Cable & Wireless PLC
24 May 2007
CABLE AND WIRELESS plc
RESULTS FOR THE YEAR ENDED 31 MARCH 2007
• Group EBITDA before exceptionals up 20% (up 26% at constant
currency) to £492 million. Group EBITDA guidance for 2007/08 in the range
of £573 million to £608 million
• Strong performance from International, with EBITDA before exceptionals of
£430 million, an increase of 8% at constant currency. International EBITDA
guidance for 2007/08 in the range of US$840 million to US$860 million
(between £438 million and £448 million)
• Europe, Asia & US (previously known as UK) turnaround ahead of schedule
with EBITDA before exceptionals for 2006/07 of £159 million. EBITDA
guidance for 2007/08 in the range of £210 million to £220 million and
significantly reduced cash envelope for turnaround from £340 million to
£280 million, all excluding C&W Access
• Group profit before income tax (including exceptionals) more than doubled
to £249 million
• Group cash and cash equivalents of £1,048 million
• Proposed full year dividend of 5.85 pence (2005/06: 4.50 pence), an
increase of 30%
Chairman's statement
Commenting on the results, Richard Lapthorne, Chairman of Cable and Wireless
plc, said:
'It's been a good year. The success of the structural changes we made a year ago
is there for all to see. International has performed well delivering growth in
customers and revenue and, as a result, improved EBITDA. We have made a very
encouraging start to the Europe, Asia & US turnaround and we now have sufficient
visibility to believe that we'll deliver on our ambitious targets. All of which
reinforces our confidence in our future prospects which is reflected in the
dividend. I'm delighted to announce that we're recommending a 34% increase in
the final dividend to 4.15 pence, which with the interim of 1.7 pence gives a
full year dividend of 5.85 pence, an increase of 30% over 2005/06.'
Contacts
GROUP
Clare Waters Director of External Affairs clare.waters@cw.com +44 (0)20 7315 4088
Ashley Rayfield Director, Investor Relations ashley.rayfield@cw.com +44 (0)20 7315 4460
Mat Sheppard Manager, Investor Relations matthew.sheppard@cw.com +44 (0)20 7315 6225
EUROPE, ASIA & US
Antonia Graham Head of Public Relations antonia.graham@cw.com +44 (0)7803 724 111
Press Office +44 (0)1344 818 888
INTERNATIONAL
Paul Wood Head of Communications paul.wood@cw.com +44 (0)7909 906819
FINSBURY Rollo Head / James Wyatt-Tilby +44 (0)20 7251 3801
1
Contents
Chairman's statement 1
Contacts 1
Group results 3
Analysis of Group results 4
Group results before exceptional items 4
Group exceptional items 6
Group earnings per share 7
Dividend 7
Reconciliation of Group EBITDA to net cash flow before financing 8
Group cash and debt 9
Group outlook 11
International 12
International key performance indicators 12
International income statement 14
Reconciliation of International EBITDA to net cash flow before financing 18
Reconciliation of International net cash flow before financing to repatriation 19
Europe, Asia & US 20
Europe, Asia & US key performance indicators 21
Europe, Asia & US income statement 22
Reconciliation of Europe, Asia & US EBITDA to net cash flow before financing 25
C&W Access income statement 26
Reconciliation of C&W Access EBITDA to net cash flow before financing 27
Group results detail 28
International results detail 29
International results detail (continued) 30
International results detail (continued) 31
Europe, Asia & US results detail 32
Extracts from the financial statements and additional information 33
Basis of preparation 33
Consolidated income statement 35
Condensed consolidated balance sheet 36
Consolidated statement of recognised income and expense 37
Consolidated cash flow statement 38
Cash flow from operating activities 39
Provisions for liabilities and charges 40
Minority interests 41
Dividends paid and proposed 41
2
GROUP RESULTS
The Group results presented below should be read in conjunction with the Group's
consolidated income statement, balance sheet and cash flow statement and related
notes on pages 33 to 41.
2006/07 2005/06 1
Pre-except- Except- Total Pre-except- Except Total
ionals ionals 2 ionals -ionals 2
£m £m £m £m £m £m
Revenue 3,348 - 3,348 3,230 - 3,230
Outpayments & (2,024) - (2,024) (1,914) (1) (1,915)
network costs
Staff costs (509) (41) (550) (527) (34) (561)
(excluding LTIP
charge)
Other costs (323) (37) (360) (378) 14 (364)
Operating costs (2,856) (78) (2,934) (2,819) (21) (2,840)
EBITDA 3 492 (78) 414 411 (21) 390
LTIP charge (27) - (27) - - -
Depreciation & (256) (13) (269) (263) (232) (495)
amortisation
Amortisation of (17) - (17) (11) (5) (16)
acquired
intangibles
Net other 11 2 13 - 17 17
operating income
Operating profit/ 203 (89) 114 137 (241) (104)
(loss)
Share of post-tax 18 (29) (11) 52 2 54
profit of joint
ventures &
associates 4
Total operating 221 (118) 103 189 (239) (50)
profit/(loss)
Net finance (28) - (28) 6 - 6
(expense)/income
Gains on sale of - 153 153 2 70 72
non-current assets
Gain on 3 18 21 - 72 72
termination of
operations
Profit/(loss) 196 53 249 197 (97) 100
before income tax
Income tax (44) 1 (43) (29) 2 (27)
(expense)/credit
Profit/(loss) for 152 54 206 168 (95) 73
the year from
continuing
operations
Profit for the - 28 28 2 88 90
year from
discontinued
operations
Profit/(loss) for 152 82 234 170 (7) 163
the year
Attributable to 92 82 174 118 (42) 76
equity holders of
the Company
Attributable to 60 - 60 52 35 87
minority interests
Profit/(loss) for 152 82 234 170 (7) 163
the year
Earnings/(losses) 4.0p 2.3p 6.3p 5.1p (5.7)p (0.6)p
per share from
continuing
operations
attributable to
equity holders
(pence)
Earnings/(losses) 4.0p 3.5p 7.5p 5.2p (1.9)p 3.3p
per share
attributable to
equity holders
(pence)
Dividend per share 5.85p 4.5p
(pence)
Capital (403) (416)
expenditure (£m)
Cash & cash 1,048 1,127
equivalents (£m)
1 Results adjusted to reflect revised accounting for Monaco Telecom and other
presentational points as set out on pages 33 to 34. 2005/06 results include
the consolidation of Energis from the date of acquisition on 11 November 2005
2 Exceptionals comprise items considered exceptional by virtue of their size,
nature or incidence and include restructuring and impairment charges, and
releases of certain provisions and certain profits and losses on disposal of
non-current assets. For further details on exceptionals refer to page 6
3 Earnings before interest, tax, depreciation and amortisation, long term
incentive plan (LTIP) charge and net other operating income. For further
details on the LTIP refer to page 4
4 Joint ventures & associates include Batelco (Bahrain) to the 16 January 2007,
the date of its disposal
3
ANALYSIS OF GROUP RESULTS
The Group's financial performance is described on pages 4 to 11 and the
performance of the individual businesses is discussed in more detail in the
International and the Europe, Asia & US sections that follow on pages 12 to 19
and 20 to 27 respectively.
The UK business has changed its name to Europe, Asia & US to give a better
reflection of the nature of its activities and the markets in which it operates.
The nature and geographic extent of the business has not changed.
The commentary that follows refers to the Group results before exceptional
items. For analysis of exceptional items see page 6.
Group results before exceptional items
Revenue
The increase in Group revenue of £118 million to £3,348 million principally
reflects the full year impact of the revenue from customers acquired as part of
the Energis transaction on 11 November 2005. This has more than offset the
impact of the anticipated churn and erosion Europe, Asia & US encountered in
subsequently restructuring the business to focus on larger, more profitable
customers. In addition, this growth was supported by a strong revenue
performance from International where further increases in mobile and broadband
revenue have compensated for the shift away from fixed line voice services and
the translation impact of a weaker US dollar.
Operating costs
The increase in operating costs of £37 million to £2,856 million was also
predominantly driven by the impact of servicing the customers acquired with
Energis.
In International, operating costs have increased by £3 million in comparison
with 2005/06 due to the increase in costs associated with the acquisition of new
mobile and broadband customers, partially offset by savings in other operating
costs.
The operating costs of Central, equivalent to its EBITDA loss, have reduced
significantly from £50 million in 2005/06 to £22 million in 2006/07 following
the restructuring of the Group. This is mainly driven by a reduction in
consultancy costs and a headcount decrease from 156 at 31 March 2006 to 75 at 31
March 2007.
EBITDA
The trends in revenue and operating costs described above resulted in a 20% (26%
at constant currency) improvement in EBITDA of £81 million to £492 million,
compared with 2005/06.
Long term incentive plan (LTIP) charge
In line with the increase in the total shareholder return from 1 April 2006 to
31 March 2007 of approximately 59%, the total LTIP charge for the year ended 31
March 2007, in accordance with IAS 19, is £27 million. This does not represent
the committed amount to participants in the plan which will depend on
performance over the life of the plan in accordance with the plan's rules.
Depreciation and amortisation
The depreciation and amortisation charge decreased by £7 million to £256 million
reflecting the impact of the impairment charge in Europe, Asia & US in 2005/06.
This has more than offset the impact of increasing depreciation in C&W Access
and International.
Net other operating income
Group other operating income of £11 million mainly relates to the profits on the
disposal of properties within Europe, Asia & US.
Share of post-tax profit of joint ventures and associates
Our share of post-tax profits of joint ventures and associates decreased by £34
million to £18 million following the disposal of Batelco, our associate in
Bahrain, and the poor performance of TSTT, our joint venture in Trinidad and
Tobago. Further analysis of the 2006/07 performance of these businesses can be
found on pages 16 to 17.
4
Net finance expense
The £28 million net finance expense for 2006/07 compares to an income of £6
million in 2005/06. Finance income has decreased by £35 million to £52 million
due principally to a reduced average cash balance. Finance expense of £80
million has decreased by £1 million compared with 2005/06.
Income tax expense
The tax expense for 2006/07 before exceptionals of £44 million comprises:
• an overseas tax expense of £54 million
• a UK deferred tax credit of £10 million
The increase of £15 million compared with 2005/06 arises mainly as a result of
the mix of profits and losses and tax rates across the countries in which we
operate.
We currently expect that:
• the tax rate for International will remain in the mid to low twenties
until at least 2008/09
• the current tax rate for Europe, Asia & US will be effectively nil for the
foreseeable future as a result of unclaimed capital allowances. At 31 March
2007, we had unclaimed capital allowances of approximately £3.8 billion
Pensions
The IAS 19 surplus for the main UK defined benefit pension scheme at 31 March
2007 is £43 million (31 March 2006: deficit £89 million). On an actuarial basis,
the fund had a surplus of £92 million at 31 March 2007, based on an approximate
update of the 2005 triennial valuation to reflect changes in the value of the
fund's assets and liabilities since that time. The next triennial valuation
review will be based on the position at March 2008.
We also have unfunded pension liabilities in the UK of £22 million (31 March
2006: £23 million).
The net IAS 19 surplus of the overseas defined benefit pension schemes is £7
million at 31 March 2007 (31 March 2006: £10 million).
