6th Jun 2005 06:00
This press release sets out the Cable and Wireless plc results for the year ended 31 March 2005, as announced on 26 May 2005. The purpose of this press release is to provide a reformatted version of the Group's full year results announcement and does not contain any substantive changes to the information previously announced on 26 May 2005. CABLE AND WIRELESS PLC RESULTS FOR THE YEAR ENDED 31 MARCH 2005'CABLE & WIRELESS PROFITS FROM A YEAR OF HIGH ACTIVITY'Highlights- Continuing earnings per share before exceptional items andamortisation - up 16 percent against prior year- Total Group profit before tax and exceptional items ‚£377 million- up 36 percent against prior year- Operating profit from continuing operations, before exceptionalitems ‚£277 million - up 20 percent against prior year- On track to achieve:- ‚£35 million of UK, Corporate and Europe operating cost savings in2005/6, with annualised savings of ‚£50 million by March 2006 in connectionwith Group reorganisation announced in November 2004- ‚£50 million of UK savings in outpayments and network costs in2005/6 announced in April 2005- ‚£22 million of net cost savings from Next Generation Networkimplementation in 2007/8- Acquired Bulldog Communications and today announced accelerationof rollout plan to 600 exchanges by March 2006 and to 800 exchanges in H12006/7- Acquired controlling interest in Monaco Telecom for ‚£108 million,earning an annualised after tax earnings return on gross capital invested of17 percent in 2004/5- Announced investment of ‚£190 million in Next Generation Networkover next three years- Completed sale of Japanese domestic business for a considerationof ‚£71.7 million (including assumption of ‚£9.4 million of debt) and exited theUS domestic business for ‚£220 million (‚£80 million lower than estimated cost)- Group revenue from continuing businesses flat against prior yearat constant currency- ‚£1,342 million net cash at 31 March 2005, after completing 30percent of the ‚£250 million share repurchase programme- Declared full year dividend of 3.80 pence - up 21 percent against prior yearfull year dividendThis 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 statements section of the company's most recent Annual Report filedon Form 20-F.RESULTS FOR THE YEAR ENDED 31 MARCH 2005Total Group Result 2005 2004 (incl. continuing and discontinued operations and ‚£m ‚£mexceptional items)Group revenue 3,222 3,671Profit before tax and exceptional items 377 278Profit/(loss) after tax 377 (212)Profit/(loss) for the financial period 302 (237)Basic earnings per share 13.0p (10.2)pDiluted earnings per share 12.3p (10.2)pDividend per share 3.80p 3.15pNet cash 1,342 1,448The full profit and loss account, cashflow statement and balance sheet, drawn up inaccordance with UK generally accepted accounting principles (`UK GAAP'), from whichthis information is extracted, are set out in the attachments.Continuing Operations 2005 2004 ‚£m ‚£mGroup revenue 3,023 3,130 - change from prior year at constant currency -%Operating profit before exceptional items 277 231 - change from prior year at constant currency 33 %Profit before tax and exceptional items 361 319Profit after tax before exceptional items and 293 259amortisationEarnings per share before exceptional items and 9.3p 8.0pamortisationCapital expenditure 332 326Announcing the full year results for Cable and Wireless plc for theyear ended 31 March 2005Cable & Wireless Chairman, Richard Lapthorne said: 'The 2004/5 financial performance demonstrates our progress. Forthe year to 31 March 2005, profit after tax and before exceptionals andamortisation for the continuing business was ‚£293 million equivalent to 9.3pence per share. Revenue from continuing operations was ‚£3,023 million, astable result at constant currency. The Board has recommended a full yeardividend of 3.8 pence per share, after paying 1.16 pence per share at theinterim stage. This represents a 21 percent increase in the total dividend,indicating our confidence in the Group.'The past 12 months have been a time of transition, as Cable &Wireless entered a new phase in the three-year programme to revive theCompany. By the end of the year, the Chief Executive and his new team were nolonger preoccupied with the issues of the Company's past, and had turnedconfidently to face the future.'Over the past year, the management has delivered on the promisesit made in June 2003. We completed our exit from the US market atsubstantially lower cost than originally expected. This allowed the ChiefExecutive to concentrate on restructuring our UK business and stabilising itsperformance. Customer focus has been central to our new structures. Anenormous amount of work has gone into improving operations and tightening costcontrols in the legacy businesses.'We are also seeing some excellent groundwork in networkdevelopment. A prime example is our investment in Bulldog, the UK broadbandoperator, we acquired last May. Bulldog gives us network access across the`last mile' to the customer, enabling us to offer an end-to-end service.Building our customer base in this way is an important goal as we embark uponinvestment of ‚£190 million over three years in our UK IP-based Next GenerationNetwork (`NGN') and systems. The new technology offers network economies thatwill benefit our customers and improve our margins. In this context, wewelcome Ofcom's vision of a UK telecommunications market based on realisticand sustainable competition among players willing to invest in futuretechnological strength.'Our National Telco businesses have become more aggressive whendealing with competition. Cooperation and communication have also improved, sothat these businesses can benefit from each other's experiences of the rapidlyliberalising telecom landscape. We are successfully capitalising on ourcontrolling stake in Monaco Telecom and will take opportunities to expand ourfootprint into new geographies as appropriate.'The exit from the US and disposal of our Japanese business keptour cash intact which allowed us in November 2004 to launch a ‚£250 millionshare buyback. As at March 2005, we had bought back 60.5 million shares, at anaverage price of 124.4 pence. 