SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the month of August, 2003
MARCONI PLC
(Exact name of Registrant as specified in its Charter)
New Century Park
P.O. Box 53
Coventry
Warwickshire CV 1HJ
United Kingdom
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F.
Form 20-F...X... Form 40-F......
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ........ No ...X...
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-________.)
INCLUDED DOCUMENTS
Included in this report is the annual report and accounts 2002/03 in respect of
Marconi plc.
Registration No. 3846429
MARCONI PLC
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 2003
CONTENTS
1 Directors' report
3 Report to shareholders by the Board on directors' remuneration
10 Statement of directors' responsibilities
11 Independent auditors' report to the members of Marconi plc
12 Consolidated profit and loss account
13 Balance sheets
14 Consolidated cash flow statement
14 Reconciliation of net cash flow to movements in net monetary debt
15 Consolidated statement of total recognised gains and losses
15 Reconciliation of movements in equity shareholders' interests
16 Notes to the accounts
44 Notice of meeting
DIRECTORS' REPORT
The directors present their report and the financial statements of the Company
for the year ended 31 March 2003.
1 ACTIVITIES AND PROSPECTS
In respect of the year ended 31 March 2003 and until 19 May 2003, the Company
was the ultimate holding company for the Marconi Group; which designs,
manufactures and supplies telecommunications equipment and provides related
services.
Under the schemes of arrangement of Marconi Corporation plc and the Company,
pursuant to Section 425 of the Companies Act 1985, which became effective on 19
May 2003, the Company ceased to be the ultimate holding company of the Marconi
Group on 19 May 2003. Trading in the Company's shares on The London Stock
Exchange ceased on 16 May 2003 and the Company's shares were subsequently
delisted.
Pursuant to the Company's scheme of arrangement (the Scheme), the remaining
assets of the Company will be distributed over time to its creditors, following
which it is intended that the Company will be liquidated or dissolved. There
will be no circumstances in which any value will be returned to shareholders
under the terms of the Scheme.
This report and the financial statements are being produced and distributed to
shareholders to comply with the requirements of the Companies Act 1985, which
continue to apply irrespective of the Scheme.
2 RESULTS AND DIVIDENDS
The loss on ordinary activities after taxation during the year was Pound
Sterling 802 million (2002: Pound Sterling 5,875 million). Under the terms of
the Scheme, no dividend is payable.
3 DIRECTORS AND SCHEME SUPERVISORS
The membership of the Board during the year was:
Mr M K Atkinson (appointed 16 December 2002)
Mr D C Bonham
Sir William Castell (resigned 8 October 2002)
Mr J F Devaney (appointed 16 December 2002)
Mr M J Donovan
The Rt. Hon The Baroness Dunn (resigned 11 April 2002)
Mr S Hare (resigned 14 November 2002)
Mr C C Holden (appointed 14 November 2002)
Mr W K Koepf (appointed 16 December 2002)
Mr M W J Parton
Sir Alan Rudge (resigned 16 December 2002)
Mr A L Thomas (appointed 20 May 2002; resigned 14 March 2003)
Hon Raymond G H Seitz (resigned 16 December 2002)
Mr N J Stapleton (resigned 8 October 2002)
On 19 May 2003 Mr M K Atkinson, Mr D C Bonham, Mr J F Devaney and Mr W K Koepf
resigned as directors of the Company.
Also on 19 May 2003, Mr R Heis and Mr P W Wallace, both of KPMG LLP, 8 Salisbury
Square, London EC4Y 8BB, were appointed initial supervisors pursuant to the
Scheme.
Following the approval of this report and the financial statements on 4 August
2003, it is intended that Mr M W J Parton and Mr M J Donovan will resign and Mr
J J White and Mr C J Shaw will be appointed, as directors of the Company.
4 DIRECTORS' INTERESTS
The interests of the directors in the share capital of the Company are shown in
the Report to shareholders by the Board on directors' remuneration on pages 8
and 9.
5 PAYMENT OF CREDITORS
In its role as the ultimate holding company of the Marconi Group, the Company
had no revenue and no trade creditors, as in previous years. It is not,
therefore, possible to provide statistics for the Company as required by the
Companies Act 1985.
1
DIRECTORS' REPORT continued
6 EMPLOYEES
During the year and until 19 May 2003, individual employees and their
representatives were kept informed of current business issues through briefing
groups, training seminars and professional networks as well as through more
formal consultative procedures.
Full and fair consideration was given to applications for employment from people
with disabilities having regard to their aptitudes and abilities; special
arrangements were made to support the continued employment of those who became
disabled. Wherever practical, access, facilities and training programmes were
made available allowing people with disabilities to participate at work to the
best of their ability.
Since 19 May 2003 the Company has had no employees.
7 ANNUAL GENERAL MEETING
Notice of the 2003 Annual General Meeting is given on page 44.
The special business at the Annual General Meeting is a special resolution to
change the name of the Company to M (2003) plc. This is to satisfy a requirement
of the Scheme.
By Order of the Board
K D SMITH
Secretary
Registered Office:
New Century Park, PO Box 53
Coventry, Warwickshire CV3 1HJ
4 August 2003
2
REPORT TO SHAREHOLDERS BY THE BOARD ON DIRECTORS' REMUNERATION
A INTRODUCTION
The following report outlines the Company's policy on remuneration of executive
and non-executive directors of the Company and senior executives of the Group
and details actual remuneration of both executive and non-executive directors of
the Company for the year ended 31 March 2003. During the year, remuneration of
executive directors was considered by the Remuneration Committee of the Company.
Remuneration of non-executive directors was considered by the Board.
With the exception of the remuneration detailed in respect of D C Bonham, Sir
William Castell, The Rt. Hon The Baroness Dunn, Sir Alan Rudge, Hon Raymond G H
Seitz and N J Stapleton, all remuneration detailed in this report has also been
disclosed in the Report and Accounts of Marconi Corporation plc for the year
ended 31 March 2003.
In preparing this report, the Company is required to comply with the Directors'
Remuneration Report Regulations 2002 but has also given consideration to, where
appropriate, the Listing Rules, Schedule B to the Combined Code and the Higgs
Review.
It is the intention of the Board to put this report to an advisory vote of
shareholders at the forthcoming Annual General Meeting at which the financial
statements will be considered. The Board unanimously recommend that shareholders
vote in favour of this report.
B THE REMUNERATION COMMITTEE
(i) Membership
The following individuals were members of the Remuneration Committee during the
year ended 31 March 2003, all of whom were non-executive directors:
M K Atkinson
D C Bonham (Chairman)
Sir Wiliam Castell
J F Devaney
W K Koepf
Sir Alan Rudge
Hon Raymond G H Seitz
N J Stapleton
A L Thomas
The Remuneration Committee operated in accordance with written terms of
reference, which were determined by the Board. In accordance with the best
practice recommendations of the Combined Code, the Remuneration Committee's
members were all independent of management and free from any business or other
relationship, which could materially interfere with the exercise of their
independent judgement.
The Remuneration Committee had access to the advice and services of Neil
Sutcliffe, Chief Human Resources Officer and Peter Harris, Vice President
Compensation neither of whom were formally appointed by the Remuneration
Committee.
(ii) Remuneration policy
The role of the Remuneration Committee has been to determine, on behalf of the
Board, the broad framework for executive remuneration including the remuneration
of executive directors.
The underlying principles adopted by the Remuneration Committee during the year
have been:
o to ensure that executive remuneration policy and practices support business
strategy and are cost effective;
o to provide remuneration packages which are competitive within the Company's
operating environment, enabling the Company to attract, retain and motivate
senior executives with high quality and appropriate skills; and
o to operate short and long-term incentive plans, as part of total
remuneration, which reward the delivery of results aligned with
shareholders' interests while limiting earnings where there is
under-performance.
The exceptional nature of the challenges faced by the Company during the year,
including the extremely difficult trading conditions requiring continuing major
reductions in the cost base and the process involved in the schemes of
arrangement in respect of the Company and Marconi Corporation plc, which became
effective on 19 May 2003 (the Restructuring), have all had major implications
for the remuneration of executives during the year under these principles.
3
REPORT TO SHAREHOLDERS BY THE BOARD ON DIRECTORS' REMUNERATION continued
In supporting the Restructuring, the objectives of the Remuneration Committee in
the year have been:
o to ensure that the management team is fairly and equitably rewarded in
accordance with the changed circumstances of the Company; and
o to provide management and employees with appropriate incentives focused on
the priorities of cash generation and successful completion of the
Restructuring.
As a consequence of the Restructuring the Company was delisted from the London
Stock Exchange on 19 May 2003 and no longer has a remuneration committee.
It is the current intention of the Board, that the new directors who are
expected to be appointed on or after 4 August 2003, as disclosed in the
directors' report on page 1, will be paid fees in line with appropriate market
rates, taking into account their experience and the unique circumstances of the
Company.
C DIRECTORS' SERVICE AGREEMENTS
During the year ended 31 March 2003, the Remuneration Committee determined the
terms and conditions of executive directors' service agreements, including
duration, notice period and termination provisions. In determining any
termination provisions or payments the Remuneration Committee has paid due
regard to both individual circumstances and the need for mitigation.
The following is a summary of the details of the service agreements of each
director who served during the year ended 31 March 2003:
Effective date Unexpired term
of service and notice
agreement/letter period as at
Name of director of appointment 31 March 2003
----------------------------- ---------------- --------------
CURRENT DIRECTORS:
M J Donovan 19 May 2003 See note (2)
C C Holden 13 December 2002 See note (3)
M W J Parton 19 May 2003 See note (4)
FORMER DIRECTORS:
M K Atkinson 16 December 2002 32.5 months
D C Bonham 10 April 2001 12 months
Sir William Castell 2 March 2000 None
The Rt. Hon The Baroness Dunn 2 March 2000 None
J F Devaney 16 December 2002 See note (1)
S Hare 1 December 2001 See note (6)
W K Koepf 16 December 2002 32.5 months
Sir Alan Rudge 2 March 2000 None
Hon Raymond G H Seitz 2 March 2000 None
N J Stapleton 2 March 2000 None
A L Thomas 20 May 2002 None
NOTES:
(1) Mr Devaney's service agreement is with Marconi Corporation plc. It is
terminable by either party by giving three months' notice and terminates on
his 65th birthday. There are no clauses in his service agreement relating
to pay in lieu of notice.
(2) During the year ended 31 March 2003, Mr Donovan's terms of employment were
set out in a service agreement with the Company, dated 1 June 2002, which
was novated to Marconi Corporation plc on 17 March 2003. This was replaced
with a new service agreement with Marconi Corporation plc which was
effective on 19 May 2003. His new service agreement is terminable by
Marconi Corporation plc on giving 12 months' notice or by Mr Donovan on
giving six months' notice and terminates automatically on his 62nd
birthday. The agreement also permits Marconi Corporation plc to make a
payment in lieu of notice which entitles him to the following payment, pro
rata to the notice period or unexpired balance of it, should Marconi
Corporation plc terminate his service agreement without giving 12 months'
notice:
(i) basic salary;
(ii) 166% of the cash equivalent transfer value of pensions contributions
(net of tax) which would have accrued for him in The G.E.C. 1972
Plan;
(iii) 166% of the contributions (net of tax) which would have been paid
into his Funded Unapproved Retirement Benefit Scheme; and
(iv) the cost (to Marconi Corporation plc) of providing benefits (other
than bonus, pension and incentive entitlements) which cost Marconi
Corporation plc may set at 10% of his basic salary.
This amount would also be payable to Mr Donovan if certain circumstances
arise in the 12 months following a change of control of Marconi Corporation
plc, including (i) Marconi Corporation plc terminating his employment,
other than for cause, or (ii) Mr Donovan terminating his employment in such
circumstances following a material reduction in the scope of his
responsibilities or in his remuneration and benefits, or (iii) Mr Donovan
ceasing to be a director of Marconi Corporation plc other than by voluntary
resignation.
4
(3) Mr Holden has a fixed term service agreement with Marconi Corporation plc,
which will expire on 30 September 2003. His agreement may be terminated, by
either party giving to the other, two months' written notice. On service of
notice terminating his employment at any time on or after 30 September 2003
either:
(i) he may require the Company to pay him; or
(ii) the Company may pay him,
a sum in lieu of notice equal to the basic salary he would have received
during the notice period.
(4) During the year ended 31 March 2003, Mr Parton's terms of employment were
set out in a service agreement with the Company dated 2 May 2002, which was
novated to Marconi Corporation plc on 10 January 2003. This was replaced
with a new service agreement with Marconi Corporation plc, which was
effective on 19 May 2003. His new service agreement is terminable by
Marconi Corporation plc on giving 12 months' notice or by Mr Parton on
giving six months' notice and terminates automatically on his 62nd
birthday. The agreement also permits Marconi Corporation plc to make a
payment in lieu of notice. The amount of any such payment is at the
reasonable discretion of the Marconi Corporation plc Remuneration
Committee, which is to consider the relationship between the Group's and Mr
Parton's performances and defines the maximum payable as being, pro rata to
the notice period or unexpired balance of it:
(i) basic salary;
(ii) 166% of the cash equivalent transfer value of pensions contributions
(net of tax) which would have accrued for him in The G.E.C. 1972
Plan;
(iii) 100% of the contributions (gross) which would have been paid into his
Funded Unapproved Retirement Benefit Scheme; and
(iv) the cost (to Marconi Corporation plc) of providing benefits (other
than bonus, pension and incentive entitlements) which cost Marconi
Corporation plc may set at 10% of his basic salary.
This amount would also be payable to Mr Parton if certain circumstances
arise in the 12 months following a change of control of Marconi Corporation
plc including (i) Marconi Corporation plc terminating his employment, other
than for cause or (ii) Mr Parton terminating his employment in such
circumstances following a material reduction in the scope of his
responsibilities or in his remuneration and benefits, or (iii) Mr Parton
ceasing to be a director of Marconi Corporation plc other than by voluntary
resignation.
(5) With the exception of Mr S Hare, all other directors, who were
non-executive directors, did not have service agreements. No compensation
was payable upon termination of their appointments.
(6) On termination of his employment, the following payments were made to Mr S
Hare:
(i) a payment of Pound Sterling 452,467 by way of payment of basic salary
and other benefits for the unexpired notice period of his service
agreement and in respect of holiday entitlement accrued but not
taken, and
(ii) a payment of Pound Sterling 275,675 in respect of entitlement due to
him under a bonus scheme linked to the successful completion of the
Restructuring.
A termination payment of Pound Sterling 377,000 was paid to Mr R I Meakin,
a former director of the Company, during the year. Pound Sterling 375,000
of this payment was previously disclosed in the Company's Report and
Accounts to 31 March 2002.
D PERFORMANCE GRAPH
The Directors' Remuneration Report Regulations 2002 require the Company to
provide, in this report, a line graph illustrating the Company's performance,
measured by Total Shareholder Return (TSR) as compared with an appropriate and
broad equity market index. TSR is defined as the return shareholders would
receive if they held a notional number of shares in the Company. It measures the
performance growth in the Company's share price together with the value of any
dividends paid, assuming that the dividends are reinvested in the Company's
shares.
