8th Nov 2005 07:00
CABLE AND WIRELESS plc INTERIM RESULTS 8 NOVEMBER 2005 CABLE & WIRELESS NOW WELL POSITIONED FOR THE NEXT PHASE OF DEVELOPMENT Highlights * Group revenue of ‚£1,481 million - up by 1 percent over prior year at constant currency. * Operating profit before joint ventures, associates, exceptional items and excluding Bulldog, of ‚£136 million. Operating profit before joint ventures, associates, exceptional items, including Bulldog, of ‚£87 million. * Profit before tax and exceptional items from continuing operations, excluding Bulldog, of ‚£185 million. Profit before tax and exceptional items from continuing operations, including Bulldog of ‚£134 million. * Profit before tax of ‚£126 million. * National Telco revenue of ‚£595 million - up 11 percent against prior year at constant currency, driven primarily by mobile and broadband. * National Telco operating margins and free cash flow stable against prior year. * UK profitability adversely affected by shift to IP services from higher margin legacy products and shift in revenue mix to wholesale services. * Disposed of Spanish retail and Sakhalin fixed and mobile businesses and announced the disposal of the Group's stake in MobileOne for a total consideration of approximately ‚£75 million. * Announced acquisition of Energis for approximately ‚£630 million cash and up to ‚£80 million deferred consideration. Transaction approved by Office of Fair Trading ('OFT') on 25 October 2005. * Bulldog: Local Loop Unbundling ('LLU') completed in 408 exchanges. Plans in place to extend rollout to 800 exchanges by September 2006. Ofcom investigation into customer service issues closed. * Declared interim dividend of 1.40 pence per share, up 21 percent against prior year interim dividend. * Share repurchase programme resumed. This announcement contains forward-looking statements that involve inherentrisks and uncertainties. We have identified certain important factors that maycause actual results to differ materially from those contained in suchforward-looking statements. See those that appear, or are referred to, in thecautionary statement included at the beginning of the company's most recentAnnual Report filed on Form 20-F.RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005Total Group result - continuing operations - pre exceptionals* H1 2005/6 H1 2004/5 ‚£m ‚£m Revenue 1,481 1,469 Operating profit before joint ventures and associates 87 128 Total operating profit 114 153 Profit before tax 134 175 Profit after tax 114 143 Earnings per share before amortisation of acquired Intangibles 3.7 pence 4.9 pence Net cash 1,208 1,332 Cash capital expenditure 210 116 * Exceptional items comprise restructuring items, impairment charges and profiton disposal of non current assets. These items are considered significant by virtue of their size, nature or incidence.Total Group result - after exceptionals H1 2005/6 H1 2004/5 ‚£m ‚£m Revenue 1,481 1,469 - change from prior year at constant currency 1% N/A Operating profit before joint ventures and associates 68 131 - change from prior year at constant currency 31% N/A Total operating profit 95 156 Profit before tax 126 178 Profit after tax 106 146 Profit for the period 125 239 Basic earnings per share 4.0 pence 8.9 pence Diluted earnings per share 3.8 pence 8.3 pence Dividend per share 1.40 pence 1.16 pence The consolidated income statement, cash flow statement and balance sheet, drawn up in accordance with IFRS, from which this information is extracted, are set out in the attachments. Commenting on the performance of the Group, Cable & Wireless Chairman,Richard Lapthorne, said:"The company is continuing to manage its way through a series of steps tocreate a sustainable future both in its overseas business and in the changingUK environment. "In June 2003 I reported that, following the Chief Executive's strategicreview, the Board had agreed that the Group should withdraw from the US,improve operations in the UK business and build on our National Telcobusinesses. I said then that, on the basis of implementing those plans, ourexpectation was to create a business with a turnover of around ‚£3.5 billionproducing double digit operating margins. As a reminder, the results for theyear 2002/3 reported an operating loss from continuing businesses of ‚£6 billionon a turnover of ‚£4.2 billion."That same year, 2002/3, the UK business reported an operating loss of ‚£303million from a turnover of ‚£1.7 billion. Since then we have made considerableprogress both in designing and executing a strategy to create a sustainablecompetitive model for the UK business. "In the UK, the company's objective in the voice market is to continue tomaximise profitable revenue while retaining and developing relationships withcustomers as they migrate to IP-based telecommunications, and to continue toreduce costs in line with revenue declines and re-shape the organisation toreflect future requirements."Our model reflects the needs of our customers, the reality of the competitivelandscape and the need to seize the one-time technological opportunityavailable to us. It also reflects Ofcom's view that the UK is best served bycompetition at the deepest level of infrastructure. Thus, our model is builtaround three pillars: IP - through our next generation network ('NGN'); access- through our plan to unbundle 800 exchanges reaching half of the UK market;and scale - which has materially increased through the acquisition of Energis,which will further reduce the risk around the UK strategy. We are pleased thatclearance from the OFT has now removed any doubts that it would proceed. As aresult of the de-risking of the UK strategy we are now able to resume the sharebuy back programme. "We do not want to over promise but, from the visibility we have at the moment,we believe that what we are heading for in the UK, post NGN implementation, isa business that will be producing revenue somewhere over ‚£2 billion with anoperating margin in double digits. We see the improvement coming from acombination of the lower cost base that we are working on, together with therevenue generated from the new telecoms landscape, which we are now positioningour business to exploit."This is an early sight of where we are headed and it is our intention, overtime, both to report on progress in achieving this goal and to share ourmilestones with you as they are more clearly defined. The next step in thisprocess will be when the combined Cable & Wireless and Energis management teamshares the details of the integration plan with you in February."Our dividend continues to be underpinned by the satisfactory performance ofour overseas businesses. "Our Group strategy is supported by a number of solid initiatives which arealready being implemented. The path is clear, although the rapid rate ofchange in the UK may well lead to some short term volatility in reportedprofits, which could well be exacerbated by timing decisions and the detail ofthe Energis integration. Our medium term vision is clear. We will manage thebusiness with a view to delivering the value we believe can be achieved,accepting, in some cases, that this may have an impact on short-term reportedprofits. "Chief Executive, Francesco Caio, said: "The recent acceleration in the migration to IP services further confirms thestrategic direction we have set for the business. As we have made clear, ourstrategy is to establish a sustainable position as an infrastructure-basedcompetitor operating its own access network, building a strong customerfranchise, investing in IP, broadband and - in National Telcos - mobile topursue profitable growth in new services. We will focus predominantly onmarkets where we can be the number one or number two operator. In all ourmarkets therefore, we will continue to strengthen Cable & Wireless' competitiveposition by further reducing our cost base and accelerating investment in thegrowth services that meet customer demands. National Telcos"In the first half we delivered satisfactory results by executing against ourpriorities for the National Telco portfolio, namely to:Shift the revenue mix to new growth services by further investment inbroadband, IP and mobile;Reduce costs to protect margins and cash flow ; andDrive change and performance, especially in our sales and marketing response tocompetition."We achieved these results against a background of further liberalisation, withthe mobile markets in Antigua, St Kitts & Nevis and the Maldives all opening tocompetition in the period."Our initiatives to strengthen our mobile business, with the launch of newservices such as extended roaming and eTop-up, supported by networkimprovements and expansion, underpinned subscriber growth of 15 percent year onyear. We increased revenue by 26 percent year on year, through innovativeservice offerings, which build the subscriber base without detracting from thequality of that base. We continue to exploit the relatively low levels ofbroadband penetration in the National Telco markets, concentrating onincreasing speed and extending the offer to include VoIP, WiFi and ADSL2+."Cost reduction initiatives are being driven by the sharing of best practice,through the standardisation and monitoring of performance metrics, specificallyacross the operations architecture and supply chain, and are showing positiveresults. These will remain a key focus for the management team in the secondhalf of the year.Bulldog"Much of our focus in the first half was on improving the business operations -namely provisioning and customer care."Although connections accelerated in the period, we share the TelecomsAdjudicator's concerns over the BT provisioning process. After fourconsecutive months in which the Office of the Telecoms Adjudicator ( 'OTA ')reported provisioning problems that impacted negatively on the "right firsttime " metric, the process has begun to show improvements. We continue to workclosely with BT to secure ongoing progress. Our key objective with BTopenreach and the OTA is now to achieve improved lead times for theinstallation of new Bulldog lines."Following Bulldog's demonstration of the significant improvements achieved byrecruitment and upskilling of customer support, call centre expansion andimprovements to systems and processes, Ofcom was able to close itsinvestigation into customer service and billing processes relatively quickly on19 October."We now have 408 unbundled exchanges, covering 31 percent of UK households, andaround 55,000 subscribers. On 1 November we launched our "Open the Gate" TV,print and online advertising campaign to build brand awareness - this underpinsour drive in the second half to increase customer numbers and continue toimprove the customer experience. We intend to take advantage of the buoyancyof demand in this market and of the infrastructure we have built ahead ofcompetitors and are likely, therefore, to accelerate investment to supportBulldog's commercial plans.Energis transaction" The Office of Fair Trading has now cleared the transaction and we anticipatecompletion within the next few days. As reported by Energis today, theirbusiness performed well in the first half showing total revenue growth of 4percent compared with the same period last year , including Retail growth of 18percent , and an EBITDA figure of ‚£55 million for the six months to 30September 2005. "We will launch our integration of the two businesses on 14 November and wewill update the market on the progress of the integration and our plans for thecombined business in February 2006.UK"The migration to IP services further accelerated in the first half and, aheadof the full implementation of NGN, this