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Cable and Wireless plc Full Year Results 26 May 2005

Cable and Wireless plc Full Year Results 26 May 2005. Richard Lapthorne Chairman. Cable and Wireless plc Full Year Results 26 May 2005. Charles Herlinger Chief Financial Officer. Financial overview. Delivered a robust financial performance whilst investing in Bulldog:

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Cable and Wireless plc Full Year Results 26 May 2005

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  1. Cable and Wireless plcFull Year Results26 May 2005 Richard Lapthorne Chairman

  2. Cable and Wireless plcFull Year Results26 May 2005 Charles Herlinger Chief Financial Officer

  3. Financial overview • Delivered a robust financial performance whilst investing in Bulldog: • 38% growth in operating profit • 31% growth in free cash flow • Achieved 16% growth in EPS • Increased full year dividend by 21% to 3.8 pence

  4. Financial highlightsContinuing businesses1 (£ million) Op profit Revenues 2 (3)% (4)% 25% 38% Reported change: - % - % 38% 53% CC change: 3,130 3,023 3,012 1,534 314 1,516 1,509 284 228 161 135 103 1,507 1,503 1,596 153 149 125 2003/4 2004/5 2004/5 excluding Bulldog 2003/4 2004/5 2004/5 excluding Bulldog H1 H2 1 2004/5 excluding C&W Japan; 2003/4 excluding C&W Japan, US domestic business and TeleYemen 2 Excludes JVs & associates and amortisation of goodwill All figures shown are before exceptional items

  5. Financial highlightsContinuing businesses1 (£ million) Capex Free cash flow 2% (6)% 13% 57% Reported change: 8% (1)% 31% 81% CC change: 332 326 305 199 167 144 214 191 62 127 15 52 137 159 129 118 114 75 2003/4 2004/5 2004/5 excluding Bulldog 2003/4 2004/5 2004/5 excluding Bulldog H1 H2 1 2004/5 excluding C&W Japan; 2003/4 excluding C&W Japan, US domestic business and TeleYemen All figures shown are before exceptional items

  6. Net cash: movements in year Group Gross Cash £2,166m Gross Cash £2,367m £m 237 1700 1600 (73) (97) 1500 107 1,448 (74) 55 1400 1,342 (100) (35) (126) 1300 1200 1100 1 April '04 Operating cash Net Dividends Share buy back Pension C&W Japan & Monaco Cash acquired Tax & other 31 March '05 flow less capex exceptionals contribution Intelsat Telecom & with Monaco disposals Bulldog Telecom acquisitions

  7. Summary profit & lossContinuing businesses 2004/5 2003/4 H1 £m H2 £m 1 1 FY £m 1 FY £m 2 Revenue Operating costs Depreciation Operating profit 3 Profit before tax Tax Profit after tax Underlying EPS 4 Dividend (per share) 1,516 3,023 3,130 1,507 (1,260) (1,287) (2,547) (2,677) (98) (94) (192) (225) 149 135 284 228 192 169 361 319 (40) (35) (75) (57) 152 134 286 262 4.9p 4.4p 9.3p 8.0p 1.16p 2.64p 3.8p 3.15p 1 Includes Monaco Telecom and Bulldog; Excludes C&W Japan 2 Excludes US domestic business, TeleYemen and C&W Japan 3 Excludes JVs & associates and amortisation of goodwill 4 Excludes amortisation of goodwill All figures shown are before exceptional items

  8. Exceptional itemsGroup 2004/5 2003/4 H1 £m H2 £m FY £m FY £m Redundancy Property Hurricane Ivan US exit Disposal of IDC Sale of trade investment Group fixed asset impairment Other Before tax Tax on exceptionals Exceptional tax credit After tax (3) (66) (69) (96) - (54) (87) (54) (9) (12) - (21) 235 66 67 (1) - - 42 42 16 - - 16 (536) - - - 15 (9) (18) 6 86 (100) (14) (502) - 4 4 73 - 85 85 - 86 (11) 75 (429)

  9. 350 350 30 300 300 69 75 78 61 250 250 76 86 200 200 43 119 52 134 27 150 150 78 47 44 26 23 23 100 46 100 67 29 42 138 109 50 101 50 32 91 78 62 47 31 0 0 H1 2004/5 H2 2004/5 FY 2004/5 FY 2003/4 H1 2004/5 H2 2004/5 FY 2004/5 FY 2003/4 Capital expenditureContinuing businesses By type By geography Others IT/Other Macau, Panama, Rest of World, Monaco Telecom Mobile Service delivery/product portfolio Caribbean Network build £m £m Bulldog UK £332m £332m £326m £326m £214m £214m £118m £118m