The following graph shows, since 30 November 1999, being the date on which
Marconi plc shares commenced trading on the London Stock Exchange, the TSR on a
holding of shares in the Company as against that of a hypothetical holding of
shares made up of shares of the same kinds and number as those by reference to
which the FTSE 350 Index is calculated. The FTSE 350 Index was selected for this
purpose as it is a widely recognised performance comparison for UK companies of
a similar size to the Company.
[LINE-GRAPH]
Provided by Watson Wyatt LLP
5
REPORT TO SHAREHOLDERS BY THE BOARD ON DIRECTORS' REMUNERATION continued
E DIRECTORS' REMUNERATION FOR THE YEAR ENDED 31 MARCH 2003
EXPENSES
SALARY OTHER CHARGEABLE SEVERANCE 2003 2002
AND FEES BENEFITS BONUS TO TAX PAYMENTS TOTAL Total
POUND POUND POUND POUND POUND POUND Pound
STERLING STERLING STERLING STERLING STERLING STERLING Sterling
000 000 000 000 000 000 000
-------- -------- -------- ---------- --------- -------- --------
Current directors:
M J Donovan 416 364 543 - - 1,323 735
C C Holden 114 - - - - 114 -
M W J Parton 525 95 696 - - 1,316 681
------ ------ ------ ------ ------ ------ ------
1,055 459 1,239 - - 2,753 1,416
====== ====== ====== ====== ====== ====== ======
Former directors:
M K Atkinson 21 - - - - 21 -
D C Bonham 180 - - - - 180 174
Sir William Castell 16 - - - - 16 35
J F Devaney 74 6 - - - 80 -
The Rt. Hon The Baroness Dunn 1 - - - - 1 33
S Hare 312 94 394 1 728 1,529 433
W K Koepf 29 - - - - 29 -
Sir Alan Rudge 21 - - - - 21 40
Hon Raymond G H Seitz 21 - - - - 21 33
N J Stapleton 17 - - - - 17 40
A L Thomas 83 - - - - 83 -
------ ------ ------ ------ ------ ------ ------
775 100 394 1 728 1,998 788
====== ====== ====== ====== ====== ====== ======
NOTES:
(1) Other benefits include:
(i) for M J Donovan and M W J Parton, the payment of a non-pensionable
earnings supplement in relation to Funded Unapproved Retirement
Benefit Schemes (FURBS);
(ii) car allowance or cash equivalent of a car under the Group's car
scheme;
(iii) life insurance cover and medical health insurance; and
(iv) for Mr Donovan an amount payable to him pursuant to the termination
of his G.E.C.-USA Deferred Compensation Plan.
(2) All directors are reimbursed all necessary and reasonable expenses incurred
in the performance of their duties.
(3) The executive directors, other than C C Holden, participated in an
exceptional incentive plan, known as the Retention & Emergence Plan,
related to the successful completion of the Restructuring. Maximum payment
under this plan was 150% of basic salary paid in four equal instalments,
three of which were paid (May 2002, July 2002 and May 2003). Mr Parton and
Mr Donovan have agreed to waive their entitlement to the final instalment
(37.5% of basic salary). The total sums paid are included in the figures
stated above.
(4) The executive directors, other than Mr Holden, also participated in a
quarterly incentive plan related to the achievement of targets for the
generation of total cash. Mr Parton and Mr Donovan have agreed to waive the
first two quarterly payments payable under this plan (20% of basic salary).
The total sums paid are included in the figures stated above.
(5) With effect from 1 April 2002 the fees of non-executive directors were
reduced to Pound Sterling 30,000 per annum. No additional fees were paid
the Chairmen of Board Committees. The basic fees of M K Atkinson and W K
Koepf are based on two days' service to the Company per month. They were
also paid a fee of Pound Sterling 1,500 per day for each additional day
devoted to the Company's business over and above the two days per month
threshold. Mr Koepf's remuneration also includes additional sums paid to
him in respect of his non-executive chairmanship of two German subsidiary
companies of the Company. The basic fee of A L Thomas is based on one day's
service to the Company per month. He was also paid a fee of Pound Sterling
1,500 per day for each additional day devoted to the Company's business.
Non-executive directors did not participate in any other incentive scheme
or the Group's pension arrangements and receive no further benefits or
entitlements.
(6) Remuneration detailed above in respect of Mr Atkinson, J F Devaney and Mr
Koepf relates to the period from 16 December 2002, being the date on which
they were appointed as directors of the Company. Mr Atkinson, Mr Bonham, Mr
Devaney and Mr Koepf resigned as directors of the Company on 19 May 2003.
The remuneration detailed above in respect of A L Thomas relates to the
period from 20 May 2002, being the date on which he was appointed as a
director of the Company, to 14 March 2003, being the date on which he
resigned as a director of the Company. The remuneration detailed above in
respect of The Rt. Hon The Baroness Dunn relates to the period until 11
April 2002, being the date on which she resigned as a director of the
Company. The remuneration detailed above in respect of Sir William Castell
and N J Stapleton relates to the period until 8 October 2002, being the
date on which they resigned as directors of the Company. The remuneration
detailed above in respect of Sir Alan Rudge and Hon Raymond G H Seitz
relates to the period until 16 December 2002, being the date on which they
resigned as directors of the Company.
The remuneration detailed above in respect of S Hare relates to the period
until 31 January 2003, being the date on which he left the employment of
the Company although he resigned as a director of the Company on 14
November 2003. Details of Mr Hare's termination payments are included on
page 5.
6
F RETIREMENT BENEFITS
Directors, with the exception of Mr Holden, are members of the Marconi
Corporation plc Group's principal pension scheme, The G.E.C. 1972 Plan, which is
a defined benefit scheme. Members contribute at the rate of 3% of salary,
subject to limits imposed by the Inland Revenue. Company contributions made
during the year ended 31 March 2003 amounted to 6.6% of salary in the period 1
April 2002 to 5 April 2002, 14.2% in the period 6 April 2002 to 31 October 2002
and 8.2% in the period 1 November 2002 to 31 March 2003. Such Company
contributions were restricted in a similar manner to the members' own
contributions.
Details of the Funded Unapproved Retirement Benefit Schemes (FURBS) operated
during the year for Mr Donovan and Mr Parton are set out below. With effect from
1 April 2002, the unapproved pension arrangement for Mr Parton was amended to
remove his defined benefit promise, which was substituted by a defined
contribution promise. A gross contribution of 35% of basic salary is paid as a
pension allowance, 60% is payable to the FURBS established for him and the
balance of 40% is paid direct to Mr Parton. In recognition of the change made to
Mr Parton's pension arrangement, Marconi Corporation plc has agreed to pay
additional gross contributions of Pound Sterling 583,333 during 2003/2004 which
will be split 60/40 as described above.
Contributions were paid to the FURBS established for Mr Donovan to provide
benefits at his normal retirement age of 62 equivalent to a two-thirds pension.
The targeted benefit takes into account the capital value of benefits arising
from membership of The G.E.C. 1972 Plan and any relevant benefit in payment or
otherwise arising from previous employment.
In the event of retirement before normal retirement age, or at retirement age,
each of the directors is entitled to the full amount held in the FURBS
established for him. In the event of death in service, a lump sum of four times
pensionable salary, plus additional benefits for a surviving spouse and/or
children, inclusive of any death benefits arising from The G.E.C. 1972 Plan,
will be held in trust for the benefit of dependants of Mr Donovan or Mr Parton.
In accordance with the requirements of the Directors' Remuneration Report
Regulations 2002, the disclosures required for the year ended 31 March 2003 are
set out below.
Directors' Remuneration Report Regulations 2002 - tax approved benefits
Increase in
INCREASE IN ACCUMULATED Transfer TRANSFER transfer value
ACCRUED TOTAL value VALUE over the
PENSION OVER ACCRUED of accrued OF ACCRUED period net
THE PERIOD TO PENSION AT pension as at PENSION AS AT of member's
31 MARCH 2003 31 MARCH 2003 31 March 2002 31 MARCH 2003 contributions
POUND POUND Pound POUND Pound
STERLING STERLING Sterling STERLING Sterling
NAME OF DIRECTOR 000 000 000 000 000
---------------- ------------- ------------- ------------- ------------- --------------
M J Donovan 2 7 49 57 (4)
M W J Parton 3 26 187 189 (12)
S Hare* 4 73 383 369 (24)
------------
*For Mr Hare the amounts shown relate to service to 31 January 2003 being the
date on which he left the Company's employment.
NOTES:
(1) Pensions accrued for the period to 31 March 2003 represent the increase in
accrued pension which occurred during the entire year.
(2) The transfer values have been calculated in a manner consistent with
Retirement Benefit Schemes - Transfer Values (GN11) published by the
Institute of Actuaries and the Faculty of Actuaries.
7
REPORT TO SHAREHOLDERS BY THE BOARD ON DIRECTORS' REMUNERATION continued
Directors' Remuneration Report Regulations 2002 - tax unapproved benefits
Increase in
INCREASE IN ACCUMULATED Transfer TRANSFER transfer value
ACCRUED TOTAL value VALUE over the
PENSION OVER ACCRUED of accrued OF ACCRUED period net
THE PERIOD TO PENSION AT pension as at PENSION AS AT of member's
31 MARCH 2003 31 MARCH 2003 31 March 2002 31 MARCH 2003 contributions
POUND POUND Pound POUND Pound
STERLING STERLING Sterling STERLING Sterling
NAME OF DIRECTOR 000 000 000 000 000
---------------- ------------- ------------- ------------- ------------- --------------
M J Donovan 8 72 332 336 4
NOTES:
(1) Pensions accrued for the period to 31 March 2003 represent the increase in
accrued pension which occurred during the entire year.
(2) The transfer values have been calculated in a manner consistent with
Retirement Benefit Schemes - Transfer Values (GN11) published by the
Institute of Actuaries and the Faculty of Actuaries.
G DIRECTORS' INTERESTS
The directors' interests as defined by the Companies Act 1985 (which include
trustee holdings and family interests incorporating holdings of minor children)
in ordinary shares of 5p each of the Company and its subsidiaries are as
follows:
(i) Ordinary shares of 5p each in the Company
As at
1 April 2002
AS AT (or later
31 MARCH 2003 appointment)
Name of director BENEFICIAL Beneficial
---------------- ------------- ------------
M K Atkinson NIL Nil
D C Bonham 156,000 156,000
J F Devaney NIL Nil
M J Donovan 169,670 169,670
C C Holden NIL Nil
W K Koepf NIL Nil
M W J Parton 128,122 128,122
None of the directors held any non-beneficial interests in the shares of the
Company or its subsidiaries during the year.
8
(ii) Options
The following table shows the interests of directors in options over ordinary
shares of 5p each in the Company. It should be noted that, as a result of the
Restructuring, Marconi plc shares are now of negligible value and it is
unlikely, therefore, that the directors will be able to realise any value in
relation to these options:
Granted in Exercised in Lapsed in
At 1 April 2002 the year the year the year AT 31 MARCH 2003 Exercisable
------------------ -------------- -------------- -------------- -------------------- ----------------------
Average AVERAGE
exercise Exercise EXERCISE
price price PRICE (Expiry dates
Name of director No. Pence No. Pence No. Pence No. Pence No. PENCE shown in brackets)
---------------- --------- -------- ----- -------- ----- -------- ----- -------- ----------- -------- ----------------------
M J Donovan 6,299 Nil - - - - - - 6,299 NIL Jun 2001 to Nov 2009
(Nov 2003 to Nov 2009)
3,300,000 187 - - - - - - 3,300,000 187 Nov 1999 to Nov 2003
(May 2003 to Nov 2003)
S Hare 12,596 Nil - - - - - - 12,596 NIL Jun 2001 to Nov 2009
(Nov 2003 to Nov 2009)
2,484,034 142 - - - - 1,036 748 2,482,998 142 Feb 1997 to Nov 2003
(May 2003 to Nov 2003)
M W J Parton 29,405 Nil - - - - - - 29,405 NIL Jun 2001 to Nov 2009
(Nov 2003 to Nov 2009)
4,444,958 221 - - - - - - 4,444,958 221 Nov 1999 to Nov 2003
(May 2003 to Nov 2003)
NOTES:
(1) The directors of the Company are of the opinion that disclosure of the
details of each grant of the options referred to in the table above would
result in an excessively lengthy report. Accordingly details of options
have been aggregated. All options have exercise prices that exceed the
market price of a share in the Company as at 31 March 2003, other than nil
cost options granted under the Marconi Launch Share Plan and the Marconi
Long-Term Incentive Plan.
(2) The mid-market price of a share in the Company as at 31 March 2003 was
1.75p with a range during the year of 1.27p to 12.55p.
(3) The options set out above relate to those granted under the G.E.C.
Manager's 1984 Share Option Scheme, the G.E.C. 1997 Executive Share Option
Scheme, the Marconi 1999 Stock Option Plan, the G.E.C. Phantom Option
Schemes, the Marconi Launch Share Plan, the Marconi Long-Term Incentive
Plan, the G.E.C. Employee 1992 Savings-Related Share Option Scheme and the
Marconi UK Sharesave Plan.
(4) Options granted under G.E.C. Manager's 1984 Share Option Scheme, the G.E.C.
1997 Executive Share Option Scheme, the Marconi 1999 Stock Option Plan, the
G.E.C. Employee 1992 Savings-Related Share Option Scheme and the Marconi UK
Sharesave Plan vested upon the Court's sanctioning the Company's scheme of
arrangement and will lapse six months thereafter. Options granted under the
G.E.C. Phantom Option Schemes lapsed when Marconi Corporation plc ceased to
be a subsidiary of the Company. Options granted under the Marconi Long-Term
Incentive Plan vested when Marconi Corporation plc ceased to be a
subsidiary of the Company. Options granted under the Marconi Launch Share
Plan lapse on the tenth anniversary of the grant.
(iii) The Marconi Long-Term Incentive Plan
The awards (conditional entitlements to be granted options over shares in the
Company) which were granted to directors under this plan are as follows:
Shares under SHARES UNDER
award at Shares under AWARD AT
31 March lapsed 31 MARCH
Name of director 2002 awards 2003
---------------- ------------ ------------ ------------
M J Donovan 57,919 33,201 24,718
M W J Parton 61,897 35,414 26,483
NOTE:
(1) Upon Marconi Corporation plc ceasing to be a subsidiary of the Company,
following the completion of the Restructuring, all outstanding awards under
this plan ceased to be capable of conversion into options over shares in
the Company. Accordingly it is no longer possible for award holders to
realise any value for their awards. Those held by Mr Donovan and Mr Parton
will lapse in July 2010.
The information provided above is a summary and full details of directors'
shareholdings and options are contained in the Company's Register of Directors'
Interests.
Sections e, f and g (other than directors interests as disclosed in Section
g(i)) of this report were subject to audit by Deloitte & Touche.
