Annual Financial Report

RNS Number : 7917N

Cable & Wireless Communications PLC

17 June 2010

 

 

Annual financial report Announcement

17 June 2010

 

 

CABLE & WIRELESS COMMUNICATIONS Plc

Annual financial report Announcement FOR THE year ENDED 31 march 2010

 

 

Cable & Wireless Communications Plc (formerly Cable & Wireless Communications Limited) (the Company) has submitted copies of the following documents to the UK Listing Authority:

 

·; Letter from the Chairman and Notice of Annual General Meeting (AGM);

·; Proxy Form;

·; Shareholder Communications Election Form;

·; Scrip Dividend Brochure;

·; Scrip Dividend Mandate Form;

·; Dividend Currency Mandate Form;

·; Annual Report and Accounts for the year ended 31 March 2010 and

·; Annual Review and summary financial statements for the year ended 31 March 2010.

 

These documents will shortly be available for inspection at the UK Listing Authority's Document Viewing Facility which is situated at:

 

Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS

Tel: 020 7066 1000

 

The Annual Report and Accounts or Annual Review together with the letter from the Chairman and Notice of AGM, Proxy Form, Shareholder Communications Election Form, Scrip Dividend Brochure, Scrip Dividend Mandate Form and Dividend Currency Mandate Form are being posted to shareholders today, 17 June 2010. Copies of these documents (with the exception of the Proxy Form) or links to the relevant services will shortly be available on the Company's website (www.cwc.com) and from the Company Secretary, 26 Red Lion Square, London WC1R 4HQ .

 

This announcement should be read in conjunction with the Company's announcement issued on 27 May 2010. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Cable & Wireless Communications Plc 2009/10 Annual Report and Accounts.

 

The financial information included within this annual financial report announcement has been extracted from the audited consolidated financial statements of Cable & Wireless Communications Plc for the year ended 31 March 2010 (which will shortly be delivered to the Registrar of Companies) but does not constitute the Company's statutory financial statements for 2009/10 or 2008/09 under Section 434 of the Companies Act 2006.

 

Those accounts are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. They have been reported on by the Group's auditors, whose audit report (i) was unqualified, (ii) did not include a reference to any matters by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The financial information in this annual financial report announcement has been prepared in accordance with IFRS, with the exception of the disclosure requirements.

CABLE & WIRELESS COMMUNICATIONS
Sheldon Bruha	Director, Corporate Finance and Investor Relations	[email protected]	+44 (0)20 7315 4178
Kunal Patel	Associate Director, Corporate Finance and Investor Relations	[email protected]	+44 (0)20 7315 4083
Lachlan Johnston	Director of Public Relations	[email protected]	+44 (0)7800 021 405

 

EXTRACTS FROM THE CABLE & WIRELESS COMMUNICATIONS 2009/10 ANNUAL REPORT AND ACCOUNTS

 

The information below has been extracted from the Cable & Wireless Communications 2009/10 Annual Report and Accounts and is included solely for the purpose of complying with DTR 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports.

 

 

Consolidated income statement

For the year ended 31 March 2010

 

				2009/10			2008/09*
		Pre-			Pre-
		exceptional	Exceptional		exceptional	Exceptional
		items	items	Total	items	items	Total
		US$m	US$m	US$m	US$m	US$m	US$m
Continuing operations
Revenue		2,346	-	2,346	2,447	-	2,447
Operating costs before depreciation and amortisation		(1,481)	(49)	(1,530)	(1,576)	(100)	(1,676)
Depreciation		(295)	-	(295)	(250)	-	(250)
Amortisation		(53)	-	(53)	(44)	-	(44)
Other operating income		4	-	4	3	-	3
Other operating expense		(1)	(33)	(34)	(6)	-	(6)
Group operating profit/(loss)		520	(82)	438	574	(100)	474
Share of post-tax profit of joint ventures		30	-	30	60	-	60
Total operating profit/(loss)		550	(82)	468	634	(100)	534
Gains on sale of non-current assets		-	-	-	14	-	14
Losses and gains on termination of operations		(1)	-	(1)	5	-	5
Finance income		23	19	42	46	-	46
Finance expense		(119)	(7)	(126)	(107)	(98)	(205)
Profit/(loss) before income tax		453	(70)	383	592	(198)	394
Income tax (expense)/credit		(126)	6	(120)	(100)	12	(88)
Profit/(loss) for the year from continuing operations		327	(64)	263	492	(186)	306
Discontinued operations
Profit/(loss) for the year from discontinued operations		302	(122)	180	225	(134)	91
Profit/(loss) for the year		629	(186)	443	717	(320)	397
Profit/(loss) attributable to:
Owners of the parent		486	(182)	304	566	(315)	251
Non-controlling interests		143	(4)	139	151	(5)	146
		629	(186)	443	717	(320)	397
Earnings per share attributable to the owners of
the parent during the year (cents per share)
- basic				11.9c			10.1c
- diluted				11.8c			10.0c
Earnings per share from continuing operations
attributable to owners of the parent
during the year (cents per share)
- basic				4.9c			6.4c
- diluted				4.8c			6.4c
Earnings per share from discontinued operations
attributable to the owners of the parent
during the year (cents per share)
- basic				7.0c			3.7c
- diluted				7.0c			3.6c

 

* The results of the Cable & Wireless Worldwide business have been presented in discontinued operations.

Consolidated statement of comprehensive income

For the year ended 31 March 2010

 

						2009/10		2008/09
						US$m	US$m	US$m	US$m
Profit for the year							443		397
Other comprehensive income for the year:
Actuarial losses in the value of defined benefit retirement plans							(463)		(136)
Exchange differences on translation of foreign operations						(14)		565
Less: Amounts recognised in the income statement on disposal of foreign operations						19		(12)
							5		553
Exchange differences relating to hedging instrument							3		(79)
Fair value gain on available-for-sale assets							2		-
Other comprehensive income for the year:							(453)		338
Income relating to components of other comprehensive income							-		-
Other comprehensive income for the year, net of tax							(453)		338
Total comprehensive income for the year							(10)		735
Total comprehensive income attributable to:
Owners of the parent							(148)		473
Non-controlling interests							138		262

 

 

Consolidated statement of financial position

As at 31 March 2010

 

							31 March	31 March
							2010	2009
							US$m	US$m
ASSETS
Non-current assets
Intangible assets							414	1,727
Property, plant and equipment							1,725	2,976
Investments in joint ventures							231	327
Available-for-sale financial assets							29	55
Other receivables							42	75
Deferred tax asset							19	93
Retirement benefit assets							35	39
							2,495	5,292
Current assets
Trade and other receivables							491	1,411
Inventories							49	33
Cash and cash equivalents							573	790
Financial assets at fair value through the income statement							65	-
							1,178	2,234
Non-current assets held for sale							3	1
							1,181	2,235
Total assets							3,676	7,527
LIABILITIES
Current liabilities
Trade and other payables							769	2,188
Loans and obligations under finance leases							58	130
Financial liabilities at fair value							30	36
Provisions							104	157
Current tax liabilities							187	180
							1,148	2,691
Net current assets/(liabilities)							33	(456)
Non-current liabilities
Trade and other payables							3	16
Loans and obligations under finance leases							1,179	1,206
Financial liabilities at fair value							189	202
Deferred tax liabilities							42	54
Provisions							27	270
Retirement benefit obligations							227	123
							1,667	1,871
Net assets							861	2,965
EQUITY
Capital and reserves attributable to the owners of the parent
Share capital							131	129
Share premium							62	1,889
Reserves							221	632
							414	2,650
Non-controlling interests							447	315
Total equity							861	2,965