5
Group exceptional items
2006/07
International Europe, Central Total
Asia & US 1
£m £m £m £m
Operating items:
Restructuring (13) (65) - (78)
Write-off of redundant assets - (13) - (13)
Net loss on sale of C&W Access - (11) - (11)
customer base
Insurance receipts and related 13 - - 13
provision releases
Trinidad & Tobago (TSTT) asset (29) - - (29)
impairment
Exceptional items within total (29) (89) - (118)
operating profit
Non-operating items:
Profit on disposal of our 153 - - 153
Bahrain associate, Batelco
Release of unused accruals - - 18 18
related to our former
insurance operation, Pender
Exceptional items below total 153 - 18 171
operating profit
Total exceptional items before 124 (89) 18 53
tax
Tax on exceptional items 1 - - 1
Total exceptional items from 125 (89) 18 54
continuing operations
Exceptional items from - - 28 28
discontinued operations:
Release of unused provisions
related to our former US
business and other
transactions
Total exceptional items 125 (89) 46 82
1 Europe, Asia & US includes C&W Access
In 2006/07, we recognised an £82 million profit in respect of exceptional items.
Headcount reduction and property rationalisation programmes resulted in a total
charge of £78 million. The headcount reduction programmes took place across
International (£13 million) and Europe, Asia & US (£28 million - net of a £6
million pension credit and including C&W Access - £3 million). In addition, as a
result of headcount reduction in Europe, Asia & US, we have vacated a number of
buildings resulting in an exceptional property rationalisation charge of £37
million, of which £28 million relates to the exit from the former Energis
headquarters in Reading.
The sale of the C&W Access retail customer base resulted in a net loss of £11
million comprising net proceeds of £9 million more than offset by the write off
of £20 million of acquired intangible assets and goodwill relating to the
business sold. Subsequently, we have also taken a £13 million charge relating to
the write off of redundant IT assets.
We also recognised £13 million of exceptional credits relating to insurance
receipts and related provision releases in International. As a result of the
poor trading performance of our joint venture, TSTT, we have written down our
share of TSTT's net assets by £29 million.
The sale of our Bahrain associate as announced in January 2007 for net proceeds
of £256 million generated a profit on disposal of £153 million.
Following progress in resolving historical claims and other risks, we have
released £18 million of unused accruals relating to Pender, our former insurance
operation.
A £28 million credit from discontinued operations has arisen from the release of
unused provisions primarily associated with the exit of our former US business
and other transactions.
6
Group earnings per share
2006/07
Before Exceptionals Reported
exceptionals
£m £m £m
Profit for the year from continuing 152 54 206
operations
Attributable to equity holders 92 54 146
Attributable to minority interests 60 - 60
Profit for the year from discontinued - 28 28
operations
Profit for the year 152 82 234
Attributable to equity holders 92 82 174
Attributable to minority interests 60 - 60
Earnings/(loss) per share from 4.0p 2.3p 6.3p
continuing operations attributable to
equity holders of the Company during
the year (pence)
2005/06 5.1p (5.7)p (0.6)p
Earnings/(loss) per share 4.0p 3.5p 7.5p
attributable to equity holders of the
Company during the year (pence)
2005/06 5.2p (1.9)p 3.3p
Earnings per share attributable to equity holders during the year of 7.5 pence
more than doubled compared with 2005/06, due to the factors described in the
Group commentary above. Excluding the profit from exceptional items, earnings
per share was 4.0 pence, a decline of 23% compared with the prior year.
Reconciliation of shares in issue to shares outstanding at year end
As at 31 March 2007 As at 31 March 2006
'000 '000
Number of shares in issue 2,460,484 2,421,046
Shares held in treasury (74,950) (74,950)
Shares held by employee share (36,793) (50,990)
ownership plan trust
Number of shares outstanding 2,348,741 2,295,106
Weighted average number of 2,324,305 2,286,129
shares outstanding during the
year for the EPS calculation
Dividend
We are proposing a full year dividend of 5.85 pence per share, which represents
an increase of 30% over the 2005/06 full year dividend and reflects the Board's
confident outlook, as well as the progress made in 2006/07. Of this year's
proposed full year dividend of 5.85 pence per share, 1.7 pence was paid as an
interim dividend on 19 January 2007.
The final proposed dividend of 4.15 pence per share will be paid on 10 August
2007 to ordinary shareholders on the register as at 15 June 2007.
The scrip dividend scheme will be offered in respect of the final dividend.
Those shareholders who have already elected to join the scheme need do nothing
since the final dividend will be automatically applied to the scheme.
Shareholders wishing to join the scheme for the final dividend (and all future
dividends) should return a completed mandate form to: Lloyds TSB Registrars, The
Causeway, Worthing, West Sussex, BN99 2DZ by 13 July 2007. Copies of the mandate
form, and the scrip dividend brochure, can be obtained from Lloyds TSB
Registrars (UK callers: 0870 600 3975, overseas callers: +44 121 415 7047) or
from our website www.cw.com.
7
Reconciliation of Group EBITDA to net cash flow before financing
2006/07 1
£m
EBITDA 2 492
Exceptional items (78)
EBITDA less exceptionals 414
Movement in exceptional provisions (25)
Movement in working capital and other (99)
provisions
Income taxes paid (46)
Finance income 66
Purchase of property, plant, equipment & (378)
intangible assets
Acquisitions & disposals 305
Other income 9
Net cash inflow before financing activities 246
1 Based on our management accounts
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
The Group net cash inflow before financing of £246 million comprises outflows of
£162 million in Europe, Asia & US and £110 million in C&W Access,(W1) , offset
by cash inflows of £482 million in International and £36 million in Central.
Further details in respect of International, Europe, Asia & US and C&W Access
cash flows are included on pages 18, 25 and 27 respectively.
The £36 million net cash inflow before financing in Central comprises interest
income of £36 million and proceeds from the redemption of credit-linked notes
(£40 million) for cash. This is offset by an EBITDA loss of £22 million and a
movement in working capital of £3 million. In addition, acquisitions and
disposals include £15 million of dividends paid to minority shareholders in
Monaco.
8
Group cash and debt
Cash and cash equivalents
As at 31 March 2007 As at 31 March 2006
£m £m
Europe, Asia & US 1 20 18
International 143 261
Central 885 887
Group cash and short term 1,048 1,166
investments
Less: credit-linked notes - (39)
Group cash and cash equivalents 1,048 1,127
1 Europe, Asia & US numbers include £5 million classified in assets held for
sale and £4 million of cash at C&W Access
Our Group cash position remains strong with cash and cash equivalents of £1,048
million at 31 March 2007, largely unchanged compared to 31 March 2006 (£1,127
million). Europe, Asia & US and C&W Access had net cash outflows before
financing of £162 million and £110 million respectively covering operational
funding and capital investment. International had a net cash inflow before
financing of £482 million, including the £256 million net proceeds from the
disposal of our stake in Batelco. We repaid a net £90 million of third party
debt, which mainly relates to the repayment of the £106 million European
Investment Bank (EIB) loan and associated cross currency swap (£15 million)
during the year, partially offset by £60 million net proceeds of International
external financing activities. We paid cash dividends of £83 million to our
equity holders and £93 million was paid to minority shareholders. The remaining
£23 million outflow related mainly to Central items and interest payments.
Debt
Due in Due in Due in Total
Due in more than more than more than
less 1 but 2 but not 5 years
than 1 less than more than
year 2 years 5 years
£m £m £m £m £m
Europe, Asia & US 9 11 - - 20
International 68 10 52 13 143
Central - - 213 340 553
Group debt as at 31 March 77 21 265 353 716
2007
Group debt as at 31 March 143 20 239 382 784
2006
Europe, Asia & US debt has reduced by £9 million to £20 million following
scheduled payments on a finance lease.
We have increased the amount of debt in our International subsidiaries in Panama
and the Caribbean during the year by £60 million to £143 million to optimise our
cost of capital and, in the case of Jamaica, to mitigate foreign exchange risk.
During 2006/07, Central debt has reduced by £119 million to £553 million largely
as a result of the repayment of the EIB loan (£106 million) and the repurchase
of the 2012 and 2019 bonds (£22 million), partially offset by the amortisation
of the premium on the convertible bond (£11 million). Following the repayment of
the EIB loan in September 2006, the £553 million (31 March 2006: £672 million)
external funding in Central is now all in the form of publicly quoted bonds.
These bonds have either been issued or guaranteed by Cable and Wireless plc.
Their maturity profile is spread between 2010 and 2019. The £340 million 2012
and 2019 bonds are shown net of £58 million bonds which have been repurchased
and are held in treasury.
9
A convertible bond with a par value of £258 million (carrying value of £213
million) matures in July 2010. Conversion is at the option of bondholders at a
share price of £1.45 (subject to adjustment for certain corporate actions or a
change of control). We can give notice to redeem the bond from 17 July 2007
onwards at par should the share price exceed £1.885 for a total of 20 business
days in a period of 30 consecutive business days. Depending upon the performance
of the share price before maturity of the bond, the convertible bond may be
redeemed by the issue of shares rather than cash.
Given the maturity profile of our debt and the substantial cash resources still
available to the Group, we are satisfied that we can meet our working capital
requirements for at least the next 12 months.
10
GROUP OUTLOOK
The following statements reconfirm guidance previously given or made for the
first time:
Group EBITDA 2007/08
Range: Low High
US$m US$m
International 840 860
£m £m
International 438 448
Europe, Asia & US 1 210 220
C&W Access (45) (35)
Total Europe, Asia & US 165 185
Central (30) (25)
Group EBITDA 573 608
1 Excludes C&W Access
We expect the following outcomes:
For International:
• EBITDA for 2007/08 in the range of US$840 million to US$860 million (£438
million to £448 million)
• Sustainable EBITDA margin between 35% and 37% by 2008/09;
• Capital expenditure to continue at 12% to 14% of revenue;
• The percentage tax rate to be in the mid to low twenties until at least
2008/09;
• Cash repatriation to be at least 100% of our proportionate share of net
cash flow after external financing from our subsidiaries;
• Working capital movement to be zero as a percentage of revenue by 2008/09.
For Europe, Asia & US (excluding C&W Access)
• EBITDA for 2007/08 in the range of £210 million to £220 million;
• Total cash outflow before Europe, Asia & US becomes cash generative to
be no more than £280 million (excluding the £88 million sale and leaseback
transaction announced on 2 April 2007), from 1 April 2006. This includes
£180 million of exceptional cash items relating to the Europe, Asia & US
turnaround along with capital expenditure, working capital requirements and
payments against provisions made in prior periods. Following the cash
outflow of £162 million in 2006/07, this leaves £118 million of cash outflow
remaining, of which £110 million relates to exceptional cash items;
• Total net cash outflow before financing for 2007/08 to be about £80 million
(excluding the impact of the sale and leaseback transaction announced on
2 April 2007);
• Capital expenditure of approximately 10% of revenue for the foreseeable
future;
• The percentage current tax rate to be effectively nil for the foreseeable
future;
• Future Europe, Asia & US with about £2 billion revenue and double digit
operating margin.