This report was approved by the Board of Marconi plc on 4 August 2003 and signed
on its behalf by:
K D SMITH
Secretary
4 August 2003
9
STATEMENT OF DIRECTORS' RESPONSIBILITIES
United Kingdom Company law requires the directors to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company as at the end of the financial year and of the profit
or loss of the Company for that period. In preparing those financial statements,
the directors are required to:
o select suitable accounting policies and then apply them consistently;
o make judgements and estimates that are reasonable and prudent;
o state whether applicable accounting standards have been followed; and
o prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the Company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
10
INDEPENDENT AUDITORS' REPORT TO THE MEMBERS OF MARCONI PLC
We have audited the financial statements of Marconi plc for the year ended 31
March 2003 which comprise the profit and loss account, the balance sheets, the
cash flow statement, the statement of total recognised gains and losses, the
statement of accounting policies and the related notes 1 to 26 together with the
reconciliation of net cash flow to movements in net monetary debt and the
reconciliation of movements in equity shareholders' interests. These financial
statements have been prepared under the accounting policies set out therein. We
have also audited the information in the part of the directors' remuneration
report that is described as having been audited.
This report is made solely to the Company's members, as a body, in accordance
with Section 235 of the Companies Act 1985. Our audit work has been undertaken
so that we might state to the Company's members those matters we are required to
state to them in an auditors' report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the statement of directors' responsibilities, the Company's
directors are responsible for the preparation of the financial statements in
accordance with applicable United Kingdom law and accounting standards. They are
also responsible for the preparation of the other information contained in the
annual report including the directors' remuneration report. Our responsibility
is to audit the financial statements and the part of the directors' remuneration
report described as having been audited in accordance with relevant United
Kingdom legal and regulatory requirements and auditing standards.
We report to you our opinion as to whether the financial statements give a true
and fair view and whether the financial statements and the part of the
directors' remuneration report described as having been audited have been
properly prepared in accordance with the Companies Act 1985. We also report if,
in our opinion, the directors' report is not consistent with the financial
statements, if the Company has not kept proper accounting records, if we have
not received all the information and explanations we require for our audit, or
if information specified by law regarding directors' remuneration and
transactions with the Company and other members of the Group is not disclosed.
We read the directors' report and the other information contained in the annual
report for the above year as described in the contents section including the
unaudited part of the directors' remuneration report and consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with United Kingdom auditing standards
issued by the Auditing Practices Board. An audit includes examination, on a test
basis, of evidence relevant to the amounts and disclosures in the financial
statements and the part of the directors' remuneration report described as
having been audited. It also includes an assessment of the significant estimates
and judgements made by the directors in the preparation of the financial
statements and of whether the accounting policies are appropriate to the
circumstances of the Company and the Group, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
and the part of the directors' remuneration report described as having been
audited are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements and the
part of the directors' remuneration report described as having been audited.
OPINION
In our opinion:
o the financial statements give a true and fair view of the state of affairs
of the Company and the Group as at 31 March 2003 and of the loss of the
Group for the year then ended; and
o the financial statements and part of the directors' remuneration report
described as having been audited have been properly prepared in accordance
with the Companies Act 1985.
DELOITTE & TOUCHE LLP
Chartered Accountants and Registered Auditors
Birmingham
4 August 2003
11
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 March
2003 2002
POUND Pound
STERLING Sterling
Note MILLION million
---- -------- --------
TURNOVER
Group - Discontinued operations 4 2,002 4,310
Share of joint ventures - 257
------- -------
3 2,002 4,567
------- -------
OPERATING LOSS
Group operating loss - Discontinued operations
-------------------
Excluding goodwill amortisation and exceptional items (308) (474)
Goodwill amortisation (104) (431)
Operating exceptional items 5a (326) (5,210)
-------------------
4 (738) (6,115)
Share of operating (loss)/profit of joint ventures -------------------
Excluding goodwill amortisation and exceptional items (8) 11
Goodwill amortisation - (2)
Operating exceptional items 5a (32) (6)
-------------------
(40) 3
------- -------
(778) (6,112)
------- -------
Group and joint venture operating loss before goodwill
amortisation and exceptional items 3 (316) (463)
------- -------
Share of operating loss of associates
-------------------
Excluding goodwill amortisation and exceptional items (27) (1)
Goodwill amortisation (10) (7)
Goodwill impairment (27) -
Operating exceptional items 5b (25) (173)
-------------------
(89) (181)
------- -------
Operating loss 3 (867) (6,293)
Non-operating exceptional items
(Loss)/gain on disposal of businesses 5c (5) 358
Gain on disposal of fixed assets and investments 5c 26 218
Merger/demerger items 5c 123 291
Group share of associates' non-operating exceptional items 5c (3) -
-------------------
141 867
Amounts written off investments 5d (40) (200)
Net interest payable 6 (214) (238)
Net finance (expenditure)/income -------------------
Group excluding exceptional items (6) 34
Exceptional gain on repurchase of bonds 5c - 166
-------------------
7 (6) 200
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
-------------------
Excluding goodwill amortisation and exceptional items (563) (668)
Goodwill amortisation and exceptional items (423) (4,996)
-------------------
3 (986) (5,664)
TAX CREDIT/(CHARGE) ON LOSS ON ORDINARY ACTIVITIES
-------------------
Excluding tax on goodwill amortisation and exceptional items 107 21
Tax on goodwill amortisation and exceptional items 78 (231)
-------------------
8a 185 (210)
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (801) (5,874)
Equity minority interests 9 (1) (1)
------- -------
LOSS ON ORDINARY ACTIVITIES ATTRIBUTABLE TO THE EQUITY
SHAREHOLDERS AND RETAINED LOSS FOR THE FINANCIAL YEAR (802) (5,875)
======= =======
12
BALANCE SHEETS
As at 31 March
GROUP COMPANY
-------------------- --------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
Note MILLION million MILLION million
---- -------- -------- -------- --------
FIXED ASSETS
Goodwill 12 597 877 - -
Tangible assets 13 243 522 - -
Investments: 14
Joint ventures -------------------------------------------
Share of gross assets 17 71
Share of gross liabilities (14) (11)
-------------------------------------------
3 60
Associates 44 137
Other investments 16 53
Shares in Group companies 7 602
63 250 7 602
-------------------------------------------
903 1,649 7 602
------- ------- ------- -------
CURRENT ASSETS
Stocks and contracts in progress 15 234 720 - -
Debtors: amounts falling due within one year 16 581 1,203 - 275
Debtors: amounts falling due after more than one year 16 32 94 - -
Investments 17 - 15 - -
Cash at bank and in hand 17 1,161 1,374 3 1
------- ------- ------- -------
2,008 3,406 3 276
Creditors: amounts falling due within one year 18 (4,743) (4,068) (163) (207)
------- ------- ------- -------
NET CURRENT (LIABILITIES)/ASSETS (2,735) (662) (160) 69
------- ------- ------- -------
Total assets less current liabilities (1,832) 987 (153) 671
Creditors: amounts falling due after more than one year 18 (46) (1,902) - -
Provisions for liabilities and charges 20 (309) (505) (9) -
------- ------- ------- -------
NET (LIABILITIES)/ASSETS BEFORE RETIREMENT BENEFIT
SURPLUSES AND DEFICITS (2,187) (1,420) (162) 671
Retirement benefit scheme surpluses 25 - 19 - -
Retirement benefit scheme deficits 25 (353) (145) - -
------- ------- ------- -------
NET (LIABILITIES)/ASSETS AFTER RETIREMENT BENEFIT
SURPLUSES AND DEFICITS (2,540) (1,546) (162) 671
======= ======= ======= =======
CAPITAL AND RESERVES
Called up share capital 21 140 140 140 140
Shares to be issued 21 - 45 - 45
Share premium account 21 506 500 506 500
Capital reserve 21 375 375 - -
Profit and loss account 21 (3,564) (2,618) (808) (14)
------- ------- ------- -------
Equity shareholders' interests (2,543) (1,558) (162) 671
Equity minority interests 3 12 - -
------- ------- ------- -------
(2,540) (1,546) (162) 671
======= ======= ======= =======
These accounts were approved by the Board of Directors on 4 August 2003
Signed on behalf of the Board of Directors
C C HOLDEN M W J PARTON
Director Director
13
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 March
2003 2002
POUND Pound
STERLING Sterling
Note MILLION million
---- -------- --------
Net cash inflow from operating activities before exceptional items 22a 8 10
Exceptional cash flows from operating activities 5e (343) (368)
------- -------
Net cash (outflow)/inflow from operating activities after exceptional items
Discontinued operations (335) (358)
Dividends from joint ventures and associates - 29
Returns on investments and servicing of finance 22b (136) (262)
Tax repaid/(paid) 22c 31 (13)
Capital expenditure and financial investment 22d (30) (196)
Acquisitions and disposals 22e 433 1,025
Equity dividends paid to shareholders - (95)
------- -------
Cash (outflow)/inflow before use of liquid resources and financing (37) 130
Net cash (outflow)/inflow from management of liquid resources 22f (161) 186
Net cash (outflow)/inflow from financing
Issues of ordinary shares - 7
Net cash (outflow)/inflow from changes in debt and lease financing 22g (64) 972
------- -------
(DECREASE)/INCREASE IN CASH AND NET BANK BALANCES REPAYABLE ON DEMAND (262) 1,295
======= =======
RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN NET MONETARY DEBT
For the year ended 31 March
2003 2002
POUND Pound
STERLING Sterling
Note MILLION million
---- -------- --------
(Decrease)/increase in cash and net bank balances repayable on demand (262) 1,295
Net cash outflow/(inflow) from management of liquid resources 161 (186)
Net cash outflow/(inflow) from decrease/(increase) in debt and lease financing 64 (972)
------- -------
Change in net monetary debt resulting from cash flows (37) 137
Net debt disposed/(acquired) with subsidiaries 24 (3)
Other non-cash changes (84) 162
Effect of foreign exchange rate changes 136 6
------- -------
Movement in net monetary debt in the year 39 302
Net monetary debt at 1 April 23 (2,865) (3,167)
------- -------
NET MONETARY DEBT AT THE END OF THE YEAR 23 (2,826) (2,865)
======= =======
14
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 March
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
(Loss)/profit on ordinary activities attributable to the shareholders
-------------------
Group (707) (5,701)
Share of joint ventures (40) 9
Share of associates (55) (183)
-------------------
(802) (5,875)
Listed fixed asset investments: deficit due to movement in share price - (30)
Unrealised gain on exchange of businesses - 9
Exchange differences on translation: Group 122 (66)
Actuarial loss recognised on retirement benefit schemes
-------------------
Difference between the expected and actual return on scheme assets (178) (277)
Experience (losses) and gains on scheme liabilities 7 9
Changes in assumptions underlying the present value of scheme liabilities losses (98) (83)
-------------------
(269) (351)
Tax credit on net retirement benefit items debited in the statement of total
recognised gains and losses - 68
------- -------
TOTAL RECOGNISED GAINS AND LOSSES (949) (6,245)
======= =======
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' INTERESTS
For the year ended 31 March
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Total recognised gains and losses (949) (6,245)
Release of provision in respect of shares to be issued (45) (260)
Group share of associates' shares to be issued 3 -
Issues of ordinary shares 6 8
------- -------
Total movement in the year (985) (6,497)
Equity shareholders' interests at 1 April (1,558) 4,939
------- -------
EQUITY SHAREHOLDERS' INTERESTS AT THE END OF YEAR (2,543) (1,558)
======= =======
15
NOTES TO THE ACCOUNTS
1 RESTRUCTURING
In respect of the year ended 31 March 2003 and until 19 May 2003 the Company was
the ultimate holding company for the Marconi Group. Under the schemes of
arrangement of Marconi Corporation plc and the Company, pursuant to Section 425
of the Companies Act 1985 which became effective on 19 May 2003, Marconi
Corporation plc issued new share capital and cancelled the old shares held by
the Company. This resulted in the transfer of ownership of Marconi Corporation
plc and its investee undertakings ("Corporation Group") and the Company ceased
to be the ultimate holding company of the trading operations of the Marconi
Group on 19 May 2003. All activities have therefore been disclosed as
discontinued. Trading in the Company's shares on the London Stock Exchange
ceased on 16 May 2003 and the Company's shares were subsequently delisted.
On 19 May 2003 the Company, as a result of the shares it held in Marconi
Corporation plc being cancelled, divested fully of its interests in Corporation
Group for nil proceeds. This resulted in a gain of approximately Pound
Sterling 3.3 billion on the transfer of ownership of Marconi Corporation plc,
being equivalent to its consolidated net liabilities. On the same date, the
scheme of arrangement of Marconi Corporation plc came into effect resulting in
approximately Pound Sterling 800 million receivable from Corporation Group being
waived by the Company and its subsidiary undertakings.
The net effect of these transactions was to reduce the consolidated balance
sheet of the Company to Pound Sterling 9 million of cash offset by a Pound
Sterling 9 million provision against the ongoing costs of the Company's scheme
of arrangement. Pursuant to the Company's scheme of arrangement the remaining
assets of the Company will be distributed over time to its creditors, following
which it is intended that the Company will be liquidated or dissolved. There
will be no circumstances in which any value will be returned to shareholders
under the terms of the Scheme.
2 ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting
standards applicable in the UK.
The more important Marconi Group accounting policies are summarised below to
facilitate the interpretation of the financial statements.
ACCOUNTING CONVENTION
The financial statements are prepared under the historical cost convention, as
modified by the valuation of listed current and fixed asset investments.
BASIS OF CONSOLIDATION
The financial statements consolidate the accounts of Marconi plc and all of its
subsidiary undertakings (Group companies or subsidiaries). All inter-company
balances and transactions have been eliminated upon consolidation.
All Group companies' accounts have been prepared for the year ended 31 March
2003.
TURNOVER
Turnover excludes VAT and comprises sales to outside customers. Revenue from
product sales of hardware and software is recognised when: persuasive evidence
of an arrangement exists, delivery has occurred or service has been rendered,
customer acceptance has occurred, Marconi's price to the buyer is fixed or
determinable; and collectability is reasonably assured. Revenue from services is
recognised at the time of performance and acceptance by the customer.
Revenue from multiple element contracts is allocated based on the fair value of
each individual element.
Revenue on long-term contracts is recognised under the percentage-of-completion
method of accounting and is calculated based on the ratio of costs incurred to
date compared with the total expected costs for that contract.
CURRENCY TRANSLATION
Transactions denominated in foreign currencies are translated into the
functional currency at the rates ruling at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are retranslated at the rates ruling at that date. These translation
differences are dealt with in the profit and loss account with the exception of
certain gains and losses arising under hedging transactions as described below.
Profits and losses of overseas subsidiaries, joint ventures and associates and
cash flows of overseas subsidiaries are translated at the average rates of
exchange during the year. Non-sterling net assets are translated at year end
rates of exchange. Key rates used are as follows:
AVERAGE RATES YEAR-END RATES
----------------- -----------------
2003 2002 2003 2002
------ ------ ------ ------
US dollar 1.5538 1.4324 1.5807 1.4240
Euro 1.5499 1.6283 1.4486 1.6323
The differences arising from the restatement of profits and losses and the
retranslation of the opening net liabilities to year end rates are taken to
reserves.
16
2 ACCOUNTING POLICIES continued
ACQUISITIONS AND DISPOSALS
On the acquisition of a business, including an interest in an associated
undertaking, fair values are attributed to the Group's share of separable net
assets. Where the cost of acquisition exceeds the fair values attributable to
such net assets, the difference is treated as purchased goodwill and capitalised
in the balance sheet in the year of acquisition.