 

Consolidated statement of changes in equity

For the year ended 31 March 2010

 

			Foreign
			currency
			translation	Capital
			and	and			Non-
	Share	Share	hedging	other	Retained		controlling	Total
	capital	premium	reserve	reserves	earnings	Total	interests	equity
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m
Balance at 1 April 2008	127	1,802	(245)	2,485	(795)	3,374	383	3,757
Profit for the year	-	-	-	-	251	251	146	397
Net actuarial losses recognised (net of taxation)	-	-	-	-	(134)	(134)	(2)	(136)
Exchange differences on translation of foreign operations	-	-	435	-	-	435	118	553
Exchange differences relating to hedging instrument	-	-	(79)	-	-	(79)	-	(79)
Total comprehensive income for the year	-	-	356	-	117	473	262	735
Cash received in respect of employee share schemes	-	-	-	-	4	4	-	4
Own shares purchased	-	-	-	-	(4)	(4)	-	(4)
Share-based payment expenses	-	-	-	-	21	21	-	21
Issue of share capital	2	87	-	(89)	89	89	-	89
Dividends	-	-	-	-	(341)	(341)	-	(341)
Foreign exchange	-	-	-	-	(968)	(968)	(112)	(1,080)
Total dividends and other transactions with Cable & Wireless Communications Plc shareholders	2	87	-	(89)	(1,199)	(1,199)	(112)	(1,311)
Dividends paid to non-controlling interests	-	-	-	-	-	-	(216)	(216)
Purchase of non-controlling interest	-	-	-	2	-	2	(2)	-
Total dividends and other transactions with non-controlling interests	-	-	-	2	-	2	(218)	(216)
Balance at 31 March 2009	129	1,889	111	2,398	(1,877)	2,650	315	2,965
Profit for the year	-	-	-	-	304	304	139	443
Net actuarial losses recognised (net of taxation)	-	-	-	-	(462)	(462)	(1)	(463)
Exchange differences on translation of foreign operations	-	-	5	-	-	5	-	5
Exchange differences relating to hedging instrument	-	-	3	-	-	3	-	3
Fair value movements in available-for-sale assets	-	-	-	2	-	2	-	2
Total comprehensive income/(expense) for the year:	-	-	8	2	(158)	(148)	138	(10)
Cash received in respect of employee share schemes	-	-	-	-	6	6	-	6
Own shares purchased	-	-	-	-	(1)	(1)	-	(1)
Share-based payment expenses	-	-	-	-	25	25	-	25
Issue of share capital	2	104	-	(106)	106	106	-	106
Equity element of the convertible bond	-	-	-	37	-	37	-	37
Dividends	-	-	-	-	(355)	(355)	-	(355)
Foreign exchange	-	-	-	-	867	867	-	867
Demerger of Cable & Wireless Worldwide business	-	-	-	(37)	(2,749)	(2,786)	-	(2,786)
Court approved capital reduction scheme	-	(1,931)	-	1,931	-	-	-	-
Total dividends and other transactions with Cable & Wireless Communications Plc shareholders	2	(1,827)	-	1,825	(2,101)	(2,101)	-	(2,101)
Dividends paid to non-controlling interests	-	-	-	-	-	-	(126)	(126)
Non-controlling interest reallocation	-	-	-	-	(11)	(11)	11	-
Purchase of non-controlling interest	-	-	-	30	(6)	24	109	133
Total dividends and other transactions with non-controlling interests	-	-	-	30	(17)	13	(6)	7
Balance at 31 March 2010	131	62	119	4,255	(4,153)	414	447	861

 

On 26 March 2010, a court approved capital reduction became effective which had the effect of creating a capital reserve of US$1,931 million which may be released, in whole or in part, to distributable reserves of the Company at the discretion (and upon the resolution) of the Board of Directors or a duly constituted committee of the Board of Directors. On 24 May 2010, a duly constituted committee of the Board of Directors approved the release of £90 million (US$134 million), being an amount sufficient to allow payment of the proposed dividend.

Consolidated statement of cash flows

For the year ended 31 March 2010

 

							2009/10	2008/09*
							US$m	US$m
Cash flows from operating activities
Cash generated from continuing operations (see following table)							676	751
Cash generated from discontinued operations							382	426
Income taxes paid							(110)	(115)
Net cash from operating activities							948	1,062
Cash flows from investing activities
Continuing operations
Finance income							7	32
Other income/(expense)							1	(4)
Dividends received							30	30
Decrease in available-for-sale assets							14	-
Proceeds on disposal of property, plant and equipment							5	4
Purchase of property, plant and equipment							(267)	(329)
Purchase of intangible assets							(21)	(30)
Disposal of subsidiaries and non-controlling interests							-	11
Acquisition of subsidiaries (net of cash received) and non-controlling interests							19	(28)
Net cash used in continuing operations							(212)	(314)
Discontinued operations							(394)	(999)
Net cash used in investing activities							(606)	(1,313)
Net cash flow before financing							342	(251)
Cash flows from financing activities
Continuing operations
Dividends paid to the owners of the parent							(268)	(258)
Dividends paid to non-controlling interests							(144)	(135)
Finance expense							(105)	(131)
Demerger finance costs							(27)	-
Repayments of borrowings							(620)	(77)
Payment to Cable & Wireless Worldwide plc for transfer of convertible bond							(366)	-
Proceeds from borrowings							1,064	557
Proceeds on issue of shares on settlement of share options							24	9
Purchase of shares for share awards							(1)	(4)
Net cash used in continuing operations							(443)	(39)
Discontinued operations							142	(53)
Net cash used in financing activities							(301)	(92)
Net (decrease)/increase in cash and cash equivalents:
From continuing operations							(89)	283
From discontinued operations							130	(626)
Less: cash held by the Cable & Wireless Worldwide business at demerger							(288)	-
Net decrease in cash and cash equivalents							(247)	(343)
Cash and cash equivalents at 1 April							790	1,398
Exchange gains/(losses) on cash and cash equivalents							30	(265)
Cash and cash equivalents at 31 March							573	790

 

* The operations of the Cable & Wireless Worldwide business have been presented in discontinued operations.

 

The reconciliation of profit for the year to net cash generated from continuing operations was as follows:

 

							2009/10	2008/09*
							US$m	US$m
Continuing operations
Profit for the year							263	306
Adjustments for:
Tax expense							120	88
Depreciation							295	250
Amortisation							53	44
Loss/(gain) on termination of operations							1	(5)
Gain on sale of non-current assets							-	(14)
(Gain)/loss on disposal of property, plant and equipment							(4)	3
Finance income							(42)	(46)
Finance expense							126	205
Decrease in provisions							(16)	(16)
Employee benefits							16	(18)
Defined benefit pension scheme buy-in contribution							(43)	(4)
Defined benefit pension scheme other contributions							(11)	(9)
Share of post-tax results of joint ventures							(30)	(60)
Operating cash flows before working capital changes							728	724
Changes in working capital (excluding effects of acquisition and disposal of subsidiaries)
Increase in inventories							(17)	(10)
Decrease in trade and other receivables							10	79
Decrease in payables							(45)	(42)
Cash generated from continuing operations							676	751

 

* The operations of the Cable & Wireless Worldwide business have been presented in discontinued operations.