For C&W Access:
• EBITDA loss for 2007/08 in the range of £35 million to £45 million;
• Net cash outflow before financing for 2007/08 of approximately £70
million.
For Central:
• EBITDA cost for 2007/08 in the range of £25 million to £30 million.
11
International
Cable & Wireless International is the world's pre-eminent telecoms provider for
small to medium markets, with particular expertise and presence in island
economies. We operate in 33 countries, through 25 subsidiaries and eight joint
ventures. Our principal businesses are in the Caribbean, Panama, Macau, Monaco
and Islands (Islands comprises operations in the Channel Islands, Isle of Man
and the Indian, Atlantic and Pacific Oceans).
We aim to be the telecoms provider of choice in all of our markets by offering
our customers attractive products and services using high quality networks
coupled with a superior customer experience.
Commenting on the results for 2006/07, Harris Jones, Chief Executive of
International said:
'International has performed well. By putting the customer first, investing in
the growth areas of mobile and broadband and being mindful of our costs we've
achieved an 8% increase, at constant currency, in our EBITDA. Our relentless
focus on cash is reflected in the over half a billion pounds we've remitted to
Central. We exit this year stronger than we began and have set the foundation
for an even better performance in 2007/08.'
International key performance indicators
As at: 31 March 2007 30 September 2006 1 31 March 2006 1
('000) ('000) ('000)
Total active 2 GSM mobile 5,033 4,290 3,485
customers
Subsidiaries 2,611 2,085 1,750
Joint ventures 2,422 2,205 1,735
Total broadband customers 401 338 288
Subsidiaries 378 321 275
Joint ventures 23 17 13
Total fixed line 1,902 1,876 1,867
connections
Subsidiaries 1,531 1,505 1,497
Joint ventures 371 371 370
1 For ease of comparison, March 2006 and September 2006 numbers have been
restated to exclude Batelco (Bahrain)
2 An active customer is defined as one having performed a revenue-generating
event in the previous 60 days
Active GSM mobile customers
We had over five million customers at the end of 2006/07 across 24 markets, an
increase of 44% compared with 31 March 2006. We are the market leader in all but
four of these markets.
Our subsidiaries' active GSM mobile customer base increased 49% in 2006/07 to
2.6 million customers. We saw growth in all our markets, with the largest gains
in Panama, Jamaica and the East Caribbean.
Panama's customer base grew to over one million this year driven by our improved
network quality and coverage, innovative promotional activity on prepaid
products and further migration from TDMA services. In Jamaica, we have grown our
customer numbers by 47% to 545,000 by improving our network coverage and
simplifying our pricing plans. This has led to growth in our market share of
four percentage points to 27%. Customer numbers in the East Caribbean increased
34% to 306,000 in 2006/07 driven by attractive handset pricing and usage
promotions.
Our investment in the performance and coverage of our mobile networks has also
been a key driver of growth in other markets such as North Caribbean and Islands
where customer numbers grew by 39% and 33% respectively.
The number of customers in our joint ventures increased by 40% in 2006/07
compared with 2005/06 driven by growth in Roshan of 39% to 1.2 million, Dhiraagu
of 31% to 185,000 and TSTT where migration of customers from TDMA and underlying
market growth drove a 43% increase in GSM customer numbers to over one million.
12
Broadband customers
Our total broadband customers increased by 39% to over 400,000 customers in 2006
/07. We are the market leader in all 26 of our broadband markets.
Our subsidiaries' broadband customers increased by 37% in 2006/07 to 378,000
customers. This was primarily driven by strong growth across the Caribbean -
Jamaica almost doubled its customer base to 79,000 customers by offering higher
speeds for similar prices. Barbados increased numbers by 75% to 28,000 as a
result of promotional offers, such as the offer of a free modem and
installation. East Caribbean customer numbers grew by 42% driven by revamped
pricing plans, further rollout of Netspeak (our VoIP product) and promotional
offers.
Customer numbers in Macau increased 38% to 102,000 driven by extended network
coverage and the launch of high speed ADSL 2+ services to every home and
business.
We continue to extend our broadband network in all our markets and to upgrade
our customer proposition to higher speed services. 17 of our markets (including
joint ventures) still have market penetration rates of less than 50% offering
further opportunity for growth.
Fixed line connections
The number of fixed line customers remained steady over the 12 month period to
31 March 2007 at approximately 1.9 million customers. We are the market leader
in all but one (Jersey) of our 26 fixed line services markets.
In Jamaica customer numbers grew 14% compared with 2005/06 to 360,000 driven by
the introduction in June 2006 of a prepaid fixed line product and the launch of
a single national rate. This increase was largely offset by small declines in
our other subsidiaries driven by substitution with other products.
13
International income statement
2006/07 2005/06 Change as Constant
reported 1 currency
change 2
£m £m % %
Mobile 406 360 13% 19%
Broadband 77 56 38% 45%
Domestic voice 307 338 (9)% (3)%
International voice 168 188 (11)% (5)%
Enterprise, data & other3 264 260 2% 6%
Other internet 6 10 (40)% (37)%
Total revenue 1,228 1,212 1% 7%
Cost of sales (418) (386) (8)% (14)%
Gross margin 810 826 (2)% 3%
Other operating costs (380) (409) 7% 2%
(excluding LTIP charge)
EBITDA4 430 417 3% 8%
LTIP charge (10) - nm nm
Depreciation & (140) (136) (3)% (9)%
amortisation
Amortisation of acquired (5) (6) 17% 17%
intangibles
Net other operating income 2 - nm nm
Operating profit before 277 275 1% 6%
joint ventures &
associates
Share of post-tax profit 21 58 (64)% (63)%
of joint ventures &
associates
Operating profit before 298 333 (11)% (7)%
exceptional items
Exceptional items (29) (12) nm nm
Total operating profit 269 321 (16)% (12)%
Capital expenditure (168) (142) (18)% (25)%
Headcount (full time 7,876 8,150 3% n/a
equivalents at 31 March)
nm represents % change not meaningful
1 Positive percentages represent improvement
2 Constant currency growth rates are based on the restatement of prior year
comparatives at current year's reported average exchange rates. Positive
percentages represent improvement
3 Includes corporate solutions, international management contracts, internet
hosting, leased circuits, legacy data services, directory services, equipment
rentals and television services
4 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
14
The commentary that follows focuses on percentage changes at constant currency
in order to highlight the underlying trends in International. However, where
absolute amounts are quoted, they reflect actual exchange rates.
Revenue
Total revenue increased 7% to £1,228 million compared with 2005/06. Growth in
mobile and broadband contributed an additional £67 million of revenue in 2006/07
and together now represent almost 40% of our total revenue.
Mobile revenue
Mobile revenue grew £46 million to £406 million in 2006/07, a 19% increase
compared with 2005/06. Mobile is our largest segment representing about a third
of our total revenue.
Panama's revenue increased 24% compared with 2005/06 to £123 million driven by
the growth in the customer base and our continued investment in improving the
performance of our network to maintain this competitive advantage.
Jamaica's mobile revenue increased 24% to £47 million as we continued to win
back customers. Our market share grew by four percentage points to 27% -
evidence that the turnaround of the Jamaican business is underway. This growth
was the result of expanding our network coverage and simpler and cheaper calling
plans.
The 16% increase in mobile revenue in Macau to £54 million was driven by growth
in roaming revenue as a result of the negotiation of roaming agreements and
increased tourist arrivals associated with the economic growth.
Broadband revenue
Our broadband revenue increased by 45% compared with 2005/06 to £77 million,
with growth in all our regions. The largest gain was in Jamaica where our
revenue almost doubled to £14 million compared with 2005/06.
Growth was driven by increased coverage, a focus on improving the quality and
speed of service, lower pricing, further rollout of Netspeak and the migration
of customers from dial up services.
Domestic and international voice revenue
Domestic and international voice revenue decreased 3% and 5% respectively
compared with 2005/06 to £307 million and £168 million, principally as a result
of competitive and regulatory pressure on pricing and substitution by mobile and
broadband.
In particular, international voice revenue in the North Caribbean declined by £8
million to £19 million, a 25% decrease compared with 2005/06, as high broadband
penetration rates drove increased VoIP substitution.
However, in Jamaica, fixed line revenue grew despite the general market
conditions, largely due to the introduction of a prepaid fixed line service and
a new prepaid calling card with low international rates, driving 2% growth in
both domestic and international revenue. In Macau, international voice revenue
increased 5% driven by the influx of a large number of workers to support the
rapidly expanding gaming industry.
Enterprise, data and other revenue
Enterprise, data and other revenue increased 6% to £264 million in 2006/07.
This growth was driven by Monaco's international traffic management contracts,
such as those with PTK in Kosovo and Roshan in Afghanistan as those markets
continued to develop.
Gross margin
Gross margin increased 3% in 2006/07 to £810 million. As a percentage of
revenue, gross margin declined two percentage points to 66%. This was driven by
increased subscriber acquisition costs as we grew our market share, competitive
pricing pressure and lower percentage margin revenue streams from Monaco's
international traffic management contracts.
15
Other operating costs
Other operating costs reduced £29 million to £380 million, a 2% decrease
compared with 2005/06. As a percentage of revenue, other operating costs have
declined from 34% in 2005/06 to 31% in 2006/07 reflecting the restructuring of
our businesses and cost control with a 3% decrease in headcount to 7,876 at 31
March 2007.
Our other operating costs include net head office costs transferred to
International of £3 million and additional investments in Jersey and the Isle of
Man totalling £3 million. These costs have been more than offset by accrual
releases totalling £10 million. £7 million of these accrual releases relate to
the settlement of contractual disputes on better than expected terms in Monaco.
EBITDA
Our EBITDA before exceptionals increased 8% in 2006/07 to £430 million from £417
million in 2005/06. Our reported EBITDA margin was 35.0% in 2006/07 compared
with 34.4% in 2005/06.
After allowing for the items in other operating costs above, the EBITDA margin
for 2006/07 was 34.7%. In the second half of 2006/07, our EBITDA margin was
higher than in the first half mainly as a result of the accrual releases of £10
million.
For 2007/08, we expect that our EBITDA will be between US$840 million and US$860
million. At the mid point, this represents a 5% increase on the imputed US$
EBITDA result for 2006/07 of US$810 million. Assuming an average dollar exchange
rate of 1.95 for 2007/08 and taking into account our exposure to other
currencies, this represents EBITDA of £438 million to £448 million.
Capital expenditure and depreciation
We increased our capital expenditure by £26 million compared with 2005/06 to
£168 million with a focus on extending our mobile networks and improving the
speed and coverage of our broadband networks.
We will continue to invest in our broadband coverage and service capability. By
December 2007, we are aiming to enable 90% of our broadband network to offer at
least 8Mb.
Depreciation increased by 9% compared with 2005/06 to £140 million driven mainly
by our investment in mobile and broadband. As we continue to invest in newer
technologies, our asset life cycles are decreasing, resulting in rising
depreciation charges.