The profit or loss on the disposal or closure of a previously acquired business
includes the attributable amount of any purchased goodwill relating to that
business not previously charged to the profit and loss account.
The results and cash flows relating to a business are included in the
consolidated profit and loss account and the consolidated cash flow statement
from the date of acquisition or up to the date of disposal.
FINANCIAL INSTRUMENTS
The Group has used financial instruments, including interest rate swaps,
currency swaps and other derivatives, solely for the purposes of raising finance
for its operations and managing interest and currency risk associated with the
Group's underlying business activities. There is no trading activity in
financial instruments.
FORWARD FOREIGN EXCHANGE CONTRACTS
Forward foreign exchange contracts generally exhibit a high correlation to the
hedged items and are designated and considered effective as hedges of the
underlying assets, liabilities and firm commitments. Gains and losses on forward
foreign exchange contracts which are designated as hedges of assets, liabilities
and firm commitments of the Group are recognised in the profit and loss account
or as adjustments to carrying amounts when the hedged transaction occurs.
HEDGES OF THE NET INVESTMENT IN OVERSEAS SUBSIDIARIES
The Group's policy has been to finance its activities in the same currencies as
those used for its foreign investments in order to hedge foreign currency
exposure of net investments in foreign operations. This policy is implemented
either by financing in the related currency or using derivatives, such as
currency swaps, which provide a synthetic effect of a foreign currency loan,
thereby reducing the exchange risk.
Exchange gains or losses arising on the hedging borrowings and on the notional
principal of currency swaps during their life and at termination or maturity,
together with the tax thereon, are dealt with as a movement in reserves, to the
extent they offset losses or gains on the hedged investment.
In respect of hedges of net investments, the Group enters into tax equalisation
swaps, the gains and losses of which are recognised through the statement of
total recognised gains and losses (in accordance with the underlying transaction
and the tax thereon) with any forward premium or discount recognised over the
life of the contract in the profit and loss account.
EQUITY FORWARD CONTRACTS
Marconi has established three trusts for the purchase of shares and
share-related instruments for the benefit of employees - the Marconi Employee
Trust (MET), the G.E.C. Employee Share Trust and the GEC Special Purpose Trust.
These trusts are consolidated in the financial statements of the Group.
The independent trustee of the MET, Bedell Cristin Trustees Limited (BCTL) ,has
entered into contracts (the Equity Forward Contracts) to hedge the potential
cost of the Group's share plans. Agreement has been reached to settle these
contracts which were closed out on 19 May 2003. The agreed settlement amount of
Pound Sterling 35 million is classified as a provision within the Group's
balance sheet. Release of a provision of Pound Sterling 123 million arising on
the settlement has been taken to non-operating exceptionals in the profit and
loss account as the original charge was recognised as merger/demerger items.
INTEREST RATE RISK EXPOSURE
It has in the past been Group policy to hedge its exposure to movements in
interest rates associated with its borrowing primarily by means of interest rate
swaps. Payments and receipts under interest rate swap agreements specifically
designated for hedging purposes are recorded in the profit and loss account on
an accruals basis.
Gains and losses arising on termination of hedging instruments where the
underlying exposure remains are recognised in the profit and loss account over
the remaining life of the hedging instrument.
TANGIBLE FIXED ASSETS
Property, plant, machinery, fixtures, fittings, tools and equipment are recorded
at cost and depreciated on a straight-line basis over their estimated useful
lives from the time they are brought into use. Freehold land does not bear
depreciation where the original cost of purchase was separately identified.
Provision is made for any impairment.
Tangible fixed assets are depreciated using the following rates:
Freehold buildings - 2% to 4% per annum
Leasehold property - over the period of the lease or
50 years for long leases
Plant and machinery - 10% per annum on average
Fixtures, fittings, tools and equipment - 10% per annum
17
NOTES TO THE ACCOUNTS continued
2 ACCOUNTING POLICIES continued
LEASED ASSETS
Assets held under finance leases and other similar contracts, which confer
rights and obligations similar to those attached to owned assets, are
capitalised as tangible fixed assets and are depreciated over the shorter of the
lease terms and their useful lives. The capital elements of future lease
obligations are recorded as liabilities, while the interest elements are charged
to the profit and loss account over the period of the leases to produce a
constant rate of charge on the balance of the capital repayments outstanding.
Hire purchase transactions are dealt with similarly except that assets are
depreciated over their useful lives.
Rentals under operating leases are charged on a straight-line basis over the
lease term, even if the payments are not made on such a basis.
GOODWILL
Purchased goodwill is capitalised and amortised on a straight-line basis over
its estimated useful economic life. Each acquisition is separately evaluated for
the purposes of determining the useful economic life, up to a maximum of 20
years. The useful economic lives are reviewed annually and revised if necessary.
Provision is made for any impairment.
RESEARCH AND DEVELOPMENT
Expenditure incurred in the period is charged against profit unless specifically
chargeable to and receivable from customers under agreed contract terms.
STOCK
Stock is stated at the lower of cost and net realisable value. Provision is made
for obsolete, slow-moving or defective items where appropriate.
CONTRACTS IN PROGRESS
Profit on long-term contracts in progress is taken when a sale is recorded on
part-delivery of products or part-performance of services, provided that the
outcome of the contract can be assessed with reasonable certainty. Amounts
recoverable on long-term contracts, which are included in debtors, are stated at
the net sales value of the work done less amounts received as progress payments
on account. Excess progress payments are included in creditors as payments
received in advance. Cumulative costs incurred net of amounts transferred to
cost of sales, less provision for contingencies and anticipated future losses on
contracts, are included as long-term contract balances in stock.
WARRANTIES
Provisions for estimated expenses related to product warranties are made at the
time products are sold. These estimates are established using historical
information on the nature, frequency, and average cost of warranty claims.
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year. Deferred taxation is provided in
full on timing differences that result in an obligation at the balance sheet
date to pay more tax, or a right to pay less tax, at a future date, at rates
expected to apply when they crystallise based on current tax rates and law.
Timing differences arise from the inclusion of items of income or expenditure in
taxation computations in periods different from those in which they are included
in the financial statements. Deferred tax assets are recognised to the extent
that it is regarded as more likely than not that they will be recovered.
Deferred tax assets and liabilities are not discounted.
INVESTMENTS
Joint ventures comprise long-term investments where control is shared under a
contractual arrangement. The sector analysis of turnover, profit and net assets
includes the Group's share of the results and net assets of joint ventures.
Associates consist of long-term investments in which the Group holds a
participating interest and over which it exercises significant influence.
Investments in joint ventures and associates are stated at the amount of the
Group's share of net assets including goodwill at 31 March 2003 derived from
audited or management accounts made up to that date, other than Easynet Group
Plc whose results are included for the year to 31 December 2002. Loss before
taxation includes the Group's share of joint ventures and associates.
Other unlisted fixed asset investments are stated at cost less provision for
impairment in value. Listed fixed asset investments are stated at market value.
Current asset investments are stated at the lower of cost and net realisable
value except dated listed securities which are stated at market value.
Investments in Marconi plc's shares, held within the G.E.C. Employee Share Trust
and the Marconi Employee Trust, are included on the Group balance sheet at cost,
less provision for impairment.
PENSIONS AND OTHER POST RETIREMENT BENEFITS
The operating cost of providing pensions and other post retirement benefits, as
calculated periodically by independent actuaries, is charged to the Group's
operating profit or loss in the period that those benefits are earned by
employees. The financial return expected on the pension schemes' assets is
recognised in the period in which they arise as part of finance income and the
effect of the unwinding of the discounted value of the pension schemes
liabilities is treated as part of finance costs. The changes in value of the
pension schemes' assets and liabilities are reported as actuarial gains or
losses as they arise in the consolidated statement of total recognised gains and
losses. The pension schemes' surpluses, to the extent they are considered
recoverable, or deficits are recognised in full and presented in the balance
sheet net of any related deferred tax.
18
2 ACCOUNTING POLICIES continued
SHARE OPTIONS
The costs of awarding shares under employee share plans are generally charged to
the profit and loss account over the period to which the performance criteria
relate. During the year to 31 March 2003 and 31 March 2002, the profit and loss
account has also been charged with interest arising on the Equity Forward
Contract which hedges the share options. When share options granted lapse, any
associated costs that were treated as cost of acquisition are credited to either
goodwill, or to the profit and loss account if there is no remaining goodwill.
As a result of the restructuring, Marconi plc shares have been delisted. All
share option provisions have been released and credited to goodwill, or to the
profit and loss account if there is no remaining goodwill.
FINANCE COSTS
Finance costs of debt are recognised in the profit and loss account over the
term of such instruments at a constant rate on the carrying amount.
DEBT
Debt is initially stated at the amount of the net proceeds after deduction of
issue costs. The carrying amount is increased by the finance cost in respect of
the accounting period and reduced by payments made in the period.
LIQUID RESOURCES
Liquid resources comprise term deposits with an original maturity of generally
less than one year and other readily disposable current asset investments.
3 SEGMENTAL ANALYSIS
ANALYSIS OF RESULTS AND NET ASSETS/(LIABILITIES) BY CLASS OF BUSINESS
(LOSS)/PROFIT NET ASSETS/
BEFORE TAX TURNOVER LIABILITIES
-------------------- -------------------- --------------------
2003 2002 2003 2002 2003 2002
POUND Pound POUND Pound POUND Pound
STERLING Sterling STERLING Sterling STERLING Sterling
MILLION million MILLION million MILLION million
-------- -------- -------- -------- -------- --------
Network equipment (259) (464) 1,131 (1,804)
220 607
Network services 52 35 743 (969)
Other (including intra-activity sales) (56) (64) (7) (32) 3 8
------- ------- ------- ------- ------- -------
(263) (493) 1,867 2,741 223 615
Joint Ventures (8) 11 - 257 3 60
Capital and disposed businesses (45) 19 135 1,569 (33) 190
------- ------- ------- ------- ------- -------
Discontinued operations (316) (463) 2,002 4,567 193 865
------- -------
Goodwill and goodwill amortisation (104) (433) 597 877
Operating exceptional items (note 5a) (358) (5,216)
------- -------
(778) (6,112)
Associates (89) (181) 44 137
------- -------
Operating loss (867) (6,293)
Non-operating exceptional items (note 5c) 141 867
Amounts written off investments (note 5d) (40) (200)
Net interest payable and interest bearing
assets and liabilities (214) (238) (2,810) (2,810)
Net finance (expenditure)/income (6) 200
Unallocated net liabilities (564) (615)
------- ------- ------- -------
(986) (5,664) (2,540) (1,546)
======= ======= ======= =======
The Group has divided its business into two segments: Core and Capital.
The Group's Core businesses are the provision of optical networks, broadband
routing and switching and broadband access technologies and associated
installation, maintenance and other value-added services. Their customer base
includes telecommunications companies, providers of Internet services for their
public networks, and to certain large corporations, government departments and
agencies, utilities and educational institutions for their private networks.
Core activities are divided into Network equipment, Network services and Other.
Capital comprises the businesses the Group manages for value and ultimately for
disposal.
19
NOTES TO THE ACCOUNTS continued
3 SEGMENTAL ANALYSIS continued
Goodwill arising on acquisitions is amortised over a period not exceeding 20
years. Separate components of goodwill are identified and amortised over the
appropriate useful economic life. The remaining goodwill on the balance sheet
will be amortised over an average period of approximately six years.
The net assets of Network equipment and Network services cannot be separately
identified as the same assets are, generally, used to generate sales in each of
these segments. The results of these segments are separately reportable.
Sales by Group companies to joint ventures and associates amounted to Pound
Sterling 30 million (31 March 2002: Pound Sterling 40 million). Purchases from
joint ventures and associates amounted to Pound Sterling Nil (31 March 2002:
Pound Sterling 14 million).
Certain assets and liabilities cannot be allocated. These principally consist of
taxation, retirement benefits and central provisions.
It is not practical to disclose goodwill amortisation on a segmental basis as
any allocation would be arbitrary.
ANALYSIS OF TURNOVER BY CLASS OF BUSINESS
TO CUSTOMERS IN THE TO CUSTOMERS
UNITED KINGDOM OVERSEAS
-------------------- --------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Network equipment 228 355 903 1,449
Network services 265 367 478 602
Other (including intra-activity sales) 1 1 (8) (33)
------- ------- ------- -------
494 723 1,373 2,018
Capital and disposed businesses (including joint ventures) 18 361 117 1,465
------- ------- ------- -------
512 1,084 1,490 3,483
======= ======= ======= =======
ANALYSIS OF TURNOVER BY TERRITORY OF DESTINATION
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
United Kingdom 512 1,084
The Americas 606 1,760
Rest of Europe 558 1,151
Africa, Asia and Australasia 326 572
------- -------
2,002 4,567
======= =======
20
3 SEGMENTAL ANALYSIS continued
ANALYSIS OF SEGMENT TURNOVER BY PRODUCT GROUPING
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Optical networks 439 737
Broadband switching 142 209
European access 258 361
Outside plant and power 140 247
North American access 95 121
Other network equipment 57 129
------- -------
Network equipment 1,131 1,804
Installation, commissioning and maintenance 370 528
Value-added services 373 441
------- -------
Network services 743 969
Other (including intra-activity sales) (7) (32)
Capital and disposed businesses (including joint ventures of
Pound Sterling Nil (2002: Pound Sterling 257 million)) 135 1,826
------- -------
2,002 4,567
======= =======
ANALYSIS OF OPERATING LOSS BEFORE GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS,
TURNOVER AND NET ASSETS BY TERRITORY OF ORIGIN
NET ASSETS/
OPERATING LOSS TURNOVER (LIABILITIES)
-------------------- -------------------- --------------------
2003 2002 2003 2002 2003 2002
POUND Pound POUND Pound POUND Pound
STERLING Sterling STERLING Sterling STERLING Sterling
MILLION million MILLION million MILLION million
-------- -------- -------- -------- -------- --------
United Kingdom (95) (249) 703 1,328 234 293
The Americas (42) (166) 609 1,842 92 154
Rest of Europe (153) (28) 544 1,079 (113) 386
Africa, Asia and Australasia (26) (20) 146 318 (20) 32
------- ------- ------- ------- ------- -------
(316) (463) 2,002 4,567 193 865
======= ======= ======= ======= ======= =======
4 GROUP OPERATING (LOSS)/PROFIT (EXCLUDING JOINT VENTURES)
YEAR TO 31 MARCH 2003
------------------------------------------
PRE-
EXCEPTIONAL EXCEPTIONAL
ITEMS ITEMS DISCONTINUED
POUND POUND POUND
STERLING STERLING STERLING
MILLION MILLION MILLION
----------- ----------- ------------
Turnover 2,002 - 2,002
Cost of sales (1,594) (21) (1,615)
------- ------- -------
Gross profit 408 (21) 387
Selling and distribution expenses (277) - (277)
--------------------------------------
Administrative expenses - other (113) (305) (418)
Research and development (327) - (327)
Goodwill amortisation (104) - (104)
--------------------------------------
Administrative expenses - total (544) (305) (849)
Other operating income 1 - 1
------- ------- -------
Operating loss (412) (326) (738)
======= ======= =======
21
NOTES TO THE ACCOUNTS continued
4 GROUP OPERATING (LOSS)/PROFIT (EXCLUDING JOINT VENTURES) continued
Year to 31 March 2002
--------------------------------------
Pre-
exceptional Exceptional
items items Total
Pound Pound Pound
Sterling Sterling Sterling
million million million
----------- ----------- --------
Turnover 4,310 - 4,310
Cost of sales (3,253) (830) (4,083)
------- ------- -------
Gross profit 1,057 (830) 227
Selling and distribution expenses (590) - (590)
----------------------------------
Administrative expenses - other (308) (703) (1,011)
Research and development (628) - (628)
Goodwill amortisation (431) - (431)
Goodwill impairment - (3,677) (3,677)
----------------------------------
Administrative expenses - total (1,367) (4,380) (5,747)
Other operating expense (5) - (5)
------- ------- -------
Operating loss (905) (5,210) (6,115)
======= ======= =======
Exceptional items are shown in further detail in note 5.