 

1. Summary of significant accounting policies

Basis of preparation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union (EU) as they apply to the financial statements of the Group for the year ended 31 March 2010.

 

Group reorganisation and demerger

On 19 March 2010, the Cable & Wireless Group effected a group reorganisation whereby Cable & Wireless Communications Plc was inserted as a new holding company for the Cable & Wireless Group via a Scheme of Arrangement. Cable & Wireless Communications Plc therefore replaced Cable and Wireless plc (now Cable & Wireless Limited) as the parent company of the Cable & Wireless Group as at this date. On the same date shareholders were given one ordinary share and one B share of Cable & Wireless Communications Plc for every share of Cable and Wireless plc held on that date. At this time, the Cable & Wireless Group was renamed the Cable & Wireless Communications Group. Shares in Cable & Wireless Communications Plc were admitted to the Official List of the Financial Services Authority and to trading on the London Stock Exchange's main market for listed securities on 22 March 2010.

 

The Scheme of Arrangement was accounted for using the principles of reverse acquisition accounting contained within IFRS 3 Business Combinations. In these consolidated financial statements, the transaction to interpose the new holding company, Cable & Wireless Communications Plc, has been presented as though the Cable & Wireless Group acquired Cable & Wireless Communications Plc. This resulted in the legal acquiror, Cable & Wireless Communications Plc, being treated for accounting purposes as having been acquired by its legal subsidiary, Cable and Wireless plc (now Cable & Wireless Limited). In these financial statements, this results in a continuation of the consolidated financial statements of the Cable & Wireless Group (renamed the Cable & Wireless Communications Group).

 

On 26 March 2010, the Cable & Wireless Worldwide business was demerged from the Cable & Wireless Communications Group. The demerger was effected by a three part transaction which involved the following:

 

• The B shares and associated share premium in Cable & Wireless Communications Plc were cancelled to enable the Company to repay capital to shareholders.

• The entire share capital of Cable & Wireless UK Holdings Limited, the parent entity of the Worldwide group of companies and the Cable & Wireless Worldwide Brand, were transferred to Cable & Wireless Worldwide plc, an unrelated company.

• In return for the share capital of Cable & Wireless UK Holdings Limited and the Cable & Wireless Worldwide Brand, Cable & Wireless Worldwide plc issued one ordinary share in itself to the holder of each Cable & Wireless Communications Plc B share prior to their cancellation as part of this transaction.

 

These transactions resulted in the demerger of the Cable & Wireless Worldwide business from the Cable & Wireless Communications Group and the holders of shares in Cable & Wireless Communications Plc at 26 March 2010 receiving one share in Cable & Wireless Communications Plc and one share in Cable & Wireless Worldwide plc for every share in Cable & Wireless Communications Plc held at that date. The results of the Cable & Wireless Worldwide business are shown as discontinued operations in these financial statements.

 

The comparative amounts for the income statement and statement of cash flows have been represented for the classification of the Cable & Wireless Worldwide business' results as discontinued. In addition, comparative reserves and share capital have been presented in accordance with the principles of reverse acquisitions.

 

Change of functional and presentation currency

Following the demerger of the Worldwide business, the Group has changed its presentation currency from Sterling to US dollars, as this is the most representative currency of the remaining Group's operations. At the same time, the functional currency of the parent company and of the majority of holding and financing companies of the Group that previously had a Sterling functional currency was changed to US dollars. The Directors consider the US dollar to most faithfully represent the economic effects of the underlying transactions, events and conditions for these companies within the Cable & Wireless Communications Group. The consolidated financial statements of the Group for the year ended 31 March 2009 have been represented in US dollars.

 

Accounting policies

The accounting policies applied by the Group in these consolidated financial statements are the same as those applied by the Cable & Wireless Group in its consolidated financial statements as at and for the year ended 31 March 2009, with the following primary exceptions:

 

§ Amendments to IAS 1 Presentation of Financial Statements: A Revised Presentation The amendments affect the presentation of owner changes in equity and introduce the concept of comprehensive income. They do not change the recognition, measurement or disclosure of specific transactions and events required by other standards. These are presentation amendments only and did not have a material impact on the Group.

 

§ IFRS 8 Operating Segments

The IFRS requires disclosures in respect of the operating segments of the Group. This standard requires segmental disclosures presented on the basis upon which management views the Group. This is a presentation standard only and did not have a material impact on the Group.

 

§ Amendments to IFRS 7 Improving Disclosures about Financial Instruments

This amendment contains further disclosure requirements to enhance the information available to investors about fair value measurement and liquidity risk associated with an entity's financial instruments. This is a disclosure standard only and did not have a material impact on the Group.

 

In addition, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty in these consolidated financial statements are the same as those that applied to the consolidated financial statements as at and for the year ended 31 March 2009.

 

2 Segment information

Operating segments for continuing operations

Cable & Wireless Communications Group is an international telecommunications service provider. It operates integrated telecommunications companies in 38 countries offering mobile, broadband and domestic and international fixed line services to residential and business customers. It has four principal operations which have been identified as the Group's reportable segments, being the Caribbean, Panama, Macau and Monaco & Islands.

 

The Group also had two functions that did not meet the definition of reportable segments. These functions primarily acted as a portfolio manager and operational support provider for the reportable segments and the Worldwide business (since demerged). These functions were not considered to be operating segments as they did not earn revenue from their activities.

 

The operating segment results from continuing operations for the year ended 31 March 2010 is presented below. The non-operating central functions are also disclosed in order to reconcile the reportable segment results to the Group results. The central functions of the Group have been set out below according to their historical presentation. That is, the former CWI headquarters function has been included in 'CWI other and eliminations' and the former Cable and Wireless plc Group headquarters function has been included under 'Cable and Wireless plc'.

 

					CWI business			Total Cable
						CWI other		& Wireless
					Monaco &	and	Cable and	Communi-
		Caribbean	Panama	Macau	Islands	eliminations¹	Wireless plc²	cations
Year ended 31 March 2010		US$m	US$m	US$m	US$m	US$m	US$m	US$m
Revenue		873	621	316	552	(16)	-	2,346
Cost of sales		(227)	(188)	(125)	(200)	11	-	(729)
Gross margin		646	433	191	352	(5)	-	1,617
Pre-exceptional operating costs		(376)	(150)	(49)	(178)	44	(42)	(751)
EBITDA³		270	283	142	174	39	(42)	866
LTIP charge		-	-	-	-	(1)	-	(1)
Depreciation and amortisation		(155)	(75)	(35)	(76)	(7)	-	(348)
Net other operating income		1	1	-	1	-	-	3
Group operating profit/(loss)		116	209	107	99	31	(42)	520
Share of post-tax profit of joint ventures		19	-	-	11	-	-	30
Exceptional operating costs		(31)	-	-	(4)	(8)	(39)	(82)
Total operating profit/(loss)		104	209	107	106	23	(81)	468
Net other expense								(1)
Net finance expense								(96)
Non-operating exceptional items								12
Profit before income tax								383
Income tax								(120)
Profit for the year from continuing operations								263

 

1 CWI Other and eliminations includes CWI head office expenses and eliminations for inter-segment transactions between CWI businesses.