'Our markets continue to suffer from excess capacity and severeprice competition. Performance improvement will come from efficiencies andcost cutting, and a shift in our sales mix towards broadband, IP and mobile.We are in a unique position to help our customers embrace these newtechnologies and I look forward with confidence to the year ahead.'Chief Executive, Francesco Caio, said:'Our results show we have produced a solid set of numbers, in a challengingmarket. This year we have made solid progress in strengthening Cable &Wireless' competitive position by focusing on markets where we can be thenumber one or number two operator, further reducing our cost base andaccelerating our investment in growth services. Specifically, we have:- Completed the US exit and sold our domestic business in Japan;- Acquired Bulldog and completed the first phase of its developmentto gain 30 percent coverage of the UK broadband market;- Committed to invest ‚£190 million over three years to build a UKNext Generation Network;- Reshaped our UK business around four key customer segments;- Refocused Europe on Carrier Services, reducing headcount andexiting non-core businesses;- Streamlined central functions, including relocating Groupheadquarters;- Initiated a programme to reduce headcount by more than 1,000 inthe UK, corporate and Europe;- Invested in mobile and broadband in National Telcos; and- Established pan-regional initiatives including procurement andmarketing plans for National Telcos.'Our strategy is to establish a sustainable position as aninfrastructure-based competitor operating with its own access network,building a strong customer franchise, both with consumers and businesses,investing in IP, broadband and mobile to pursue profitable growth in newservices.'Through our investments in UK Local Loop Unbundling (`LLU') and NextGeneration Network we have a unique opportunity to lead the telecom industryin its transition from traditional services to IP and redefine the competitivescenario to our advantage.National Telcos'Each of the 34 national markets in which our National Telcosoperate is at a different stage of liberalisation, with its own customerprofile but the competitive challenges are similar, our priorities are clearand we must:- Drive change and performance, especially in our sales andmarketing response to competition;- Shift the revenue mix to new services through further investmentin broadband, IP and mobile; and- Lower costs to protect margins in legacy services.'We aim to be market leaders in mobile and have actively worked toreclaim business. Our bmobile brand has increased market share in theCaribbean and in Bahrain a pro-active response enabled Batelco to retaincustomer share against competition from new entrants. We are leaders in mostof our National Telco markets for broadband and IP and are working to maximisemarket penetration. Many of the countries in which we operate still haverelatively low take-up levels, and we are well positioned to offer servicesthat assist customers in the transition. We have started to invest in IPbackbones in countries where traffic volumes justify the expenditure,including in the Caribbean where hurricane damage has driven infrastructurereplacement. Network upgrades are also underway in Monaco, Macau, the CaymanIslands and Grenada.'The need for continuing cost reduction remains high on our agendaand we have initiated a number of programmes, including outsourcing theCaribbean mobile supply chain, leveraging our strengths in Group-wideprocurement, consolidating data centres and rationalising our propertyportfolio. These are showing positive initial results but our cost reductionneeds to intensify in the coming year.Next Generation Network (`NGN')'A migration of our UK network to NGN will be a further element ofour strategy. We intend to invest ‚£190 million over three years to transformour core network into a single integrated IP platform. A large proportion ofthe anticipated capital expenditure will replace expenditure that wouldotherwise have been needed to maintain our legacy systems, so that incrementalUK investment is only ‚£35 million over the three years. The benefit of thisinvestment is a less complex, highly scalable network capable of accommodatingsignificant growth in traffic at a lower capital cost and permanently loweroperating and maintenance costs. Most importantly, our Next Generation Networkwill support customer demand, providing greater functionality and customisedsolutions at an attractive price.Ofcom Strategic Telecoms Review'The regulatory framework remains fundamental to our business andinvestment decisions. In particular, Ofcom's Strategic Telecoms Reviewprovides an opportunity to create a more transparent and effective regulatoryregime in the UK. We are encouraged by the review's emphasis oninfrastructure-based competition and the principle of equivalence. It isvital, however, the review delivers an effective and enforceable regulatorysettlement. Fair competition must be at the heart of the UK telecoms market ifcustomers are to benefit from the variety of services that new technologiescan offer.Bulldog'The acquisition in May 2004 of Bulldog Communications, thebroadband operator, was an important step in advancing our UK access strategy,giving us control of the valuable `last mile' and an expanding customer base.We now have coverage of 30 percent of the UK broadband market, reaching ourinitial target of 400 unbundled exchanges by end of May 2005, seven monthsahead of the original timetable.'Based on the customer response we have seen to date we are todayannouncing an extension to our rollout plan and additional new services.'We now intend to unbundle an additional 200 exchanges by the endof March 2006, giving total unbundled exchanges of 600 and a further 200exchanges in the first half of 2006/7 bringing the total to 800 exchanges.This will increase our investment losses in 2005/6 but we see it as vital incapturing the real and increasing UK customer demand for broadband.'We are also announcing the launch in June of a new SoHo offering,that provides up to 8 VoIP lines, data and fast internet access all through asingle pipe.'We have reorganised the remaining UK business around customersegments and through our work this year we now have visibility of theeconomics of each of our UK segments - Enterprise, Business and CarrierServices. This has assisted us in identifying priorities and targeting costreductionsRetail: Enterprise and Business'During the year we successfully increased the percentage of IP spend withexisting Enterprise customers. The development of the NGN and an accessnetwork positions Cable & Wireless as a reliable, innovative, scale partnerfor our Enterprise customers' migration to IP, offering lower prices and moresophisticated services. In Business, we are focusing on productdifferentiation and customer service.Carrier Services'Our intercontinental network is a major international