The Group disposed of its Medical, Data and Commerce Systems businesses during
the year ended 31 March 2002 and the Strategic Communications business during
the year ended 31 March 2003. Further information on disposals is provided in
note 24 (b). As Marconi plc ceased to own Marconi Corporation plc and its
subsidaries on 19 May 2003, all activities have been treated as discontinued.
5 EXCEPTIONAL ITEMS
These charges have been analysed as follows:
A OPERATING EXCEPTIONAL ITEMS
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Stock write-downs and related costs (i) - (672)
Restructuring costs (ii) (21) (158)
------- -------
Included in cost of sales (21) (830)
------- -------
Impairment of goodwill and tangible fixed assets (iii) (36) (3,831)
Restructuring and reorganisation costs (iv) (286) (324)
Systems implementation costs/(credits) (v) 7 (75)
Releases/(charges) in respect of doubtful debts (vi) 10 (150)
------- -------
Included in administrative expenses (305) (4,380)
------- -------
Group operating exceptional items (326) (5,210)
Share of joint ventures' operating exceptional items (vii) (32) (6)
------- -------
Total operating exceptional items (excluding associates) (358) (5,216)
======= =======
(i) In the year ended 31 March 2002 stock write-downs and related costs
charged to cost of sales in the year included Pound Sterling 581 million for
obsolescence and slow-moving provisions against a number of product lines,
predominantly optical networking products, and Pound Sterling 91 million in
respect of supplier commitments.
(ii) In the year ended 31 March 2003 Pound Sterling 21 million was charged to
restructuring costs. This relates mostly to additional net payments to Jabil
Circuit Inc. arising in the year. In the year ended 31 March 2002 restructuring
costs classified within cost of sales includes a charge of Pound Sterling 127
million representing additional costs incurred as a consequence of the decision
to outsource certain manufacturing operations to Jabil Circuit Inc. Under the
terms of the agreement, payments of Pound Sterling 77 million were made during
the year, Pound Sterling 19 million provided against stocks and Pound Sterling
31 million expected to be paid in the future.
(iii) In light of declining industry and economic trends on its current and
expected future operations, the Group reassessed the carrying values of
goodwill, investments and tangible fixed assets. In the year ended 31 March 2003
investments and tangible fixed assets, excluding those businesses affected by
restructuring, were together impaired by Pound Sterling 31 million (31 March
2002: Pound Sterling 154 million). Goodwill has not been impaired in the year
ended 31 March 2003.
22
5 EXCEPTIONAL ITEMS continued
A OPERATING EXCEPTIONAL ITEMS continued
In the year ended 31 March 2002, as a consequence of the more uncertain sales
outlook and more conservative future assessment of future growth prospects of
acquired businesses the Group recorded an exceptional charge of Pound
Sterling 3,677 million to write down goodwill.
The remaining amount included within impairments in the year ended 31 March 2003
is a charge of Pound Sterling 5 million which relates to onerous contracts
representing certain liabilities to which the Group is committed as a result of
the operational restructuring. This includes liabilities, relating to equipment
leasing contracts and supply contracts under which it has been agreed to
purchase minimum volumes of goods and services which will offer no economic
value to the business as a result of its reduced size.
(iv) As part of the Group's cost reduction actions, a charge of Pound
Sterling 286 million (31 March 2002: Pound Sterling 324 million) was recorded
during the year ended 31 March 2003. This includes Pound Sterling 112 million
for the costs of the financial restructuring, Pound Sterling 128 million for
employee severance, Pound Sterling 40 million credit for share option lapses and
releases of provisions and other reserves due to the delisting of Marconi plc
shares. The balance is for site rationalisation and other restructuring costs.
The site rationalisation costs reflect the charges associated with closing and
consolidating various sites around the world as part of the business
restructuring and the other restructuring costs represent various other costs
associated with the restructuring programme.
(v) During the year ended 31 March 2002 the Group planned to implement a new
global IT system. In light of the revised trading outlook and the continued
focus on cost reduction, the implementation was terminated. The Pound Sterling
75 million charge represents Pound Sterling 43 million of capitalised external
consultancy costs associated with the implementation, Pound Sterling 24 million
of hardware and software costs expensed, and Pound Sterling 8 million of other
associated costs of the project. During the year ended 31 March 2003, the Group
was able to revise its previous estimate of the overall costs leading to the
release of Pound Sterling 7 million from the amounts accrued in the year to 31
March 2002.
(vi) In light of the declining market and economic trends the Group was
experiencing, an exceptional provision against bad and doubtful debts of Pound
Sterling 150 million was charged during the year to 31 March 2002. Of this
amount, Pound Sterling 10 million was reassessed and released to the profit and
loss account in the year to 31 March 2003.
(vii) During the year the Group has also recorded its Pound Sterling 32 million
share of the operating exceptional charges of its joint ventures. Of this, Pound
Sterling 31 million related to the impairment of intangible fixed assets in
Ultramast Ltd and Pound Sterling 1 million related to restructuring charges
within Plessey Holdings Limited.
ANALYSIS BY SEGMENT
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Network equipment and services (329) (1,312)
Other 25 (104)
Goodwill impairment - (3,544)
------- -------
(304) (4,960)
Capital and disposed businsses (54) (123)
Goodwill impairment - (133)
------- -------
(358) (5,216)
======= =======
United Kingdom (191) (823)
The Americas (115) (407)
Rest of Europe (41) (282)
Africa, Asia and Australasia (11) (27)
------- -------
(358) (1,539)
Goodwill impairment - (3,677)
------- -------
(358) (5,216)
======= =======
B ASSOCIATES' OPERATING EXCEPTIONAL ITEMS
The Group has recorded its Pound Sterling 25 million share (2002: Pound
Sterling 173 million) of the operating exceptional charges of its associates,
being in respect of Easynet Group Plc. These charges related to impairment of
goodwill and tangible fixed assets, and restructuring and reorganisation costs.
23
NOTES TO THE ACCOUNTS continued
5 EXCEPTIONAL ITEMS continued
C NON-OPERATING EXCEPTIONALS
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
(Loss)/gain on disposal of businesses (i) (5) 358
Gain on disposal of fixed assets and investments (ii) 26 218
Merger/demerger receipts (iii) 123 291
Group share of associates' non-operating exceptionals (3) -
------- -------
Included in non-operating exceptional items 141 867
======= =======
Gain on repurchase of bonds - 166
------- -------
Included in interest and financing costs - 166
======= =======
(i) The loss on disposal of discontinued operations results from the loss on
disposal of Strategic Communications (Pound Sterling 41 million) which was
partially offset by the release of provisions relating to Medical Systems and
other previously completed disposals. In the year ended 31 March 2002 a gain of
Pound Sterling 358 million was made mainly relating to the disposal of the
systems businesses (Medical, Commerce and Data Systems).
(ii) The gain on disposal of fixed assets and investments in continuing
operations results from a Pound Sterling 28 million curtailment gain associated
with retirement benefits arising mainly from the disposal of the Group's 50%
share in General Domestic Appliances, Pound Sterling 12 million gain on property
disposals and a net Pound Sterling 14 million charge relating to current and
prior period disposals and business closures and other provision movements.
(iii) Merger/demerger receipts of Pound Sterling 123 million for the year ended
31 March 2003 related to the release of a provision arising on the settlement of
the ESOP derivative of Pound Sterling 158 million previously recognised in
provisions, the original share option charge was established as a
merger/demerger item. This principal amount plus a further Pound Sterling 11
million carried in net debt were settled for Pound Sterling 35 million paid by
Marconi Corporation plc on 19 May 2003. For the year ended 31 March 2002, the
release of provisions related to demerger share options which arose due to the
significant reduction in Marconi plc's share price and comprised two elements.
Pound Sterling 247 million related to a provision created in respect of the
Marconi Launch Share Plan. A further Pound Sterling 44 million was released that
related to provisions in respect of other option schemes created at the time of
the MES Transaction.
D AMOUNTS WRITTEN OFF INVESTMENTS
The write-down of some of the Group's investments in line with its accounting
policy whereby listed investments are marked to their market value at the end of
each reporting period and unlisted investments are held at the lower of cost and
recoverable value.
E EXCEPTIONAL CASH FLOWS
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Operating
Restructuring costs (184) (302)
Systems implementation costs (17) (48)
Other (142) (18)
------- -------
(343) (368)
======= =======
Non-operating
Disposal of tangible fixed assets 28 116
Sale of interests in subsidiary companies and associates 433 1,025
Repurchase of bonds - (209)
------- -------
461 932
======= =======
Non-operating exceptional cash flows from the disposal of tangible fixed assets
are included in note 22 (d). Non-operating exceptional cash flows from the sales
of interests in subsidiary companies and associates are included in note 22 (e).
Repurchase of bonds is covered in note 22(g).
24
6 NET INTEREST PAYABLE
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Interest receivable
Loans and deposits 29 31
Other 17 9
------- -------
Interest receivable - total 46 40
======= =======
Income from listed fixed asset investments 1 2
------- -------
Interest payable
Bank loans and overdrafts (257) (281)
Loan capital (1) (1)
Other (3) -
Interest payable - total (261) (282)
------- -------
Net interest payable - Group (214) (240)
------- -------
Share of net interest receivable of joint ventures
and associates - 2
------- -------
Net interest payable (214) (238)
======= =======
7 NET FINANCE (EXPENDITURE)/INCOME
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Financing costs
Syndicated loan fees - (5)
Interest on pension scheme liabilities (note 25) (163) (181)
Loss on share option derivative (2) -
Loss on unhedged foreign exchange borrowings (3) -
Finance leases - (1)
------- -------
Financing costs - total (168) (187)
======= =======
Finance income
Exceptional gain on the repurchase of bonds - 166
Swap and bond amortisation 5 -
Expected return on pension scheme assets (note 25) 157 221
------- -------
Finance income - total 162 387
======= =======
Net finance (expenditure)/income (6) 200
======= =======
In the year ended 31 March 2002 the Group repurchased bonds issued by Marconi
Corporation plc with a fair value (after unamortised discount) of Pound
Sterling 375 million.
8 TAX
A TAX (CREDIT)/CHARGE ON LOSS ON ORDINARY ACTIVITIES
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Current taxation
Corporation tax 30% (31 March 2002: 30%) - -
UK overprovision in respect of prior years (155) (18)
Overseas tax - 51
Overseas overprovision in respect of prior years (30) (15)
Joint ventures and associates - 4
------- -------
(185) 22
======= =======
Deferred taxation
Changes arising from:
Timing differences - origination and reversal - 67
Estimated recoverable amount of deferred tax assets - 121
------- -------
- 188
======= =======
Total (185) 210
======= =======
25
NOTES TO THE ACCOUNTS continued
8 TAX continued
A TAX (CREDIT)/CHARGE ON LOSS ON ORDINARY ACTIVITIES continued
Included in the tax on loss are the following amounts relating to exceptional
items:
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Operating exceptional items - (67)
Non-operating exceptional items (78) 298
------- -------
(78) 231
======= =======
B DEFERRED TAXATION LIABILITIES
Group
Pound
Sterling
million
--------
At 1 April 2002 (18)
Disposals 12
-------
AT 31 MARCH 2003 (6)
=======
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Tax effect of timing differences on:
Provisions and accruals for liabilities and charges (6) (12)
Accelerated capital allowances - (6)
------- -------
(6) (18)
======= =======
No provision is made for any taxation that may arise if reserves of overseas
subsidiaries were distributed as such distributions are not expected to occur in
the foreseeable future.
C RECONCILATION OF CURRENT TAXATION (CREDIT)/CHARGE FOR THE YEAR
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Loss before tax (986) (5,664)
------- -------
Tax credit on loss at a standard rate of 34%
(31 March 2002: 34%) (335) (1,926)
Non deductible goodwill impairment, amortisation and
other similar items 102 1,503
Tax losses and other deferred tax items not recognised
in current tax 233 478
Overprovision in respect of prior years (185) (33)
------- -------
Current tax charge for the year (185) 22
======= =======
The standard rate is calculated based on the locally enacted statutory rates in
the jurisdictions in which the Group operates.
D FACTORS THAT MAY AFFECT FUTURE TAX CHARGES
Marconi plc and its direct subsidiaries who left the Marconi Corporation plc
group on 19 May 2003 have Pound Sterling nil unrecognised deferred tax assets as
at 31 March 2003, and will incur Pound Sterling nil tax cash costs after 31
March 2003.
In relation to the Marconi Corporation plc group, deferred tax assets totalling
Pound Sterling 594 million (31 March 2002: Pound Sterling 596 million) have not
been recognised in respect of operating losses, pension scheme deficits, and
exceptional expenditure as the Group is not sufficiently certain that it will be
able to recover those assets within a relatively short period of time.
Although the Group has in excess of Pound Sterling 2 billion of tax losses as at
31 March 2003, these may be unavailable to cover earlier years that are open for
or under tax audit. In addition, in some jurisdictions the losses carried
forward will be forfeit (this applies to the US) or could be restricted (this
may apply to Germany and the UK) following the Group's restructuring. There will
be ongoing tax cash costs, therefore, where losses are unavailable. The
unutilised US tax attributes at 31 March 2003 have been excluded from the
unrecognised deferred tax assets of Pound Sterling 594 million.
26
9 EQUITY MINORITY INTERESTS
Equity minority interests represent the share of the profits less losses on
ordinary activities attributable to the interests of equity shareholders in
subsidiaries which are not wholly owned by the Group.
10 EQUITY DIVIDENDS
The directors do not propose any dividends for the year ending 31 March 2003. No
dividends were declared during the year to 31 March 2002.
11 EMPLOYEES
A DIRECTORS' REMUNERATION
Details of directors' remuneration specified for audit by Schedule 7A of the
Companies Act are given in the Report to shareholders by the Board on directors'
remuneration.