Joint ventures and associates
Our share of revenue Our share of post-tax
profit
Ownership
as at
31 March
2007 2006/07 2005/06 2006/07 2005/06
% £m £m £m £m
Trinidad & Tobago 49 120 123 (12) 12
(TSTT)
Bahrain (Batelco)1 0 52 63 12 26
Afghanistan 37 38 36 2 5
(Roshan)
The Maldives 45 25 26 12 12
(Dhiraagu)
Fiji (Fintel) 49 8 8 2 2
Others 6 7 5 1
Total pre 249 263 21 58
exceptional items
Exceptionals: - - - 2
Dhiraagu
Exceptionals: TSTT - - (29) -
Total post 249 263 (8) 60
exceptional items
1 Batelco (Bahrain) results only applicable up to the date of disposal, 16
January 2007
Our share of post-tax loss (post exceptionals) from our joint ventures and
associates was £8 million (including a £29 million exceptional write down
relating to TSTT) compared with a £60 million profit in 2005/06. The main
factors of this reduction are the poor performance of Trinidad and Tobago (TSTT)
and the disposal of our stake in our associate in Bahrain (Batelco).
16
Our share of pre-exceptional post-tax loss in TSTT was £12 million in 2006/07
compared with a £12 million profit in 2005/06. In addition to the poor financial
performance, there was evidence of weak controls, which are being addressed by
the new management. We are engaged with the Government of Trinidad and Tobago,
the majority shareholder, on restructuring efforts targeted at improving
performance.
Monaco Telecom's joint venture in Afghanistan (Roshan) contributed £3 million
less than in the prior year due to the introduction of a ten percent sales tax,
an increase in depreciation from mobile investment, higher interest charges and
adverse movements in foreign exchange rates.
Our joint venture in the Maldives (Dhiraagu) faced its first full year of mobile
competition in 2006/07 and has competed strongly to maintain its market
leadership - Dhiraagu contributed £12 million to our share of post-tax profit in
line with results for 2005/06.
Exceptional items
As a result of the trading performance of our joint venture, TSTT, we have
written down our share of TSTT's net assets by £29 million. As a result, our
share of TSTT's net assets reduced to £72 million.
International exceptional items also include £13 million costs following
headcount reduction programmes in the Caribbean and Islands, which are offset by
£13 million exceptional credits relating to insurance receipts and related
provision releases.
Exchange rate movements
During 2006/07, both the US and the Jamaican dollar weakened against sterling,
by 5% and 11% respectively. In 2006/07, we sold International US$ remittances
forward against sterling at $1.86. In the light of current US dollar weakness
and the fact that 2007/08 remittances are expected to be primarily received
during the second half of the financial year, to date we have not entered into
any further hedging contracts.
A one cent change in the US$:£ rate has approximately a £2 million impact on the
full year EBITDA of International. A one dollar change in the Jamaican $:£
exchange rate has approximately a £0.5 million impact on the reported full year
EBITDA of International.
During 2006/07, approximately 70% of International EBITDA was earned in US
dollar denominated or related currencies. Given that the US dollar is the
dominant currency of International, from 2007/08, we will report the
International results in US dollars to give a better reflection of the
underlying performance of our business.
2006/07 2005/06
US$ : £
Average 1.8807 1.7946
Year end 1.9631 1.7406
Jamaican$ : £
Average 124.72 112.60
Year end 132.74 113.76
17
Reconciliation of International EBITDA to net cash flow before financing
2006/07 1
£m
EBITDA2 430
Exceptional items (13)
EBITDA less exceptionals 417
Movement in exceptional provisions (6)
Movement in working capital and other provisions (15)
Income taxes paid (44)
Purchase of property, plant, equipment & intangible assets (164)
Finance income 30
Acquisitions & disposals 261
Other income 3
Net cash inflow before financing activities 482
1 Based on our management accounts
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
We generated net cash flow of £482 million before financing activities in 2006/
07 including £256 million of net proceeds from the disposal of our 20% stake in
our associate in Bahrain (Batelco).
The £19 million exceptional outflow represents costs associated with
restructuring our businesses to drive operational efficiencies principally
through headcount reductions.
Our £15 million movement in working capital is mainly driven by Monaco where an
accrual release following the settlement of supplier disputes and the
renegotiation of contract payment terms relating to our contract with PTK in
Kosovo had a negative impact on working capital of £14 million.
Finance income consists of £23 million of dividends received from joint ventures
and associates, and £7 million of interest and other income.
Cash capital expenditure was £164 million. For more details on the key areas of
expenditure, see page 16.
18
Reconciliation of International net cash flow before financing to repatriation
2006/07
£m
Net cash inflow before financing activities 482
Net inflow from external financing activities 60
Net cash inflow after external financing 542
Less:
Batelco disposal net proceeds (256)
Joint venture and associate dividends (23)
Net cash inflow after external financing generated by 263
subsidiaries
Less:
Share attributable to minority interests (76)
International proportionate share of net cash inflow after 187
external financing
Surplus cash balances from subsidiaries repatriated 64
Operational repatriation 251
Operational repatriation efficiency2 134%
Batelco disposal net proceeds 256
Joint venture and associate dividends 23
Total repatriation 530
1 Based on our management accounts
2 Operational repatriation efficiency is calculated by dividing operational
repatriation by International share of net cash inflow after external
financing
In 2006/07, we remitted £530 million to Central. This remittance included £256
million of net proceeds from the Batelco disposal, and £60 million proceeds from
external financing activities in Panama and the Caribbean.
At an operational level, we remitted £251 million to Central in 2006/07
representing 134% of our share of net cash flow generated by subsidiaries after
external financing. This exceeds our target to remit at least 100% of our share
of cash generated and includes the return of surplus cash balances from our
subsidiaries which is not expected to recur to the same extent in 2007/08.
19
Europe, Asia & US
Cable & Wireless Europe, Asia & US provides enterprise and carrier solutions to
the largest users of telecoms services across the UK, Europe, Asia and the US. T
he UK business has changed its name to Europe, Asia & US to give a better
reflection of the scope of its activities and markets. The nature and geographic
extent of the business has not changed.
Our strategy is to serve the largest users of telecoms with high quality
IP-based services tailored to their specific business needs and to deliver them
a superior level of service.
Our turnaround is based on three phases: integration, completed early in 2006/
07; our ongoing recovery programme; and finally transformation that creates a
new business which delivers excellent service to our customers. During 2006/07,
our main objectives were to improve service, improve margin, reduce costs, and
continue to execute our strategy.
Commenting on the results for 2006/07, John Pluthero, Chairman of Europe, Asia &
US said:
'We've made more progress than expected in 2006/07 on the underlying drivers of
our long term success. The impact is already coming through in our results with
EBITDA and cash flow well ahead of plan.
'It's only a start, but a good start. We're looking forward to the next few
years.'
20
The following analysis of the Europe, Asia & US key performance indicators,
income statement and cash flow reconciliation refers to Europe, Asia & US
excluding C&W Access. The equivalent analysis for C&W Access is on pages 26 to
27.
Europe, Asia & US key performance indicators
As at: 31 March 30 September 31 March
2007 2006 2006
Number of customers 9,992 14,566 21,000
% Services revenue1 48% 44% 44%
% IP, data and hosting revenue1 37% 32% 27%
Reduction in monthly operating cost £7.3m £7.1m £4.4m
run rate from November 2005
Headcount (full time equivalents) 5,341 5,179 5,614
Number of exchanges unbundled 802 685 411
1 Calculated on the basis of six months ending
Our programme to reduce the number of customers is progressing well and we now
have fewer than 10,000 customers. We expect to reduce the overall number of
customers to about 3,000, comprising large corporates, carriers, resellers and
public institutions.
The proportion of services revenue has increased from 44% to 48% since the
second half of 2005/06. We are seeing growth in our global enterprise customers
and have expanded our dedicated services portfolio. We expect to see further
growth in this area as a result of winning three additional dedicated services
customers in 2006/07.
The proportion of IP, data & hosting revenue has increased from 27% to 37% since
the second half of 2005/06. This is a result of organic growth in our services
customers, migration of customers from legacy data products to IP and a
reduction in traditional voice.
The monthly operating cost reduction since November 2005 is £7.3 million
representing a reduction in monthly costs of £2.9 million since 31 March 2006 of
which £2.7 million was achieved during the first half of 2006/07. During the
second half of this year, we have continued to reduce costs, but savings have
been partially offset by our investment in service. This investment largely
relates to new colleagues and upgrades to improve network resilience.
We had 5,341 colleagues in the business at 31 March 2007. While this represents
a net reduction of 273 since 31 March 2006, we have added a net 162 in the
second half of this year as a result of our decision to improve service to our
customers through the recruitment of 445 colleagues.
Our local loop rollout programme is complete. We have backhaul connectivity to
our multi service platform (MSP) from 802 unbundled exchanges, resulting in 52%
coverage of UK households and businesses. In addition, we intend to use our
footprint to provide services to corporate and SME customers using ADSL and
SDSL.
21
Europe, Asia & US income statement
2006/07 2005/06 1 Change as
reported 2
£m £m %
IP, data and hosting 727 513 42%
Legacy products 191 227 (16)%
Traditional voice 1,201 1,288 (7)%
Total revenue 2,119 2,028 4%
Outpayments & network costs (1,516) (1,421) (7)%
Staff costs (excluding LTIP (289) (290) 0%
charge)
Other costs (155) (168) 8%
Operating costs (1,960) (1,879) (4)%
EBITDA3 159 149 7%
LTIP charge (17) - nm
Depreciation & amortisation (92) (118) 22%
Amortisation of acquired (12) (5) nm
intangibles
Net other operating income 8 - nm
Operating profit before joint 46 26 77%
ventures & associates
Share of post-tax loss of joint (3) (6) 50%
ventures & associates
Operating profit before 43 20 nm
exceptional items
Exceptional items (60) (234) 74%
Total operating profit (17) (214) 92%
Capital expenditure (204) (207) 1%
Headcount (full time equivalents 5,341 5,614 5%
at 31 March)
nm represents % change not meaningful
1 Energis consolidated from 11 November 2005
2 Positive percentages represent improvement
3 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
22
Energis
We have included the results of Energis from the date of its acquisition - 11
November 2005.
Revenue
Revenue has increased by £91 million to £2,119 million in 2006/07. This is
largely due to the inclusion of a full year of Energis in 2006/07. This has more
than offset the impact of the anticipated churn and erosion encountered in
restructuring the business to focus on larger, more profitable customers.
Whilst we remain a customer-centric business, revenue has been split on a
product basis for ease of understanding the performance of the business. For
consistency with previous reporting, the services revenue was £978 million (46%)
and £846 million (42%) for 2006/07 and 2005/06 respectively. The carrier revenue
was £1,141 million and £1,182 million for the same periods respectively.
IP, data & hosting
IP, data & hosting products underpin our strategy - enabling us to offer our
customers high quality global connectivity and market-leading services and
applications, with the ability to converge onto a single platform.
IP, data & hosting revenue of £727 million in 2006/07 has increased by £214
million, which is an increase of 42% compared with 2005/06, and now represents
34% of total revenue compared with 25% in 2005/06. The improvement is largely
driven by demand for our IP-VPN QoS product, both through organic growth and
migration from legacy products, as well as higher uptake of our wholesale
bandwidth and hosting products.
Legacy products
Our legacy products, like frame relay and narrowband internet, are currently
being phased out as a result of new technologies. The speed of the migration
will be determined by our customers' needs.