carrieracross 200 countries, the world's sixth largest for international voice andfifth largest for data. Carrier Services operates in a highly competitivemarket that continues to suffer from over-capacity and pricing pressure.Nonetheless it provides a useful means to improve our network economics so wehave worked hard to improve market share and our innovative customer solutionshave won some notable contracts. We launched our global Carrier Multi PacketLabelling Switching (`MPLS') service, which can transmit any type of trafficin internet protocol (`IP') format, and have already signed up 8 significantcarriers. During the year revenues were impacted by the regulatory change infixed to mobile termination rates. In the future we will increase our focus ondriving cash margins from this profitable segment.'In summary, I am pleased with progress over the year. We havedelivered on the first two phases of our plan, reconstructing a competitiveposition for the company, through our more focused footprint and streamlinedorganisation. We have increased investment in broadband and IP and we havedefined and are building a clear path to the future across all our markets. Inparticular, I am confident that our decision to invest in Next GenerationNetwork for the UK will reinforce our position as one of the only nationalinfrastructure player with the scale, access and resources to provide acompetitive offering to businesses and consumers.'Outlook[1]We expect that operating profit margins within our establishedbusinesses will remain broadly stable in 2005/6 before the impact of thefollowing:At the Group level we estimate:- Operating cost reductions amounting to ‚£35 million in 2005/6, asa result of our reorganisation of the UK, corporate and Europe;- Outpayments and network UK cost savings of ‚£50 million in 2005/6,which will mitigate the impact of continued pricing pressure;- A 2005/6 Group depreciation charge of approximately ‚£240 million(including NGN and Bulldog);- Group capital expenditure of between ‚£435 million and ‚£455million. This includes UK capital expenditure of approximately ‚£225 million(including NGN). It also includes capital expenditure relating to the Bulldogexchange rollout of approximately ‚£70 million; and- A Group effective tax rate of approximately 15 percent for thenext three years.[1] On a UK GAAP basisBulldog:We have announced today the extension of the Bulldog exchangerollout. We now plan to unbundle 600 exchanges in total by end of March 2006and 800 exchanges in total by end of June 2006. We expect Bulldog'sperformance to be: - Estimated 2005/6 EBITDA losses of ‚£75 million, due to a lag in prior year, customer provisioning, increased marketing and advertising spend and losses associated with the additional 200 exchanges; - Estimated 2005/6 depreciation of ‚£15 million; - Estimated 2005/6 cash capital expenditure of ‚£70 million reflecting the cash underspend in 2004/5 of ‚£14 million and the rollout of the additional 200 exchanges.Operating losses in 2006/7 are expected to halve compared to2005/6, beyond which we anticipate minimal losses.EXECUTIVE SUMMARYTrading overviewRevenue from continuing operations for the year to 31 March 2005 was ‚£3,023million, a stable performance at constant currency compared to the prior yearand a 3 percent decline at reported rates.This result reflects strong performances in Panama where revenue increased by6 percent at constant currency and the Rest of the World[2] where revenueincreased by 11 percent at constant currency, together with the contributionof revenue from Monaco Telecom, which was acquired in June 2004. Offsettingthese strong performances, revenue in Europe declined by 27 percent atconstant currency, revenue in the UK declined by 4 percent and revenue in theCaribbean declined by 3 percent at constant currency.Operating profit from continuing operations before exceptionalitems for the year to 31 March 2005 was ‚£277 million, an improvement of ‚£46million over the prior year, reflecting a 33 percent improvement at constantcurrency. The main drivers of this improvement were the stronger UKperformance and the ongoing focus on cost reduction across the Group, togetherwith the contribution from Monaco Telecom.Profit before tax and exceptional items from continuing operations was ‚£361million for the year to 31 March 2005 compared to ‚£319 million in the prioryear.[2] Rest of the World comprises Group operations in Guernsey and the Maldivestogether with smaller operations in the Seychelles, Bermuda, Sakhalin inRussia, Diego Garcia, Falkland Islands, Fiji, Ascension Island, St Helena,Vanuatu, Solomon Islands, Jersey and the Isle of Man.Acquisitions and DisposalsOn 28 May 2004, Cable & Wireless acquired Bulldog Communications(`Bulldog') for a consideration of ‚£18.6 million. Bulldog contributed revenueof ‚£11 million and an operating loss before exceptionals and amortisation of‚£30 million for the period from acquisition to 31 March 2005. Results forBulldog are separately disclosed on page 20 of this document.On 18 June 2004, Cable & Wireless acquired a 55 percent economicinterest in Monaco Telecom S.A.M. (`Monaco Telecom') for a total considerationof ƒ¢'‚¬162 million (‚£108 million). Monaco Telecom contributed revenue of ‚£100million and an operating profit before exceptionals and amortisation of ‚£21million for the period from acquisition to 31 March 2005. Results for MonacoTelecom are separately disclosed on page 27 of this document.On 26 October 2004, Cable & Wireless announced the sale of itsstake in Cable & Wireless IDC, Inc. (`IDC'), its Japanese subsidiary, toSOFTBANK Corp (`Softbank'). The sale was completed on 17 February 2005 andCable & Wireless received a consideration of ‚£71.7 million, comprising ‚£62.3million of cash and Softbank's assumption of ‚£9.4 million of debt. Theconsolidated Group financial statements for the year ended 31 March 2005recognise a profit on disposal of ‚£42 million relating to this transaction.Cable & Wireless retains a sales office and two network nodes in Japan tomaintain services specifically for its international Enterprise and CarrierServices customers.On 28 January 2005, Cable & Wireless sold its 3.4 percent stake inIntelsat (the satellite communications company). The stake was held bothdirectly by Cable and Wireless plc and through various Group subsidiaries andassociates. Total cash proceeds from the disposal of this investment wereUS$104.8 million (‚£56 million). Cable & Wireless has now disposed of all ofits satellite shareholdings.RegulatoryThe UK regulator, Ofcom, is