B AVERAGE MONTHLY NUMBER OF EMPLOYEES BY SECTOR
NUMBER ('000)
----------------
2003 2002
---- ----
Networks equipment 13 19
Networks services 6 8
---- ----
19 27
Capital and disposed businesses 2 18
---- ----
Group employees - Discontinued operations 21 45
Share of joint venture employees - 3
---- ----
Group and share of joint venture employees 21 48
==== ====
C STAFF COSTS
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Wages and salaries 717 1,295
Social security costs 87 156
-------------------
Amounts charged to operating expenses 43 67
Amounts credited to non-operating exceptional items (57) -
Amounts included in net finance income 6 (40)
Amounts recognised in the Statement of Recognised
Gains and Losses 269 351
-------------------
Other pension costs 261 378
------- -------
1,065 1,829
======= =======
United Kingdom 537 942
The Americas 260 483
Rest of Europe 243 357
Africa, Asia and Australasia 25 47
------- -------
1,065 1,829
======= =======
Included within the staff costs for the year ended 31 March 2003 are Pound
Sterling Nil (31 March 2002: Pound Sterling 11 million) of costs related to
ongoing remuneration costs regarding the share option schemes.
27
NOTES TO THE ACCOUNTS continued
11 EMPLOYEES continued
D SHARE OPTIONS
At 31 March 2003 options were still outstanding in respect of the Company's
ordinary shares of 5p under the Company's options schemes:
Amount
of shares
Pound Date
Number Sterling Subscription normally
of shares million price exercisable
---------- --------- ------------ -----------
The Employee 1992 Savings-Related Share Option Scheme 1,985,076 0.1 203-273p 2002-2003
The 1984 Managers' Share Option Scheme 621,628 - 183-266p 2002-2004
The 1997 Executive Share Option Scheme 7,824,494 0.4 327-384p 2002-2008
The Marconi UK Sharesave Plan 2,295,287 0.1 538-748p 2003-2006
The Marconi International Sharesave Plan 1,340,175 0.1 737p 2004-2006
The Marconi Launch Share Plan 19,589,228 1.0 - 2002-2006
The Marconi 1999 Stock Option Plan 96,145,820 4.8 35-1030p 2002-2011
The MSI 1995 Stock Option Plan 144,164 - 3-274p 2002-2008
The MSI 1999 Stock Option Plan 2,386,061 0.1 212-957p 2002-2010
The MSIH Stock Option Plan 676,600 - 212p 2002-2005
The Mariposa Technology, Inc 1998 Employee Incentive Plan 320,684 - 9-56p 2002-2010
The Marconi Restricted Share Plan 1,793,970 0.1 - 2002-2004
The Phantom Option Scheme 55,688,165 2.8 17-1250p 2002-2011
Long Term Incentive Plan 617,963 - - 2002-2003
The Directors' interests as defined by the Companies Act 1985 (which include
trustee holdings and family interests incorporating holdings of minor children)
in shares in the Company and its subsidaries are set out in the Report to
Shareholders by the Board on directors' remuneration.
12 GOODWILL
Cost
Pound
Sterling
million
--------
At 1 April 2002 6,812
Disposals (note 24 b) (367)
Adjustments in respect of prior year acquisitions (note 24a) (34)
Exchange rate adjustment (424)
-------
AT 31 MARCH 2003 5,987
=======
Amortisation
Pound
Sterling
million
--------
At 1 April 2002 (5,935)
Disposals (note 24b) 245
Charged to profit and loss account (104)
Exchange rate adjustment 404
-------
AT 31 MARCH 2003 (5,390)
=======
NET BOOK VALUE AT 31 MARCH 2003 597
Net book value at 31 March 2002 877
In the year to 31 March 2002 a review of the Group's fixed assets, including
goodwill, resulted in an impairment charge of Pound Sterling 3,677 million.
Following the continued difficult market conditions the directors announced
expectations of a delay in market recovery beyond the end of 2003, significant
changes to the Group forecasts have been made, and further reviews have been
undertaken at 30 September 2002.
The average discount rate applied to the future cash flows in the years ended 31
March 2002 and 2003 was 15% and is based upon a weighted average cost of capital
percentage. No further impairment charge in respect of goodwill was necessary
for the year ended 31 March 2003.
28
13 TANGIBLE FIXED ASSETS
Fixtures, Payments on
Leasehold property fittings, account and
Freehold ------------------ Plant and tools and assets under
property Long Short machinery equipment construction Total
Pound Pound Pound Pound Pound Pound Pound
Sterling Sterling Sterling Sterling Sterling Sterling Sterling
GROUP million million million million million million million
----- -------- -------- -------- --------- --------- ------------ --------
Cost at 1 April 2002 160 11 7 520 596 40 1,334
Exchange rate adjustment (3) -- -- (5) 1 (1) (8)
Additions 6 -- -- 22 12 3 43
Completed construction 3 -- -- 3 19 (25) --
Disposals (10) (4) (5) (88) (42) (8) (157)
Businesses disposed (note 24b) (30) -- -- (152) (98) (9) (289)
------- ------- ------- ------- ------- ------- -------
COST AT 31 MARCH 2003 126 7 2 300 488 -- 923
======= ======= ======= ======= ======= ======= =======
Depreciation at 1 April 2002 37 2 3 335 435 -- 812
Exchange rate adjustment 1 -- -- (3) 1 -- (1)
Charged to profit and loss account 21 -- 3 36 75 -- 135
Impairment of fixed assets -- -- -- 51 23 -- 74
Disposals (9) (2) (5) (73) (37) -- (126)
Businesses disposed (note 24b) (12) -- -- (120) (82) -- (214)
------- ------- ------- ------- ------- ------- -------
DEPRECIATION AT 31 MARCH 2003 38 -- 1 226 415 -- 680
------- ------- ------- ------- ------- ------- -------
NET BOOK VALUE AT 31 MARCH 2003 88 7 1 74 73 -- 243
Net book value at 31 March 2002 123 9 4 185 161 40 522
======= ======= ======= ======= ======= ======= =======
The net book value of tangible fixed assets of the Group includes an amount of
Pound Sterling Nil (31 March 2002: Pound Sterling 6 million) in respect of
assets held under finance leases, on which the depreciation charge for the year
was Pound Sterling Nil (31 March 2002: Pound Sterling 2 million).
The Company has no fixed assets.
14 FIXED ASSET INVESTMENTS
A JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS
Shares Goodwill Share
cost less amortisation of post
amounts Goodwill and acquisition
written off cost impairment reserves Loans Total
Pound Pound Pound Pound Pound Pound
GROUP Sterling Sterling Sterling Sterling Sterling Sterling
JOINT VENTURES AND ASSOCIATES million million million million million million
----------------------------- ----------- -------- ------------ ----------- -------- --------
At 1 April 2002 319 75 (10) (189) 2 197
Profits less losses retained -- -- -- (95) -- (95)
Goodwill impairment -- -- (27) -- -- (27)
Goodwill amortisation -- -- (10) -- -- (10)
Transfer from current asset investments 15 -- -- -- -- 15
Transfer from fixed asset investments -- 20 (19) -- -- 1
Disposals (69) -- -- 34 (2) (37)
Movement through profit and loss account reserves -- -- -- 3 -- 3
----------- -------- ------------ ----------- -------- --------
AT 31 MARCH 2003 265 95 (66) (247) -- 47
=========== ======== ============ =========== ======== ========
Cost or
valuation Provisions Total
Pound Pound Pound
Sterling Sterling Sterling
OTHER INVESTMENTS million million million
----------------- --------- ---------- --------
At 1 April 2002 321 (268) 53
Transfers to associates (20) 19 (1)
Disposals, impairments and repayments -- (30) (30)
Impairment of listed investments -- (6) (6)
--------- ---------- --------
AT 31 MARCH 2003 301 (285) 16
========= ========== ========
JOINT VENTURES, ASSOCIATES AND OTHER INVESTMENTS AT 31 MARCH 2003 63
Joint ventures, associates and other investments at 31 March 2002 250
========
29
NOTES TO THE ACCOUNTS continued
14 FIXED ASSET INVESTMENTS continued
MARKET VALUES
Listed fixed asset investments are stated at market value, as follows:
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Other investments - listed in the United Kingdom 10 19
======== ========
The aggregate historic cost of the listed fixed asset investment was Pound
Sterling 49 million at 31 March 2003 (2002: Pound Sterling 49 million).
Pound Sterling Nil provision has been made for taxation (31 March 2002: Pound
Sterling Nil) which could arise if these investments were realised at the values
stated.
At 9 July 2003 the market value of the investments shown above was, in
aggregate, Pound Sterling 11 million.
Country of
CORE BUSINESSES Voting rights Incorporation
--------------- ------------- -------------
Network equipment and services
Marconi Communications Ltd. 100% Great Britain
Marconi Communications S.p.A. 100% Italy
Marconi Communications, Inc. 100% USA
Marconi Communications GmbH. 100% Germany
============= =============
Country of
ASSOCIATED COMPANIES Class of shares Number held Incorporation
-------------------- --------------- ----------- -------------
Easynet Group Plc Ordinary shares of 4p 32,264,651 Great Britain
Convertible non-voting ordinary shares of 4p 48,553,661
Equity share 72.7%
Voting share 51.6%
===== ========== =============
In February 2002, the Group was obliged to acquire by a put option 1,324,054
ordinary shares in Easynet Group plc for Pound Sterling 20 million. The Group
disputed the legal basis of the put option and entered into litigation with
Railtrack Group. At 31 March 2003, Pound Sterling 20 million was recorded as a
fixed asset investment and impaired to Pound Sterling 1.8 million, being its
market value. Also, during the year to 31 March 2003, goodwill on Easynet Group
Plc was impaired by Pound Sterling 28 million and an amortisation charge of
Pound Sterling 10 million was incurred.
In February 2003, the litigation with Railtrack Group was settled and the Group
became beneficial owners of the 1,324,054 ordinary shares under the put option.
Consequently, the Pound Sterling 20 million and related provision have been
transferred to joint ventures and associates.
The put option increased the Group's equity holding to 72.7% (31 March 2002:
71.6%) and its holding of voting shares to 51.6% (31 March 2002: 49.6%).
However, under the articles of association of Easynet Group plc and the
relationship agreement with Easynet Group plc, the voting rights of Marconi in
Easynet Group plc are limited to 49.9%. Accordingly Easynet Group plc applied in
April 2003 to the Listing Authority to cancel ordinary shares and issue
non-voting convertible shares.
As the holding of more than 50% of the voting shares is temporary, Marconi has
continued to equity account for Easynet Group plc as an associate.
Easynet Group plc's year end is 31 December and it has been accounted for under
the equity accounting method. As it is a company quoted on the London Stock
Exchange, information that is not in the public domain cannot be disclosed.
Consequently its results have been accounted for the year to 31 December 2002
for inclusion in the Group's results for the year ended 31 March 2003 and from
acquisition (26 July 2001) to 31 December 2001 for inclusion in the Group's
results for the year ended 31 March 2002. Easynet is a network-based provider of
broadband services and internet solutions and is incorporated in Great Britain.
The above list of subsidiaries and associated companies includes those
businesses that had a material effect on the consolidated results to 31 March
2003.
As at 27 May 2003, Marconi held 30,111,162 ordinary shares and 50,707,150
convertible non voting shares amounting to a voting share holding of 49.7% and
an equity share holding of 72.7%.
30
14 FIXED ASSET INVESTMENTS continued
B INVESTMENT IN MARCONI PLC SHARES
The Marconi Employee Trust (MET), a discretionary trust for certain employees
and former employees of Marconi plc and its subsidiaries, was established on 1
December 1999. The trust acquired shares in order to satisfy entitlements under
certain share option schemes. The MET held assets of 1,208,545 Marconi plc
ordinary 5p shares at 31 March 2003, with a carrying value and market value of
Pound Sterling Nil.
The G.E.C. Employee Share Trust (EST), a discretionary trust for certain
employees and former employees of Marconi plc Group including Marconi
Corporation plc and its subsidiaries, was established on 19 January 1995. The
trust acquires shares in order to satisfy entitlements under certain share
option schemes. The EST held assets of 1,135,644 Marconi plc ordinary 5p shares
at 31 March 2003, with a carrying value and market value of Pound Sterling Nil.
Dividends receivable by EST from the Company have not been waived.
The G.E.C. Special Purpose Trust, which has no remaining investments at 31 March
2003 and will be wound up, the Marconi Employee Trust and the G.E.C. Employee
Share Trust have been consolidated into Marconi plc. All operating expenses
incurred are charged to the Group profit and loss account.
C SHARES IN GROUP COMPANIES
Pound
Sterling
Company million
------- --------
At 1 April 2002 602
Additions 114
Impairments (709)
--------
7
========
The Company has written down the carrying value of its investments to the amount
that it will recover from the restructuring of the Group on 19 May 2003.
15 STOCKS AND CONTRACTS IN PROGRESS
GROUP COMPANY
------------------ --------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Raw materials and bought in components 89 203 - -
Work in progress 60 241 - -
Payments on account (2) (3) - -
Long-term contract work in progress 11 83 - -
Finished goods 76 196 - -
-------- -------- -------- --------
234 720 - -
======== ======== ======== ========
16 DEBTORS
GROUP COMPANY
------------------- ---------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Amounts falling due within one year
Trade debtors 464 979 - -
Amounts owed by joint ventures and associates 30 26 - -
Other debtors 57 96 - -
Prepayments and accrued income 30 102 - -
Amounts owed by group undertakings - - - 275
-------- -------- -------- --------
581 1,203 - 275
======== ======== ======== ========
Amounts falling due after more than one year
Trade debtors 2 16 - -
Other debtors 29 71 - -
Prepayments and accrued income 1 7 - -
-------- -------- -------- --------
32 94 - -
-------- -------- -------- --------
613 1,297 - 275
======== ======== ======== ========
Amounts owed by joint ventures and associates relate to trading balances.
31
17 CURRENT ASSET INVESTMENTS AND CASH AT BANK AND IN HAND
A CURRENT ASSET INVESTMENTS
GROUP COMPANY
------------------------- -------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Unlisted investments - 15 - -
======== ======== ======== ========
B CASH AT BANK AND IN HAND
GROUP COMPANY
------------------------- --------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Cash and bank deposits repayable on demand 935 1,309 1 1
Other cash deposits 226 65 2 -
-------- -------- -------- --------
Cash at bank and in hand 1,161 1,374 3 1
======== ======== ======== ========
Included in the amounts above are restricted cash of:
GROUP COMPANY
-------------------------- -------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Secured 812 19 - -
Collateral against bonding facilities 135 25 - -
Held by captive insurance company 17 17 - -
-------- -------- -------- --------
Restricted cash 964 61 - -
Other 197 1,313 3 1
-------- -------- -------- --------
Cash at bank and in hand 1,161 1,374 3 1
======== ======== ======== ========
Of the secured cash, Pound Sterling 771 million (2002: Pound Sterling Nil)
relates to amounts held under an interim security arrangement by the Group's
syndicate banks and bondholders. A further Pound Sterling 27 million relates to
cash deposited against employee share option plan derivative providers for the
Strategic Communications business (2002: Pound Sterling Nil) and Pound Sterling
14 million (2002: Pound Sterling 19 million) relates to cash deposited against
secured loans in Italy.