2 Cable and Wireless plc represents the Central operating costs of Cable and Wireless plc prior to demerger.

3 EBITDA is used in management reporting as it is considered to be a key financial metric. It is defined as earnings before interest, tax, depreciation and amortisation, LTIP credit/charge, net other operating income/expense and exceptional items.

 

There are no differences in the measurement of the reportable segments' results and the Cable & Wireless Communications Group's results.

 

Details of the segment assets and liabilities for the year ended 31 March 2010 are:

 

						Monaco &	Other and
			Caribbean	Panama	Macau	Islands	eliminations¹	Total
At 31 March 2010			US$m	US$m	US$m	US$m	US$m	US$m
Total assets			1,318	673	215	1,000	470	3,676
Total assets include:
Investments in joint ventures			213	-	-	18	-	231
Additions to non-current assets during the year (excluding financial assets, deferred tax assets and defined benefit pension assets)
			114	95	31	83	6	329
Total liabilities			(259)	(298)	(67)	(397)	(1,794)	(2,815)

 

1 Other and eliminations includes assets and liabilities of the Central operations of the Cable & Wireless Communications Group and non-operating assets and liabilities.

 

There is no significant trading between the segments. Transactions between the segments are on commercial terms similar to those offered to external customers.

 

There are no differences in the measurement of the reportable segments' assets and liabilities and the Group's assets and liabilities other than those shown in the Other and eliminations column. Further, there are no asymmetrical allocations to reportable segments.

 

 

3 Exceptional items within operating costs

 

							2009/10	2008/09
						Note	US$m	US$m
Exceptional items within operating costs
Staff costs						(i)	16	61
Property costs						(ii)	-	13
Other costs						(iii)	33	26
Total exceptional operating costs							49	100

 

i) Exceptional staff costs include US$10 million arising from the restructuring of the Group's operations, principally in the Caribbean, and US$6 million relating to the closure of the Central division of Cable and Wireless plc. In 2008/09, these costs related to the restructuring of the Group's operations, principally in the Caribbean, and were net of US$14 million of gains from restructuring post-retirement plans in Jamaica and Barbados.

 

ii) In 2008/09, exceptional property costs primarily related to provisions relating to vacant property.

 

iii) Exceptional other administrative expenses include US$24 million relating to the One Caribbean restructuring programme and US$9 million relating to costs of defending the Digicel legal claim. The One Caribbean costs primarily consist of consulting and contractor fees (US$20 million) and rebranding and other costs incurred on the reorganisation programme (US$4 million). In 2008/09, exceptional other costs mainly related to the One Caribbean restructuring programme. These costs primarily consisted of US$12 million related to rebranding costs and US$14 million related to restructuring and consultancy.

 

4 Finance income and expense

 

				2009/10							2008/09
		Pre-					Pre-
		exceptional	Exceptional	Total			exceptional		Exceptional		Total
		US$m	US$m	US$m			US$m		US$m		US$m
Finance income
Interest on cash and deposits		10	-	10			35		-		35
Investment income		2	-	2			-		-		-
Foreign exchange gains on deposits		11	-	11			11				11
Gains on derivative foreign exchange contracts		-	19	19			-		-		-
Total finance income		23	19	42			46		-		46
Finance expense
Interest on bank loans		36	-	36			29		-		29
Interest on bonds		60	-	60			49		-		49
Unwinding of discounts on provisions		5	-	5			2		-		2
Unwinding of discount on Monaco put option liability		22	-	22			24		-		24
Impairment of financial asset		-	-	-			7		-		7
Losses on derivative foreign exchange contracts		-	-	-			-		98		98
Capitalised finance transaction costs written off		-	7	7			-		-		-
		123	7	130		111		98		209
Less: Interest capitalised		(4)	-	(4)		(4)		-		(4)
Total finance expense		119	7	126		107		98		205

 

In 2008/09, the Group entered into various foreign exchange contracts to lock in the Sterling cash value of the forecast cash repatriations from foreign operations as well as that of the draw downs on the Group's US$415 million bank facility. In 2008/09, this resulted in an exceptional expense of US$98 million from settlement of those contracts and the remeasurement of open contracts to fair value at the year end. In 2009/10, movements in the fair value of these remaining open contracts relating to repatriation from the prior year resulted in an exceptional finance gain of US$19 million.

 

 

5 Discontinued operations

 

The results for discontinued operations were as follows:

 

							2009/10	2008/09
							US$m	US$m
Cable & Wireless Worldwide Group (i)							195	73
Foreign currency translation reserve balance recycled through the income statement on demerger							(19)	-
Businesses disposed of in prior periods (ii)							4	18
Total discontinued operations							180	91

 

i) Year ended 31 March 2010

At a General Meeting on 25 February 2010, the shareholders of Cable and Wireless plc approved the demerger of the Cable & Wireless Worldwide business. On 26 March 2010 (the demerger date), the Cable & Wireless Worldwide business was transferred to an unrelated company, Cable & Wireless Worldwide plc, in return for the entire share capital of that company. The significant aspects of the demerger transaction were:

 

• long-term intercompany debt owed to the Cable & Wireless Communications Group (formerly the Cable & Wireless Group) of US$1,386 million was capitalised prior to demerger without repayment being required;

• the convertible bond issued by Cable and Wireless plc (and subsequently transferred to Cable & Wireless Communications Plc) was transferred to Cable & Wireless Worldwide plc, along with the related cash of US$366 million;

• the Cable & Wireless Communications Group agreed to transfer cash of US$117 million to settle the Cable & Wireless Worldwide portion of the 2009/10 final dividend of the former Cable & Wireless Group on 1 April 2010. This is presented in other payables; and

• scheme assets and pension obligations of the Cable & Wireless Superannuation Fund with a net IAS 19 value of US$211 million were transferred to the Cable & Wireless Worldwide Group.

 

a) The results of the Cable & Wireless Worldwide business before demerger were as follows:

 

			For the period from 1 April 2009 to 26 March 2010						2008/09
			Pre-				Pre-
			exceptional	Exceptional			exceptional	Exceptional
			items	items	Total		items	items	Total
			US$m	US$m	US$m		US$m	US$m	US$m
Revenue			3,543	-	3,543		3,963	-	3,963
Operating costs before depreciation and amortisation			(2,892)	(99)	(2,991)		(3,420)	(134)	(3,554)
Depreciation			(349)	-	(349)		(306)	-	(306)
Amortisation			(71)	-	(71)		(66)	-	(66)
Other operating income			-	-	-		2	-	2
Other operating expense			(1)	-	(1)		(2)	-	(2)
Total operating profit/(loss)			230	(99)	131		171	(134)	37
Gains and losses on sale of non-current assets			(2)	-	(2)		(2)	-	(2)
Finance income			3	-	3		5	-	5
Finance expense			(30)	(4)	(34)		(25)	-	(25)
Profit/(loss) before income tax			201	(103)	98		149	(134)	15
Income tax credit			97	-	97		58	-	58
Profit/(loss) for the year from discontinued operations			298	(103)	195		207	(134)	73

 

The results of discontinued operations were previously recorded in the Worldwide operating segment. This segment is no longer required to be disclosed.