has depressed operating margins."Our focus in Retail has been on retaining large accounts and increasing thepercentage of IP orders. We have been successful on both fronts, in many casessecuring multi-year contract renewals, with IP growing to 19 percent of Retailrevenues. There is however a short-term negative impact on top line revenue,as accelerating contract renewals and the migration to IP both providecatalysts for price renegotiation. As part of the acceleration in demand forIP, we have seen a significant reduction in revenue from Frame Relay services,with accounts migrating to IP-VPN and some churn in SME accounts. In additionthe second half of 2004/5 reflected non-recurrent revenues associated with thephasing of large Retail projects. "We are also in a poor economic phase in the migration given that we aredelivering new services, to a large extent, on a legacy cost base. At the sametime Carrier Services continued to drive volumes to fill spare capacity, albeitat lower margins."Cost initiative programmes, suspended ahead of the Energis transaction, havenow been resumed . Headcount was reduced by approximately 450 in September andthe benefit of this falls largely in the second half." We achieved good Retail order intake in the second quarter. In the contextof next generation networks we continue to review our operating model,withdrawing from those contracts we cannot serve profitably, optimising CarrierServices to maximise cash generation from legacy capacity and selectivelywithdrawing from low margin services that do not warrant the cost of migrationto NGN."Over the next three to four years these initiatives together with our existinginvestments in scale, broadband , local loop unbundling and IP will benefit allelements of the profit and loss account, as well as our cash returns. Theexpanded UK business will target the large corporate sector providing adifferentiated offer to this segment. While Bulldog will serve the SME andconsumer segments, the access network we have created through local loopunbundling has a pivotal role for the Retail business as a whole, enabling usto control end-to-end access and to retain an increasing share of the value ofevery contract as we reduce access payments to BT. We will also adopt a moreselective approach to Carrier Services as we migrate to an NGN environment. As NGN enables us to migrate from multi-layered legacy networks, we can reduceoperating costs by serving all customers from a single IP network platform and,with the completion of the NGN, we anticipate a more efficient deployment ofcapital investment in the network."Our objective in all of the markets where we operate is to build a profitable,sustainable infrastructure based business in the context of the telecomindustry moving from legacy to new services."In National Telcos, this means: investment in mobile and broadband, developingmarketing capabilities to gain and retain customers in a liberalised market andreducing costs to protect margins and cash flow."I n the UK we identified three key strategic priorities to build a sustainableposition and reduce our exposure to legacy services. They a re: a moreefficient all-IP network, a deeper access network and more scale to faceincreasing pressure on margins. W e have made significant progress in thisstrategy. W e have begun to deploy our NGN; completed the first phase of ouraccess network, giving us more than 30 percent coverage of the UK market. Andfinally, with the acquisition of Energis we can, through larger scale, de-riskour investment in NGN and access whilst pursuing material synergies."EXECUTIVE SUMMARYTrading overviewRevenue from continuing operations for the six months to 30 September 2005 was‚£1,481 million, a 1 percent increase at both reported rates and constantcurrency, compared with the prior year.This growth reflects a full six months contribution from Monaco Telecom andstrong performances in Panama, where revenue rose by 5 percent at constantcurrency, and Macau, where revenue grew by 15 percent at constant currency. Offsetting these strong performances, UK revenue fell by 5 percent.Total operating profit before exceptional items from continuing operations forthe six months to 30 September 2005 was ‚£114 million, a decline of ‚£39 millionover the prior year, reflecting a 25 percent decline at reported rates and a 31percent decline at constant currency. The main driver of the decline wasincreased Bulldog losses, reflecting the Group's continuing investment in itslocal loop unbundling and broadband strategy. As indicated in the Group'strading statement of 7 October 2005, operating profit from the UK reducedlargely as a result of a shift in revenue mix from Retail to lower marginCarrier Services.Profit before tax and exceptional items from continuing operations was ‚£134million for the six months to 30 September 2005 compared with ‚£175 million inthe prior year, a decline of 23 percent at reported rates.Acquisitions and DisposalsOn 8 April 2005, Cable & Wireless announced the completion of the disposal ofits Spanish retail business for Euro 7 million. The consolidated financialstatements for the six months ended 30 September 2005 recognise a profit ondisposal of ‚£4 million relating to this transaction. On 13 July 2005, Cable & Wireless announced the completion of the sale of itsSakhalin fixed and mobile businesses for a consideration, inclusive of therepayment of a loan from Cable & Wireless of US$2.2 million, of US$44 million(‚£25 million at the exchange rate on 12 July 2005). The consideration,excluding loan repayment, was paid in cash on completion. The loan from Cable& Wireless was repaid on 12 September 2005. The consolidated financialstatements for the six months ended 30 September 2005 recognise a profit ondisposal of ‚£13 million relating to this transaction.On 16 August 2005, Cable & Wireless announced that it had reached agreement toacquire the entire issued share capital of Chelys Limited ('Energis') on a debtand cash free basis, save for Energis' finance lease obligations ofapproximately ‚£37 million, for an initial cash consideration of ‚£594 million. On completion, Cable & Wireless will inject approximately ‚£35 million in cash,which is expected to be recovered within the first year after completion, tomeet Energis' short-term working capital requirements. In the third yearfollowing completion, Cable & Wireless has agreed to pay a contingentconsideration of between zero and ‚£80 million, payable in cash or shares atCable & Wireless' option, dependent on the level of Cable & Wireless' shareprice. The Office of Fair Trading cleared the acquisition on 25 October 2005. Completion is now expected to take place on or around 11 November 2005.On 17 August 2005, Cable & Wireless announced that its joint venture, GreatEastern Telecommunications Limited ('GET'), had signed a conditional agreementfor the sale of its entire shareholding in MobileOne Limited ('M1'),representing approximately 12.1 percent of the issued and paid up capital of M1(GET is a joint venture between Cable & Wireless (51 percent) and PCCW Limited(49 percent). The sale was completed on 28 October 2005. The considerationpaid on completion was S$2.20 per share, S$260.8 million in total (‚£86.6million at the closing exchange rate on 27 October 2005) of which Cable &Wireless received ‚£44.2 million through its 51 percent holding in GET.RegulatoryTelecoms Strategic Review:The UK communications regulator, Ofcom, concluded its Strategic Review of thetelecoms sector in September 2005. Ofcom's stated objective is to seek topromote competition at the deepest level of infrastructure where it iseffective and sustainable to do so.In pursuit of this aim, Ofcom has accepted a set of more than 230 undertakingsfrom BT in lieu of a reference to the Competition Commission. At the heart ofthe undertakings lies the principle of "equivalence". Going forward, a neworganisational unit will be created encompassing all of BT's local accessservices infrastructure. The new unit, called openreach, will be required toprovide access products and services to all players, including BT Retail, on anequal and arm's-length basis - from price and functionality to lead times andservice quality. It is anticipated that the advent of openreach and theimplementation of the concept of equivalence will neutralise BT's historicability to leverage its unique position as both a monopoly infrastructure ownerand competitive retailer, and thereby improve other market participants'ability to compete on an equal basis.Local loop Unbundling ('LLU'):Ofcom has continued to focus on LLU in achieving more effective competition inthe UK market. The OTA has more recently voiced its disappointment at BT'spoor performance and slow progress in delivering the stable automated systemson which LLU operators rely. During 2005, Ofcom carried out a detailed assessment of the costs and chargesfor BT's access network. Ofcom has already published the results of the costof copper and cost of capital reviews, which fed into the consultation on newcharge ceilings for fully unbundled local loop rentals. We expect Ofcom toissue a final statement during November 2005 confirming the price ceiling,which will provide increased certainty over these costs for BulldogCommunications ('Bulldog').Bulldog Ofcom Investigation:On 19 October 2005, Ofcom announced that it had closed its investigation intoBulldog's customer service and billing processes. The investigation waslaunched following a rise in complaints made to Ofcom by customers over thesummer.Bulldog has committed to certain customer compensation measures and willcontinue to report to Ofcom on its ongoing performance improvements over thenext few months.Discontinued operationsDiscontinued operations in the six months to 30 September 2005 represent thepost tax results of the Spanish retail and Sakhalin fixed and mobile businessesprior to their sale and the gains on their disposal. Discontinued operationsin the six months to 30 September 2004 represent the post tax results of theGroup's Japanese business ('C&W IDC'), Spanish retail and Sakhalin fixed andmobile businesses for the period and credits associated with the exit of the USdomestic business in the prior year. C&W IDC, the Japanese business, wasdisposed of in the second half of 2004/5 and the gain on sale recognised atthat time.Exceptional itemsIn the six months to 30 September 2005 the Group recognised a net exceptionalcharge of ‚£8 million in continuing operations. The main items reflectedongoing restructuring in the UK and corporate, and costs related to HurricaneIvan offset by a gain of ‚£11 million on the disposal of non-current assets. The Group also recognised an exceptional gain of ‚£17 million from discontinuedoperations related to the sale of the Spanish retail and the Sakhalin fixed andmobile businesses.In the six months to 30 September 2004 the Group recognised a net exceptionalcredit of ‚£86 million comprising an exceptional net credit in continuingoperations of ‚£3 million, and an exceptional credit of ‚£83 million indiscontinued operations relating to the US domestic operations that werediscontinued in the year ended 31 March 2004 and the sale of certaininvestments by C&W IDC.A detailed analysis of exceptional items is given on pages 12 and 13 of thisdocument.Cash and funding 30 September 2005 1 April 2005 31 March 2005 ‚£m ‚£m ‚£m Cash and short-term 1,980 2,101 2,101 investments Long term debt (611) (741) (801) Current debt (161) (23) (23) Total debt (772) (764) (824) Net cash 1,208 1,337 1,277 The Group adopted IAS 32 and IAS 39 on 1 April 2005. The table above sets outthe gross and