  10. UK:review of performance H2 vs H1 % FY vs FY % 2003/4 2004/5 H1 £m FY £m FY £m H2 £m UK1 Revenue 810 792 1,602 1,661 (2) (4) Operating costs (737) (715) (1,452) (1,560) 7 3 Depreciation (30) (30) (60) (68) - 12 Operating profit 43 47 90 33 9 nm Operating profit margin % 5.3 5.9 5.6 2.0 Capex (47) (91) (138) (101) (94) (37) Free cash flow 26 (14) 12 - nm nm 1 Excluding Bulldog All figures shown are before exceptionals

  11. Reorganisation:cost benefits March 2006 run rate £m UK and Corporate Centre Europe Total 2004/5 £m 2005/6 £m P&L impact 5 25 35 - 10 15 5 35 50 Total £m Exceptional cash costs UK and Corporate Centre Europe Total 15 25 40 25 5 20 20 45 65 Additional £50m cost savings identified in UK outpayments and network costs by March 2006

  12. Bulldog:review of performance 2004/5 H1 £m H2 £m FY £m Bulldog Revenue Operating costs Depreciation Operating loss1 Capex Free cash flow2 4 7 11 (8) (31) (39) - (2) (2) (4) (26) (30) (4) (23) (27) (8) (47) (55) 1 Excludes amortisation of goodwill 2 Free cash flow = Operating profit plus depreciation less cash capital expenditure All figures shown are before exceptionals

  13. Total National Telcos:summary H2 vs H1 % FY vs FY % Total National Telcos 2003/04 2004/05 4 4 H1 £m FY £m FY £m H2 £m Revenue Operating costs Depreciation Operating profit 1 Reported margin % Underlying margin % 2 JVs & Associates Capex Free cash flow 3 576 615 1,191 1,187 10 10 (358) (406) (764) (757) (17) (11) (66) (62) (128) (153) 3 8 - 18 152 147 299 277 26.4 23.9 25.1 23.3 26.6 25.4 26.0 25.9 23 25 48 42 12 25 (65) (96) (161) (195) (53) 9 153 113 266 235 (24) 23 1 Excludes exceptionals, JVs & associates and amortisation of goodwill 2 2004/5 excludes Hurricane Ivan and Tsunami impact; 2003/4 excludes one-off items 3 Free cash flow = Operating profit plus depreciation less cash capital expenditure 4 At constant currency All figures shown are before exceptionals

  14. Caribbean:review of performance H2 vs H1 % FY vs FY % 2003/04 2004/05 4 4 H1 £m FY £m FY £m H2 £m Caribbean Revenue Operating costs Depreciation Operating profit 1 Reported margin % Underlying margin % 2 JVs & Associates Capex Free cash flow 3 276 274 550 633 3 (3) (188) (200) (388) (442) (11) 2 (32) (26) (58) (76) 15 15 (11) - 56 48 104 115 20.3 17.5 18.9 18.2 20.9 20.1 20.5 21.2 (39) (31) 12 7 19 30 (42) (44) (86) (134) (9) 29 (32) 47 46 30 76 57 1 Excludes exceptionals, JVs & associates and amortisation of goodwill 2 2004/5 excludes Hurricane Ivan impact; 2003/4 excludes one-off items 3 Free cash flow = Operating profit plus depreciation less cash capital expenditure 4 At constant currency All figures shown are before exceptionals

  15. National Telcos (excluding Caribbean):review of performance H2 vs H1 % FY vs FY % 2003/04 2004/05 4 4 H1 £m FY £m FY £m H2 £m National Telcos1 Revenue Operating costs Depreciation Operating profit 2 Reported margin % Underlying margin % JVs & Associates Capex Free cash flow 3 300 341 641 554 16 26 (170) (206) (376) (315) (24) (30) (34) (36) (70) (77) (9) 1 96 99 195 162 6 31 32.0 29.0 30.4 29.2 32.0 29.9 30.9 31.3 11 18 29 12 68 nm (23) (52) (75) (61) nm (35) 107 83 190 178 (20) 16 1 Macau, Panama, Rest of World and Monaco Telecom 2 Excludes JVs & associates and amortisation of goodwill 3 Free cash flow = Operating profit plus depreciation less cash capital expenditure 4 At constant currency All figures shown are before exceptionals

  16. Guidance 2005/6 • Operating cost reductions: • £25m in the UK and corporate • £10m in Europe • £50m in outpayments and network costs to protect margins • Group depreciation charge of £240m including NGN and Bulldog • Group capex £435m to £455m, including: • £70m on Bulldog and • £65m on Next Generation Network • Operating loss of £90m in Bulldog • Effective tax rate of 15%

  17. Financial overview • Delivered a robust financial performance whilst investing in Bulldog: • 38% growth in operating profit • 31% growth in free cash flow • Achieved 16% growth in EPS • Increased full year dividend by 21% to 3.8 pence