Revenue of £191 million in 2006/07 has reduced by £36 million compared with 2005
/06. The decline is largely a result of the migration of customers from frame
relay to IP-VPN and lower market demand for narrowband internet services.
Traditional voice
Traditional voice includes our range of non-IP voice products - from the
provision of termination for switched traffic to the delivery of telebusiness
applications via our Intelligent Network.
Traditional voice revenue of £1,201 million in 2006/07 has reduced by £87
million compared with 2005/06 as a result of a reduction in carrier voice
revenue due to our move away from low margin traffic and lower mobile
termination rates on some European destinations.
Operating costs
Operating costs of £1,960 million are £81 million higher than in 2005/06 as a
result of the increased cost base following the Energis acquisition, but have
reduced as a proportion of revenue. Excluding the impact of operational releases
within operating costs (£25 million in 2006/07 and £58 million in 2005/06),
these costs have reduced by 2% as a proportion of revenue excluding operational
releases (£3 million in 2006/07 and £18 million in 2005/06).
Outpayments and network costs of £1,516 million are higher than in 2005/06
largely as a result of outpayments relating to the increased revenue. However,
excluding operational releases within outpayments and network costs (£25 million
in 2006/07 and £51 million in 2005/06), these costs represent a lower proportion
of revenue as a result of improved product mix and cost savings driven through
our recovery programme. More specifically, the savings relate to optimisation of
interconnection charges, renegotiation of equipment and cable maintenance
contracts and lower rental and lease costs associated with network buildings and
fibre.
Despite including a full year of Energis, staff costs of £289 million have
remained broadly flat but are better as a proportion of revenue compared to 2005
/06. During 2006/07, we have continued to simplify processes enabling further
reduction in colleagues across the business. The cost savings related to this
reduction have been partially offset by the increased cost associated with the
recruitment of 445 additional colleagues into service-related roles.
Other costs of £155 million primarily relate to property costs, travel,
consultancy and professional fees and have reduced by £13 million against 2005/
06. The reduction represents a 1% decrease in other costs as a percentage of
revenue.
23
EBITDA
Reported EBITDA before exceptionals has increased by 7% to £159 million this
year. Excluding operational releases of £28 million (2005/06: £76 million),
EBITDA has increased by 79% to £131 million.
For 2007/08, we expect that our EBITDA will be in the range of £210 million to
£220 million.
Capital expenditure and depreciation and amortisation
Capital expenditure of £204 million in 2006/07 represents just under 10% of
revenue and we expect capital expenditure to continue at about 10% of revenue
for the foreseeable future.
In 2006/07, we continued to invest according to our customers' needs and spent
£63 million on customer specific projects, which represents a relative increase
in customer capital expenditure compared to 2005/06 (from 29% to 31%). The
remaining balance of our investment is largely attributable to network
infrastructure and new product development. In 2006/07, we completed our MSP and
the provision of GigE backhaul to local exchanges from our network and we have
upgraded the resilience of our network in Asia.
Depreciation and amortisation of £92 million in 2006/07 is lower than in 2005/
06, mainly as a result of an impairment of our fixed assets at the end of 2005/
06.
Net other operating income
Net other operating income of £8 million primarily relates to the profit on the
disposal of property.
Joint ventures and associates
The £3 million loss represents our share of Apollo, a submarine cabling company.
Exceptional items
Exceptional items of £60 million in 2006/07 primarily relate to restructuring
activities as part of our recovery programme. £24 million of the charge relates
to our redundancy programme, the remainder relates to our property
rationalisation programme and to a lesser extent, rationalisation of network
infrastructure. Exceptional items in 2005/06 principally related to £237 million
for the write down of assets.
24
Reconciliation of Europe, Asia & US EBITDA to net cash flow before financing
2006/07 1
£m
EBITDA2 159
Exceptional items (60)
EBITDA less exceptionals 99
Movement in exceptional provisions (10)
Movement in working capital and other provisions (74)
Income taxes paid (1)
Purchase of property, plant, equipment & intangible assets (186)
Acquisitions & disposals 10
Net cash outflow before financing activities (162)
1 Based on our management accounts
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
The net cash outflow before financing of £162 million for the year principally
reflects EBITDA, exceptional items relating to restructuring costs, working
capital movement and capital expenditure.
Exceptional items of £60 million and movement in exceptional provisions of £10
million are attributable to restructuring costs relating to colleague
redundancy, property and networks.
Working capital movement of £74 million includes £28 million of operational
releases. The majority of the £46 million balance reflects timing differences in
receipts and payments during the period and carried forward from the prior year.
Cash capital expenditure of £186 million reflects a mix of investments in both
customer and infrastructure projects, as described on page 24.
Acquisitions and disposals relate to the sale of properties and exclude the sale
and leaseback transaction completed on 2 April 2007 for £88 million.
Based on the 2006/07 performance, we are updating our guidance for the total
cash outflow before Europe, Asia & US becomes cash generative to be no more than
£280 million from 1 April 2006, excluding the £88 million cash from the sale and
leaseback transaction, announced on 2 April 2007. This includes £180 million of
exceptional cash outflow relating to the turnaround, capital expenditure,
working capital requirements and payments against provisions made in prior
periods. Of this amount, we expect the net cash outflow for 2007/08 to be about
£80 million. Following the cash outflow of £162 million in 2006/07, this leaves
£118 million of cash outflow remaining, of which £110 million relates to
exceptional cash items.
Post balance sheet events
On 2 April 2007, we signed a 25 year sale and leaseback agreement, covering nine
properties for which we received £88 million. Lease payments for the first five
years will be £4.5 million per year and subject to reviews every five years
thereafter.
25
CABLE & WIRELESS ACCESS
Through local loop unbundling, C&W Access provides broadband and telephony
services to business and residential end users through wholesale agreements with
major UK broadband service providers.
On 8 June 2006, we announced a revised strategy to leverage returns from our
local loop unbundled (LLU) network asset by offering a wholesale product to
major broadband service providers and ceasing residential sales. On 7 September
2006, we announced the formation of C&W Access and our first wholesale customer,
Pipex. We also sold our residential Bulldog customer base and brand to Pipex for
£9 million of net cash. Following this, we are integrating a number of
activities into Europe, Asia & US.
C&W Access income statement
2006/07 1 2005/06 Change as
£m £m reported 2
Total revenue 43 33 30%
Outpayments & network costs (66) (66) 0%
Staff costs (19) (28) 32%
Other costs (31) (44) 30%
Operating costs (116) (138) 16%
EBITDA2 (73) (105) 30%
Depreciation & amortisation (26) (15) (73)%
Total operating loss before exceptional (99) (120) 18%
items
Exceptional items (29) - nm
Total operating loss (128) (120) (7)%
Capital expenditure (31) (70) 56%
Headcount (full time equivalents at 31 187 651 71%
March)
1 The results for the year reflect 5 months and 6 days of performance under the
previous retail strategy and 6 months and 24 days of the wholesale strategy
2 Earnings before interest, tax, depreciation and amortisation, exceptionals and
net other operating income
Revenue
Revenue in the first half of 2006/07 was primarily generated through residential
sales relating to the Bulldog customer base. Following the sale of our customer
base to Pipex, our revenue is now primarily generated from our wholesale
agreement with Pipex.
Revenue of £43 million in 2006/07 is £10 million higher than 2005/06 and
reflects the increase in our average end user base over the year. In the second
half of 2006/07, revenue declined due to the impact of reduced average revenue
per user (ARPU) as a result of our move to a wholesale strategy.
Operating costs
Outpayments and network costs in 2006/07 are £66 million, flat compared to 2005/
06. Outpayments have increased proportionately to the larger average end user
base over the year and relate to fixed per-line fees, charged to us by BT
Openreach, and voice termination costs. Despite the increase in associated
network costs related to our enlarged LLU footprint, we have managed to offset
the impact through cost savings and efficiencies gained through the integration
of activities into Europe, Asia & US.
Staff costs of £19 million were £9 million lower than last year. Following the
change in strategy, we have significantly reduced our headcount, particularly in
the sales and marketing functions, and through the integration of activities
into Europe, Asia & US.
Other costs relate primarily to the provision of support services. These have
decreased by £13 million in comparison to 2005/06 as a result of ceasing sales
and marketing activities to the retail market from 8 June 2006.
26
EBITDA
EBITDA before exceptionals reflects the previous residential customer strategy
for the first half of 2006/07 and the wholesale strategy for the second half of
2006/07. The execution of the new strategy and the integration of a number of
activities into Europe, Asia & US have resulted in an improved EBITDA loss
before exceptionals of £73 million for 2006/07.
For 2007/08, we expect that our EBITDA loss will be in the range of £35 million
to £45 million.
Capital expenditure and depreciation
Capital expenditure of £31 million is primarily related to the completion of the
local loop rollout programme in the period.
Depreciation has increased £11 million to £26 million as a result of our
investment in our LLU footprint expansion.
Exceptional items
Exceptional costs of £29 million include £5 million for restructuring activities
related to the move to a wholesale strategy and integration, as well as a £13
million write off related to redundant IT assets. A further £11 million of
exceptional costs reflects the write off of £20 million of acquired intangible
assets and goodwill recognised on the acquisition of Bulldog, offset by £9
million of net cash proceeds from the sale of the customer base. The goodwill
has been written off following the move to provide wholesale access.
Reconciliation of C&W Access EBITDA to net cash flow before financing
2006/07 1
£m
EBITDA2 (73)
Exceptional items (5)
EBITDA less exceptionals (78)
Movement in working capital and other provisions (13)
Purchase of property, plant, equipment & intangible assets (28)
Acquisitions & disposals 9
Net cash outflow before financing activities (110)
1 Based on our management accounts
2 Earnings before interest, tax, depreciation and amortisation, exceptionals and
net other operating income
The cash outflow of £110 million for the year primarily reflects the EBITDA loss
of £73 million, capital expenditure of £28 million and the £9 million of net
cash proceeds from the sale of the Bulldog customer base and brand.
Cash capital expenditure is related to the unbundling of exchanges in the period
to deliver our wholesale strategy.
Exceptional items relate to restructuring activities as part of the change to a
wholesale strategy and to a lesser extent integration into Europe, Asia & US.
For 2007/08, we expect our net cash outflow before financing activities to be
approximately £70 million.