net cash position before and after adoption together with theposition at 30 September 2005. The impact of the adoption is set out in detailin the reconciliations available on the Group's website www.cw.com and resultedin a reduction in long term debt by ‚£60 million, replacing it with a derivativeinstrument representing the conversion option of the ‚£258 million ConvertibleBond 2010. Due to a change in the terms of the bond during the six months to30 September 2005, the conversion option derivative was reclassified to equity.Of the net cash balance at 30 September 2005, ‚£1,066 million is held by Cableand Wireless plc. Of the remainder held by subsidiaries, ‚£119 million isattributable to the Group and ‚£23 million to minority interests.Cash and short-term investments include ‚£51 million (31 March 2005: ‚£80million) of Credit Linked Notes referenced to the Group's 2012 ‚£200 millionbond (which have a similar economic effect to repurchasing the bonds for theperiod of the investment), ‚£42 million held as collateral against bankguarantees and ‚£29 million held by the Group's insurance subsidiary, PenderInsurance Limited, against potential claim settlements, which, as a result, isnot readily available for the general purposes of the Group.DividendThe Board has declared an interim dividend of 1.40 pence per share in respectof the current financial year to 31 March 2006, an increase of 21 percentcompared with last year's equivalent of 1.16 pence per share. The interimdividend will be paid on 27 January 2006 to Ordinary shareholders on theregister as at 18 November 2005 and will be paid on 3 February 2006 to AmericanDepositary Receipt holders on the register as at 18 November 2005.The scrip dividend scheme will be offered in respect of the interim dividend. Those shareholders who have already elected to join the scheme need do nothingsince the interim dividend will be automatically applied to the scheme.Shareholders wishing to join the scheme for the interim dividend (and allfuture dividends) should return a completed mandate form to: Lloyds TSBRegistrars, The Causeway, Worthing, West Sussex, BN99 2DZ by 29 December 2005. Copies of the mandate form, and the scrip dividend brochure, can be obtainedfrom Lloyds TSB Registrars (UK callers: 0870 600 3975, overseas callers: +441903 502 541) or from the Company's website www.cw.com.Return of capitalOn 10 November 2004, Cable & Wireless announced a ‚£250 million share repurchaseprogramme. This programme was put in place to facilitate management of theGroup balance sheet and as a result of the better than anticipated outcome of anumber of divestments.At 31 March 2005, Cable & Wireless had completed ‚£75 million of its ‚£250million share repurchase programme. On 16 August 2005, Cable & Wirelessannounced the proposed acquisition of Energis and suspended the programme. During the six months to 30 September 2005 no share repurchases were made.The share repurchase programme will now be resumed.FINANCIAL RESULTSGroup income statementThe results and commentary that follow focus on the Group and divisionalbusinesses within the Group. The Group results presented below should be readin conjunction with the Group's consolidated income statement, balance sheetand cash flow statements and related notes on pages 35 to 41. Six months ended 30 September Six months ended 31 March 2005 Six months ended 30 September 2005 2004 Pre Exceptional Total Pre Exceptional Total Pre Exceptional Total * * exceptional * exceptional ‚£m exceptional ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operations Revenue 1,481 - 1,481 1,479 - 1,479 1,469 - 1,469 Outpayments and network costs (835) (3) (838) (810) (65) (875) (821) - (821) Staff costs (266) (12) (278) (266) (70) (336) (261) - (261) Other costs (179) (4) (183) (203) (20) (223) (163) 12 (151) Depreciation (98) - (98) (82) 1 (81) (88) (9) (97) Amortisation of software licences (13) - (13) (9) - (9) (6) - (6) Operating profit / (loss) before amortisation of acquired intangibles 90 (19) 71 109 (154) (45) 130 3 133 Amortisation of acquired intangibles (3) - (3) (3) - (3) (2) - (2) Share of profit of associates and joint ventures 27 - 27 23 - 23 25 - 25 Total operating profit 114 (19) 95 129 (154) (25) 153 3 156 Gains and losses on sale of non -current assets 2 11 13 5 (8) (3) - - - Interest income 49 - 49 52 - 52 50 - 50 Other income 4 - 4 - - - 5 - 5 Interest expense (35) - (35) (35) - (35) (33) - (33) Profit before tax 134 (8) 126 151 (162) (11) 175 3 178 Tax (expense)/ credit (20) - (20) (32) 89 57 (32) - (32) Profit / (loss) for the period from continuing operations 114 (8) 106 119 (73) 46 143 3 146 Discontinued operations Profit for the period from discontinued operations 2 17 19 12 57 69 10 83 93 Profit / (loss) for the period 116 9 125 131 (16) 115 153 86 239 Attributable to: Equity holders of the Company 83 9 92 100 (13) 87 121 86 207 Minority interests 33 - 33 31 (3) 28 32 - 32 Profit / (loss) for 131 (16) 115 153 86 239 the period 116 9 125 Earnings per share attributable to the equity holders of the Company during the period (p/share) - basic 4.0p 3.8p 8.9p - diluted 3.8p 3.7p 8.3p Earnings per share from continuing operations attributable to the equity holders of the Company during the period (p/share) - basic 3.2p 0.8p 4.9p - diluted 3.1p 0.8p 4.7p Earnings per share from discontinued operations a attributable to equity holders of the Company during the period (p/share) - basic 0.8p 3.0p 4.0p - diluted 0.7p 2.9p 3.6p * Exceptional items comprise restructuring items, impairment charges and profiton disposal of non current assets. These items, which are set out on pages 13and 14, were considered significant by virtue of their size, nature or incidence.The trading overview on page 6 provides additional commentary on the Group'sperformance.Continuing operationsThe Group recorded a total operating profit of ‚£95 million for the six monthsto 30 September 2005, after taking account of exceptional operating costs of ‚£19 million, comprising costs associated with the ongoing restructuring of theUK business and Corporate functions and the impact of Hurricane Ivan. Theexceptional gain on the sale of non-current assets relates to the disposal ofthe Group's former training centre property. Interest income and expenseremained broadly flat compared with the six months to 30 September 2004. Otherincome represents dividend income from trade investments.Discontinued operationsProfit for the period from discontinued operations of ‚£19 million includes ‚£17million from the disposal of the Group's Spanish retail business and theSakhalin fixed and mobile businesses.Exceptional itemsIn the six months ended 30 September 2005 the Group recognised a ‚£9 million netgain in respect of exceptional items, of which a charge of ‚£8 million relatedto continuing operations and a ‚£17 million gain related to discontinuedoperations.The analysis of the continuing exceptional charge of ‚£8 million is set out inthe table below. H2 H1 2004/ H1 Continuing operations 2005/6 5 2004/5 ‚£m ‚£m ‚£m Operating items UK restructuring (9) (67) (1) Europe restructuring - (39) - Corporate restructuring (4) (31) - Asia restructuring - 1 (2) National Telcos restructuring - (2) (2) - Hurricane Ivan (4) (17) - Release of onerous contract provisions - - 15 Depreciation - 1 (9) Operating costs (19) (154) 3 Non-operating items Profit on disposal of non -current assets 11 7 - (Losses) on sale and termination of operations - (15) - Non-operating items 11 (8) - Total exceptional items from continuing operations before tax (8) (162) 3 Tax provision release - 85 - Tax on exceptional items - 4 - Total exceptional items from continuing operations after tax (8) (73) 3 Within the ‚£19 million exceptional operating items, restructuring in the UK hasresulted in a ‚£9 million charge principally for staff-related costs. Costsassociated with the corporate restructuring totalled ‚£4 million, including ‚£3million of staff-related costs and ‚£1 million of property-related costs. Theimpact of Hurricane Ivan in the Caribbean resulted in exceptional operatingcosts of ‚£4 million relating mainly to network restoration.The sale of the Group's former training facility gave rise to an ‚£11 milliongain.Discontinued operationsThe analysis of the discontinued exceptional gain of ‚£17 million is set out inthe table below. H1 H2 H1 2005/6 2004/5 2004/5 ‚£m ‚£m ‚£m Non-operating items Gains on sale and termination of operations 17 57 67 Profits on disposal of fixed assets - - 16 Total exceptional items from discontinued 57 Operations 17 83 Exceptional items within discontinued operations relate to the gain on thedisposal of the Group's Spanish retail and Sakhalin fixed and mobilebusinesses.Refer to page 9 of this document for an explanation of these items.Group cash flow H1 H2 H1 2005/6 2004/5 2004/5 ‚£m ‚£m ‚£m Profit for the period 125 115 239 Depreciation and amortisation 114 97 102 Changes in working capital (24) (64) (54) Movement on provisions (54) 145 (31) Other non-cash items (49) (148) (94) Cash inflow from operating activities 112 145 162 Dividends paid and received, returns on investments and servicing of finance (46) (19) (49) Taxation paid (27) (42) (18) Capital expenditure in continuing businesses (210) (205) (116) Proceeds from disposal of investments 2 52 16 Disposal and (acquisitions) of non-current assets 44 80 (61) Net cash (outflow)/ inflow before financing* (125) 11 (66) Gross cash and short-term investments 1,980 2,101 2,183 Net cash 1,208 1,277 1,332 *Net cash inflow before financing includes cash outflows in respect ofexceptional items of ‚£70 million (H2 2004/5: ‚£88 million; H1 2004/5: ‚£48million).Operating activities produced ‚£112 million of cash flow in the six months to 30September 2005, which is a decrease of ‚£50 million compared with the six months30 September 2004.Tax paid of ‚£27 million in the six months to 30 September 2005 primarilyrelates to the National Telcos. Cash capital expenditure of ‚£210 million in the six months to 30 September 2005was ‚£94 million higher than the six months to 30 September 2004. The increasereflects investment in customer service delivery, including NGN build and LLUin the UK and further investment in GSM and broadband network infrastructure inthe National Telcos.The disposal and acquisition of non-current assets resulted in cash flow of ‚£44million for the six months to 30 September 2005, primarily from the disposal ofthe Group's former training centre and the Spanish retail and Sakhalin fixedmobile and businesses.Cable & Wireless Performance Analysis Continuing Operations National Telcos UK CWAO2 Europe Asia Bulldog Caribbean Panama Macau Monaco Rest of Total Other H1 the World3 National 2005/6 Telcos ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 768 9 98 13 12 279 134 65 65 52 595 (14) 1,481 Outpayments and network costs (515) (5) (77) (5) (24) (90) (51) (30) (38) (14) (223) 14 (835) Staff costs (130) (2) (10) (4) (15) (44) (12) (5) (8) (11) (80) (25) (266) Other costs (63) - (11) (2) (17) (50) (21) (4) (4) (6) (85) (1) (179) Total operating costs1 (708) (7) (98) (11) (56) (184) (84) (39) (50) (31) (388) (12) (1,280) Depreciation and software amortisation (41) - - (1) (5) (30) (16) (8) (3) (5) (62) (2) (111) Operating profit/(loss) before exceptional items and amortisation 19 2 - 1 (49) 65 34 18 12 16 145 (28) 90 Amortisation of acquired intangibles - - - - - - - - (3) - (3) - (3) Joint ventures and associates (2) - - - - 6 - - 3 20 29 - 27 Total operating profit/(loss) before exceptional items 17 2 - 1 (49) 71 34 18 12 36 171 (28) 114 Excluding depreciation, amortisation and exceptional items.2 Cable & Wireless Americas Operations Inc ('CWAO') provides data and IPsolutions to international Retail and Carrier Services customers with servicerequirements to, from and with the United States.3 Rest of the World comprises the results of the Group's operations in theAtlantic, Pacific and Indian Oceans, the Middle East and Channel Islands. The divisional information in the above table reflects the managementstructure of the organisation during the six months to 30 September 2005.United Kingdom Change as reported* Change as H1 H2 H1 * reported** 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % Carrier Services 392 353 380 11 % 3% Retail 376 439 430 (14)% (13)% Total revenue 768 792 810 (3)% (5)% Outpayments and network costs (515) (512) (554) (1)% 7% Staff costs (130) (129) (122) (1)% (7)% Other costs (63) (75) (63) 16% - Total operating costs* (708) (716) (739) 1% 4% Depreciation and software amortisation (41) (30) (30) (37)% (37)% Operating profit before exceptional items and associates 19 46 41 (59)% (54)% Joint ventures & associates (2) (6) (2) 67% - Operating profit before exceptional items 17 40 39 (58)% (56)% Headcount (number) 4,036 4,499 4,410 (10)% (8)% Cash capex 93 91 47 (2)% (98)% Free cash flow*** (33) (15) 24 (100+)% (100+)% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.Total revenue for the six months to 30 September 2005 was ‚£768 million, adecline of 5 percent against the prior year and 3 percent against H2 2004/5. Retail revenue was ‚£376 million, showing a decline of 13 percent against theprior year and 14 percent against H2 2004/5. Market conditions in this sectorof the UK market have remained challenging, as the growth in demand for IPservices and continued competition has increased downward pressure on legacyproduct prices, particularly among larger clients, while driving customer churnamong smaller customers. In addition, in H1 2005/6 there was significantlylower large project revenue than in either half of 2004/5.Carrier Services revenue of ‚£392 million increased by 3 percent against theprior year and 11 percent against H2 2004/5, due to growth in call volumes ininternational voice and mobile transit, the result of competitive pricingstrategy in this area, effectively offsetting the negative effect of thereduction in mobile termination rates seen in H2 2004/5. Outpayments and network costs were ‚£515 million, a decrease of 7 percentagainst prior year and relatively flat against H2 2004/5. This reflects theimpact of savings achieved through initiatives to reduce the network cost base,offset by the rise in volume-driven Carrier Services costs. To the extent thatRetail revenues fell as a result of price degradation there was no reduction inoutpayments and network costs.Staff costs were ‚£130 million, an increase of 7 percent against the prior yearbut relatively flat against H2 2004/5. The increase over the prior yearprimarily reflects the transfer of costs relating to 146 Group IT stafftransferred into the UK's operating cost base in H2 2004/5. Headcount declinedby 463 mostly during September 2005 and the full impact of these savings willbe seen in H2 2005/6.Other costs decreased by 16 percent reflecting ongoing restructuring in UK.Depreciation and software amortisation was ‚£41 million, an increase of 37percent against both the prior year and H2 2004/5, reflecting the increase inthe level of capital expenditure since the prior year.Total operating profit before exceptional items for the period was ‚£17 millionreflecting the chang e in revenue mix towards lower margin Carrier Services,the decline in gross margins in both the Retail and Carrier Service segmentsand the phasing of cost savings towards the end of H1 2005/6.Cash capital expenditure remained in line with H2 2004/5, at ‚£93 million, andpredominantly related to customer contracts along with ongoing investment inthe NGN, which commenced H1 2005/6.United States - Cable & Wireless Americas Operations, Inc. ('CWAO')+ Change as Change as H1 H2 H1 **reported **reported cc growth1 cc growth1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % Carrier Services 3 4 3 (25)% - (26)% 1 % Retail 6 5 4 20% 50% 18% 52% Total revenue 9 9 7 - 29% (2)% 30% Outpayments and network costs (5) (7) (7) 29% 29% 30% 28% Staff costs (2) (2) (2) - - 2% (1)% Other costs - (1) (2) 100% 100% 100% 100% Total operating costs* (7) (10) (11) 30% 36% 32% 36% Operating profit /(loss) before exceptional items 2 (1) (4) 100+% 100+% 100+% 100+% Headcount (number) 38 41 49 (7)% (22)% - - Cash capex - - - - - - - Free cash flow*** 2 (1) (4) 100+% 100+% 100+% 100+% * Excluding depreciation, amortisation and exceptional items.** Positive percentage represents improvement.*** Free cash flow is revenue less total operating costs less cash capitalexpenditure.+ Cable & Wireless Americas Operations Inc ('CWAO') provides data and IPsolutions to international Retail and Carrier Services customers with service requirements to, from and with the United States.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Revenue for the six months to 30 September 2005 was ‚£9 million, a 30 percentincrease against the prior year and a 2 percent decline against H2 2004/5 atconstant currency.Retail revenue increased by 52 percent against the prior year and 18 percentagainst H2 2004/5 at constant currency. Growth was driven by new services,especially into Asia, and the completion of the successful migration of bothbilling and services from the former Cable & Wireless US network (now owned bySavvis Communications). Carrier Services revenue increased 1 percent against the prior year butdecreased 26 percent against H2 2004/5. This performance reflects the declinein services provided to Savvis, which finally reached levels commensurate witha full third party relationship, partially offset by the continued growth insales to other US carriers.Outpayments and network costs declined by 28 percent against the prior year andby 30 percent against H2 2004/5 on a constant currency basis following supplierre-pricing, especially in network bandwidth and IP capacity. In addition, inH2 2004/5 two new network sites were opened in Chicago and Houston, whichreduced the costs of customer access while making the US network moreattractive to customers.Total operating profit before exceptional items for the period was ‚£2 million.Free cash flow of ‚£2 million reflected the improved trading position and thelow capital expenditure required to maintain the US network. This low level ofcapital expenditure has been achieved by closely matching expenditures tocustomer requirements and through the re-deployment of existing assets fromwithin the Cable & Wireless Network. Europe Change Change as as reported reported H1 H2 H1 ** ** cc growth1 cc growth1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % Carrier Services 89 77 78 16% 14% 17% 12% Retail 9 10 13 (10)% (31)% (9)% (32)% Total revenue 98 87 91 13% 8% 14% 5% Outpayments and network costs (77) (68) (71) (13)% (8)% (14)% (6)% Staff costs (10) (15) (14) 33% 29% 33% 30% Other costs (11) (10) (13) (10)% 15% (12)% 17% Total operating costs* (98) (93) (98) (5)% - (6)% 2% Total operating (loss) before exceptional items - (6) (7) 100% 100% 100% 100% Headcount (number) 233 388 489 (40)% (52)% Cash capex 1 1 1 - - (2)% 2% Free cash flow*** (1) (7) (8) 86% 88% 86% 88% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Excludes results from Spanish retail business sold in April 05 and includedunder Discontinued Operations.Revenue for the six months to 30 September 2005 was ‚£98 million, an increase of5 percent against the prior year and 14 percent against H2 2004/5 at constantcurrency, with growth in Carrier Services more than offsetting the decline inRetail.The strategy for Europe continues to be focused on Carrier Services, and theprovision of voice, IP and data services to UK-based Retail customers. Retail revenue was ‚£9 million, a decline of 32 percent against the prior yearand 9 percent against H2 2004/5 at constant currency, mainly due to tarifferosion and strong competition within the sector.Carrier Services revenue was ‚£89 million, an increase of 12 percent against theprior year and 17 percent against H2 2004/5 at constant currency. The steadygrowth in revenue throughout the year was primarily driven by increasedinternational voice volumes.Outpayments and network costs increased by 6 percent against the prior year and14 percent against H2 2004/5 at constant currency, largely driven by theincreased volume of Carrier Services revenue, mitigated in part by reductionsin the network cost base as a result of restructuring initiatives.Staff costs declined by 30 percent against the prior year and 33 percentagainst H2 2004/5 at constant currency. Europe headcount reduced by 155 in thesix-month period to 30 September 2005, in line with cost reduction initiativesannounced in November 2004. Europe broke even at the level of total operating profit before exceptionalitems for the six months ended 30 September 2005, compared with an operatingloss before exceptional items of ‚£6 million in H2 2004/5.Cash capital expenditure was negligible, reflecting the reduced scale ofoperations in Europe.Asia Change Change as as reported reported H1 H2 H1 ** ** cc growth 1 cc growth 1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % Carrier Services 3 4 1 (25)% 100+% (26)% 100+% Retail 10 17 17 (41)% (41)% (42)% (41)% Total revenue 13 21 18 (38)% (28)% (39)% (27)% Outpayments and network costs (5) (10) (9) 50% 44% 51% 44% Staff costs (4) (4) (3) - (33)% 2% (35)% Other costs (2) (1) (6) (100)% 67% (81)% 66% Total operating costs* (11) (15) (18) 27% 39% 29% 38% Depreciation and software amortisation (1) (1) - - - 1% - Total operating profit before exceptional items 1 5 - (80)% - (80)% - Headcount (number) 261 221 213 18% 23 Cash capex 1 1 1 - - 2% (2)% Free cash flow*** 1 5 (1) (80)% 100+% (80)% 100+% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Following its disposal of Cable & Wireless IDC Inc., (the Group's formerJapanese subsidiary) in February 2005, Cable & Wireless has refocused itsbusiness in Asia on serving large Retail customers that require IP and manageddata services to and from Asia, and Carrier Services customers.Revenue for the six months to 30 September 2005 was ‚£13 million, a decrease of27 percent against the prior year and a decrease of 39 percent against H2 2004/5 at constant currency. Revenue in Asia now reflects only A-end (or near end)revenue generated in the Asia region. A-end revenues have grown 27 percentagainst the prior year and are flat against H2 2004/5 at constant currency.Outpayments and network costs now reflect only A-end costs and show a declineof 44 percent against the prior year and 51 percent against H2 2004/5 atconstant currency.The increase in headcount reflects the conversion of contract staff based inIndia to direct employees to improve employee retention. This has no impact onstaff costs, which were flat against H2 2004/5.Total operating profit before exceptional items for the period was ‚£1 million.Bulldog Change as H1 H2 H1 reported** 2005/6 2004/5 2004/5 H1 v H2 ‚£m ‚£m ‚£m % Total revenue 12 7 4 71% Outpayments and network costs (24) (9) (4) (100+)% Staff costs (15) (9) (3) (67)% Other costs (17) (13) (1) (31)% Total operating costs* (56) (31) (8) (81)% Depreciation and software amortisation (5) (2) - (100+)% Total operating (loss) before exceptional items (49) (26) (4) (88)% Headcount (number)*** 813 505 190 61% Cash capex 32 23 4 (39)% Free cash flow**** (76) (47) (8) (62)% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Includes 250 contractors as at 30 September 2005.