
    
    284
    
    
    175
    
    
    142
    
    
    102Total debtors
    
    1,100
    
    
    1,050
    
    
    290
    
    
    22520 Current asset investments and short-term deposits
  Current asset investments and short-term deposits are £2,031 million (2004  £2,229
million) (Company £1,819 million, 2004  £2,133 million), including £14 million
(2004  £12 million) of gilts (Company  £12 million, 2004  £12 million),
and £80 million of Credit Linked Notes (2004  £50 million), (Company  £80 million, 2004  £50 million). See Note 25 for
details of restrictions on short-term deposits.
The £80 million of Credit Linked Notes were issued by two AA-rated banks, and are referenced to
the Companys £200 million bond, which matures in 2012. These transactions have a similar
economic effect to repurchasing the bonds for the period of the investment. In return for the Company
receiving interest on the Credit Linked Notes at rates in excess of LIBOR, the final redemption to
be received by the Company would be less than face value if a credit event as defined
in the terms of the note occurs in respect of Cable and Wireless plc.
Reflecting the terms of the underlying bond, credit events in the notes are as follows:

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 counterparties to the Credit Linked Notes are entitled to
deliver to Cable and Wireless plc its own bonds or debt obligations with a face value equivalent
to that of the Credit Linked Notes, or a cash amount equal to the market value thereof.
126
    2005 Annual ReportBack to Contents
Performance
21 Creditors
Group
    
    Company2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£mAmounts falling due within one yearLoans and obligations under finance leasesBank loans and overdrafts
    
    
    
    
    1
    
    
    
    
    
    Current instalments due on loans
    
    22
    
    
    40
    
    
    
    
    
    Obligations under finance leases
    
    1
    
    
    3
    
    
    
    
    
    23
    
    
    44
    
    
    
    
    
    Other creditorsPayments received on account
    
    4
    
    
    6
    
    
    
    
    
    Trade creditors
    
    435
    
    
    465
    
    
    3
    
    
    Amounts owed to subsidiary undertakings
    
    
    
    
    
    
    
    31
    
    
    61Dividends payable
    
    60
    
    
    73
    
    
    60
    
    
    73Other taxation and social security
    
    198
    
    
    302
    
    
    119
    
    
    205Other creditors
    
    172
    
    
    154
    
    
    75
    
    
    66Accruals and deferred income
    
    642
    
    
    624
    
    
    44
    
    
    1101,511
    
    
    1,624
    
    
    332
    
    
    515Total creditors falling due within one year
    
    1,534
    
    
    1,668
    
    
    332
    
    
    515Group
    
    Company2005
£m
    
    2004
£m
    
    2005
£m
    
    2004
£mAmounts falling due after more than one yearOther loansSterling repayable at various dates up to 2019
    
    485
    
    
    520
    
    
    304
    
    
    320US dollars repayable at various dates up to 2038
    
    84
    
    
    125
    
    
    
    
    
    Other currencies repayable at various dates up to 2017
    
    1
    
    
    13
    
    
    
    
    
    4 per cent convertible unsecured bond due 2010
    
    252
    
    
    252
    
    
    252
    
    
    252822
    
    
    910
    
    
    556
    
    
    572Less: current instalments due
    
    (22
    )
    
    (40
    )
    
    
    
    
    800
    
    
    870
    
    
    556
    
    
    572Obligations under finance leases
    
    1
    
    
    5
    
    
    
    
    
    Total other loans and obligations under finance leases
    
    801
    
    
    875
    
    
    556
    
    
    572Other creditorsAmounts owed to subsidiary undertakings
    
    
    
    
    
    
    
    18,382
    
    
    17,786
    
    
    
    
    
    18,382
    
    
    17,786Total creditors falling due after more than one year
    
    801
    
    
    875
    
    
    18,938
    
    
    18,358The Articles of Association of the Company permit borrowing up to two and a half times the capital
and reserves of the Group.
On 16 July 2003 £257,714,000 4 per cent convertible unsecured bonds were issued at par. Subject
to Cable & Wireless right to make a cash alternative election, each bond entitles the holder
to: i) convert the conversion amount of such bond into fully paid Ordinary Shares of 25 pence each
at the rate of 457.930 Ordinary Shares for each £1,000 held at an initial conversion price of
£1.45 per Ordinary Share; and ii) to have redeemed the cash settled amount of such bond in accordance
with the terms and conditions (representing 231.724 Ordinary Shares for each £1,000 held at
the initial conversion price of £1.45 per Ordinary Share), at any time prior to 9 July 2010.
Full conversion of the bonds would result in an additional 177,733,748 shares being issued.
After 16 July 2007, if Cable & Wireless share price exceeds an amount calculated in accordance
with the terms and conditions for a specified number of days, Cable & Wireless has the right
to give not less than 30 days and not more than 90 days notice that it will redeem all unconverted
bonds still outstanding on a given date at par plus accrued interest. If the bonds have not been
converted, purchased and cancelled or redeemed by 16 July 2010, they will be redeemed at par on that
date.
2005 Annual Report
    127Back to Contents


Notes to the financial statements

The finance cost charged in the profit and loss account comprises the aggregate of the coupon and the
proportion of issue costs that relate to the financial year.
During the year, Cable & Wireless repurchased £19.9 million of the £200 million 8.625 per cent bonds due 2019 at an average price of 99.83 and £16 million of the £200 million 8.75 per cent bonds due 2012 at an average price of 101.625 (2004  £nil).