18 CREDITORS
GROUP COMPANY
------------------------- --------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Amounts falling due within one year
Unsecured debenture loans (note 19) - 32 - -
Bonds (note 19) 1,762 - - -
Bank loans and overdrafts (note 19)
Repayable on demand 2,194 2,351 - -
Other 1 44 - -
Obligations under finance leases (note 19) - 9 - -
-------- -------- -------- --------
3,957 2,436 - -
Payments received in advance 76 101 - -
Trade creditors 174 512 - -
Amounts owed to joint ventures and associates 9 9 - -
Amounts owed to Group undertakings - - 163 207
Current taxation 137 290 - -
Other taxation and social security 22 15 - -
Other creditors 183 423 - -
Accruals and deferred income 185 282 - -
-------- -------- -------- --------
4,743 4,068 163 207
======== ======== ======== ========
Amounts falling due after more than one year
Bonds (note 19) - 1,771 - -
Bank loans and overdrafts (note 19) 30 32 - -
-------- -------- -------- --------
30 1,803 - -
Payments received in advance - 29 - -
Other creditors 16 70 - -
-------- -------- -------- --------
46 1,902 - -
======== ======== ======== ========
32
19 BORROWINGS
GROUP COMPANY
------------------------ --------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Unsecured debenture loans - 32 - -
Bonds 1,762 1,771 - -
Bank loans and overdrafts
Secured 17 31 - -
Unsecured 2,208 2,396 - -
Obligations under finance leases - 9 - -
-------- -------- -------- --------
3,987 4,239 - -
Less amounts falling due within one year (3,957) (2,436) - -
-------- -------- -------- --------
30 1,803 - -
======== ======== ======== ========
Analysis of repayments of long-term borrowings
Bank loans
Between one and two years 9 6 - -
Between two and five years 11 14 - -
In more than five years 10 12 - -
Bonds
Between two and five years - 262 - -
In more than five years - 1,509 - -
-------- -------- -------- --------
30 1,803 - -
======== ======== ======== ========
Bonds
Repayable at par wholly within five years
(average rate 5.6%) - 262 - -
Repayable at par wholly after five years
(average rate 7.5%) - 1,509 - -
======== ======== ======== ========
MATURITY
The total bonds of Pound Sterling 1,762 million (2002: Pound Sterling 1,771
million) are treated as at 31 March 2003 as becoming due within one year, as
non-payment of interest in March 2003 has effectively resulted in the bonds
being payable on demand as at 31 March 2003. As at 31 March 2002, Pound Sterling
262 million were due wholly within five years, and Pound Sterling 1,509 million
were due wholly after five years.
20 PROVISIONS FOR LIABILITIES AND CHARGES
Warranties
Share Deferred and
Restructuring options tax contracts Other TOTAL
Pound Pound Pound Pound Pound POUND
Sterling Sterling Sterling Sterling Sterling STERLING
million million million million million MILLION
------------- -------- -------- ---------- -------- --------
At 1 April 2002 96 179 18 140 72 505
Exchange rate adjustment - - - 1 (6) (5)
Disposals (2) - (12) (12) (5) (31)
Charged 63 11 - 55 92 221
Released (19) (144) - (13) (14) (190)
Utilised (74) (11) - (82) (24) (191)
------------- -------- -------- ---------- -------- --------
AT 31 MARCH 2003 64 35 6 89 115 309
============= ======== ======== ========== ======== ========
Restructuring provisions mainly comprise expected costs for termination of
employee contracts, costs for properties no longer occupied and onerous lease
contracts. The associated outflows are generally expected to occur over the next
year with vacant property costs being incurred over the next five years.
Share option provisions are Pound Sterling 35 million and relate to amounts paid
to the ESOP derivative banks on 19 May 2003 in settlement of the ESOP derivative
of Pound Sterling 158 million. All other share option provisions have been
released as they are in respect of Marconi plc shares which have been delisted
on 19 May 2003.
Warranties and contracts mainly comprise expected costs of maintenance under
guarantees, other work in respect of products delivered and losses on contract
work in progress in excess of related accumulated costs. The associated outflows
are generally expected to occur over the lives of the products and contracts
which are long term in nature.
Other provisions mainly comprise expected employee related claims, environmental
liabilities, other litigation, insurance balances, merger and acquisition claims
and scheme costs.
Releases in the year mainly comprise Pound Sterling 8 million of schemed leases
and litigation and Pound Sterling 123 million of share option provisions settled
with ESOP derivative banks.
Company provisions of Pound Sterling 9 million represent costs relating to the
Scheme of Arrangement.
33
NOTES TO THE ACCOUNTS continued
21 EQUITY SHAREHOLDERS' INTERESTS
A SHARE CAPITAL
Number of shares Pound Sterling
---------------- --------------
Fully paid ordinary shares of 5p each
Shares allotted at 1 April 2002 2,792,638,820 139,631,941
Shares allocated under share option schemes 461,777 23,089
Shares cancelled (88,646) (4,432)
---------------- --------------
Shares allotted at 31 March 2003 2,793,011,951 139,650,598
Unissued ordinary shares 3,206,988,049 160,349,402
---------------- --------------
Authorised 6,000,000,000 300,000,000
================ ==============
B GROUP RESERVES
Shares Share Profit and
to be premium Capital and loss
issued account reserves account TOTAL
Pound Pound Pound Pound POUND
Sterling Sterling Sterling Sterling STERLING
million million million million MILLION
-------- -------- -------- ---------- --------
At 1 April 2002 45 500 375 (2,618) (1,698)
Issue of ordinary shares - 6 - - 6
Loss retained for the period - - - (802) (802)
Exchange differences - - - 122 122
Actuarial loss (note 25) - - - (269) (269)
Group share of associates' shares to be issued - - - 3 3
Release of shares to be issued (45) - - - (45)
-------- -------- -------- ---------- --------
AT 31 MARCH 2003 - 506 375 (3,564) (2,683)
======== ======== ======== ========== ========
Shares to be issued represents the Marconi plc ordinary shares to be issued to
employees as a result of acquisitions made.
The amount in the profit and loss reserve relating to the defined benefit
liability is Pound Sterling 353 million (31 March 2002: Pound Sterling 126
million liability).
Included in exchange gains of Pound Sterling 122 million are Pound Sterling 169
million (31 March 2002: Pound Sterling 17 million gain) and related tax charges
of Pound Sterling Nil (31 March 2002: Pound Sterling Nil) on borrowings hedged
against investments denominated in foreign currencies.
C COMPANY RESERVES
Profit and
loss account
Pound
Sterling
million
------------
At 1 April 2002 (14)
Loss for the year (794)
------------
AT 31 MARCH 2003 (808)
============
Pursuant to Section 230 of the Companies Act 1985 the Company is not presenting
its own profit and loss account in addition to the consolidated profit and loss
account. The loss of the Company for the financial year amounted to Pound
Sterling 794 million (2002: loss Pound Sterling 67 million).
34
22 CASH FLOW
A NET CASH INFLOW FROM OPERATING ACTIVITIES
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
Group operating loss after exceptionals (738) (6,115)
Operating exceptionals 326 5,210
-------- --------
Group operating loss before exceptionals (412) (905)
Depreciation charge 135 245
Goodwill amortisation 104 431
Decrease in stock 233 95
Decrease in debtors 159 572
Decrease in creditors (221) (469)
Increase in provisions 10 41
-------- --------
8 10
======== ========
B RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
Income from loans, deposits and investments 44 24
Interest paid (180) (286)
-------- --------
(136) (262)
======== ========
C TAX REPAID/(PAID)
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
UK corporation tax repaid 52 34
Overseas tax paid (21) (47)
-------- --------
31 (13)
======== ========
D CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
Purchases of tangible fixed assets (43) (361)
Purchases of fixed asset investments (20) (342)
Sales of fixed asset investments 3 334
Sales of tangible fixed assets 30 173
-------- --------
(30) (196)
======== ========
Sales of tangible fixed assets shown above includes an amount of Pound Sterling
26 million property and Pound Sterling 2 million for car fleet disposals (2002:
Pound Sterling 116 million) in respect of disposals treated as exceptional items
in the profit and loss account.
E ACQUISITIONS AND DISPOSALS
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
Investments in subsidiary companies (3) (37)
Investments in joint ventures - (65)
Sales of interests in subsidiary companies 377 1,443
Sales of interests in joint ventures and associates 46 -
Net overdraft/(cash) disposed with subsidiary companies 13 (316)
-------- --------
433 1,025
======== ========
35
NOTES TO THE ACCOUNTS continued
22 CASH FLOW continued
F NET CASH (OUTFLOW)/INFLOW FROM MANAGEMENT OF LIQUID RESOURCES
Comprising term deposits generally of less than one year and other readily
disposable current asset investments
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
Deposits made with banks and similar financial institutions (169) (4,241)
Deposits withdrawn from banks and similar financial institutions 8 4,378
Purchases of securities issued by banks and other corporate bodies - (51)
Sales of securities issued by banks and other corporate bodies - 100
-------- --------
(161) 186
======== ========
G NET CASH (OUTFLOW)/INFLOW FROM FINANCING
2003 2002
POUND Pound
STERLING Sterling
DISCONTINUED OPERATIONS MILLION million
----------------------- -------- --------
(Decrease)/increase in bank loans (63) 1,273
Decrease in debenture loans - (90)
Decrease in bonds - (209)
Capital element of finance lease repayments (1) (2)
-------- --------
(64) 972
======== ========
23 ANALYSIS OF NET MONETARY DEBT
Acquisitions/
disposals
(excluding Other Exchange
At 1 April cash and non-cash rate At 31 March
2002 Cash flow overdrafts) changes adjustment 2003
Pound Pound Pound Pound Pound Pound
Sterling Sterling Sterling Sterling Sterling Sterling
million million million million million million
---------- --------- ------------- -------- ---------- -----------
Cash at bank and in hand 1,309 (345) - - (29) 935
Overdrafts (107) 83 - - 2 (22)
---------
(262)
=========
Liquid resources 65 161 - - - 226
---------
Amounts falling due within one year
---------
Bank loans (2,288) 59 22 (115) 149 (2,173)
Bonds - - - (1,771) 9 (1,762)
Unsecured debenture loans (32) - - 31 1 -
Finance leases (9) 1 2 6 - -
Amounts falling due after more than one year
Bank loans (32) 4 - (6) 4 (30)
Bonds (1,771) - - 1,771 - -
Finance leases - - - - - -
---------
64
---------- --------- ------------- -------- ---------- -----------
(2,865) (37) 24 (84) 136 (2,826)
========== ========= ============= ======== ========== ===========
The reclassification of the Bonds reflects that, following non-payment of
interest in March 2003, the Group believes that the Bonds were repayable on
demand as at 31 March 2003.
The non-cash movement in bank loans results from the settling of an interest
rate derivative by way of an increase in the Group's borrowings.
36
24 ACQUISITIONS AND DISPOSALS
A INVESTMENTS IN SUBSIDIARY COMPANIES
No subsidiaries were acquired in the year ended 31 March 2003.
Analysis of fair value of identifiable net assets of subsidiaries acquired
2003 2002
POUND Pound
STERLING Sterling
MILLION million
-------- --------
Tangible fixed assets - 3
Debtors - 2
Creditors and provisions - (8)
Loan capital - (3)
-------- --------
- (6)
-------- --------
Satisfied by:
Cash paid - 23
Deferred consideration - 10
-------- --------
- 33
-------- --------
Goodwill arising on acquisitions - 39
======== ========
Deferred consideration paid in respect of prior acquisitions - 14
Adjustment to consideration in respect of prior acquisitions (34) (77)
Additional fair value adjustments in respect of prior acquisitions - 14
-------- --------
Net reduction in goodwill (34) (10)
======== ========
Following adjustment to non-cash consideration on the acquisition of MSI, Albany
Partnership (APT) and Reltec, goodwill has been reduced by Pound Sterling 18
million, Pound Sterling 1 million and Pound Sterling 15 million respectively. In
the year to 31 March 2002 adjustments to consideration were in respect of Splice
Transmissao SA, MSI, Mariposa Technology, Inc and APT, Bosch Public Networks
Limited and Systems Management Specialists, Inc (SMS).
B SALES OF INTERESTS IN SUBSIDIARIES
Marconi Marconi
Applied Mobile
Technologies Holdings 2003 2002
Group S.p.A. Other TOTAL Total
Pound Pound Pound POUND Pound
Sterling Sterling Sterling STERLING Sterling
million million million MILLION million
------------ -------- -------- -------- --------
Net assets sold
Tangible fixed assets 18 38 19 75 452
Investments in joint ventures and associates - - - - 97
Inventory 23 191 35 249 240
Debtors 19 264 35 318 536
Net cash/(overdrafts) 2 (17) 2 (13) 316
Borrowings (excluding overdrafts) - (17) (5) (22) -
Taxation - (3) (1) (4) -
Creditors and provisions (14) (163) (69) (246) (846)
Finance lease creditors - - (2) (2) -
Goodwill 1 121 - 122 363
Minority interests - (4) (7) (11) -
Retirement benefit deficit (5) (33) - (38) -
------------ -------- -------- -------- --------
44 377 7 428 1,158
============ ======== ======== ======== ========
Accounted for by:
Cash consideration 48 338 8 394 1,443
Deferred consideration and accrued transaction costs - - (1) (1) (76)
Shares received - - - - 263
------------ -------- -------- -------- --------
Profit/(loss) on disposal 4 (39) - (35) 472
============ ======== ======== ======== ========
Marconi Mobile Holdings S.p.A., the holding company for the Group's Strategic
Communications business, was disposed of on 2 August 2002 and the Marconi
Applied Technologies Group was disposed of on 12 July 2002.
In addition Pound Sterling 17 million was paid out to settle completion accounts
adjustments for the disposals made during the year ended 31 March 2002 of
Medical Systems, Data Systems, Commerce Systems and Marconi Optical Components.
37
NOTES TO THE ACCOUNTS continued
24 ACQUISITIONS AND DISPOSALS continued
C SALES OF INTERESTS IN JOINT VENTURES AND ASSOCIATES
On 24 February 2003, following approval from the High Court in the United
Kingdom, Marconi Corporation plc completed a return of capital from Ultramast
Limited (a joint venture company set up in December 2000 with Railtrack Telecom
Services Limited) and settled all outstanding litigation relating to it. As a
result of the transaction, Marconi received net cash proceeds of approximately
Pound Sterling 41 million.
25 POST RETIREMENT BENEFITS
Marconi operates defined benefit pension plans in the UK, US and Europe, and
post retirement benefit plans in the US. The most significant plan is the G.E.C.
1972 Plan (the UK Plan) in the UK. A full actuarial valuation for the UK Plan
was carried out as at 5 April 2002 and a valuation for accounting purposes was
carried out as at 31 March 2003 by independent qualified actuaries.
For the US Plans, full valuations were carried out at dates between 1 January
2002 and 31 March 2003 and updated as applicable to 31 March 2003 by independent
qualified actuaries.
For the European unfunded plans, valuations were carried out for accounting
purposes at 31 March 2003 by independent qualified actuaries.
The contributions made to the plans in the accounting period totalled Pound
Sterling 20 million (31 March 2002: Pound Sterling 36 million). For the unfunded
pension plans and the post retirement medical plans, payments are made when the
benefits are provided.