 

b) The financial position of the Cable & Wireless Worldwide business at 26 March 2010 (the date of demerger) and 31 March 2009 was as follows:

 

						26 March		31 March
						2010		2009
							US$m	US$m
Non-current assets
Intangible assets							1,387	1,356
Property, plant and equipment							1,455	1,374
Available-for-sale financial assets							2	16
Other receivables							34	38
Deferred tax asset							173	78
							3,051	2,862
Current assets
Trade and other receivables							1,140	939
Inventories							25	4
Cash and cash equivalents							288	209
							1,453	1,152
Current liabilities
Trade and other payables							1,582	1,593
Loans and obligations under finance leases							37	26
Provisions							58	48
Current tax liabilities							20	19
							1,697	1,686
Non-current liabilities
Trade and other payables							1	9
Loans and obligations under finance leases							319	159
Provisions							229	229
Financial liabilities at fair value							2	1
Retirement benefit obligations							35	57
							586	455
Net assets							2,221	1,873

 

ii) Year ended 31 March 2010

In 2009/10, the net profit of US$4 million related to cash received in respect of the Group's former US operations.

 

Year ended 31 March 2009

There were no businesses discontinued during 2008/09.

 

In 2008/09, the net profit of US$18 million from discontinued operations related to the reversal of unutilised provisions relating to the Group's former US operations and businesses disposed of in prior periods.

 

6 Intangible assets

 

			Licences and	Customer
			operating	contracts and
	Goodwill	Software	agreements	relationships	Other	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Cost
At 1 April 2008	1,098	1,458	204	264	80	3,104
Business combinations	621	-	2	26	9	658
Additions	-	58	1	-	4	63
Disposals	-	(9)	-	-	(2)	(11)
Exchange differences	(392)	(389)	(23)	(79)	(11)	(894)
At 31 March 2009	1,327	1,118	184	211	80	2,920
Business combinations	35	-	-	51	18	104
Additions	-	54	-	-	6	60
Disposals	-	-	-	-	(45)	(45)
Transfer between categories	-	-	(30)	-	30	-
Demerger of Cable & Wireless Worldwide business	(1,192)	(1,049)	(10)	(216)	-	(2,467)
Exchange differences	26	28	1	5	2	62
At 31 March 2010	196	151	145	51	91	634
Amortisation and impairment
At 1 April 2008	-	1,324	36	62	68	1,490
Charge for the year	-	59	12	27	12	110
Disposals	-	(9)	-	-	(2)	(11)
Exchange differences	-	(356)	(6)	(22)	(12)	(396)
At 31 March 2009	-	1,018	42	67	66	1,193
Charge for the year	11	59	14	33	7	124
Disposals	-	-	-	-	(33)	(33)
Demerger of Cable & Wireless Worldwide business	-	(981)	(4)	(95)	-	(1,080)
Exchange differences	(1)	18	(4)	-	3	16
At 31 March 2010	10	114	48	5	43	220
Net book value
At 31 March 2010	186	37	97	46	48	414
At 31 March 2009	1,327	100	142	144	14	1,727

 

Goodwill balances can be summarised as follows:

 

						Dhivehi
						Raajjeyge
						Gulhun
				Monaco²		Private Ltd
	Energis¹	THUS¹	Apollo¹	Telecom	Connecteo²	(Dhiraagu)²	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m
At 1 April 2008	862	-	-	216	20	-	1,098
Business combinations	-	600	16	7	(2)	-	621
Foreign exchange movements	(237)	(105)	2	(53)	1	-	(392)
At 31 March 2009	625	495	18	170	19	-	1,327
Business combinations	-	27	-	(17)	-	25	35
Impairment	-	-	-	-	(11)	-	(11)
Demerger of Cable & Wireless Worldwide business	(642)	(532)	(18)	-	-	-	(1,192)
Foreign exchange movements	17	10	-	-	-	-	27
At 31 March 2010	-	-	-	153	8	25	186

 

1 Reporting segment: Discontinued.

2 Reporting segment: Monaco & Islands.

7 Property, plant and equipment

 

				2009/10				2008/09
	Land and	Plant and	Assets under		Land and	Plant and	Assets under
	buildings	equipment	construction	Total	buildings	equipment	construction	Total
	US$m	US$m	US$m	US$m	US$m	US$m	US$m	US$m
Cost
At 1 April	841	11,349	268	12,458	1,010	13,666	290	14,966
Business combinations	8	105	38	151	19	339	-	358
Additions	2	28	663	693	2	141	597	740
Movements in asset retirement obligations	(6)	1	-	(5)	11	9	-	20
Disposals	(14)	(220)	-	(234)	(58)	(531)	(5)	(594)
Transfers between categories	46	583	(629)	-	33	536	(569)	-
Demerger of Cable & Wireless Worldwide business	(479)	(8,002)	(103)	(8,584)	-	-	-	-
Exchange differences	8	178	1	187	(176)	(2,811)	(45)	(3,032)
At 31 March	406	4,022	238	4,666	841	11,349	268	12,458
Depreciation
At 1 April	545	8,937	-	9,482	678	11,312	-	11,990
Charge for the year	29	615	-	644	47	509	-	556
Disposals	(8)	(199)	-	(207)	(56)	(527)	-	(583)
Transfers between categories	2	(2)	-	-	-	-	-	-
Demerger of Cable & Wireless Worldwide business	(399)	(6,730)	-	(7,129)	-	-	-	-
Exchange differences	8	143	-	151	(124)	(2,357)	-	(2,481)
At 31 March	177	2,764	-	2,941	545	8,937	-	9,482
Net book value at 31 March	229	1,258	238	1,725	296	2,412	268	2,976

 

 

8 Earnings per share

Basic earnings per ordinary share is based on the profit for the year attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding.

 

As a result of the reorganisation of the Group's legal structure, Cable & Wireless Communications Plc became the new parent of the Cable & Wireless Communications Group. Therefore, the weighted average number of ordinary shares outstanding has been calculated using the number of ordinary shares issued by Cable & Wireless Communications Plc at the date of the reorganisation (19 March 2010) and adjusted for:

• movements in the number of ordinary shares of Cable and Wireless plc from the beginning of each period prior to the reorganisation date; and

• movements in the number of ordinary shares outstanding from the reorganisation date to 31 March 2010 using the actual number of ordinary shares of Cable & Wireless Communications Plc outstanding during that period.

 

	2009/10	2008/09
	US$m	US$m
Profit for the financial year attributable to ordinary shareholders	304	251
Weighted average number of ordinary shares outstanding (millions)	2,544	2,486
Dilutive effect of share options (millions)	24	26
Number of ordinary shares used to calculate diluted earnings per share (millions)	2,568	2,512
Basic earnings per share (cents per share)	11.9c	10.1c
Diluted earnings per share (cents per share)	11.8c	10.0c
Continuing operations
Profit (and adjusted profit) from continuing operations for the financial year attributable to shareholders	124	160
Basic earnings per share from continuing operations (cents per share)	4.9c	6.4c
Diluted earnings per share from continuing operations (cents per share)	4.8c	6.4c
Discontinued operations
Profit (and adjusted profit) from discontinued operations for the financial year attributable to shareholders	180	91
Basic earnings per share from discontinued operations (cents per share)	7.0c	3.7c
Diluted earnings per share from discontinued operations (cents per share)	7.0c	3.6c

9 Dividends declared and paid

							2009/10	2008/09
							US$m	US$m
Final dividend in respect of the prior year							227	216
Interim dividend in respect of the current year							128	125
Total dividend paid							355	341

 

During the year ended 31 March 2010 the Group declared and paid a final dividend of 5.67 pence per share (9.02 cents per share) in respect of the year ended 31 March 2009 (2008/09 - 5.00 pence per share (8.79 cents per share) in respect of the year ended 31 March 2008). The Group also declared and paid an interim dividend of 3.16 pence per share (5.03 cents per share) in respect of the year ended 31 March 2010 (2008/09 - 2.83 pence per share (4.98 cents per share) in respect of the year ended 31 March 2009).