****Free cash flow is revenue less total operating costs less cash capitalexpenditure.Bulldog commentary focuses on performance relative to the prior six months (H22004/5), reflecting a comparable accounting period and the development of astart-up business.Revenue for the six months to 30 September 2005 was ‚£12 million, an increase of71 percent against H2 2004/5. Revenue growth was driven by increasedsubscriber numbers, which reflected strong demand for the 8Mbps broadband andunlimited national and local phone calls product sets. However, marketingactivity was deferred in the period pending completion of the Ofcominvestigation , which closed on 19 October 2005.Outpayments and network costs were ‚£24 million, an increase of over 100 percentagainst H2 2004/5, reflecting the completion of the initial rollout to 408exchanges in the period. Outpayments include payments to Cable & Wireless UKfor the use of its voice and backbone network. Staff costs were ‚£15 million, an increase of 67 percent against 2004/5,reflecting the recruitment of an additional 308 staff during the period mainlyto improve customer service levels.Other costs were ‚£17 million, an increase of 31 percent against H2 2004/5. Theprimary contributor to the increased cost base was the investment in customercare and back office processes.The depreciation charge of ‚£5 million reflects the capital investment beingmade in the expansion of Bulldog's local loop unbundled network and associatedsystems.Cash capital expenditure of ‚£32 million in H1 2005/6 reflects the continuingbuild out of the broadband network infrastructure. This investment was drivenby unbundling local exchanges (408 unbundled exchanges at 30 September 2005compared with 252 unbundled exchanges at 31 March 2005), and continuedinvestment in billing, provisioning and customer care systems.National Telcos cc cc Change as Change as growth growth H1 H2 H1 reported** reported** 1 1 H1 v H1 v 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H2 H1 ‚£m ‚£m ‚£m % % % % International voice 96 93 112 3% (14)% 1% (13)% Domestic voice 169 164 174 3% (3)% 1% (1)% Mobile 174 164 138 6% 26% 4% 28% Data & IP 82 75 73 9% 12% 7% 14% Other 74 86 45 (14)% 64% (15)% 65% Total revenue 595 582 542 2% 10% - 11% Outpayments and network costs (223) (219) (182) (2)% (23)% - (24)% Staff costs (80) (82) (76) 2% (5)% 4% (7)% Other costs (85) (90) (88) 6% 3% 7% 2% Total operating costs * (388) (391) (346) 1% (12)% 2% (14)% Depreciation and software amortisation (62) (60) (61) (3)% (2)% (1)% (3)% Operating profit before exceptional items, amortisation and associates 145 131 135 11% 7% 9% 9% Amortisation (3) (3) (2) - (50)% - (48)% Joint ventures and associates 29 29 27 - 7% (2)% 9% Total operating profit before exceptional Items 171 157 160 9% 7% 7% 8% Headcount (number) 8,185 8,077 7,977 1% 3% Cash capex 78 87 63 10% (24)% 12% (26)% Free cash flow*** 129 104 133 24% 3% 21% (2)% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.The performance of the individual business units that comprise National Telcosare discussed on pages 24 to 31.Caribbean Change Change as as reported reported H1 H2 H1 ** ** cc growth 1 cc growth 1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % International voice 55 54 69 2% (20)% (1)% (19)% Domestic voice 91 84 94 8% (3)% 6% (1)% Mobile 75 73 63 3% 19% 1% 21% Data & IP 38 35 36 9% 6% 6% 7% Other 20 28 14 (29)% 43% (30)% 46% Total revenue 279 274 276 2% 1% - 3% Outpayments and network costs (90) (94) (89) 4% (1)% 6% (3)% Staff costs (44) (47) (41) 6% (7)% 8% (9)% Other costs (50) (58) (55) 14% 9% 15% 8% Total operating costs* (184) (199) (185) 8% 1% 9% (1)% Depreciation and software amortisation (30) (27) (31) (11)% 3% (8)% 2% Operating profit before exceptional items and associates 65 48 60 35% 8% 32% 10% Joint ventures and associates 6 5 9 20% (33)% 16% (33)% Total operating profit before exceptional items 71 53 69 34% 3% 30% 5% Headcount (number) 4,243 4,147 3,990 2% 6% Cash capex 44 44 42 - (5)% 2% (7)% Free cash flow** * 51 31 49 65% 4% 59% 6% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Revenue for the six months to 30 September 2005 was ‚£279 million, an increaseof 3 percent against the prior year and flat against H2 2004/5 at constantcurrency.International voice revenue declined by 19 percent against the prior year andby 1 percent against H2 2004/5 at constant currency due to ongoing pressure oninternational rates across the region, particularly in Barbados where theinternational business was opened up to competition in February 2005. Inaddition, international revenue from Jamaica declined year on year as a resultof the regulatory reductions to international settlement rates implemented inJune 2004.Domestic voice revenue decreased by 1 percent against the prior year butincreased by 6 percent against H2 2004/5, reflecting the benefit of domesticrate rebalancing and increased interconnect revenues, offset in part by loweraverage usage due to fixed to mobile substitution. Fixed line connections at30 September 2005 were 693,000 compared with 735,000 at 31 March 2005.Mobile revenue increased by 21 percent against the prior year and was stableagainst H2 2004/5 at constant currency. The increase in revenue against theprior year was primarily driven by increased customer numbers and increases ininternational and roaming revenues. H1 2005/6 was flat at constant currencyagainst H2 2004/5 due to pricing pressures experienced across the mobilebusiness offset by continued growth in subscriber numbers. GSM services are now available in all 12 Caribbean islands where the companyoffers mobile services. The number of Blackberry users continues to grow andthe percentage of customers operating on the GSM platform continues to increaseas customers are migrated from the TDMA platforms across the region. Cable &Wireless continues to enhance its GSM mobile network coverage, capacity androaming capabilities, as well as introducing new services such as e-Top up andGeneral Packet Radio Service ('GPRS').Data & IP revenue increased by 7 percent against the prior year and by 6percent against H2 2004/5 at constant currency, driven by increased broadbandcustomer numbers.Staff costs increased by 9 percent against the prior year but decreased by 8percent against H2 2004/5 at constant currency, due to restructuring costs inBarbados in H2 2004/5. Headcount increased to 4,243 at the end of the periodas a result of outsourced services brought back in house to improve efficiencyas well as extra staff to increase telesales capability in broadband services. The increase in staff costs from the prior year reflects a revaluation of localpension funds leading to an increase in pension contributions as well as areduction in own work capitalised.Other costs decreased by 8 percent against the prior year and by 15 percentagainst H2 2004/5 at constant currency, principally reflecting reductions incorporate administration costs, information technology costs and improvedmanagement of bad debts.Total operating profit before exceptional items was ‚£71 million, an increase of5 percent against the prior year and 30 percent against H2 2004/5 at constantcurrency.Panama Change as Change as reported H1 H2 H1 reported** ** cc growth 1 cc growth 1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % International voice 9 9 9 - - 2% (2)% Domestic voice 54 56 61 (4)% (11)% (6)% (10)% Mobile 47 41 36 15% 31% 12% 32% Data & IP 16 15 15 7% 7% 4% 8% Other 8 7 8 14% - 12% 1% Total revenue 134 128 129 5% 4% 2% 5% Outpayments and network costs (51) (49) (41) (4)% (24)% (2)% (26)% Staff costs (12) (11) (12) (9)% - (9)% 3% Other costs (21) (18) (20) (17)% (5)% (14)% (6)% Total operating costs* (84) (78) (73) (8)% (15)% (5)% (16)% Depreciation and software amortisation (16) (16) (15) - (7)% 2% (8)% Total operating profit before exceptional items 34 34 41 - (17)% (3)% (16)% Headcount (number) 1,817 1,818 1,891 - (4)% Cash capex 15 30 11 50% (36)% 51% (39)% Free cash flow*** 35 20 45 75 % (22)% 69% (21)% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Revenue for the six months to 30 September 2005 was ‚£134 million, an increaseof 5 percent against the prior year and 2 percent against H2 2004/5 at constantcurrency, as strong growth in Mobile and Data & IP revenues offset thecontinued decline in Domestic voice revenue. International voice revenue remained broadly flat compared with the prior yearand H2 2004/5. While there was a decline in international outbound revenues,due to increased local competition and price pressure, there was acorresponding increase in international inbound revenue, due to increases ininternational bilateral agreements and re-file of traffic. Domestic revenue declined 10 percent against the prior year and 6 percentagainst H2 2004/5 at constant currency, reflecting the continued high level ofcompetition following liberalisation of the domestic market in January 2003 andfixed to mobile substitution.Mobile revenue increased by 32 percent against the prior year and 12 percentagainst H2 2004/5 at constant currency reflecting strong growth in GSM mobilesubscribers, and an increase in interconnection with other carriers.Data & IP revenue increased by 8 percent against the prior year and 4 percentagainst H2 2004/5 at constant currency, as a result of increased revenue fromADSL and major corporate contracts sales.Outpayments and network costs increased by 26 percent against the prior yearand 2 percent against H2 2004/5 at constant currency due to the continuedchange in the sales mix leading to an increase in mobile customer acquisitioncosts, increased customer premises equipment sales and higher outpayments asmore traffic is terminated on third party international and local networks.Staff costs declined by 3 percent against the prior year and increased 9percent against 2004/5 at constant currency. The increase in staff costscompared to H2 2004/5 reflects a reduced proportion of capitalised staff costsin line with reduced capital expenditure. Excluding the capitalised labourimpact, staff costs would have decreased 10 percent compared with H2 2004/5 dueto an ongoing staff restructuring programme. Other costs increased by 6 percent against the prior year and 14 percentagainst H2 2004/5 at constant currency as a result of higher marketing expensesassociated with campaigns to promote sales and the corporate image.Depreciation and software amortisation increased by 8 percent against the prioryear but decreased by 2 percent against H2 2004/5 at constant currency,reflecting the phasing of mobile and ADSL capital expenditure to the secondhalf of last year.Total operating profit before exceptional items was ‚£34 million, a decrease of16 per cent against the prior year and 3 percent against H2 2004/5 at constantcurrency.Cash capital expenditure increased 39 percent against the prior year anddecreased by 51 percent against H2 2004/5 at constant currency. The high levelof capital expenditure in H2 2004/5 mainly reflected additional investment inthe expansion of the GSM network.Macau Change as Change as reported H1 H2 H1 reported** ** cc growth 1 cc growth 1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % International voice 15 13 14 15% 7% 13% 8% Domestic voice 9 8 9 13% - 10% 1% Mobile 22 22 22 - - (2)% 1% Data & IP 10 9 9 11% 11% 9% 12% Other 9 8 3 13% 100+% 11% 100+% Total revenue 65 60 57 8% 14% 6% 15% Outpayments and network costs (30) (24) (24) (25)% (25)% (22)% (26)% Staff costs (5) (6) (5) 17% - 7% (1)% Other costs (4) (4) (4) - - 2% (1)% Total operating costs* (39) (34) (33) (15)% (18)% (12)% (20)% Depreciation and software amortisation (8) (7) (8) (14)% - (11)% (1)% Total operating