  18. Cable and Wireless plcFull Year Results26 May 2005 Francesco Caio Chief Executive Officer

  19. Delivery to date Solid financial performance • +38% increase in Group operating profit • +31% increase in Group free cash flow • Net cash of £1.3 billion, after: • £75 million share repurchase • £100m pension contribution • Funding Bulldog rollout • Investment in GSM rollout Figures are quoted on a continuing business basis before exceptionals and at constant currency

  20. Delivery to date Executing against plan • Exited US and Japan • New UK organisation • Head office • cost reduction • relocation • Refocusing Europe • on track to reduce headcount from 500 to 220 by H1 2005/6

  21. Delivery to date Mobile and broadband focus in National Telcos Bulldog investment and rollout Next Generation Network (NGN) investment commitment Clear path to the future

  22. Profit drivers for an infrastructure-based Telco • Scale • Access network • Serving business and residential • Branded franchise based on innovation, marketing, distribution and customer care Investing for growth in new services Managing margins in legacy

  23. National Telcos: 2004/5 Priorities Performance* • Proactive attitude to competition • New leadership team Drive change and performance Shift mix to new services Protect margins and cashflow • Mobile revenue up 26% • Data and IP revenue up 13% • Stable underlying operating margin • Free cashflow up 23% *All figures quoted in constant currency

  24. National Telcos: cost initiatives 2004/5 Initiatives: 2005/6 Initiatives: • Outsourced mobile supply chain • Lead-time: 8 weeks to 6 days • Inventory reduced by 50% • Availability @ POS up to 97% • Target inventory reduction 85% • Roll-out in Panama and TSTT Caribbean mobile supply chain • Lease disposals across NT • Consolidate data centres (from 4 to 2) • Sold 9 properties • Fleet size reduced by 40% Caribbean property rationalisation • Implemented CIS converged billing solution (Caribbean) • Standard SAP, supply chain & procurement systems (Jamaica) IT & Network standardisation • Roll-out across NT

  25. National Telcos: mobile initiatives 2004/5 Marketing & distribution Network build Network operations Service offering • Continued investment in Caribbean GSM coverage • Increased capacity in Panama • Improved coverage in Maldives • Centrally managed network performance • Convergent billing platform in Monaco • Enhanced roaming across National Telcos • Retention package for high ARPU customers in Macau • New store formats across portfolio • Launched Blackberry services in 17 markets • Launched and rolled out Caribbean bmobile brand

  26. bmobile launched July 2004 New pan-Caribbean mobile brand including global text messaging and enhanced roaming coverage Caribbean: product launches Home fone launched August 2004 • Jamaican residential fixed line offering including SMS Max launched December 2004 • Personal internet communicator – surf, email, download, music, games NetSpeak launched May 2005 • Cayman low cost international calls via VoIP

  27. National Telcos: mobile & broadband performance Mobile Mobile revenue £m 88% of National Telco revenues come from liberalised markets Subscriber growth Broadband subscribers Subscriber growth Subscriber 38,000 142% Caribbean 142 1,367,000 20% 38,000 154% Panama 77 634,000 25% 50,000 61% Macau 44 228,000 6% 7,000 122% Rest of World 69 285,000 44% 8,000 30% Monaco 19 35,000 22%

  28. Profit drivers for an infrastructure-based Telco – C&W UK • Scale • Access network • Serving businessand residential • Branded franchise based on innovation, marketing, distribution and customer care Investing for growth in new services Managing margins in legacy

  29. Profit drivers for an infrastructure-based Telco - the role of Bulldog • Scale • Access network • Serving business andresidential • Branded franchise based on innovation, marketing, distribution and customer care Investing for growth in new services Managing margins in legacy

  30. Profit drivers for an infrastructure-based Telco – role of NGN • Scale • Access network • Serving business and residential • Branded franchise based on innovation, marketing, distribution and customer care Investing for growth in new services Managing margins in legacy NGN

  31. UK segment economics Carrier Services Enterprise Business Total Revenue Voice % Cost of sales Gross margin Gross margin % Channel margin Channel margin % Shared costs: Network and operations G&A opex EBITDA 1,602 475 394 733 67% (958) (174) (212) (572) 644 301 182 161 40% 63% 46% 22% 502 213 139 150 31% 45% 35% 20% (251) (101) 150 Note: Margins are determined through internal management allocations

  32. Enterprise 30% of UK revenue base Embedded position in major corporates with strong competitive services and international reach Upselling to increase % spend with existing customers Growth from IP services (10% H1; 13% FY) IP 13% Voice Data 54% 33%

  33. Enterprise:growing IP spend in corporate accounts New IP contracts • Extending reach of their networks • Enhancing network control • Lowering their cost base • Access to quality customer service and managed service capabilities Customer benefits