 

In respect of the year ended 31 March 2010, the Directors have proposed a final dividend of 3.34 pence per share (4.97 cents per share), totalling £86 million (US$128 million) (2008/09 - £142 million (US$227 million)), for approval by shareholders at the AGM to be held on 21 July 2010. These financial statements do not reflect the proposed dividend, which will be accounted for in shareholders' equity as an appropriation of retained earnings in the year ended 31 March 2010.

 

 

10 Retirement benefits obligations

As part of the demerger, a portion of the scheme assets and pension obligations of the Cable & Wireless Superannuation Fund (CWSF), a plan operated by the former Cable & Wireless Group, were to be transferred to the Cable & Wireless Worldwide Retirement Plan (CWWRP), a new plan operated by the Cable & Wireless Worldwide Group. The pension obligations transferred to Cable & Wireless Worldwide were determined based on members' last known employer. The plan assets are determined by reference to the value of the obligations transferred. Under IAS 19, this results in defined benefit plan assets of US$1.8 billion and defined benefit pension obligations of US$2.0 billion being transferred to the Cable & Wireless Worldwide Group on 26 March 2010, and being derecognised from the Cable & Wireless Communications Group accounts. Cable & Wireless Communications continues to operate the CWSF post demerger.

In July 2009, an interim funding agreement was reached with the CWSF Trustee whereby additional contributions were to be paid to the CWSF in anticipation of the 31 March 2010 actuarial valuation. On demerger, this agreement was replaced with two interim funding agreements, one for the CWSF and one for the CWWRP. As a result, Cable & Wireless Communications will pay US$13 million into the CWSF in October 2010 and a further US$30 million in April 2011. In addition, Cable & Wireless Communications made a US$40 million cash injection into the CWSF on 31 March 2010, to reflect an agreed de-risking of the investment strategy in view of the change in the scheme's liability profile as a consequence of the split of membership on demerger.

The Group paid a total contribution of US$75 million in 2009/10 to the CWSF to meet the cost of future benefit accrual and expenses, to recover part of the deficit on the scheme funding basis, and to meet the cost of the agreed derisking of the Fund's investment strategy.

A US$149 million contingent funding agreement was agreed with the CWSF Trustee in connection with the demerger, under which the Trustee can call for a letter of credit or cash escrow in certain circumstances, such as material deterioration in the financial performance of the business.

Changes in the present value of the defined benefit pension and post-retirement medical plan obligations are as follows:

			2009/10			2008/09
	CWSF	Other	Total	CWSF	Other	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Obligation at 1 April	(2,453)	(428)	(2,881)	(3,479)	(422)	(3,901)
Current service cost	(12)	(12)	(24)	(14)	(9)	(23)
Interest cost	(177)	(33)	(210)	(204)	(35)	(239)
Actuarial (losses)/gains recognised in equity	(941)	(104)	(1,045)	171	23	194
Employee contributions	(3)	(5)	(8)	(4)	(5)	(9)
Obligations extinguished (excluding obligations demerged)	-	-	-	-	35	35
Obligations acquired	-	-	-	-	(109)	(109)
Settlement losses	-	-	-	-	(18)	(18)
Curtailment gains	2	3	5	4	21	25
Benefits paid	127	20	147	130	16	146
Exchange differences on translation	(3)	3	-	943	75	1,018
Obligations at 31 March (excluding demerger)	(3,460)	(556)	(4,016)	(2,453)	(428)	(2,881)
Amounts attributable to the Cable & Wireless Worldwide business	1,983	239	2,222	-	-	-
Obligations at 31 March	(1,477)	(317)	(1,794)	(2,453)	(428)	(2,881)

Changes in the fair value of defined benefit assets are as follows:

			2009/10			2008/09
	CWSF	Other	Total	CWSF	Other	Total
	US$m	US$m	US$m	US$m	US$m	US$m
Fair value of assets as at 1 April	2,407	403	2,810	4,229	454	4,683
Expected return	182	36	218	239	47	286
Actuarial gains/(losses) recognised in equity	521	64	585	(946)	(81)	(1,027)
Contributions by employer	75	20	95	35	14	49
Employee contributions	3	5	8	4	5	9
Assets divested (excluding assets demerged)	-	(3)	(3)	-	(56)	(56)
Assets acquired	-	-	-	-	111	111
Benefits paid	(127)	(20)	(147)	(130)	(16)	(146)
Exchange differences on translation	23	(4)	19	(1,024)	(75)	(1,099)
Fair value of assets as at 31 March (excluding demerger)	3,084	501	3,585	2,407	403	2,810
Amounts attributable to the Cable & Wireless Worldwide business	(1,772)	(194)	(1,966)	-	-	-
Fair value of assets as at 31 March	1,312	307	1,619	2,407	403	2,810

 

11 Loans and obligations under finance leases

					31 March	31 March
					2010	2009
					US$m	US$m
Loans
Sterling secured loans repayable in 2012					43	42
Sterling secured loans repaid during the year					-	138
US$415 million secured loan repaid during the year					-	411
US$500 million secured bonds due 2017					489	-
Sterling unsecured bonds repayable in 2012 and 2019					509	496
US dollar and currencies linked to the US dollar loans repayable at various dates up to 2038					196	214
Other currency loans repaid					-	4
					1,237	1,305
Loans - current					58	116
Loans - non-current					1,179	1,189
Finance leases
Obligations under finance leases					-	31
Obligations under finance leases - current					-	14
Obligations under finance leases - non-current					-	17
Loans and obligations under finance leases - current					58	130
Loans and obligations under finance leases - non-current					1,179	1,206

 

During 2009/10, the US$415 million loan repayable at dates to 2011 was repaid and cancelled. This facility was secured over the Group's Panamanian and Caribbean subsidiaries.

The Group entered into a US$500 million revolving credit facility secured on share pledges over Group assets. This facility was undrawn at 31 March 2010. Further, the Group arranged a US$100 million term loan facility. This was secured on share pledges over the Group assets. This facility was undrawn at 31 March 2010.

During the year ended 31 March 2010, the Group arranged US$500 million of bonds with a coupon of 7.75% due 2017. These bonds had a fair value of US$520 million at 31 March 2010. This value was determined by reference to market values obtained from third parties. The bonds are secured on share pledges over the Group assets.

Loans demerged during the period

During the year the Group repaid its Sterling £200 million facility repayable in 2012. During the year, the Group obtained a £300 million facility repayable in 2013. This facility, of which US$nil million was drawn down at 26 March 2010 (US$144 million drawn down at 31 March 2009) was derecognised on the demerger of the Cable & Wireless Worldwide business.