profit before exceptional items 18 19 16 (5)% 13% (7)% 14% Headcount (number) 975 932 908 5% 7% Cash capex 6 6 3 - (100)% 2% (100+)% Free cash flow*** 20 20 21 - (5)% (2)% (4)% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Revenue for the six months to 30 September 2005 was ‚£65 million, an increase of15 percent against the prior year and an increase of 6 percent against H2 2004/5 at constant currency. The increase in revenue over the prior year was mainlydriven by a strong performance in Professional Services classified within Otherrevenue. International voice revenue rose by 8 percent against the prior year and 13percent against H2 2004/5 at constant currency, as a result of increasedinternational inpayments. Domestic voice revenue increased by 1 percent against the prior year and by 10percent against H2 2004/5 at constant currency, due to higher interconnectrevenue. Mobile revenue was broadly flat compared with both the prior year and H2 2004/5at constant currency, as increased handset sales were offset by price declinesin service revenue as a result of increased competition.Data & IP revenue rose 12 percent against the prior year and 9 percent againstH2 2004/5 at constant currency, reflecting increased demand for internetbroadband services. Total operating costs before depreciation, amortisation and exceptional itemswere ‚£39 million, representing a 20 percent increase against the prior year anda 12 percent increase against H2 2004/5 at constant currency. The increase wasdriven primarily by higher cost of sales for mobile handsets and professionalservices.Total operating profit before exceptional items was ‚£18million, an increase of14 percent against the prior year and a decrease of 7 percent against H2 2004/5at constant currency.Monaco Change as Change as reported* reported* H1 H2 H1 * * cc growth 1 cc growth 1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % International voice 5 6 3 (17)% 67% (17)% 63% Domestic voice 5 6 2 (17)% 100+% (17)% 100+% Mobile 14 14 5 - 100+% - 100+% Data & IP 6 5 3 20% 100% 20% 96% Other 35 39 17 (10)% 100+% (10)% 100+% Total revenue 65 70 30 (7)% 100+% (7)% 100+% Outpayments and network costs (38) (40) (15) 5% (100+)% 5% (100+)% Staff costs (8) (9) (4) 11% (100)% 11% (96)% Other costs (4) (4) (1) - (100+)% - (100+)% Total operating costs* (50) (53) (20) 6% (100+)% 6% (100+)% Depreciation and software amortisation (3) (4) (2) 25% (50)% 25% (47)% Operating profit before exceptional items, amortisation and associates 12 13 8 (8)% 50% (7)% 47% Amortisation of acquired intangibles (3) (3) (2) - (50)% - (48)% Joint ventures and associates 3 1 - 100+% - 100+% - Total operating profit before exceptional items 12 11 6 9% 100% 10% 95% Headcount (number) 469 458 455 2% 3% Cash capex 6 3 2 (100)% (100+)% (100+)% (100+)% Free cash flow** * 9 14 8 (36)% 13% (36)% 10% *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Monaco commentary focuses on performance relative to the prior six months (H22004/5), reflecting a comparable accounting period.Revenue for the six months to 30 September 2005 was ‚£65 million, a decline of 7percent against H2 2004/5 a t constant currency.Monaco Telecom has a monopoly in International and Domestic fixed line marketsas well as the Data & IP market. However, pricing in the Data & IP market(which includes broadband) is strongly influenced by the highly competitiveFrench market that neighbours Monaco. The Mobile market is also a monopoly. However, as with the Data & IP market,mobile pricing and services have been adversely affected by developments in theFrench market. Other revenue includes the provision of services to mobile operations inAfghanistan, an international contract in Kosovo and its satellite and callcentre activities. Total operating costs before depreciation, amortisation and exceptional itemswere ‚£50 million, a decline of 6 percent against H2 2004/5 at constantcurrency. Depreciation and software amortisation declined by 25 percent against H2 2004/5.The strong performance in joint ventures and associates was driven by theexpansion of mobile operations in Afghanistan in which Monaco Telecom has a 37percent interest.Rest of the World Change as Change as reported H1 H2 H1 reported** ** cc growth1 cc growth1 2005/6 2004/5 2004/5 H1 v H2 H1 v H1 H1 v H2 H1 v H1 ‚£m ‚£m ‚£m % % % % International voice 12 11 17 9% (29)% 7% (29)% Domestic voice 10 10 8 - 25% (1)% 26% Mobile 16 14 12 14% 33% 14% 34% Data & IP 12 11 10 9% 20% 8% 21% Other 2 4 3 (50)% (33)% (50)% (33)% Total revenue 52 50 50 4% 4% 3% 5% Outpayments and network costs (14) (12) (13) (17)% (8)% (15)% (9)% Staff costs (11) (9) (14) (22)% 21% (20)% 21% Other costs (6) (6) (8) - 25% 1% 25% Total operating costs* (31) (27) (35) (15)% 11% (13)% 11% Depreciation and software amortisation (5) (6) (5) 17% - 18% (1)% Operating profit before exceptional items, amortisation and associates 16 17 10 (11)% 60% (12)% 61% Joint ventures and associates 20 23 18 (13)% 11% (15)% 12% Total operating profit before exceptional items 36 40 28 (10)% 29% (11)% 30% Headcount (number) 681 722 733 (6)% (7)% Cash capex 7 4 5 (75)% (40)% (72)% (42)% Free cash flow* ** 14 19 10 (26)% 40 % (27)% 40 % *Excluding depreciation, amortisation and exceptional items.**Positive percentage represents improvement.***Free cash flow is revenue less total operating costs less cash capitalexpenditure.1CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Revenue for the six months to 30 September 2005 was ‚£52 million, an increase of5 percent against the prior year and 3 percent against H2 2004/5 at constantcurrency.International voice revenue decreased 29 percent against the prior year atconstant currency, reflecting pricing pressure from competition in Bermuda fromthe second half of last year. International voice revenue of ‚£12 millionincreased by 7 percent against H2 2004/5 at constant currency, due to a strongperformance in Guernsey. Domestic voice revenue increased by 26 percent against the prior year and wasbroadly flat against H2 2004/5 at constant currency. Mobile revenue of ‚£16 million increased by 34 percent against prior year and by14 percent against H2 2004/5 at constant currency, reflecting a strongperformance in mobile service revenues in Guernsey and continuingfixed-to-mobile substitution in the Seychelles.Data & IP revenue of ‚£12 million increased by 21 percent against prior year andby 8 percent against H2 2004/5 at constant currency, primarily due to a strongperformance in Guernsey.Outpayments and network costs increased 9 percent against the prior year and 15percent against H2 2004/5 at constant currency due primarily to increased costsin Guernsey in line with increased levels of activity.Staff costs of ‚£11 million decreased by 21 percent against the prior year atconstant currency in line with a decrease in headcount. Staff costs increased20 percent against H2 2004/5 at constant currency as a result of pension fundcost adjustments in Guernsey.Other costs decreased by 25 percent against the prior year and were broadlyflat against H2 2004/5 at constant currency.Income from joint ventures and associates increased by 12 percent against theprior year but declined by 15 percent against H2 2004/5 at constant currency. The decline since H2 2004/5 is mainly driven by the impact of the introductionof mobile competition in the Maldives.Total operating profit before exceptional items was ‚£36 million, an increase of30 percent against the prior year, but a decline of 11 percent against H2 2004/5 at constant currency.Cash capital expenditure rose by 72 percent against H2 2004/5 at constantcurrency due to increased investment in Guernsey and Bermuda.ADDITIONAL INFORMATIONExchange rate movementsYear on year average exchange rates show a 1.2 percent devaluation of the USdollar against sterling and a 2.7 percent devaluation of the Jamaican dollaragainst sterling. This has had a significant impact on the Group as a largeproportion of the businesses report in currencies that are linked or pegged tothe US dollar or the Jamaican dollar. The 1.5 percent relative decline of theJamaican dollar against the US dollar had an adverse impact on businesses wherecertain outpayments are denominated in US dollars. Average and period-end US dollar and Jamaican dollar exchange rates used in thecurrent and prior year are shown below. 2005/6 2004/5 H1 H2 H1 US$ -Average 1.8297 1.8388 1.8073 -Period end 1.7770 1.8701 1.8027 Jamaican$ -Average 112.3452 111.9637 109.3445 -Period end 111.1100 113.8890 110.5020 PensionsThe retirement benefit obligation at 30 September 2005 is ‚£254 million (31March 2005: ‚£227 million), of which ‚£197 million (31 March 2005: ‚£176 million)relates to the main UK scheme. Retirement benefit assets are ‚£28 million (31March 2005: ‚£26 million). The Group's retirement benefit schemes have beenrevalued at 30 September 2005 adjusting for changes in discount rates and assetvalues. The triennial valuation of the main UK scheme as at 31 March 2005 hasnot yet been finalised and discussions are ongoing with the scheme's trustees. Consequently, no other underlying assumptions have been changed from thoseapplied at 31 March 2005.ContactsInvestor Relations:Louise Breen Director, Investor Relations +44 (0) 20 7315 4460Craig Thornton Manager, Investor Relations +44 (0) 20 7315 6225Ashley Rayfield Associate Director, Investor Relations +44 (0) 20 7315 4028Media:Lesley Smith Group Director of Corporate & Public Affairs +44 (0) 20 7315 4064Steve Double Group Head of Media Communications +44 (0) 1344 726 946Press Office Cable & Wireless +44 (0) 1344 818 888Finsbury Alice MacAndrew and Rollo Head +44 (0) 20 7251 3801Interviews with Francesco Caio, CEO and Charles Herlinger, CFO in video/audioand text will be available from 7.00 am on Tuesday 8 November 2005 on http://www.cw.com and on http://www.cantos.comIndependent review report to Cable and Wireless plc Introduction We have been engaged by the company to review the financial information set outon pages 35 to 41 and we have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules which require that the accounting policies and presentation applied tothe interim figures should be consistent with those applied in preparing thepreceding annual financial statements except where any changes, and the reasonsfor them, are disclosed. As disclosed in the notes to the financial information, the next annualfinancial statements of the group will be prepared in accordance with IFRSsadopted for use in the European Union. The accounting policies that have been adopted in preparing the financialinformation are consistent with those that the directors currently intend touse in the next annual financial statements. There is, however, a possibilitythat the directors may determine that some changes to these policies arenecessary when preparing the full annual financial statements for the firsttime in accordance with those IFRSs adopted for use by the European Union. This is because, as disclosed in the notes, the directors have anticipated thatcertain standards, which have yet to be formally adopted for use in the EU,will be so adopted in time to be applicable to the next annual financialstatements. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 Review of interim financial information issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantiallyless in scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, wedo not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. KPMG Audit Plc CharteredAccountants London7 November 2005CONSOLIDATED INCOME STATEMENT FOR THE SIX MONTHS ENDED30 SEPTEMBER 2005 Six months ended 30 September Six months ended 30 September 2004 Year ended 31 March 2005 2005 Pre Exceptional Total Pre Exceptional Total Pre Exceptional Total Exceptional Exceptional ‚£m ‚£m Exceptional ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Continuing operations Revenue 1,481 - 1,481 1,469 - 1,469 2,948 - 2,948 Operating costs before depreciation and amortisation (1,280) (19) (1,299) (1,245) 12 (1,233) (2,524) (143) (2,667) Depreciation (98) - (98) (88) (9) (97) (170) (8) (178) Amortisation (16) - (16) (8) - (8) (20) - (20) Group operating profit / (loss) 87 (19) 68 128 3 131 234 (151) 83 Share of 48 - 48 profit of associates and joint ventures 27 - 27 25 - 25 Total 282 (151) 131 operating profit/ (loss) 114 (19) 95 153 3 156 Gains and 5 (8) (3)losses on sale of non-current assets 2 11 13 - - - Interest income 49 - 49 50 - 50 102 - 102 Other income 4 - 4 5 - 5 5 - 5 Interest expense (35) - (35) (33) - (33) (68) - (68) Profit before tax 134 (8) 126 175 3 178 326 (159) 167 Tax (expense)/ credit (20) - (20) (32) - (32) (64) 89 25 Profit / (loss) for the period from continuing operations 114 (8) 106 143 3 146 262 (70) 192 Discontinued operations Profit for the period from discontinued operations 2 17 19 10 83 93 22 140 162 Profit for 284 70 354 the period 116 9 125 153 86 239 Attributable to: Equity holders of the Company 83 9 92 121 86 207 221 73 294 Minority interest 33 - 33 32 - 32 63 (3) 60 116 9 125 153 86 239 284 70 354 Earnings per share attributable to the equity holders of the Company during the period (p/share) - basic 4.0p 8.9p 12.7p - diluted 3.8p 8.3p 12.0p Earnings per share from continuing operations attributable to the equity holders of the Company during the period (p/share) - basic 3.2p 4.9p 5.7p - diluted 3.1p 4.7p 5.5p Earnings per share from discontinued operations attributable to equity holders of the Company during the period (p/share) - basic 0.8p 4.0p 7.0p - diluted 0.7p 3.6p 6.5p Notes1. Exceptional items in the period ended 30 September 2005 include furtherrestructuring costs of ‚£15 million incurred in reshaping the UK Group businessand the relocation of corporate functions, hurricane restoration costs of ‚£4million, a gain of ‚£11 million on disposal of property and a gain of ‚£17million on the disposal of discontinued operations.2. Exceptional items in the period ended 30 September 2004 include the finalcosts of removing the former Global and Regional divisions of ‚£3 million in theUK and Asia, hurricane related costs of ‚£9 million and a release fromrestructuring provisions of ‚£15 million. Gains within discontinued operationsof ‚£83 million include gains on disposal of non-operating assets of ‚£16 millionfrom discontinued operations.3. Exceptional items in the year ended 31 March 2005 include restructuringcosts of ‚£141 million incurred in reshaping the UK Group business and therelocation of corporate functions, hurricane related costs of ‚£25 million, arelease from restructuring provisions of ‚£15 million, a gain of ‚£7million ondisposal of property, costs of terminating operations of ‚£15 million, a taxprovision release of ‚£85 million and a ‚£4 million tax credit on exceptionalitems. Gains within discontinued operations of ‚£140 million include gains ondisposal of non-operating assets of ‚£16 million from discontinued operations. 30 September 31 March 30 September 2005 2005 2004 ‚£m ‚£m ‚£m ASSETS Non-current assets Intangible assets 190 206 188 Property, plant and equipment 1,344 1,268 1,142 Investments in associates and joint ventures 266 245 256 Trade investments - 33 74 Available for sale financial assets 14 - - Deferred tax asset 45 29 29 Retirement benefit asset 28 26 23 Trade and other receivables 46 43 49 1,933 1,850 1,761 Current assets Inventories 31 26 32 Trade and other receivables 883 805 923 Tax recoverable - - 11 Available for sale financial assets 135 - - Current asset investment - 80 50 Cash and cash equivalents 1,929 2,021 2,133 2,978 2,932 3,149 Assets held for sale - 18 93 2,978 2,950 3,242 Total assets 4,911 4,800 5,003 Current liabilities Trade and other payables 1,308 1,293 1,321 Current tax liabilities 170 158 292 Loans and obligations under finance leases 161 23 35 Provisions for other liabilities and charges 239 279 153 1,878 1,753 1,801 Liabilities associated with assets held for sale - 4 78 1,878 1,757 1,879 Net current assets 1,100 1,193 1,363 Non-current liabilities Loans and obligations under finance leases 611 801 816 Deferred tax liabilities 49 49 22 Provisions for liabilities and charges 148 188 149 Retirement benefit obligations 254 227 415 1,062 1,265 1,402 Net assets 1,971 1,778 1,722 EQUITY Capital and reserves attributable to the Company'sequity holders Share capital 601 599 597 Share premium 17 8 2 Retained earnings (669) (697) (851) Treasury shares (231) (231) (156) Other reserves 202 105 105 Translation reserve 1 (37) (3) Special reserve 1,725 1,736 1,745 1,646 1,483 1,439 Minority interest 325 295 283 Total equity 1,971 1,778 1,722 CONSOLIDATED BALANCE SHEET AS AT 30 SEPTEMBER 2005CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005 Six Six months months ended ended Year ended 30 30 September September 31 March 2005 2005 2004 ‚£m ‚£m ‚£m Fair value gains on available for sale financial assets 5 - - Actuarial (losses)/gains in the value of defined benefit retirement plans (21) (6) 76 Cumulative translation differences recycled on disposal of foreign investment - - (2) Exchange differences on translation of foreign operations 52 (3) (38) Tax on items taken directly to or transferred from equity - - (3) Net income recognised directly in equity 36 (9) 33 Profit for the period 125 239 354 Total recognised income and expense for the period 161 230 387 Attributable to - equity holders of the Company 114 198 328 - minority interest 47 32 59 CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005 Six months ended 30 Six months ended Year ended September 30 September 2004 31 March 2005 2005 ‚£m ‚£m ‚£m Net profit for the period 92 207 295 Shares issued (including premium) during the period 11 1 9 Share based payment costs 6 3 10 Actuarial gains - net of tax (21) (6) 73 Currency translation differences 38 (3) (40) Recycling of fair value adjustment on investment disposal - - 3 Dividends distributed (60) (73) (100) Own shares purchased - - (75) Reclassification of conversion option to equity 60 - - Net fair value gains gross of tax 5 - (2) Net increase/decrease in equity shareholders' funds 131 129 173 Adjustment for initial application of IAS 32/39 32 - - Opening equity shareholders' funds 1,483 1,310 1,310 Closing equity shareholders' funds 1,646 1,439 1,483 CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED30 SEPTEMBER 2005 Year ended Six months Six months ended 30 ended 30 31 September September March 2005 2004 2005 ‚£m ‚£m ‚£m Continuing operations Cash flows from operating activities Cash generated from continuing operations (see page 41]) 108 155 279 Cash generated from discontinued operations (see page 41) 4 7 28 Income taxes paid (27) (18) (60) Net cash from operating activities 85 144 247 Cash flows from investing activities Interest received 65 46 88 Other investment income 4 4 4 Dividends received 19 16 31 Proceeds on disposal of trade investments 2 - 51 Proceeds on disposal of property, plant and equipment 20 7 9 Purchase of property, plant and equipment (196) (103) (278) Purchase of intangible assets (14) (13) (43) Purchase of credit linked notes - - (80) Proceeds from redemption of credit linked notes 30 - 50 Acquisition of associates and joint ventures (4) (9) (7) Acquisition of shareholdings in subsidiaries (net of cash received) - (77) (77) Net cash from continuing operations (74) (129) (252) Discontinued operations Proceeds on disposal of trade investment - 16 17 Proceeds on disposal of subsidiaries 28 24 96 Proceeds on disposal of associate and joint ventures - - 7 Purchase of property, plant and equipment - (6) (9) Net cash from discontinued operations 28 34 111 Net cash used in investing activities (46) (95) (141) Cash flows from financing activities Dividends paid to minority interests (45) (15) (27) Dividends paid to shareholders (56) (71) (97) Repayments of borrowings (20) (59) (82) Interest paid (33) (29) (67) Proceeds from borrowings 22 1 1 Purchase of treasury shares (1) - (74) Net proceeds on issue of ordinary share capital 7 1 6 Net cash used in financing activities (126) (172) (340) Discontinued operations - (3) (4) Net cash used in financing activities (126) (175) (344) Net decrease in cash and cash equivalents (87) (126) (238) Cash and overdrafts at the beginning of the period 2,021 2,270 2,270 Exchange gains and losses on cash and cash equivalents (5) (2) (4) Cash and overdrafts at the end of the period 1,929 2,142 2,028 Less: Cash reflected as assets held for sale - (9) (7) Cash and overdrafts at the end of the period 1,929 2,133 2,021 NOTES TO THE FINANCIAL INFORMATIONBasis of preparationThese interim consolidated financial statements ('Interim FinancialStatements') are for the six-month period ended 30 September 2005. Inaccordance with EU regulation, Cable and Wireless plc ('Cable & Wireless' andwith its subsidiaries, the 'Group') is required to prepare statutory financialstatements, which comply with the International Financial Reporting Standards('IFRS') adopted for use in the European Union ('Adopted IFRS') starting fromthe financial year ending 31 March 2006. The Group's transition date to IFRSis 1 April 2004. Adopted IFRS are similar to IFRS issued by the IASB, exceptfor certain provisions concerning fair value accounting for financialliabilities and hedge accounting that have no impact on the financialstatements of the Group.These Interim Financial Statements have been prepared on the basis of therecognition and measurement requirements of Adopted IFRS as at 30 September2005 that are effective (or available for early adoption) at 31 March 2006. Based on Adopted IFRS, the directors have applied the accounting policies,which they expect to apply when the financial statements are prepared for theyear ending 31 March 2006. These policies are set out in a separate documentavailable on the Group's website www.cw.com.The Adopted IFRS and IFRIC interpretations that will be applicable at 31 March2006, including those that will be applicable on an optional basis, are notknown with certainty at the time of preparing these Interim FinancialStatements and will be determined finally only when the annual financialstatements are prepared for the year ending 31 March 2006.The policies have been consistently applied to all the periods presented exceptfor those relating to the classification and measurement of financialinstruments and insurance contracts. The Group has made use of the exemptionavailable under IFRS 1 First-time adoption of International FinancialAccounting Standards to apply IAS 32 Financial instruments: disclosure andpresentation, IAS 39 Financial instruments: recognition and measurement andIFRS 4 Insurance contracts from 1 April 2005. The policies applied tofinancial instruments for the year ended 31 March 2005 and ending 31 March 2006are disclosed separately.The interim financial statements do not constitute statutory accounts. Theinterim financial statements for the six months ended 30 September 2005 wereapproved by the Directors on 7 November 2005.The statutory accounts for the year ended 31 March 2005, which were preparedunder UK GAAP, have been reported on by the Company's auditors and have beenfiled with the Registrar of Companies. The report of the auditors on thoseaccounts was unqualified and did not contain a statement under section 237(2)or (3) of the Companies Act 1985.These Interim