  34. Business • 25% of UK revenue base • 2,000 customers spend > £20k • 20,000 customers spend < £2k • 78% of customers currently take only one service • Focus on top tier customers with product differentiation IP 12% Voice 39% Data 49%

  35. Business: H2 initiatives • Launched StraightTalk • Launched 3 new VoIP products – 2 trials underway • Differentiated IP bundled packages including VoIP and broadband services Products • New churn management and retention process • New dedicated top-tier account management • Developing third party channels to market • Focus on customer service improvements Customer management

  36. Carrier Services 46% of UK revenue base Serves a wide range of customer segments, including international carriers Increasing focus on margins Offset price decline with increased volumes Regulatory mobile termination rates changes impact H2 revenue Offering value added services Data & IP 9% International voice 25% Mobile 21% National Voice 45%

  37. Carrier Services • Carrier IP MPLS - 8 signed carriers • VoIP breakouts - Skype • Carrier GRX - 50 signed mobile carriers Innovative offerings • Continue to exploit international reach • Focus on cash margins 2005/6 priorities

  38. Today Clear path to the future Market C&W Changing industry structure Declining voice price LLU and NGN Participating in broadband growth Differentiated offer C&W Segmenting customers Migrating to IP Reducing Cost UK: operating in today's market

  39. Bulldog Start-Up:progress against initial plan Management team recruited and ready for full commercial launch • Additional DSLAM installed in 90 exchanges based on demand • Automated connections process with BT on 16 May - rate of connections materially accelerating 16,000 450 LLU customer orders 400 14,000 Exchanges unbundled 350 12,000 300 10,000 250 Unbundled Exchanges (cumulative) Customer orders per month 8,000 200 400 373 6,000 150 252 4,000 100 113 2,000 50 89 0 0 Jan Feb Mar Apr May

  40. Bulldog: next priorities • Building brand awareness and multi-channel sales • Innovative first to market offerings supported by end-to-end network control • Speed e.g. first with 4Mbit • Services e.g. first DSL double play • Features e.g. up to 8 VoIP lines, data, fast internet access through single pipe due to launch June ‘05 • Customer segmentation e.g. pay as you go

  41. Bulldog: European broadband growth DSL penetration – % of households with DSL Q4 2004 DSL growth – subscriber growth Q3-Q4 2004 26% 25% 25% 20% 18% 17% 17% 16% 13% 13% 10% 8% UK Italy UK Italy France France Sweden Sweden Germany Germany Netherlands Netherlands Source: Informa. Penetration data for Sweden relates to Q3 2005 and growth rate to Q2-Q3 2004. In Q3 2004 the UK’s penetration rate was 13%

  42. Bulldog: extended plan – 800 exchanges • 5,500 BT exchanges in total in the UK • Expansion criteria • density of demand • proximity to C&W network • Footprint approx. 800 exchanges • 52% UK coverage

  43. Bulldog: indicative 2005/6 Investment phase – 2005/6 Total exchanges unbundled (additional 200) 600 Operating loss £(90) million Cash capex £70 million • Double Play • Rollout of network from October 2005 • Further 200 exchanges to be unbundled in H1 2006/7 taking total to 800 • Increased marketing and advertising budget in 2005/6 ahead of 52% coverage plus additional resources allocated to provisioning and customer care

  44. UK NGN: the rationale • Lower costs and capex:supporting multiple services over single platform • Customer-driven investment:supporting demand for new services • Consistent with our broadband strategy • Key element of a viable UK infrastructure-based player • Blue print for network architecture for all our operations

  45. NGN: UK financial case Total capex of £190m for UK Next Generation Network and operations capex (incremental spend of £35m) £m 90 £80m 80 70 £60m 60 £50m 50 40 30 20 10 0 2005/06 2006/07 2007/08 Legacy capex avoidance £15m £60m £80m Net opex savings - £6m £22m

  46. UK Next Generation systems and processes Legacy NGN Transport platforms 5 1 Core nodes 30 10 Legacy switches 70 10 (soft switches) Collector nodes 100 80 (metro nodes)

  47. UK Next Generation: enhance customer processes Provisioning Systems • Single flow-through provisioning system • Processed in minutes Billing Systems • Single bill with multi-service packaging and discounting schemes • Self-service web systems for reporting/monitoring of network performance and operation Monitoring / Reporting

  48. Broadband LLU and NGN for C&W Structural change in the industry • decline of legacy voice and data • migration from legacy services to IP • Local Loop Unbundling • regulatory review Creating opportunities C&W clear path to the future • creating infrastructure-based competition • scale and access separates C&W from traditional “Altnet” model • building for sustainable returns

  49. Summary • Solid financial performance • Reinforced competitive position • National Telcos gaining momentum in mobile and broadband • Defined and building a clear path to the future

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