due to consult on the final decision ofits Strategic Telecoms Review in summer 2005. Ofcom's stated objective is thatit would seek to promote competition at the deepest level of infrastructurewhere it is effective and sustainable to do so. Ofcom believes the optimum wayto achieve this is through the concept of equality of access, which itbelieves will lead to the creation of a more effectively competitive market inthe UK. Implementing the concept of equality of access will ensure all playershave fair and reasonable access to critical local infrastructure assets byneutralising BT's historic ability to leverage its unique position as both amonopoly local infrastructure owner and competitive retailer.Ofcom has made Local Loop Unbundling (`LLU') a central theme inachieving deep level infrastructure competition and the creation of an LLUadjudicator in 2004 has resulted in more focused efforts to remove many of thebarriers to wider scale rollout of LLU. However the critical elements ofrevaluing BT's local copper network, the review of the regulated cost ofcapital to be applied to BT's existing and future investments, charges forwholesale line rental and fully unbundled local loops remain outstanding andthe detail of the decisions reached in the next few months will be vital increating a sustainable competitive market in the UK.Discontinued operationsDiscontinued operations in the year to 31 March 2005 comprise IDCand credits relating to transactions associated with the exit of the USdomestic business in the prior year. Other items relate to the release ofpreviously accrued costs no longer required. Discontinued operations in theyear to 31 March 2004 also relate to TeleYemen.Exceptional itemsIn the year to 31 March 2005 the Group recognised a net exceptionalcharge before tax of ‚£14 million, comprising an exceptional charge incontinuing operations of ‚£159 million and an exceptional credit indiscontinued operations of ‚£145 million. Detailed analysis of exceptionalitems is given on page 11 of this document.Cash and fundingAt 31 March 2005, the Group's cash and short-term investments were‚£2,166 million. Total borrowings were ‚£824 million, of which long-term debtwas ‚£801 million. The net cash balance at 31 March 2005 was ‚£1,342 million.Cash and short-term investments include ‚£14 million of treasury investmentsand ‚£80 million of Credit Linked Notes referenced to the Group's 2012 ‚£200million bond (which have a similar economic effect to repurchasing the bondsfor the period of the investment) and ‚£42 million ring-fenced in relation toperformance guarantees.During the year ended 31 March 2005 the Group bought back ‚£20million of its 8.625 percent 2019 bonds and ‚£16 million of its 8.75 percent2012 bonds for an aggregate consideration of ‚£36 million.DividendThe Board reinstated the dividend in June 2004 and, in August 2004,a full year dividend of 3.15 pence was paid in respect of the year ended 31March 2004. The full year dividend comprised a notional interim dividend of1.05 pence and a final dividend of 2.1 pence.The Board has recommended a full year dividend for the year ended31 March 2005 of 3.80 pence, comprising 1.16 pence per share for the interimand 2.64 pence per share for the final dividend. The recommended dividend issubject to approval of the shareholders at the Annual General Meeting to beheld on 22 July 2005. If approved, the final dividend will be paid on 11August 2005 to ordinary shareholders on the register as at 8 July 2005 and toAmerican Depositary Receipt holders on 18 August 2005 on the register as at 8July 2005.The scrip dividend scheme will be offered in respect of the finaldividend. Those shareholders who have already elected to join the scheme needdo nothing since the final dividend will be automatically applied to thescheme.Shareholders wishing to join the scheme for the final dividend (andall future dividends should return a completed mandate form to Lloyds TSBRegistrars, The Causeway, Worthing, West Sussex, BN99 2DZ by Thursday 14 July2005. Copies of the mandate form, and the scrip dividend brochure, can beobtained from Lloyds TSB Registrars (UK callers: 0870 600 3975, overseascallers: +44 1903 502 541) or from the Company's website (www.cw.com).Return of capitalOn 10 November 2004, Cable & Wireless announced a ‚£250 millionshare repurchase programme, reflecting the Board's view that a return ofcapital was possible as a result of the progress made in dealing with legacyissues such as the US exit, the sale of IDC and the sale of Intelsat.At 31 March 2005, 60.5 million shares had been repurchased at atotal cost of ‚£75.3 million, equating to an average price per share of 124.4pence. Shares repurchased are held as treasury shares. We expect the sharerepurchase programme will be completed by 31 March 2006.FINANCIAL RESULTSThe results and commentary that follow focus on the continuing activities ofthe Group and the geographic businesses within the Group.The Group results presented below should be read in conjunctionwith the Group's consolidated profit and loss, balance sheet and cash flowstatements and related notes on pages 31 to 41.Group Profit and Loss H1 H2 FY FY Constant Currency 2004/5 2004/5 2004/5 2003/4 GrowthContinuing Operations ‚£m ‚£m ‚£m ‚£m %Revenue 1,507 1,516 3,023 3,130 -Outpayments and network costs (829) (820) (1,649) (1,745) 3Staff costs (262) (265) (527) (524) (4)Other costs (169) (202) (371) (408) 4Depreciation before exceptionalitems (98) (94) (192) (225) 9Operating profit before exceptionalitems and amortisation 149 135 284 228 38Amortisation of goodwill (1) (6) (7) 3Operating profit before exceptionalitems 148 129 277 231 33Exceptional items- depreciation (14) 6 (8) (404)- amortisation - - - (10)- other operating costs 12 (156) (144) (219)Joint ventures and associates 21 19 40 41Total operating profit/(loss) 167 (2) 165 (361)Exceptional (losses)/profits onsale and termination of operations - (14) (14) 2Profits on disposal of fixed assetsbefore exceptional items 2 3 5 26Exceptional profits on disposal offixed assets - 7 7 12Net interest income 16 19 35 18Other similar income/(charges) 5 (1) 4 3Profit/(loss) before tax 190 12 202 (300) Profit before tax and exceptionalitems 192 169 361 319The Trading overview section on page 7 provides additional commentary on theGroup's performance.The Group recorded a total operating profit from continuing operations of ‚£165million for the year ended 31 March 2005. This is after taking account ofexceptional operating costs of ‚£144 million, comprising costs associated withrestructuring and the