In addition, US$12 million of the dollar loans repayable in 2010 and US$4 million of the other currency loans repayable in 2010 were derecognised with the demerger of the Cable & Wireless Worldwide business.

On 24 November 2009, convertible bonds due in 2014 of £230 million were issued by Cable and Wireless plc. These bonds were subsequently transferred to Cable & Wireless Communications Plc on 19 March 2010 before being transferred to Cable & Wireless Worldwide plc on 26 March 2010 as part of the demerger. The bonds were separated into their loan and equity components on inception, being US$329 million of loan and US$37 million of equity on initial recognition.

 

 

12 Related party transactions

Transactions with the Cable & Wireless Worldwide Group post-demerger

On 26 March 2010, the Cable & Wireless Worldwide business was demerged from the Cable & Wireless Communications Group. The results of this business until 26 March 2010 have been classified as discontinued operations.

 

At 31 March 2010, balances outstanding with the Cable & Wireless Worldwide Group were as follows:

								31 March
								2010
								US$m
Trade receivables from Cable & Wireless Worldwide Group companies								3
Other payables to Cable & Wireless Worldwide Group companies								(117)
Obligation to transfer Cable & Wireless Worldwide shares								(30)
Total								(144)

 

Other payables relates to an amount of US$117 million that will be paid to the Cable & Wireless Worldwide Group on 1 April 2010 to settle the Cable & Wireless Worldwide portion of the 2009/10 final dividend of the former Cable & Wireless Group.

 

In accordance with the demerger terms, Cable & Wireless Communications Group has agreed to transfer 22 million shares in Cable & Wireless Worldwide plc held by the Cable & Wireless Employee Share Ownership Trust to similar trust for the benefit of the Cable & Wireless Worldwide Group. This obligation is included in financial liabilities at fair value.

 

On demerger, the Cable & Wireless brand was transferred to a joint venture entity owned by and for the continuing use of the Cable & Wireless Communications Group and the Cable & Wireless Worldwide Group.

 

Transactions with key management personnel

During 2008/09, two Directors of Cable & Wireless Communications Plc purchased unsecured bonds issued by Cable & Wireless Limited (formerly Cable and Wireless plc) and Cable & Wireless International Finance B.V. These bonds were purchased for US$4,169,670 (£2,371,691) on the open market (including US$209,179 (£118,980) of accrued interest) and had a nominal value at 31 March 2010 of US$3,914,492 (£2,630,000) (31 March 2009 - US$3,812,974 (£2,630,000)). The interest earned on those bonds during 2009/10 was US$364,082 of which US$143,247 remained unpaid at 31 March 2010 (2008/09 - US$109,184 of which US$79,163 remained unpaid at 31 March 2009).

 

During 2008/09, the spouse of a Director of Cable & Wireless Communications Plc purchased unsecured bonds issued by Cable & Wireless International Finance B.V. These bonds were purchased for US$768,602 (£437,178) on the open market (including US$67,124 (£38,180) of accrued interest) and had a nominal value at 31 March 2010 of US$714,432 (£480,000) (31 March 2009 - US$695,904 (£480,000)). The interest earned on those bonds during 2009/10 was US$65,843 of which US$1,013 remained unpaid at 31 March 2010 (2008/09 - US$7,778 of which US$987 remained unpaid at 31 March 2009). During 2009/10, interest was earned by the spouse of a Director of Cable & Wireless Communications Plc on unsecured bonds issued by Cable & Wireless Limited (formerly Cable and Wireless plc), purchased prior to their appointment as a Director. These bonds had a nominal value at 31 March 2010 of US$14,884 (£10,000). The interest earned on those bonds since the Director was appointed was US$1,045 of which US$846 remained unpaid at 31 March 2010.

 

There were no other material transactions with key management personnel except for those relating to remuneration and shareholdings. 13 Acquisition of Dhivehi Raajjeyge Gulhun Private Ltd (Dhiraagu)

On 21 October 2009, the Group purchased a further 7% of the share capital of Dhiraagu from the Maldives government for cash consideration of US$40 million. This transaction resulted in the Cable & Wireless Communications Group reclassifying its joint venture investment in this entity to a subsidiary investment. The goodwill recognised on acquisition was US$25 million and the net cash inflow on acquisition was US$36 million.

 

The Directors have made an assessment of the fair values of the assets and liabilities at the acquisition date. The fair values were as follows:

 

					Fair value at
				Fair value	31 March
			Book value	adjustments	2010
			US$m	US$m	US$m
Property, plant and equipment			151	-	151
Customer contracts and relationships			-	51	51
Trademarks and other intangibles			-	18	18
Trade and other receivables			19	-	19
Inventories			3	-	3
Cash and cash equivalents			76	-	76
Trade and other payables			(91)	-	(91)
Total			158	69	227

 

From the date of its acquisition on 21 October 2009, Dhiraagu contributed US$69 million to Group revenue and US$28 million to Group profit. If the acquisition had occurred on 1 April 2009, the contribution to Group revenue for 2009/10 would have been US$148 million and the contribution to Group profit for 2009/10 would have been US$61 million.

 

Goodwill arising on the acquisition of Dhiraagu included the value of expected synergies resulting from the integration into the existing business, and the value of the workforce and other intangible assets that did not meet the recognition criteria set out in IAS 38 Intangible Assets as they were unable to be separately identified.

 

 

RISK OVERVIEW

 

At Cable & Wireless Communications Plc we realise that there are potential risks in operating our business. We recognise the risks involved, and we continually review all risk at an operating unit and Group level. Here we detail some key risks that could affect our future success. Investors should consider these factors along with other information in this Annual Report.

Economic conditions

The Group's business may be adversely affected by the current global economic downturn. Poor local, national and international economic conditions may have an adverse impact on our operations in the Caribbean, Panama, Macau and Monaco & Islands. This could affect growth, profitability, and our ability to finance the business and pay dividends. The Caribbean economy suffered from the recent global recession but its impact on other units has been less significant. The geographical spread of our business units helps to reduce our overall exposure. We monitor key recession indicators closely and are ready to take action to address any ongoing impact of the downturn.

Liquidity

Liquidity risk could arise where the Group does not have sufficient financial resources available to meet its obligations and commitments as they fall due, or can access funding only at excessive cost. Exceptional market events could impact any of the business units adversely, and affect their ability to meet obligations as they fall due. The Group seeks to mitigate these risks by ensuring that it has sufficient liquidity to fund the business units. We have raised sufficient credit lines to meet medium-term liquidity needs and continue to maintain good relationships with our core banks.

Funding

Our financing agreements are subject to certain covenants. If we were unable to meet these, we would have to repay facilities early, adversely affecting our cash position. We monitor covenant positions against our forecasts and budgets to ensure that we operate within the prescribed limits.

Competitive activity

We continue to respond to the competitive market in which we operate by putting in place initiatives to enhance customer experience and improve cost efficiency. Excessive competition could drive down margins through price and promotional activity which could have an effect on our profits and cash flow. To counter this, we invest in the quality of the network, customer relationship systems and quality of service supplemented by loyalty programmes and retention activity.

New entrants could adversely affect revenue and margins for example by taking market share and pushing prices down. We counter this competition by conducting marketing analysis, running marketing promotions and by focusing on achieving customer service and network coverage.