27
Group results detail
Year ended 31 March 2007 compared with year ended 31 March 2006
£m 2006/07
International Europe, Central 3 Group
Asia & Total
US 2
Revenue 1,228 2,139 (19) 3,348
Outpayments & (482) (1,561) 19 (2,024)
network costs
Staff & other (316) (494) (22) (832)
costs
Operating costs (798) (2,055) (3) (2,856)
EBITDA4 430 84 (22) 492
LTIP charge (10) (17) - (27)
Depreciation & (140) (116) - (256)
amortisation
Amortisation of (5) (12) - (17)
acquired
intangibles
Net other 2 8 1 11
operating
income
Operating 277 (53) (21) 203
profit/(loss)
before JVs &
associates5
Joint ventures 21 (3) - 18
& associates
Total operating 298 (56) (21) 221
profit/(loss)5
Exceptional (29) (89) - (118)
items
Total operating 269 (145) (21) 103
profit/(loss)
Capital (168) (235) - (403)
expenditure
Headcount6 7,876 5,528 75 13,479
£m 2005/06
International Europe, Central 3 Group
Asia & Total
US 2
Revenue 1,212 2,040 (22) 3,230
Outpayments & (466) (1,466) 18 (1,914)
network costs
Staff & other (329) (530) (46) (905)
costs
Operating costs (795) (1,996) (28) (2,819)
EBITDA4 417 44 (50) 411
LTIP charge - - - -
Depreciation & (136) (133) 6 (263)
amortisation
Amortisation of (6) (5) - (11)
acquired
intangibles
Net other - - - -
operating
income
Operating 275 (94) (44) 137
profit/(loss)
before JVs &
associates5
Joint ventures 58 (6) - 52
& associates
Total operating 333 (100) (44) 189
profit/(loss)5
Exceptional (12) (234) 7 (239)
items
Total operating 321 (334) (37) (50)
profit/(loss)
Capital (142) (277) 3 (416)
expenditure
Headcount6 8,150 6,265 156 14,571
£m CC change 1 (%)
International Europe, Central 3 Group
Asia & Total
US 2
Revenue 7% 5% 14% 6%
Outpayments & (7)% (7)% 6% (7)%
network costs
Staff & other (1)% 7% 52% 6%
costs
Operating (4)% (3)% 89% (3)%
costs
EBITDA4 8% 93% 56% 26%
LTIP charge nm nm nm nm
Depreciation & (9)% 13% nm (0)%
amortisation
Amortisation 17% nm - (55)%
of acquired
intangibles
Net other nm nm - nm
operating
income
Operating 6% 44% 52% 65%
profit/(loss)
before JVs &
associates5
Joint ventures (63)% 49% - (65)%
& associates
Total (7)% 44% 52% 27%
operating
profit/(loss)5
Exceptional nm 62% nm 51%
items
Total (12)% 57% 43% nm
operating
profit/(loss)
Capital (25)% 15% nm 1%
expenditure
Headcount6 3% 12% 52% 7%
nm represents % change not meaningful
1 Constant currency growth rate based on the restatement of prior year
comparatives at current year's reported average exchange rates. Positive
percentages represent improvement
2 Europe, Asia and US results above include C&W Access
3 'Central' comprises the corporate centre and intra-group eliminations between
the businesses
4 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
5 Excluding exceptionals
6 Full time equivalents as at 31 March
28
International results detail
Year ended 31 March 2007 compared with year ended 31 March 2006
£m Jamaica
2006/07 2005/06 CC
change 1
Mobile 47 42 24%
Broadband 14 8 94%
Domestic 80 87 2%
voice
International 34 37 2%
voice
Enterprise, 24 27 (2)%
data & other
Other 1 2 (45)%
internet
Revenue 200 203 9%
Cost of sales (72) (66) (21)%
Gross margin 128 137 3%
Other (67) (77) 4%
operating
costs
EBITDA2 61 60 13%
LTIP charge - - -
Dep'n & (19) (24) 12%
amortisation
Amortisation - - -
of acquired
intangibles
Net other 1 - nm
operating
income
Op profit 43 36 32%
before JVs &
associates3
Joint - - -
ventures &
associates
Total 43 36 32%
operating
profit3
Exceptional (3) (2) (66)%
items
Total 40 34 30%
operating
profit
Capital (33) (28) (31)%
expenditure
Headcount4 1,351 1,689 20%
£m Barbados
2006/07 2005/06 CC
change
Mobile 32 27 24%
Broadband 6 3 nm
Domestic 24 28 (10)%
voice
International 19 19 5%
voice
Enterprise, 17 20 (11)%
data & other
Other 1 2 (48)%
internet
Revenue 99 99 5%
Cost of sales (26) (27) (1)%
Gross margin 73 72 6%
Other (32) (35) 4%
operating
costs
EBITDA2 41 37 16%
LTIP charge - - -
Dep'n & (9) (8) (18)%
amortisation
Amortisation - - -
of acquired
intangibles
Net other - - -
operating
income
Op profit 32 29 15%
before JVs &
associates3
Joint - - -
ventures &
associates
Total 32 29 15%
operating
profit3
Exceptional (1) - nm
items
Total 31 29 12%
operating
profit
Capital (13) (14) 3%
expenditure
Headcount4 818 826 1%
£m
North Caribbean
2006/07 2005/06 CC
change
Mobile 46 43 14%
Broadband 10 9 18%
Domestic 29 30 3%
voice
International 19 27 (25)%
voice
Enterprise, 18 19 2%
data & other
Other - 1 nm
internet
Revenue 122 129 1%
Cost of sales (32) (29) (18)%
Gross margin 90 100 (4)%
Other (45) (48) (0)%
operating
costs
EBITDA2 45 52 (8)%
LTIP charge - - -
Dep'n & (14) (13) (15)%
amortisation
Amortisation - - -
of acquired
intangibles
Net other - - -
operating
income
Op profit 31 39 (15)%
before JVs &
associates3
Joint (12) 11 nm
ventures &
associates
Total 19 50 (60)%
operating
profit3
Exceptional (23) (1) nm
items
Total (4) 49 nm
operating
profit
Capital (15) (16) 2%
expenditure
Headcount4 560 553 (1)%
£m East Caribbean
2006/07 2005/06 CC
change
Mobile 48 41 23%
Broadband 10 7 50%
Domestic 32 36 (6)%
voice
International 31 34 (4)%
voice
Enterprise, 21 22 0%
data & other
Other 1 1 5%
internet
Revenue 143 141 7%
Cost of sales (42) (40) (12)%
Gross margin 101 101 5%
Other (62) (63) (3)%
operating
costs
EBITDA2 39 38 7%
LTIP charge - - -
Dep'n & (19) (18) (10)%
amortisation
Amortisation - - -
of acquired
intangibles
Net other - - -
operating
income
Op profit 20 20 4%
before JVs &
associates3
Joint - - -
ventures &
associates
Total 20 20 4%
operating
profit3
Exceptional (2) (4) 48%
items
Total 18 16 17%
operating
profit
Capital (16) (20) 16%
expenditure
Headcount4 1,033 1,052 2%
£m Panama
2006/07 2005/06 CC
change
Mobile 123 104 24%
Broadband 15 12 31%
Domestic 97 109 (7)%
voice
International 18 18 5%
voice
Enterprise, 36 40 (6)%
data & other
Other - 1 nm
internet
Revenue 289 284 7%
Cost of sales (103) (100) (8)%
Gross margin 186 184 6%
Other (71) (79) 6%
operating
costs
EBITDA2 115 105 15%
LTIP charge - - -
Dep'n & (38) (35) (14)%
amortisation
Amortisation - - -
of acquired
intangibles
Net other 1 - nm
operating
income
Op profit 78 70 17%
before JVs &
associates3
Joint - - -
ventures &
associates
Total 78 70 17%
operating
profit3
Exceptional (1) - nm
items
Total 77 70 15%
operating
profit
Capital (31) (25) (30)%
expenditure
Headcount4 1,836 1,852 1%
nm represents % change not meaningful
1 Constant currency growth rate based on the restatement of prior year
comparatives at current year's reported average exchange rates. Positive
percentages represent improvement
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
3 Excluding exceptionals
4 Full time equivalents as at 31 March
29
International results detail (continued)
Year ended 31 March 2007 compared with year ended 31 March 2006
£m Macau
2006/07 2005/06 CC
change
Mobile 54 49 16%
Broadband 15 12 31%
Domestic 17 19 (6)%
voice
International 30 30 5%
voice
Enterprise, 26 25 9%
data & other
Other 1 1 5%
internet
Revenue 143 136 10%
Cost of sales (62) (55) (18)%
Gross margin 81 81 5%
Other (26) (28) 3%
operating
costs
EBITDA2 55 53 9%
LTIP charge - - -
Dep'n & (15) (16) 2%
amortisation
Amortisation - - -
of acquired
intangibles
Net other 1 - nm
operating
income
Op profit/ 41 37 16%
(loss) before
JVs &
associates3
Joint - - -
ventures &
associates
Total 41 37 16%
operating
profit/(loss)
3
Exceptional - - -
items
Total 41 37 16%
operating
profit/(loss)
Capital (19) (11) (71)%
expenditure
Headcount4 927 940 1%
£m Monaco
2006/07 2005/06 CC
change
Mobile 24 24 1%
Broadband 3 3 1%
Domestic 10 9 12%
voice
International 8 10 (19)%
voice
Enterprise, 91 78 17%
data & other
Other - - -
internet
Revenue 136 124 10%
Cost of sales (72) (60) (21)%
Gross margin 64 64 1%
Other (30) (32) 6%
operating
costs
EBITDA2 34 32 7%
LTIP charge - - -
Dep'n & (9) (7) (29)%
amortisation
Amortisation (5) (6) 17%
of acquired
intangibles
Net other - - -
operating
income
Op profit/ 20 19 6%
(loss) before
JVs &
associates3
Joint 2 5 (60)%
ventures &
associates
Total 22 24 (8)%
operating
profit/(loss)
3
Exceptional - (3) nm
items
Total 22 21 6%
operating
profit/(loss)
Capital (10) (10) (1)%
expenditure
Headcount4 487 496 2%
£m Islands 1
2006/07 2005/06 CC
change
Mobile 32 30 9%
Broadband 5 3 70%
Domestic 18 19 (2)%
voice
International 20 23 (10)%
voice
Enterprise, 32 27 20%
data & other
Other 2 2 0%
internet
Revenue 109 104 7%
Cost of sales (22) (16) (41)%
Gross margin 87 88 1%
Other (47) (48) (0)%
operating
costs
EBITDA2 40 40 2%
LTIP charge - - -
Dep'n & (15) (15) (2)%
amortisation
Amortisation - - -
of acquired
intangibles
Net other (1) - nm
operating
income
Op profit/ 24 25 (2)%
(loss) before
JVs &
associates3
Joint 31 42 (26)%
ventures &
associates
Total 55 67 (17)%
operating
profit/(loss)
3
Exceptional (1) 1 nm
items
Total 54 68 (20)%
operating
profit/(loss)
Capital (22) (18) (28)%
expenditure
Headcount4 660 687 4%
£m Elims/head office
2006/07 2005/06 CC
change
Mobile - -
Broadband (1) (1) 0%
Domestic - 1 nm
voice
International (11) (10) (10)%
voice
Enterprise, (1) 2 nm
data & other
Other - - -
internet
Revenue (13) (8) (63)%
Cost of sales 13 7 86%
Gross margin - (1) nm
Other - 1 nm
operating
costs
EBITDA2 - - -
LTIP charge (10) - nm
Dep'n & (2) - nm
amortisation
Amortisation - - -
of acquired
intangibles
Net other - - -
operating
income
Op profit/ (12) - nm
(loss) before
JVs &
associates3
Joint - - -
ventures &
associates
Total (12) - nm
operating
profit/(loss)
3
Exceptional 2 (3) nm
items
Total (10) (3) nm
operating
profit/(loss)
Capital (9) - nm
expenditure
Headcount4 204 55 nm
£m Total
2006/07 2005/06 CC
change
Mobile 406 360 19%
Broadband 77 56 45%
Domestic 307 338 (3)%
voice
International 168 188 (5)%
voice
Enterprise, 264 260 6%
data & other
Other 6 10 (37)%
internet
Revenue 1,228 1,212 7%
Cost of sales (418) (386) (14)%
Gross margin 810 826 3%
Other (380) (409) 2%
operating
costs
EBITDA2 430 417 8%
LTIP charge (10) - nm
Dep'n & (140) (136) (9)%
amortisation
Amortisation (5) (6) 17%
of acquired
intangibles
Net other 2 - nm
operating
income
Op profit/ 277 275 6%
(loss) before
JVs &
associates3
Joint 21 58 (63)%
ventures &
associates
Total 298 333 (7)%
operating
profit/(loss)
3
Exceptional (29) (12) nm
items
Total 269 321 (12)%
operating
profit/(loss)
Capital (168) (142) (25)%
expenditure
Headcount4 7,876 8,150 3%
nm represents % change not meaningful; Constant currency growth rate based on
the restatement of prior year comparatives at current year's reported average
exchange rates.