impact of Hurricane Ivan. There was also an exceptionaldepreciation charge of ‚£8 million.Net interest income of ‚£35 million reflects an increase in theinterest earned compared to the prior year due to the rising interest rateenvironment.There are various other non-trading items, totalling ‚£9 million, andexceptional items totalling ‚£7 million included in the profit before tax fromcontinuing operations of ‚£202 million in the year. These principally relate toprofits and losses on the sale of various fixed asset investments, includingIntelsat.Attributable profit/(loss) 2004/5 2003/4 Underlying Underlying Amortisation Exceptional Reported Reported continuing Group of goodwill Items operations* result* ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m Continuing 368 368 (7) (159) 202 319Discontinued - 16 - 145 161 (543)Profit/(loss) before 368 384 (7) (14) 363 (224)taxTax (75) (75) - 89 14 12Profit/(loss) after 293 309 (7) 75 377 (212)taxMinority interests (78) (78) - 3 (75) (25)Attributable 215 231 (7) 78 302 (237)profit/(loss)Earnings/(loss) per 9.3 13.0 (10.2)share (pence)* Excluding amortisation of goodwill and exceptional itemsExceptional itemsIn the year ended 31 March 2005 the Group recognised a ‚£14 millionbefore-tax charge in respect of exceptional items, of which a ‚£159 millioncharge related to continuing operations and a ‚£145 million credit related todiscontinued operations.The exceptional tax credit of ‚£89 million comprises a ‚£4 millioncredit on exceptional items and a credit of ‚£85 million relating to thesettlement of various tax items at less than their expected cost, and furtherclarity as to the expected cost of other overseas tax items.The analysis of the continuing exceptional charge of ‚£159 million is set outin the table below.Continuing operations 2004/5 2003/4 ‚£m ‚£mOperating itemsUK restructuring (68) (147)Europe restructuring (39) (7)Corporate restructuring (31) (15)Asia restructuring (1) (4)National Telcos restructuring (2) (46)Hurricane costs (18) -Onerous contract provisions 15 - (144) (219) Depreciation (8) (404)Amortisation of goodwill - (10)Operating Costs (8) (414) Profits on disposal of fixed assets 7 12(Loss)/profits on sale and termination of operations (14) 2Non-operating items (7) 14 Total exceptional items from continuing operations (159) (619) Restructuring in the UK has resulted in a charge of ‚£68 millioncomprising property related costs of ‚£23 million, staff-related costs of ‚£29million, network costs of ‚£10 million and other costs of ‚£6 million.In Europe, exceptional restructuring costs of ‚£39 million compriseproperty related costs of ‚£10 million, staff-related costs of ‚£29 million.There was also a European fixed asset impairment charge of ‚£5 million in theyear as part of the restructuring.Costs associated with the corporate reorganisation (including theclosure of the London headquarters) totalling ‚£31 million comprise propertyrelated costs of ‚£20 million, other costs of ‚£2 million and staff-relatedcosts of ‚£9 million.Costs of restructuring in Asia and the National Telcos of ‚£1million and ‚£2 million respectively relate to the final costs from previousrestructurings.The impact of Hurricane Ivan in the Caribbean resulted inexceptional operating costs of ‚£18 million relating to business and networkrestoration. There was also a ‚£3 million fixed asset write-down.Provisions relating to onerous contracts totalling ‚£15 million havebeen released in the year.Non-operating items of ‚£7 million relate to the disposal ofinvestments and operations previously exited.The analysis of the discontinued exceptional credit of ‚£145 million is set outin the table below:Discontinued operations 2004/5 2003/4 ‚£m ‚£mOperating itemsDepreciation - (122)US business restructuring - (22)Japan restructuring prior to disposal (1) (3)Total operating items (1) (147) Non-operating itemsProfits less (losses) on sale and termination of 130 248operationsProfits on disposal of fixed assets 16 16Total non-operating items 146 264 Total exceptional items from discontinued operations 145 117Exceptional items within discontinued operations relate to thedisposal of IDC in the year (‚£42 million) together with the receipt of cash aspart of the Chapter 11 process of the US domestic business and the release ofprovisions relating to the US exit (‚£66 million) and previously accrued costsno longer required (‚£22 million).A profit of ‚£16 million was recognised on the disposal of tradeinvestments in IDC.Exceptional operating items within discontinued operations in2003/4 relate predominantly to the impairment of IDC assets and therestructure of the former US operations. Non-operating items in 2003/4predominantly relate to the gain on disposal of the Group's former USoperations and the release of accruals previously set up on disposal of formerGroup businesses that were released as they were no longer required.Group cash flow H1 H2 FY FY 2004/5 2004/5 2004/5 2003/4 ‚£m ‚£m ‚£m ‚£mGroup operating profit before exceptional items 156 135 291 199Depreciation and amortisation 100 101 201 249Non-cash items (3) 6 3 (26)Working capital (27) 13 (14) (46)Net Cash outflow in respect of provisions (47) (88) (135) (303)Cash inflow from operating activities 179 167 346 73Dividends received, returns on investments andservicing of finance 14 1 15 (32)Taxation paid (18) (42) (60) (43)Capital expenditure (124) (220) (344) (342)Sale of current asset investments - - - 229Other financial investment 22 54 76 72Acquisitions and disposals (64) 29 (35) (118)Equity dividends paid (71) (26) (97) - Net cash outflow before financing and managementof liquid resources (62) (37) (99) (161) Gross cash 2,245 2,166 2,166 2,367Net cash 1,386 1,342 1,342 1,448Operating activities produced ‚£346 million of cash flow in the yearto 31 March 2005, which is an increase of ‚£273 million compared with the prioryear.Tax paid of ‚£60 million in the year to 31 March 2005 primarilyrelates to the National Telco businesses.Capital expenditure at ‚£344 million in the year was stable against2003/4 reflecting increased investment in customer service delivery (includingnetwork build and local loop unbundling) offset by the completion of theinitial roll out of GSM networks in the National Telcos.Financial investment generated net cash of ‚£76 million in 2005,primarily related to the sale of Intelsat and a trade investment.The net cash outflow from acquisitions and disposals of ‚£35 millionprimarily relates to the acquisition of Monaco Telecom and Bulldog, offset bythe disposal of IDC.Cable & Wireless Performance