Financial Statements, which have been prepared in accordance withboth IFRS and Adopted IFRS, differ in certain exceptional respects fromgenerally accepted accounting principles in the United States (US GAAP).Application of IFRS 1The Group's financial statements for the year ending 31 March 2006 will be thefirst annual financial statements that comply with IFRS. The Group has appliedIFRS 1 in preparing these consolidated Interim Financial Statements.The Group is an SEC registrant and would normally be required to present twoyears' comparative information. However, the terms of an accommodation grantedby the SEC permit first time adopters of IFRS to present only one year ofcomparatives in the year of adoption. Consequently, the Group's date oftransition to IFRS is 1 April 2004.The Group has established the IFRS accounting policies it expects to apply forthe year ending 31 March 2006 and applied these standards retrospectively todetermine the IFRS opening balance sheet at its date of transition. Inpreparing these Interim Financial Statements, the Group has assumed that theEuropean Commission will endorse the amendment to IAS 19 Employee benefits -Actuarial gains and losses, group plans and disclosures and SIC 12Consolidation - special purpose entities.The impact of transition to IFRS and effects of adopting transitionalrequirements of IFRS 1 on the Group's shareholders' funds as at 1 April 2004and 31 March 2005 and 1 April 2005 and the Group's income statement for the sixmonths ended 30 September 2004 and the year ended 31 March 2005 and the effectof the application of IAS 32, IAS 39 and IFRS 4 at 31 March 2005 are set out ina separate document available on the Group's website www.cw.com.TaxationThe ‚£20 million total tax charge for continuing operations for the six monthsended 30 September 2005 (30 September 2004: ‚£32 million; year ended 31 March2005: ‚£25 million credit) comprises a credit of ‚£16 million in respect of UKtax (30 September 2004: ‚£nil; 31 March 2005: ‚£nil) and a charge of ‚£42millionin respect of overseas tax (30 September 2004: ‚£33 million; 31 March2005: ‚£23 million credit).The credit for the year ended 31 March 2005 includes a credit of ‚£4 million inrespect of exceptional items together with an exceptional tax credit of ‚£85million.In addition, the Group's share of joint ventures' and associates' profitsincludes a tax charge for the six months ended 30 September 2005 of ‚£1 million(30 September 2004: ‚£4 million; 31 March 2005: ‚£7 million).There is a ‚£6 million charge in respect of discontinued operations (30September 2004: ‚£nil; 31 March 2005: ‚£2 million).Cash flow from operating activitiesReconciliation of operating profit to net cash inflow from operatingactivities: Six month Year ended 30 ended September 2005 Six months 31 ‚£m ended 30 March September 2004 2005 ‚£m ‚£m Continuing operations Net profit 106 146 192 Adjustments for: Tax expense/(credit) 20 32 (25) Depreciation 98 97 178 Amortisation 16 8 20 Gains and losses on sale of non-current assets (13) - 3 Interest and similar income (53) (55) (107) Interest and similar charges 35 33 68 (Decrease)/increase in provisions (54) (31) 114 Share based payments 6 3 10 Share of results after tax of associates (27) (25) (48) Operating cash flows before working 134 capital changes 208 405 Changes in working capital (excluding effects of acquisitions and disposal of subsidiaries) (Increase)/decrease in inventories (5) (1) 5 Increase in trade and other receivables (83) (44) (11) Increase/(decrease) in payables 62 (8) (120) Cash generated from continuing 108 operations 155 279 Discontinued operations Net profit 19 93 162 Adjustments for: Tax expense 6 - 1 Depreciation and amortisation - (3) 1 Profit on disposal of investments - (16) (16) Interest and similar charges - 1 1 Profit on sale of operations (23) (67) (129) Changes in working capital 2 (1) 8 Cash generated from discontinued 4 operations 7 28 Cash generated from operations 112 162 307 Comparative Data H2 2004/5 (Divisional basis) Continuing Operations National Telcos H2 UK CWAO2 Europe Asia Bulldog Caribbean Panama Macau Monaco Rest of Total Other 2004/5 the World3 National Telcos ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mRevenue 792 9 87 21 7 274 128 60 70 50 582 (19) 1,479 Outpayments and network costs (512) (7) (68) (10) (9) (94) (49) (24) (40) (12) (219) 15 (810) Staff costs (129) (2) (15) (4) (9) (47) (11) (6) (9) (9) (82) (25) (266) Other costs (75) (1) (10) (1) (13) (58) (18) (4) (4) (6) (90) (13) (203) Total operating costs1 (716) (10) (93) (15) (31) (199) (78) (34) (53) (27) (391) (23) (1,279) Depreciation and software amortisation (30) - - (1) (2) (27) (16) (7) (4) (6) (60) 2 (91) Operating profit/(loss) before exceptional items and amortisation 46 (1) (6) 5 (26) 48 34 19 13 17 131 (40) 109 Amortisation of acquired intangibles - - - - - - - - (3) - (3) - (3) Joint ventures and associates (6) - - - - 5 - - 1 23 29 - 23 Total operating profit/(loss) before exceptional items 40 (1) (6) 5 (26) 53 34 19 11 40 157 (40) 1291 Excluding depreciation, amortisation and exceptional items.2 Cable & Wireless Americas Operations Inc ('CWAO') provides data and IPsolutions to international Retail and Carrier Services customers with servicerequirements to, from and with the United States.3 Rest of the World comprises the results of the Group's operations in theAtlantic, Pacific and Indian Oceans, the Middle East and Channel Island. The divisional information in the above table reflects the managementstructure of the organisation during the six months to 30 September 2005.Comparative Data H1 2004/5 (Divisional basis) Continuing Operations National Telcos UK CWAO2 Europe Asia Bulldog Caribbean Panama Macau Monaco Rest of Total Other 2004/5 the World3 National Telcos ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Revenue 810 7 91 18 4 276 129 57 30 50 542 (3) 1,469 Outpayments and network costs (554) (7) (71) (9) (4) (89) (41) (24) (15) (13) (182) 6 (821)Staff costs (122) (2) (14) (3) (3) (41) (12) (5) (4) (14) (76) (41) (261)Other costs (63) (2) (13) (6) (1) (55) (20) (4) (1) (8) (88) 10 (163)Total operating costs1 (739) (11) (98) (18) (8) (185) (73) (33) (20) (35) (346) (25) (1,245)Depreciation and software amortisation (30) - - - - (31) (15) (8) (2) (5) (61) (3) (94)Operating profit/(loss) before exceptional items and amortisation 41 (4) (7) - (4) 60 41 16 8 10 135 (31) 130 Amortisation of acquired intangibles - - - - - - - - (2) - (2) - (2)Joint ventures and associates (2) - - - - 9 - - - 18 27 - 25 Total operating profit/(loss) before exceptional items 39 (4) (7) - (4) 69 41 16 6 28 160 (31) 153 1Excluding depreciation, amortisation and exceptional items.2Cable & Wireless Americas Operations Inc ('CWAO') provides data and IPsolutions to international Retail and Carrier Services customers with servicerequirements to, from and with the United States.3Rest of the World comprises the results of the Group's operations in theAtlantic, Pacific and Indian Oceans, the Middle East and Channel Island. The divisional information in the above table reflects the managementstructure of the organisation during the six months to 30 September 2005.Glossary of termsTerms used in this Brief description of meaningPress releaseAccess/internet access Broadband or dial-up connections which allow customers to access the internet from their own premises.ADSL A Digital Subscriber Line technology that supports faster transfer when receiving data (the downstream rate) and slower transfer when sending data (the upstream rate).Carrier Services A business segment dealing with other telecommunications companies around the world.Company Cable and Wireless plc.Constant Currency Constant currency growth rate based on the restatement of prior period comparatives at current period's reported average exchange rates. Positive percentage represents improvement.Data Services Services to transmit data over fixed-line, IP or mobile platforms using leased lines, Frame Relay, ATM or IP-based products such as IP-VPN.Digital Sound, text or video coded into binary form, a series of 1s and 0s, to enable more effective transmission. Frame Relay A legacy data product that allows broadband data transmission with an additional layer of intelligence and functionality beyond leased lines.GAAP Generally Accepted Accounting Principles.Group Cable and Wireless plc and its subsidiaries.GSM Global System for Mobile Communications or a digital mobile platform that allows the transmission of voice data and global roaming.IAS International Accounting Standards.IFRC International Financial Reporting Interpretations.IFRS International Financial Reporting Standards.Interconnect Connection arrangements between carriers.IP Internet Protocol or a set of rules that govern how interconnected devices communicate.IP-VPN An internet-based network used to provide companies with an internal communications system, linking employees in different offices worldwide.LAN Local Area Network or a network thatcovers only short distances (usually less than 1km) and is normally confined toone building or site.Liberalised markets/liberalisation Markets that were previously restricted thatare now open to competition.Local Loop Telecommunications connection from thelocal exchange to the customer premises.LLU Local Loop Unbundling is theprocess of installing DSL Equipment in rented space within an incumbentoperator's local exchange.Mobile Services Delivery of voice and data services tomobile handsets through wireless technologies.Mobile transit traffic Telecommunication traffic across thenetwork between mobile operators who do not have a direct connection with eachother.National Telcos Collectively, the Caribbean, Panama,Macau, Monaco and the Rest of the World.Network costs Network costs include the purchase ofbandwidth, operating and maintenance of equipment, operation of software andcables, wayleaves, customer acquisition costs, cost of goods sold, licences andassociated royalties payable to government.Next Generation Network IP-based network being developed by Cable &Wireless over the three years to fiscal year ending 2008.Ofcom The Office of Communications in theUnited Kingdom: the independent regulatory body set up under the CommunicationsAct 2003 which has responsibility for the enforcement and monitoring, and whereappropriate initiating modification, of telecommunications licences in theUnited Kingdom.OFT Office of Fair Trading.Outpayments Payments to other network operators tocarry traffic on behalf of Cable & Wireless' customers. SME Small and medium enterprise.Switched voice Abbreviation of telecommunicationsservices provided over the Public Switched Telephone Network, which refers tothe international telephones system based on copper wires carrying analog voicedata.TDMA Time Division Multiple Access ordigital mobile technology that assigns a specific radio frequency to each userto deliver mobile voice and data.Transit A term to describe moving datafrom a source point to a destination point using various network elements.WiFI Wireless Fidelity.VoIP Voice over Internet Protocol or anIP voice service that provides enhanced functionality, such as the delivery ofvoice, video, data, with the reliability and features associated with switchedvoice networks.VPN Virtual Private Network or acorporate network provided to a customer by a telecommunications operator usingelements of switched network. To the customer it offers all the features of aprivate network, such as direct dialling between offices in differentcountries. ENDCable & Wireless PLCRelated Shares:
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