1 Islands comprises operations in the Channel Islands, Isle of Man and the
Atlantic, Pacific and Indian Oceans. The joint ventures & associates line
includes Batelco (Bahrain) up until 16 January 2007, the date of its disposal
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
3 Excluding exceptionals
4 Full time equivalents as at 31 March
30
International results detail (continued)
GSM ACTIVE MOBILE CUSTOMERS ('000s)
31 March 31 March %
2007 2006 Change
Jamaica 545 371 47%
Barbados 159 125 27%
North Caribbean 115 83 39%
East Caribbean 306 228 34%
Caribbean 1,125 807 39%
Panama 1,091 626 74%
Macau 255 205 24%
Monaco 36 34 6%
Islands 104 78 33%
Cable & Wireless 2,611 1,750 49%
subsidiaries
TSTT 1,005 703 43%
Roshan 1,203 868 39%
Dhiraagu 185 141 31%
Solomon Telekom 7 7 -%
Telekom Vanuatu 22 16 38%
Cable & Wireless 2,422 1,735 40%
joint ventures &
associates1
Total Cable & 5,033 3,485 44%
Wireless
International
BROADBAND CUSTOMERS ('000s)
31 March 31 March %
2007 2006 Change
Jamaica 79 41 93%
Barbados 28 16 75%
North Caribbean 19 16 19%
East Caribbean 37 26 42%
Caribbean 163 99 65%
Panama 87 83 5%
Macau 102 74 38%
Monaco 11 9 22%
Islands 15 10 50%
Cable & Wireless 378 275 37%
subsidiaries
TSTT 16 11 45%
Roshan - - -
Dhiraagu 5 2 nm
Solomon Telekom 1 - nm
Telekom Vanuatu 1 - nm
Cable & Wireless 23 13 77%
joint ventures &
associates1
Total Cable & 401 288 39%
Wireless
International
FIXED LINE CUSTOMERS ('000s)
31 March 31 March %
2007 2006 Change
Jamaica 360 316 14%
Barbados 134 135 (1)%
North Caribbean 60 61 (2)%
East Caribbean 169 169 0%
Caribbean 723 681 6%
Panama 422 435 (3)%
Macau 177 175 1%
Monaco 34 34 0%
Islands 175 172 2%
Cable & Wireless 1,531 1,497 2%
subsidiaries
TSTT 324 324 0%
Roshan - - -
Dhiraagu 32 31 3%
Solomon Telekom 8 8 0%
Telekom Vanuatu 7 7 0%
Cable & Wireless 371 370 0%
joint ventures &
associates1
Total Cable & 1,902 1,867 2%
Wireless
International
nm represents % change not meaningful
1 For ease of comparison joint ventures & associates numbers for 31 March 2006
have been restated to exclude Batelco (Bahrain) following its disposal on 16
January 2007
31
Europe, Asia & US results detail
Year ended 31 March 2007 compared with year ended 31 March 2006
£m 2006/07
Europe, Asia C&W Access Eliminations Total
& US
IP, data and hosting 727 - - 727
Legacy products 191 - - 191
Traditional voice 1,201 - - 1,201
C&W Access - 43 - 43
Eliminations - - (23) (23)
Revenue 2,119 43 (23) 2,139
Outpayments & network (1,516) (66) 21 (1,561)
costs
Staff costs (289) (19) - (308)
Other costs (155) (31) - (186)
Operating costs (1,960) (116) 21 (2,055)
EBITDA2 159 (73) (2) 84
LTIP charge (17) - - (17)
Depreciation & (92) (26) 2 (116)
amortisation
Amortisation of (12) - - (12)
acquired intangibles
Other operating 8 - - 8
income
Operating profit/ 46 (99) - (53)
(loss) before JVs &
associates3
Joint ventures & (3) - - (3)
associates
Total operating 43 (99) - (56)
profit/(loss)3
Exceptional items (60) (29) - (89)
Total operating loss (17) (128) - (145)
Capital expenditure (204) (31) - (235)
Headcount4 5,341 187 - 5,528
£m 2005/06 1
Europe, Asia C&W Access Eliminations Total
& US
IP, data and hosting 513 - - 513
Legacy products 227 - - 227
Traditional voice 1,288 - - 1,288
C&W Access - 33 - 33
Eliminations - - (21) (21)
Revenue 2,028 33 (21) 2,040
Outpayments & network (1,421) (66) 21 (1,466)
costs
Staff costs (290) (28) - (318)
Other costs (168) (44) - (212)
Operating costs (1,879) (138) 21 (1,996)
EBITDA2 149 (105) - 44
LTIP charge - - - -
Depreciation & (118) (15) - (133)
amortisation
Amortisation of (5) - - (5)
acquired intangibles
Other operating - - - -
income
Operating profit/ 26 (120) - (94)
(loss) before JVs &
associates3
Joint ventures & (6) - - (6)
associates
Total operating 20 (120) - (100)
profit/(loss)3
Exceptional items (234) - - (234)
Total operating loss (214) (120) - (334)
Capital expenditure (207) (70) - (277)
Headcount4 5,614 651 - 6,265
1 2005/06 includes results for Energis from the date of acquisition - 11
November 2005
2 Earnings before interest, tax, depreciation and amortisation, exceptionals,
LTIP charge and net other operating income
3 Excluding exceptionals
4 Full time equivalents as at 31 March
32
Extracts from the financial statements and additional information
The financial information set out in this announcement does not constitute the
Company's statutory report and accounts for the year ended 31 March 2007.
Statutory accounts will be delivered to the Registrar of Companies following the
Company's Annual General Meeting on 20 July 2007. The auditor has reported on
those accounts; their report was unqualified and did not contain a statement
under Section 237 (2) or (3) of the Companies Act 1985.
A full copy of the financial statements or the annual review will be mailed to
shareholders on or about 20 June 2007 and can be obtained thereafter from Nick
Cooper, Company Secretary, The Point, 37 North Wharf Road, Paddington, London,
W2 1LA.
Basis of preparation
The consolidated financial statements have been prepared in accordance with
International Financial Reporting Standards ('IFRS'). They comply with IFRS as
issued by the International Accounting Standards Board (IASB) and as adopted by
the European Union ('Adopted IFRS'). Adopted IFRS are similar to IFRS issued by
the IASB, except for certain provisions concerning hedge accounting that have no
impact on the financial statements of the Group. There have not been any changes
to IFRS during the year that have had a material impact on the Group.
The Group's accounting policies have been applied consistently. Changes in
accounting policy have been applied retrospectively and comparative amounts have
been restated.
Monaco put option
As part of the Group's acquisition of Monaco Telecom, the Principality of Monaco
acquired an option to put its 45% holding in the shares of Monaco Telecom to the
Group at a future date. In the light of IAS 32 Financial Instruments:
Presentation and developing accounting practice, the Group has decided to change
its accounting policy for this transaction. Previously, the 45% holding of the
Principality of Monaco was accounted for as a minority interest. It is now
accounted for as a liability representing the potential obligation of the Group
for its purchase, even though this outcome is considered remote. As a result,
the investment is now accounted for as if the Group held 100% of the shares. The
effect on the reserves and the minority interests of the Group at 1 April 2005
was £13 million and £59 million respectively. The effect of the change to the 31
March 2006 financial statements is tabulated below. Basic and diluted earnings
per share for year ending 31 March 2006 have been reduced by 0.2 pence.
Change in
2005/06
results
(£m)
Balance sheet
Increase in intangible assets 40
Increase in non-current financial liabilities (106)
Decrease in minority interest 61
Decrease in reserves (5)
Income statement
Increase in finance expense 12
Decrease in profit for the year 12
Decrease in profit attributable to minority interests 9
Decrease in profit attributable to equity holders of the Company 3
33
Reclassification of income statement items
The Group has revised the format of its income statement in the current period
to reflect better the classification of certain items between operating and
non-operating profit. These items have not changed the profit for the year ended
31 March 2006. The impact on the previously reported income statement is as
follows:
* £11 million - representing the exceptional gain on the sale of Coventry
College (the Group's training centre) has been reclassified from gains and
losses on the sale of non-current assets to other operating income; and
* £6 million - representing exceptional insurance proceeds relating to
restoration work after Hurricane Ivan has been reclassified from other
non-operating income to other operating income; and
* £7 million - representing dividend income that has been reclassified from
other non-operating income to finance income.
Reclassification of balance sheet items
During the current period, we have reclassified a balance of £11 million from
trade and other receivables to other non-current cash. This balance represents
cash that is not readily available due to foreign exchange restrictions and has
been reclassified to reflect better the nature of the balance. The corresponding
balance of £15 million in the prior period balance sheet has been adjusted in
order to be consistent.
Earnings per share
The Group has amended the reported diluted earnings per share in the comparative
period as there was no dilution in this period. Diluted earnings per share for
discontinued operations was also adjusted as there was no dilution in the
period. The effect of these changes is to align diluted earnings per share with
basic earnings per share.