AnalysisContinuing Operations National Telcos UK CWAO2 Europe Asia Bulldog Caribbean Panama Macau Monaco Rest Total Other FY 2004/5 of the National World‚³ Telcos ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mRevenue 1,602 16 186 39 11 550 257 117 100 167 1,191 (22) 3,023Outpayments and network (1,066) (14) (143) (19) (13) (183) (90) (48) (55) (39) (415) 21 (1,649)costsStaff costs (248) (4) (31) (7) (12) (92) (23) (11) (13) (27) (166) (59) (527)Other costs (138) (3) (24) (7) (14) (113) (38) (8) (5) (19) (183) (2) (371)Total operating costs‚¹ (1,452) (21) (198) (33) (39) (388) (151) (67) (73) (85) (764) (40) (2,547)Depreciation before (60) - (1) (2) (58) (31) (15) (6) (18) (128) (1) (192)exceptional itemsOperating profit/(loss)before exceptionalitems and amortisation 90 (5) (12) 5 (30) 104 75 35 21 64 299 (63) 284Amortisation - - - - (4) - - - (5) 2 (3) - (7)Joint ventures and (8) - - - - 19 - - 1 28 48 - 40associatesTotal operatingprofit/(loss) before 82 (5) (12) 5 (34) 123 75 35 17 94 344 (63) 317exceptional items ‚¹ Excluding depreciation, amortisation and exceptional items‚² Cable & Wireless Americas Operations, Inc (`CWAO') provides data and IPsolutions to international Enterprise and Carrier Services customers withservice requirements to, from and within the United States. CWAO startedtrading on 1 September 2003 after Cable & Wireless formalised its ongoingcommercial dealings between its former US business (`CWA') and the rest of theGroup‚³ `Rest of the World' comprises the results of the Group's operations in theAtlantic, Pacific and Indian Oceans, the Middle East and GuernseyThe geographical financial information in the above table reflects themanagement structure of the organisation during the year to 31 March 2005.United Kingdom Change as Change as H1 H2 FY FY reported** reported** 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % %Enterprise 232 243 475 453 5% 5%Business 198 196 394 445 (1)% (11)%Carrier Services 380 353 733 763 (7)% (4)%Total revenue 810 792 1,602 1,661 (2)% (4)%Outpayments and network costs (554) (512) (1,066) (1,158) 8% 8%Staff costs (118) (130) (248) (254) (10)% 2%Other costs (65) (73) (138) (148) (12)% 7%Total operating costs* (737) (715) (1,452) (1,560) 3% 7%Depreciation (30) (30) (60) (68) - 12%Operating profit beforeexceptionals and amortisation 43 47 90 33 9% 100+%Joint ventures & associates (2) (6) (8) (1) (100+)% (100+)%Total operating profit beforeexceptionals 41 41 82 32 - 100+%Headcount (number)*** 4,410 4,499 4,499 4,398 (2)% (2)%Cash capex 47 91 138 101 (94)% (37)%Free cash flow 26 (14) 12 - (100+)% -*Excluding depreciation, amortisation and exceptional items**Positive percentage represents improvement*** H1 2004/5 restated to include 146 Group IT heads that were transferred toUK headcount in Jan 05Revenue for the six months to 31 March 2005 was ‚£792 million, adecline of 2 percent against the prior half, principally due to the decline inCarrier Services revenue following the regulated reduction in mobiletermination rates from 1 September 2004. Revenue for the year was ‚£1,602million, a decline of 4 percent against the prior year, driven by declines inCarrier Services and Business revenue.Enterprise revenue for the full year increased by 5 percent fromthe prior year as a result of continued expansion of sales to key financialservices customers. The UK supported Aviva's ongoing expansion of its customercontact centres and network rollout across the United Kingdom and in April2005 the UK executed a five-year contract with Ryanair, valued at ‚£5 million,to manage its pan-European IT and communications network.Business revenue for the full year declined by 11 percent from theprior year and by 1 percent from H1 2004/5 reflecting the high price erosionand churn levels experienced in this segment. Notwithstanding the difficulttrading conditions, recent initiatives undertaken in the UK have resulted insome noteworthy wins. For example in H2 2004/5, the UK executed a three yearcontract with Scottish & Newcastle plc valued at ‚£2.1 million to provideinternet protocol virtual private network quality of service (`IP-VPN QoS') tointegrate 66 of its manufacturing distribution and sales sites to a singledata network.Carrier Services revenues for the full year declined by 4 percentdue in large part to the regulated reduction in mobile termination rates.Adjusting for this impact, Carrier Services revenue was stable against theprior year. To combat the loss of revenue from the reduction in mobiletermination rates and the high level of price erosion, the UK is working toincrease volumes in most of the key product sets and has extended contractswith existing customers such as Centrica and the Post Office in fixed linevoice services.Outpayments and network costs declined by 8 percent against theprior year due in large part to the reduction in mobile termination rates and,to a lesser extent, the increased focus on cost savings through networkefficiency and vendor re-negotiation programmes.Staff costs were stable against the prior year but increased by 10 percentagainst H1 2004/5 as a result of a transfer of costs relating to Group ITstaff into the UK's operating cost base and as a result of staff up-skillingnecessary to support the UK restructuring programme.The increase in losses from Joint ventures and associates in the second halfrelates to the write-off of Apollo undersea cable assets.Total operating profit before exceptionals for the full year was‚£82 million compared to ‚£32 million in the prior year. This improvementresults from the cost initiatives highlighted above, which offset the revenuedecline. In addition, operating profit performance was positively impacted byan ‚£8 million depreciation benefit from the impairment taken in the prioryear.Cash capital expenditure increased to ‚£138 million from ‚£101 million in theprior year, due to transformational investments. These include projects tolink order processing, provisioning and billing systems and upgrades tofinancial reporting systems. The increase in capex in the second half of theyear resulted in a negative free cash flow in H2 2004/5.United States - Cable & Wireless Americas Operations, Inc. (`CWAO')+ Change as Change as H1 H2 FY FY reported** reported** cc growth1 cc growth1 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % % % %Enterprise 4 5 9 4 25% 100+% 29% 100+%Business - - - - - - - -Carrier Services 3 4 7 7 33% - 37% 9%Total revenue 7 9 16 11 29% 45% 33% 59%Outpayments and networkcosts (7) (7) (14) (23) - 39% (3)% 33%Staff costs (2) (2) (4) (4) - - (3)% (9)%Other