Investment

We run an active investment, merger and acquisition process to identify and analyse new opportunities and where appropriate, to execute them. There is a risk of incorrect decisions due to inadequate evaluation and approval processes. We manage this risk through due diligence, by employing knowledgeable, experienced individuals, obtaining specialist advice when necessary and by facilitating comprehensive discussion of potential opportunities at a Board and advisory level.

Business development

New revenue sources such as mobile value-added services and pay TV are crucial to our strategy. If these fail to develop as expected, our revenue may fall as other core services reach full market penetration. We continue to focus on our product development and marketing strategies, and cross-regional leveraging as well as the use of experts to monitor product development in external markets.

Licences and regulation

The Group's ability to provide telecommunications services depends in most countries on government licences, telecommunications regulations and applicable laws in the markets in which it operates. Whilst we actively engage with governments and regulators in advance of the expiry of these licences and operating agreements, there is a risk that they are not renewed, or are renewed on terms that are not commercially viable. Additionally licences may be revoked due to default, to promote public interest or in some cases due to change of control. These risks could cause the relevant business to cease operating, severely restrict its operations or affect the Group's strategic options. Future technology changes may require our business units to obtain additional licences in order to provide new product offerings and there is a risk that the businesses do not succeed in obtaining these licences. More generally, future changes to laws, regulations, political rule or a significant deterioration in the Group's relationship with regulators or governments in the jurisdictions in which the Group operates may have a material adverse effect on the Group.

We manage these risks by actively engaging with governments and regulators to promote an open dialogue and a positive working relationship, particularly with respect to licence renewals and proposed regulatory changes. We also research and monitor emerging technologies and developments in the regulatory environments of our business units.

Technology

New technologies in mobile and fixed line may increase our rate and level of investment and bring new entrants or changes to the competitive landscape which may affect our profits or cash flow. Cable & Wireless Communications keeps new technology developments under constant review and introduces new technologies as appropriate for the market.

Many of our business strategies rely on mobile telecommunications technology. From time to time concerns are expressed that mobile phones and transmitters may pose long-term health risks. If these claims are proven, we could lose a strategic revenue stream or be exposed to litigation. We continue to keep abreast of research in this field.

Shared brand

The rights to the Cable & Wireless trade marks are shared between Cable & Wireless Communications Plc and Cable & Wireless Worldwide Plc, pursuant to the terms of trade mark licences which took effect upon demerger. Both Cable & Wireless Communications and Cable & Wireless Worldwide are subject to severe restrictions in using the Cable & Wireless trade marks outside of their own allocated territories, except in relation to their respective carrier businesses, and for certain incidental and grandfathered use. Therefore, to the extent that Cable & Wireless Communications has activities outside of its allocated territories which are not part of its carrier business, it must operate under trade marks other than the Cable & Wireless trade marks, which raises a potential risk of being unable to fully exploit and enhance the value of the Cable & Wireless brand in those regions. Furthermore, the shared use of the trade marks could cause confusion among customers and potential customers.

Counterparty

The Group and business units routinely enter into a range of significant customer and supplier contracts. In any agreement there are counterparty risks, for example, insolvency of the customer or supplier or the default in performance of their obligations, that could affect the profitability or cash flow of the business and/or its ability to perform. We manage these risks through robust procurement processes, good contract governance and regular review and management of our key customers and suppliers.

Litigation

As with most large organisations, there is a risk of litigation against business units within the Group. Panama and the Caribbean are especially litigious regions. Unfavourable rulings in any proceedings could significantly affect our financial performance and reputation. When facing litigation, we defend our position vigorously using appropriate legal advice and support.

Foreign exchange and tax changes

Given our geographical spread, we generate the vast majority of Group profits outside the UK. These profits and associated investments are exposed to exchange rate fluctuations and tax alterations, as a result of changes in legislation, management assessment or the geographical allocation of our income and expenses. These factors create a potential risk of adverse financial impact to the business units. Short-term exchange rate fluctuations are often off set naturally. We use foreign exchange hedging contracts and, where appropriate, we borrow locally (or in linked currencies) to match operating and financing cash flows. We also regularly monitor actual and proposed changes to tax legislation.

Service disruption

Our networks are critical to providing an effective service to our customers. Like other telecoms operators, our businesses depend on other network operators to provide network access and interconnect services for the origination, carriage and/or termination of some of their telecommunications services. Furthermore, our network and IT systems are vulnerable to interruption from natural disasters, fire, security breaches, terrorist action and human error. Network or IT failure could result in the loss of customers and in claims for loss of service. We continue to monitor and update our business continuity and disaster recovery plans, maintain crisis management and emergency response teams, insurance cover and employ network resilience to mitigate the effects of these risks.

Network and data security

Despite security management across the Group network, there is a risk that third parties may gain unauthorised access to the network and to sensitive data. The business has information security procedures and controls in place which are regularly reviewed and remedial action plans implemented where necessary.

Estimation techniques

When preparing the consolidated financial statements we make a number of estimates and assumptions relating to the reporting of our operating results and financial conditions. In particular, some accounting policies require subjective and complex judgements about the effect of matters that are often uncertain. We have outlined the Group's critical accounting policies in note 3 to the consolidated financial statements.

People

We are dependent on our employees for our continued success. Key employees may be difficult to replace. We cannot be certain that the Group's succession planning, retention policies and incentive plans will be successful in attracting and retaining the right calibre of key employees and management. New incentives have been introduced for key management and succession plans are being updated to mitigate this risk.

Joint ventures

Our joint ventures continue to deliver results for our business and this year they have contributed US$30 million to our profit. However, without management control, we are often unable to influence their performance or ensure that they do not underperform. Where possible we seek to gain management control. To manage the risk in the interim, we seek to have some operational involvement and engagement with local management as well as regular interaction with major stakeholders.

Pensions

Our defined benefit pension scheme, based in the UK, is well managed and measures have been taken to reduce financial risk exposures. However the value of the scheme's assets and liabilities are affected by market movements and we may also have to make additional contributions to the scheme if the scheme's assumptions change. We manage this risk by maintaining regular dialogue with the scheme Trustees who manage the scheme's assets with appropriate external advice.

DIRECTORS' RESPONSIBILITY STATEMENT

 

The following statement is extracted from page 59 of the Cable & Wireless Communications 2009/10 Annual Report and Accounts and is repeated here for the purposes of Disclosure and Transparency Rule 6.3.5 to comply with Disclosure and Transparency Rule 6.3. This statement relates solely to the Cable & Wireless Communications 2009/10 Annual Report and Accounts and is not connected to the extracted information set out in this announcement or the annual results announcement.

 

Directors' statement pursuant to the Disclosure and Transparency Rules

Each of the Directors, whose names and functions are listed on pages 36 to 37 of the Cable & Wireless Communications 2009/10 Annual Report and Accounts, confirm that, to the best of each person's knowledge and belief:

§ The financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group;

§ The financial statements, prepared in accordance with UK GAAP give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

§ The Annual Report includes a fair review of the development and performance of the business and the position of the Company and Group, together with a description of the principal risks and uncertainties that they face.

 

A list of current Directors is also maintained on the Cable & Wireless Communications Plc website: www.cwc.com

 

By order of the Board

 

 

 

Clare Underwood

Company Secretary

17 June 2010