34
Consolidated income statement
2006/07 2005/06 1
Pre-exceptionals Exceptionals2 Total Pre-exceptionals Exceptionals2 Total
£m £m £m £m £m £m
Revenue 3,348 - 3,348 3,230 - 3,230
Operating (2,883) (78) (2,961) (2,819) (21) (2,840)
costs before
depreciation
&
amortisation
Depreciation (234) (2) (236) (228) (177) (405)
Amortisation (39) (11) (50) (46) (60) (106)
Other 13 13 26 - 17 17
operating
income
Other (2) (11) (13) - - -
operating
expense
Operating 203 (89) 114 137 (241) (104)
profit/(loss)
Share of 18 (29) (11) 52 2 54
post-tax
profit of
joint
ventures &
associates
Total 221 (118) 103 189 (239) (50)
operating
profit/(loss)
Gains & - 153 153 2 70 72
losses on
sale of
non-current
assets
Gain on 3 18 21 - 72 72
termination
of operations
Finance 52 - 52 87 - 87
income
Finance (80) - (80) (81) - (81)
expense
Profit/(loss) 196 53 249 197 (97) 100
before income
tax
Income tax (44) 1 (43) (29) 2 (27)
expense
Profit/(loss) 152 54 206 168 (95) 73
for the year
from
continuing
operations
Profit for - 28 28 2 88 90
the year from
discontinued
operations
Profit/(loss) 152 82 234 170 (7) 163
for the year
Attributable 92 82 174 118 (42) 76
to equity
holders of
the Company
Attributable 60 - 60 52 35 87
to minority
interests
Profit/(loss) 152 82 234 170 (7) 163
for the year
Earnings per share attributable to
the equity holders of the Company
during the year (pence)
Basic 7.5p 3.3p
Diluted 7.4p 3.3p
Earnings per share from continuing
operations attributable to the
equity holders of the Company
during the year (pence)
Basic 6.3p (0.6)p
Diluted 6.2p (0.6)p
Earnings per share from
discontinued operations
attributable to the equity holders
of the Company during the year
(pence)
Basic 1.2p 3.9p
Diluted 1.2p 3.9p
1 Results adjusted to reflect revised accounting for Monaco Telecom and other
presentational points as set out on page 33 to 34
2 Exceptionals comprise items considered exceptional by virtue of their size,
nature or incidence and include restructuring and impairment charges, and
releases of certain provisions and certain profits and losses on disposal of
non-current assets
35
Condensed consolidated balance sheet
As at:
31 March 31 March
2007 20061
£m £m
ASSETS
Non-current assets
Intangible assets 745 722
Property, plant & equipment 1,465 1,489
Investments in associates & joint 117 176
ventures
Other non-current assets 191 131
2,518 2,518
Current assets
Inventories 23 31
Financial assets at fair value - 39
Trade & other receivables 855 931
Cash & cash equivalents 1,043 1,127
1,921 2,128
Assets held for sale 52 105
1,973 2,233
Total assets 4,491 4,751
LIABILITIES
Current liabilities
Trade & other payables 1,221 1,381
Financial assets at fair value 60 -
Current tax liabilities 122 123
Loans & obligations under finance 77 143
leases
Derivative financial instruments - 15
Provisions 72 89
1,552 1,751
Liabilities associated with assets 10 -
held for sale
1,562 1,751
Net current assets 411 482
Non-current liabilities
Trade & other payables 65 -
Financial liabilities at fair 75 106
value
Loans & obligations under finance 639 641
leases
Deferred tax liabilities 59 51
Provisions 154 193
Retirement benefit obligations 47 143
1,039 1,134
Net assets 1,890 1,866
EQUITY
Capital & reserves attributable to
the Company's equity holders
Share capital 615 605
Share premium 56 24
Reserves 1,010 956
1,681 1,585
Minority interests 209 281
Total equity 1,890 1,866
1 Adjusted to reflect revised accounting for Monaco Telecom and other
presentational points as set out on page 33 to 34
36
Consolidated statement of recognised income and expense
2006/07 2005/061
£m £m
Actuarial gains/(losses) in the value of 105 (9)
defined benefit retirement plans
Exchange differences on translation of (172) 68
foreign operations
Fair value gains on available for sale - 10
financial assets
Fair value gains on available for sale - (70)
financial assets recycled to income
statement on sale
Tax on items taken directly to or (5) (2)
transferred from equity
Net loss recognised directly in equity (72) (3)
Profit for the year 234 163
Total recognised income & expense for 162 160
the year
Attributable to equity holders of the 138 85
Company
Attributable to minority interests 24 75
162 160
1 Results adjusted to reflect revised accounting for Monaco Telecom as set out
on page 33 to 34
37
Consolidated cash flow statement
2006/07 2005/061
£m £m
Cash generated from continuing 299 100
operations (see page 40)
Cash generated from discontinued - 3
operations (see page 40)
Income taxes paid (46) (47)
Net cash from operating activities 253 56
Cash flows from investing activities
Interest received 43 107
Other income 9 5
Dividends received 23 34
Proceeds on disposal of trade - 89
investments
Proceeds on disposal of property, plant 15 35
& equipment
Proceeds on disposal of intangible - 2
assets
Purchase of property, plant & equipment (338) (412)
Purchase of intangible assets (40) (22)
Proceeds from redemption of 40 40
credit-linked notes
Proceeds from disposal of associates and 256 1
joint ventures
Acquisition of associates & joint - (1)
ventures
Acquisition of subsidiaries (net of cash (15) (618)
received)
Net cash from continuing operations (7) (740)
Discontinued operations
Proceeds on disposal of subsidiaries - 27
Net cash from discontinued operations - 27
Net cash used in investing activities (7) (713)
Net cash inflow/(outflow) before 246 (657)
financing activities
Cash flows from financing activities
Dividends paid to minority interests (93) (51)
Dividends paid to shareholders (83) (80)
Repayments of borrowings (212) (46)
Loan to minority interest - (43)
Interest paid (55) (61)
Proceeds from borrowings 122 38
Purchase of treasury shares - (17)
Net proceeds on share awards 3 -
Net proceeds on issue of ordinary share 15 11
capital
Net cash used in financing activities (303) (249)
Net decrease in cash & cash equivalents (57) (906)
Cash & cash equivalents at 1 April 1,127 2,021
Exchange gains & losses on cash & cash (22) 12
equivalents
Cash & cash equivalents at 31 March 1,048 1,127
Less: Cash reflected as assets held for (5) -
sale
Net cash and cash equivalents 1,043 1,127
1 Results adjusted to reflect revised accounting for Monaco Telecom as set out
on page 33 to 34
38
Cash flow from operating activities
2006/07 2005/061
£m £m
Continuing operations
Profit for the year 206 73
Adjustments for:
Tax expense 43 27
Depreciation 236 228
Amortisation 50 46
Impairment - 237
Gain on termination of operations (15) (34)
Gains and losses on sale of non-current (153) (72)
assets
Profit on disposal of property, plant (11) (11)
and equipment
Sale of Bulldog brand & retail broadband 11 -
customer base
Finance income (52) (87)
Finance expense 80 81
Decrease in provisions (28) (135)
Share-based payments 25 14
Defined benefit pension scheme (credit)/ (11) 6
expense
LTIP charge 27 -
Defined benefit pension scheme top-up - (98)
contributions
Defined benefit pension scheme other (18) (17)
contributions
Share of results after tax of joint (18) (54)
ventures and associates
Impairment of TSTT fixed asset 29 -
Operating cash flows before working 401 204
capital changes
Changes in working capital (excluding
effects of acquisitions & disposals of
subsidiaries)
Decrease/(increase) in inventories 8 (4)
Decrease/(increase) in trade & other 76 8
receivables
Increase/(decrease) in payables (186) (108)
Cash generated from continuing 299 100
operations
Discontinued operations
Profit for the year 28 90
Adjustments for:
Profit on disposal of investments - (20)
Profit on disposal of property, plant - (4)
and equipment
Changes in working capital - 1
Decrease in provisions (28) (64)
Cash generated from discontinued - 3
operations
Cash generated from operations 299 103
1 Results adjusted to reflect revised accounting for Monaco Telecom as set out
on page 33 to 34
39
Provisions for liabilities and charges
Property Redundancy Network & Other Total
asset
retirement
obligations
£m £m £m £m £m
At 31 March 2006 55 36 91 100 282
Current portion 6 36 11 36 89
Non-current portion 49 - 80 64 193
Charged to income
statement
additional 53 39 7 17 116
provision
amounts used (8) (65) (7) (28) (108)
unused amounts (19) (2) (14) (28) (63)
reversed
Transfers 1 - 1 1 3
Exchange - (1) (1) (2) (4)
At 31 March 2007 82 7 77 60 226
Current portion 25 7 12 28 72
Non-current portion 57 - 65 32 154
Analysed between:
Current portion
International - 3 9 3 15
Europe, Asia & US 18 4 3 - 25
and
C&W Access
Central 7 - - 25 32
Non-current portion
International - - 6 8 14
Europe, Asia & US 57 - 59 1 117
and
C&W Access
Central - - - 23 23
Total
International - 3 15 11 29
Europe, Asia & US 75 4 62 1 142
and
C&W Access
Central 7 - - 48 55
Property
Provision has been made for the lower of the best estimate of the unavoidable
lease payments or cost of exit in respect of vacant properties. Unavoidable
lease payments represent the difference between the rentals due and any income
expected to be derived from the vacant properties being sub-let. The provision
is expected to be utilised over the shorter of the period to exit and the lease
contract life.
Redundancy
Provision has been made for the total costs of redundancies announced prior to
31 March 2007. Amounts provided and spent in the year primarily relate to
restructuring in Europe, Asia & US and C&W Access.
Network and asset retirement obligations
Provision has been made for the best estimate of the unavoidable costs
associated with redundant network capacity. We expect to use the provision over
the shorter of the period to exit and the lease contract life. Provision has
also been made for the best estimate of the asset retirement obligation
associated with office sites, technical sites, domestic and sub-sea cabling. We
expect to use this provision at the end of the life of the related asset on
which the obligation arises. Amounts utilised in the year relate predominantly
to cash spend against the unavoidable costs associated with redundant network
capacity.
40
Other
Other provisions includes amounts relating to specific legal claims against the
Group, the disposal of the previously discontinued US businesses, amounts
relating to the Group's former insurance operation and amounts relating to
acquisitions and disposals of Group companies and investments. The release of
unused amounts reflects the resolution of historical claims and other risks
during the year.
Minority interests
Total1
£m
Balance as at 31 March 2006 281
Share of total recognised income & expenditure for the year 24
Dividends paid (96)
Balance as at 31 March 2007 209
1 Results adjusted to reflect revised accounting for Monaco Telecom as set out
on page 33 to 34
Dividends paid and proposed
2006/07 2005/06
£m £m
Declared & paid during the year ended 31 March
Dividends on ordinary shares:
Final dividend in respect of the prior year 71 60
Declared & paid during the year ended 31 March
Dividends on ordinary shares:
Interim dividend in respect of the current year 40 32
This announcement contains forward-looking statements that are based on current
expectations or beliefs, as well as assumptions about future events. These
forward-looking statements can be identified by the fact that they do not relate
only to historical or current facts. Forward-looking statements often use words
such as anticipates, target, expect, estimate, intend, plan, goal, believe,
will, may, should, would, could or other words of similar meaning. Undue
reliance should not be placed on any such statements because, by their very
nature, they are subject to known and unknown risks and uncertainties and can be
affected by other factors that could cause actual results, and Cable & Wireless'
plans and objectives, to differ materially from those expressed or implied in
the forward-looking statements.
There are several factors that could cause actual results to differ materially
from those expressed or implied in forward-looking statements. Among the factors
that could cause actual results to differ materially from those described in the
forward-looking statements are changes in the global, political, economic,
business, competitive, market and regulatory forces, future exchange and
interest rates, changes in tax rates and future business combinations or
dispositions. A summary of some of the potential risks faced by Cable & Wireless
is set out in the Company's most recent Annual Report.
Cable & Wireless undertakes no obligation to revise or update any
forward-looking statement contained within this announcement, regardless of
whether those statements are affected as a result of new information, future
events or otherwise.
This information is provided by RNS
The company news service from the London Stock Exchange