costs (2) (1) (3) - 50% - 47% -Total operating costs* (11) (10) (21) (27) 9% 22% 6% 15%Depreciation - - - - - - - -Total operating profitbefore exceptionals (4) (1) (5) (16) 75% 69% 73% 66%Headcount (number) 49 41 41 60 16% 32% - -Cash capex - - - - - - - -Free cash flow (4) (1) (5) (16) 75% 69% 73% 66%*Excluding depreciation, amortisation and exceptional items**Positive percentage represents improvementRevenue for the six months to 31 March 2005 was ‚£9 million, anincrease of 33 percent at constant currency against the prior half,principally due to the resolution of billing disputes and a successful billingaudit. Revenue for the year was ‚£16 million, an increase of 59 percent atconstant currency against the prior year, driven by the longer trading periodin 2004/5 and the successful migration of customers from the former Cable &Wireless US network (now owned by SAVVIS Communications) to CWAO'spurpose-built network.Enterprise revenue for the full year increased by more than 100 percent atconstant currency against the prior year due to the longer trading period andthe acquisition of new customers. Carrier Services revenue for the full yearincreased by 9 percent at constant currency from the prior year due to asignificant increase in sales to other US carriers which offset a decline insales to SAVVIS Communications.Outpayments and network costs declined by 33 percent at constantcurrency from the prior year. Taking into account the longer trading period in2004/5, this significant cost reduction was due to the migration of customersonto CWAO's own network.Staff costs increased by 9 percent at constant currency but were stableagainst the prior year at reported rates and due to headcount reductionsduring the period being offset by the longer trading period in 2004/5.Total operating loss before exceptionals was ‚£5 million, an improvement of 66percent at constant currency.+ Cable & Wireless Americas Operations, Inc (`CWAO') provides data and IPsolutions to international Enterprise and Carrier Services customers withservice requirements to, from and within the United States. CWAO startedtrading on 1 September 2003 after Cable & Wireless formalised its ongoingcommercial dealings between its former US business (`CWA') and the rest of theGroup1 CC Growth - constant currency growth rate based on therestatement of prior period comparatives at current period's reported averageexchange rates. Positive percentage represents improvement.Europe Change as Change as H1 H2 FY FY reported** reported** cc growth1 cc growth1 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % % % %Enterprise 13 9 22 40 (31)% (45)% (33)% (44)%Business 5 4 9 14 (20)% (36)% (23)% (34)%Carrier Services 78 77 155 208 (1)% (25)% (4)% (24)%Total revenue 96 90 186 262 (6)% (29)% (9)% (27)%Outpayments and networkcosts (73) (70) (143) (198) 4% 28% 7% 26%Staff costs (15) (16) (31) (40) (7)% 23% (3)% 21%Other costs (13) (11) (24) (30) 15% 20% 18% 18%Total operating costs* (101) (97) (198) (268) 4% 26% 7% 24%Depreciation - - - (1) - 100% - 100%Total operating profitbefore exceptionals (5) (7) (12) (7) (40)% (71)% (36)% (75)%Headcount (number) 489 423 423 519 13% 18%Cash capex 1 1 2 7 - 71% 3% 71%Free cash flow (6) (8) (14) (13) (33)% (8)% (30)% (10)%*Excluding depreciation, amortisation and exceptional items**Positive percentage represents improvementRevenue for the six months to 31 March 2005 was ‚£90 million, adecline of 9 percent at constant currency against the prior half, due to adecline in Enterprise revenue. Revenue for the full year was ‚£186 million, adecline of 27 percent at constant currency against the prior year due mainlyto the decline in all revenue segments. Going forward, Europe will be focusedon Carrier Services and will continue to provide voice, IP and Data servicesto UK-based Enterprise customers.Enterprise revenue for the full year declined by 44 percent atconstant currency compared to the prior year, reflecting the loss of a majorcontract in H1 2004/5 and the full year impact of domestic operationsdisposals in 2003/4. Business revenue for the full year declined by 34 percentat constant currency compared to the prior year, also due to the impact of thedomestic operations disposals in 2003/4 and the refocus of Europe on CarrierServices. Carrier Services revenues for the full year declined by 24 percentat constant currency compared to the prior year as a result of excess capacityin the European carrier market which drove aggressive pricing competition,together with a shift in revenue mix from high revenue to low revenuedestinations. Despite this decline, Europe has continued to market to newcustomers, recently winning a new contract with Belgacom to provide carrierMulti-Protocol Label Switching (`MPLS') services.Outpayments and network costs declined by 26 percent at constantcurrency compared to the prior year primarily due to the reduced scale of ouroperations in Europe.Staff costs declined by 21 percent at constant currency compared to the prioryear due to cost savings from headcount reductions effected during 2003/4.Headcount in Europe reduced by 18 percent in 2004/5 and further reductions arescheduled by March 2006.Total operating loss before exceptionals was ‚£12 million compared to a loss of‚£7 million in the prior year due to the material decline in revenue,particularly in the Enterprise and Business segments.Cash capital expenditure reduced to ‚£2 million from ‚£7 million in the prioryear, due to the reduced scale of operations in Europe.1 CC Growth - constant currency growth rate based on the restatement of priorperiod comparatives at current period's reported average exchange rates.Positive percentage represents improvement.Asia+ Change as Change as H1 H2 FY FY reported** reported** cc growth1 cc growth1 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % % % %Enterprise 17 17 34 27 - 26% 3% 38%Business - - - 2 - (100)% - (100)%Carrier Services 1 4 5 3 100+% 67% 100+% 83%Total revenue 18 21 39 32 17% 22% 20% 34%Outpayments and networkcosts (9) (10) (19) (21) (11)% 10% (15)% 1%Staff costs (3) (4) (7) (8) (33)% 13% (37)% 4%Other costs (6) (1) (7) (4) 83% (75)% 81% (92)%Total operating costs* (18) (15) (33) (33) 17% - 14% (10)%Depreciation - (1) (1) (1) - - - (10)%Total operating profitbefore exceptionals - 5 5 (2) - 100+% - 100+%Headcount (number) 213 221 221 173 (4)% (28)%Cash capex 1 1 2 3 - 33% (3)% 27%Free cash flow (1) 5 4 (4) 100+% 100+% 100+% 100+%*Excluding depreciation, amortisation and exceptional items**Positive percentage represents improvementFollowing its disposal of Cable & Wireless IDC, Inc., (Cable &Wireless' Japanese subsidiary) on 19 February 2005, Cable & Wireless hasrefocused its business in Asia on serving Enterprise customers that require IPand managed data services to and from Asia, and Carrier Services customers.Revenue for the six months to 31 March 2005 was ‚£21 million, anincrease of 20 percent at constant currency against H1 2004/5, due toincreases in Carrier Services revenue. Revenue for the year was ‚£39 million,an increase of 34 percent at constant currency against the prior year, drivenby a strong performance in both Enterprise and Carrier Services.Enterprise revenue for the full year increased by 38 percent atconstant currency from the prior year as a result of improved marketing,including the launch of new Multi-Protocol Label Switching (`MPLS') andManaged Network services within the region. Cable & Wireless' operations inthe Business segment were sold as part of the disposal of Cable & WirelessIDC, Inc. Carrier Services revenue for the full year increased by 67 percentat reported rates and by 83 percent at constant currency from the prior yearas a result of increased focus on this segment.Outpayments and network costs declined by 1 percent at constantcurrency from the prior year due to cost reduction initiatives, including areview of leased circuit costs and improvements to network routings. Staffcosts declined by 4 percent at constant currency from the prior year due toongoing cost reduction initiatives.Total operating profit before exceptionals was ‚£5 million, an increase of morethan 100 percent at constant currency.+ Since the disposal of Cable & Wireless IDC, Inc., Cable &Wireless' operations in Asia span Australia, China, Hong Kong, India, Japanand Singapore.1 CC Growth - constant currency growth rate based on therestatement of prior period comparatives at current period's reported averageexchange rates. Positive percentage represents improvement.Bulldog+ H1 H2 FY FY 2004/5 2004/5 2004/5 2003/4 ‚£m ‚£m ‚£m ‚£mTotal revenue 4 7 11 -Outpayments and network costs (4) (9) (13) -Staff costs (3) (9) (12) -Other costs (1) (13) (14) -Total operating costs* (8) (31) (39) -Depreciation - (2) (2) -Operating profit before exceptionals andamortisation (4) (26) (30) -Amortisation (1) (3) (4) -Joint ventures & associates - - - -Total operating profit before exceptionals (5) (29) (34) -Headcount (number) 190 505 505 -Cash capex 4 23 27 -Free cash flow (8) (47) (55) -* Excluding depreciation, amortisation and exceptional items** Positive percentage represents improvementRevenue for the ten months to 31 March 2005 was ‚£11 million, reflecting strongdemand in the UK SoHo (small office or home office) and consumer market forthe high speed broadband services offered by Bulldog. In particular, Bulldoghas seen high demand for its Super@ctive product that includes 4Mbps broadbandplus unlimited national and local phone calls and its Inter@ctive product thatincludes 4Mbps broadband services.Outpayments and network costs of ‚£13 million represent the costs of Bulldog'sUK broadband network, including payments to Cable & Wireless UK for theutilisation of its voice and backbone network. Staff costs of ‚£12 millionrepresent the recruitment and salary costs of the employee base of 505 people.Bulldog's investment in advertising and marketing to increase its brandawareness as well as the costs of external expertise engaged to reviewBulldog's operational processes are the most substantial component of the ‚£14million within other costs.The depreciation charge of ‚£2 million relates to the capital investment beingmade in the expansion of Bulldog's local loop unbundled network and associatedsystems.The amortisation charge of ‚£4 million relates to the goodwillarising on the acquisition of Bulldog.During the year, Bulldog invested ‚£27 million of cash capex in theinitial build out of its broadband network infrastructure. This investment wasdriven by unbundling local exchanges (252 exchanges unbundled at 31 March2005), installation of metronodes (6 installed at 31 March 2005) andinvestment in information technology.+ Cable & Wireless acquired Bulldog Communications (`Bulldog') on28 May 2004. Accordingly, Bulldog Communications contributed to Cable& Wireless results for approximately 4 months in H1 2004/5 and for the fullperiod in H2 2004/5.National Telcos Change as Change as H1 H2 FY FY reported** reported** cc growth1 cc growth1 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % % % %International voice 115 95 210 261 (17)% (20)% (14)% (12)%Domestic voice 180 171 351 392 (5)% (10)% (1)% (1)%Mobile 159 185 344 299 16% 15% 20% 26%Data & IP 75 79 154 150 5% 3% 9% 13%Other 47 85 132 85 81% 55% 82% 70%Total revenue 576 615 1,191 1,187 7% - 10% 10%Outpayments and networkcosts (188) (227) (415) (368) (21)% (13)% (24)% (24)%Staff costs (79) (87) (166) (163) (10)% (2)% (13)% (12)%Other costs (91) (92) (183) (226) (1)% 19% (5)% 11%Total operating costs* (358) (406) (764) (757) (13)% (1)% (17)% (11)%Depreciation (66) (62) (128) (153) 6% 16% 3% 8%Operating profit beforeexceptionals andamortisation 152 147 299 277 (3)% 8% -% 18%Amortisation - (3) (3) 3 - (100+)% (100+)% (100+)%Joint ventures andassociates 23 25 48 42 9% 14% 12% 25%Total operating profitbefore exceptionals 175 169 344 322 (3)% 7% 9% 36%Headcount (number) 9,092 8,766 8,766 8,430 4% (4)%Cash capex 65 96 161 195 (48)% 17% (53)% 9%Free cash flow 153 113 266 235 (26)% 13% (24)% 23%* Excluding depreciation, amortisation and exceptional items** Positive percentage represents improvementThe performances of the individual business units which comprise the NationalTelcos are discussed on pages 22 to 28.1 CC Growth - constant currency growth rate based on therestatement of prior period comparatives at current period's reported averageexchange rates. Positive percentage represents improvement.Caribbean Change as Change as H1 H2 FY FY reported** reported** cc growth1 cc growth1 2004/5 2004/5 2004/5 2003/4 H2 v H1 FY v FY H2 v H1 FY v FY ‚£m ‚£m ‚£m ‚£m % % % %International voice 69 54 123 160 (22)% (23)% (18)% (15)%Domestic voice 94 84 178 204 (11)% (13)% (7)% (3)%Mobile 63 73 136 143 16% (5)% 20% 6%Data & IP 36 35 71 70 (3)% 1% 1% 13%Other 14 28 42 56 100% (25)% 100+% (17)%Total revenue 276 274 550 633 (1)% (13)% 3% (3)%Outpayments and networkcosts (89) (94) (183) (203) (6)% 10% (10)% -Staff costs (44) (48) (92) (97) (9)% 5% (13)% (5)%Other costs (55) (58) (113) (142) (5)% 20% (9)% 12%Total operating costs* (188) (200) (388) (442) (6)% 12% (11)% 2%Depreciation (32) (26) (58) (76) 19% 24%Related Shares:
CWC.L