Since April 2002, company contributions to the UK Plan were 14.2% of pensionable
pay, reducing to 8.2% on 1 November 2002. Other than Italy, where approximately
7.4% of pensionable pay is accrued, the Group is not making significant
contributions to its overseas funded plans due to the high surpluses in the
schemes at the time of the last funding valuations.
On 26 March 2003, the Group signed a funding agreement with the Pension Benefit
Guaranty Corporation (PBGC) for the US defined benefit schemes. Under the
agreement, the US businesses will recommence contributions from June 2003 for
the normal cost of the schemes of $6 million per year plus enhanced contribution
of $9 million per year. Additionally, proceeds from any disposal of a US
business shall be used to fund scheme deficits.
The Group operates defined contribution schemes in addition to the defined
benefit schemes listed. Contributions to these schemes amounted to Pound
Sterling 7 million (31 March 2002: Pound Sterling 25 million).
The major assumptions used by the actuaries to determine the liabilities on a
FRS 17 basis for the significant defined benefit plans are set out below:
AT 31 MARCH 2003 At 31 March 2002
AVERAGE ASSUMPTIONS USED UK (% PA) REST OF THE WORLD (% PA) UK (% pa) Rest of the world (% pa)
------------------------ --------- ------------------------ --------- ------------------------
Rate of general increase in salaries 4.50% 4.17% 4.75% 4.23%
Rate of increase in pensions in payment 2.50% 1.50% 2.75% 1.50%
Rate of increase for deferred pensioners 2.50% N/A 2.75% N/A
Rate of credited interest 4.00% N/A 5.50% N/A
Discount rate applied to liabilities 5.25% 6.00% 6.00% 6.85%
Inflation assumption 2.50% 2.22% 2.75% 2.25%
--------- ------------------------ --------- ------------------------
Expected healthcare trend rates N/A 12% PRE AND POST 65, N/A 6% pre 65, 7.5% post 65,
REDUCING TO 6% AFTER 2012 reducing to 5% after 2005
--------- ------------------------ --------- ------------------------
Expected prescription drug trend rates N/A 15% REDUCING TO N/A N/A
6% AFTER 2012
========= ======================== ========= ========================
The UK Plan provides benefits to members on the best of three bases. One of the
bases is a money purchase underpin in which credited interest is applied to a
percentage of members' contributions. The practice has been revised further
between 31 March 2002 and 31 March 2003. The discretionary level of credited
interest has been treated as a constructive obligation.
38
25 POST RETIREMENT BENEFITS continued
PENSION PLANS
The assets in the UK Plan and the expected rates of return were:
VALUE AT Value at
LONG-TERM 31 MARCH Long-term 31 March
EXPECTED 2003 expected 2002
RATE OF POUND rate of Pound
RETURN STERLING return Sterling
% MILLION % million
--------- -------- --------- --------
Equities 8.25% 497 8.25% 685
Bonds 4.84% 1,702 5.25% 1,322
Property 6.75% 111 6.75% 108
Cash 4.00% 30 4.00% 384
--------- -------- --------- --------
TOTAL MARKET VALUE OF ASSETS 5.65% 2,340 5.95% 2,499
--------- -------- --------- --------
Present value of plan liabilities (2,535) (2,506)
-------- --------
Net pension liability before deferred tax (195) (7)
-------- --------
Deferred tax asset - -
-------- --------
Net pension liability before and after deferred tax (195) (7)
======== ========
The assets in the overseas plans and the expected rates of return were:
VALUE AT Value at
LONG-TERM 31 MARCH Long-term 31 March
EXPECTED 2003 expected 2002
RATE OF POUND rate of Pound
RETURN STERLING return Sterling
% MILLION % million
--------- -------- --------- --------
Equities 10.00% 65 10.00% 89
Bonds 6.00% 59 6.00% 71
Other 9.00% 10 9.00% 18
--------- -------- --------- --------
TOTAL MARKET VALUE OF ASSETS 8.15% 134 8.30% 178
--------- -------- --------- --------
Present value of plan liabilities (263) (259)
-------- --------
Net pension liability before deferred tax (129) (81)
-------- --------
Deferred tax liability - (9)
-------- --------
Net pension liability after deferred tax (129) (90)
======== ========
OTHER POST RETIREMENT BENEFITS
Present value of plan liabilities and net pension
liability before deferred tax (29) (38)
Deferred tax asset - 9
-------- --------
Net pension liability after deferred tax (29) (29)
======== ========
ANALYSIS OF THE AMOUNT CHARGED TO OPERATING LOSS
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Current service cost 24 10 - 34 37 16 1 54
Past service cost - - (1) (1) - - - -
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
TOTAL SERVICE COST 24 10 (1) 33 37 16 1 54
========== =========== ========== ===== ========== =========== ========== =====
39
NOTES TO THE ACCOUNTS continued
25 POST RETIREMENT BENEFITS continued
ANALYSIS OF OTHER AMOUNTS CHARGED TO PROFIT AND LOSS ACCOUNT
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
(Gain)/loss on settlements - (33) - (33) (2) 4 (14) (12)
Gain on curtailments (19) 3 (5) (21) - - - -
NET (GAIN)/LOSS CHARGED TO ---------- ----------- ---------- ----- ---------- ----------- ---------- -----
PROFIT AND LOSS ACCOUNT (19) (30) (5) (54) (2) 4 (14) (12)
========== =========== ========== ===== ========== =========== ========== =====
Of the amounts above Pound Sterling 57 million was credited to non-operating
exceptional items and Pound Sterling 3 million was debited to operating profit
(31 March 2002: Pound Sterling 12 million credited to operating profit).
ANALYSIS OF THE AMOUNT CREDITED TO OTHER FINANCE INCOME
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Expected return on pension
scheme assets (144) (13) - (157) (174) (47) - (221)
Interest on pension scheme
liabilities 144 17 2 163 142 36 3 181
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
TOTAL FINANCE COST/(INCOME) - 4 2 6 (32) (11) 3 (40)
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
NET (INCOME)/COST 5 (16) (4) (15) 3 9 (10) 2
========== =========== ========== ===== ========== =========== ========== =====
The net (income)/cost represents the operating charge plus curtailment and
settlement gains and losses plus finance cost/(income).
ANALYSIS OF AMOUNT RECOGNISED IN THE CONSOLIDATED STATEMENT OF TOTAL RECOGNISED
GAINS AND LOSSES (STRGL)
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Expected return less actual
return on pension scheme
assets losses 147 31 - 178 218 59 - 277
Experience losses and (gains)
arising on the scheme liabilities (4) 3 (6) (7) (20) 10 1 (9)
Changes in assumptions
underlying the present value
of the scheme liabilities losses 66 24 8 98 52 29 2 83
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
ACTUARIAL LOSS RECOGNISED
IN STRGL 209 58 2 269 250 98 3 351
========== =========== ========== ===== ========== =========== ========== =====
The main element of the amount recognised in the STRGL in both periods has
resulted from the difference between the actual rate of return and expected rate
of return on the plans' assets. For all the periods actual investment returns in
the UK and US plans fell well below expected investment returns resulting in
substantial asset losses.
The second largest element has been gains and losses resulting from changes in
assumptions underlying the present value of the plans' liabilities. These have
resulted principally from the changes in assumptions used at each period end for
the plan. These changes in assumptions have resulted in an increase in the
present value of liabilities at 31 March 2003 compared with those calculated at
31 March 2002, and have given rise to a loss over the year.
40
25 POST RETIREMENT BENEFITS continued
MOVEMENT IN (DEFICIT)/SURPLUS DURING THE YEAR
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
(Deficit)/surplus at the
beginning of the year (7) (81) (38) (126) 220 18 (50) 188
Movement in year:
Current service cost (24) (10) - (34) (37) (16) (1) (54)
Past service cost - - 1 1 - - - -
Contributions and
benefit payments 26 7 4 37 26 10 5 41
Settlement gain/(loss) - 33 - 33 2 (4) 14 12
Curtailment gain/(loss) 19 (3) 5 21 - - - -
Other finance income/(charge) - (4) (2) (6) 32 11 (3) 40
Actuarial gain/(loss) (209) (58) (2) (269) (250) (98) (3) (351)
Foreign exchange - (13) 3 (10) - (2) - (2)
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
DEFICIT AT THE END
OF THE YEAR (195) (129) (29) (353) (7) (81) (38) (126)
========== =========== ========== ===== ========== =========== ========== =====
Contributions to the UK scheme of Pound Sterling 26 million (2002: Pound
Sterling 26 million) include Pound Sterling 6 million (2002: Pound Sterling Nil)
due from owners of disposed business and are not contributions paid by the
Group.
The net (deficit) or surplus before deferred taxation is analysed by
jurisdiction as follows:
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Surpluses - - - - - 28 - 28
Deficits (195) (129) (29) (353) (7) (109) (38) (154)
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
NET DEFICIT AT THE END
OF THE YEAR (195) (129) (29) (353) (7) (81) (38) (126)
========== =========== ========== ===== ========== =========== ========== =====
41
NOTES TO THE ACCOUNTS continued
25 POST RETIREMENT BENEFITS continued
HISTORY OF EXPERIENCE GAINS AND LOSSES
2003 2002
POUND STERLING MILLION Pound Sterling million
------------------------------------------------ -----------------------------------------------
REST OF THE POST Rest of the Post
WORLD RETIREMENT world retirement
UK PENSION - PENSION MEDICAL UK Pension - Pension medical
PLAN PLANS PLANS TOTAL plan plans plans Total
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Difference between the
expected and actual
return on scheme
assets losses:
amount (Pound Sterling
million) 147 31 - 178 218 59 - 277
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Percentage of scheme
assets (%) 6.3% 23.1% - 7.2% 8.7% 33.1% - 10.3%
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Experience losses and (gains)
on scheme liabilities:
amount (Pound
Sterling million) (4) 3 (6) (7) (20) 10 1 (9)
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Percentage of the present
value of the scheme
liabilities (%) (0.2)% 1.1% (20.7)% (0.3)% (0.8)% 3.9% 2.6% (0.3)%
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Total amount recognised
in statement of total
recognised gains
and losses:
amount (Pound
Sterling million) 209 58 2 269 250 98 3 351
---------- ----------- ---------- ----- ---------- ----------- ---------- -----
Percentage of the
present value
of the scheme
liabilities (%) 8.2% 22.1% 6.9% 9.5% 10.0% 37.8% 7.9% 12.5%
========== =========== ========== ===== ========== =========== ========== =====
26 OTHER INFORMATION
A CONTINGENT LIABILITIES
GROUP COMPANY
--------------------------- ---------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Contingent liabilities at year end 20 10 - -
======== ======== ======== ========
LITIGATION
Contingent liabilities relate mainly to the cost of legal proceedings, which in
the opinion of the directors, are not expected to have a materially adverse
effect on the Group.
The Group is engaged in a number of legal proceedings relating to class
shareholder actions, patent and other claims under contracts and in respect of a
dispute in relation to the purchase of a shareholding. The Group is vigorously
defending these cases, the estimated cost of which is disclosed above, and the
directors currently believe that the claims are unlikely to be settled for
amounts resulting in material cash or other asset outflows.
GUARANTEES
At 31 March 2003, the Group had provided third parties with guarantees,
performance bonds and indemnities, the exercise of which is considered to be
remote.
B CAPITAL EXPENDITURE
GROUP COMPANY
--------------------------- ---------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Commitments contracted at year end 4 3 - -
======== ======== ======== ========
42
26 OTHER INFORMATION continued
C OPERATING LEASES
GROUP COMPANY
--------------------------- ---------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Charges in the year
Land and buildings 21 39 - -
Other items 14 12 - -
-------- -------- -------- --------
35 51 - -
======== ======== ======== ========
Amounts payable under operating leases which
fall due in the next financial year
Land and buildings, leases expiring
Within one year 4 3 - -
Between two and five years 23 10 - -
After five years 9 44 - -
Other items, leases expiring
Within one year 3 3 - -
Between two and five years 9 13 - -
After five years - - - -
-------- -------- -------- --------
48 73 - -
======== ======== ======== ========
D FEES PAID TO AUDITORS
GROUP COMPANY
--------------------------- ---------------------------
2003 2002 2003 2002
POUND Pound POUND Pound
STERLING Sterling STERLING Sterling
MILLION million MILLION million
-------- -------- -------- --------
Audit services 1 2 - -
Audit-related services 13 4 - -
Tax services and other compliance work 2 2 - -
Business support and other services 1 3 - -
-------- -------- -------- --------
17 11 - -
======== ======== ======== ========
All business support and other services were awarded after a competitive
tendering process had been undertaken.
Audit services is the cost of the annual Group audit. Audit related services
include costs incurred during the restructuring process including an audit of
the Group as at 30 September 2002.
Of the amounts shown above, Pound Sterling 13.3 million (31 March 2002: Pound
Sterling 9.2 million) was charged to administrative expenditure and Pound
Sterling 4.1 million (31 March 2002: Pound Sterling 1.4 million) against our
disposal programme as a non-operating exceptional item. Pound Sterling 7.9
million (31 March 2002: Pound Sterling 5.0 million) of the amounts charged to
administrative expenditure have been classified as exceptional items associated
with the restructuring of the Group's activities of which Pound Sterling 7.9
million (31 March 2002: Pound Sterling 1.4 million) related to the costs of the
financial restructuring. Pound Sterling Nil (31 March 2002: Pound Sterling 0.1
million) was capitalised as part of the investment in newly acquired
subsidiaries.
43
NOTICE OF MEETING
NOTICE IS HEREBY GIVEN that the ANNUAL GENERAL MEETING of Marconi plc will be
held at Central Hall, Storey's Gate, Westminster, London SW1H 9NH on Thursday,
25 September 2003 at 11.00 am for the following purposes:
ORDINARY BUSINESS
1. To receive the accounts and the reports of the directors and the auditors
thereon, for the year ended 31 March 2003. (RESOLUTION 1)
2. To approve the directors' remuneration report for the year ended 31 March
2003. (RESOLUTION 2)
3. To reappoint Mr C C Holden as a director of the Company. (RESOLUTION 3)
4. To reappoint Mr C J Shaw as a director of the Company. (RESOLUTION 4)
5. To reappoint Mr J J White as a director of the Company. (RESOLUTION 5)
6. To reappoint Deloitte & Touche LLP as auditors of the Company and to
authorise the directors to determine their remuneration. (RESOLUTION 6)
SPECIAL BUSINESS by Special Resolution
7. To change the name of the Company to M (2003) plc. (RESOLUTION 7)
By Order of the Board
MARCONI PLC
K D SMITH
Secretary
New Century Park, PO Box 53
Coventry, Warwickshire CV3 1HJ
4 August 2003
NOTES:
1. A Member entitled to attend and vote at the Meeting is entitled to appoint
one or more proxies to attend and, on a poll, to vote instead of him. A proxy
need not be a Member. The enclosed form of proxy should be lodged with the
Registrar not less than 48 hours before the time of the Meeting. The lodging of
a proxy form will not preclude a Member from attending the Meeting.
2. The vote on Resolution 2 is an advisory vote and arises from the Directors'
Remuneration Report Regulations 2002.
3. Mr C C Holden was appointed to the Board of directors during the year ended
31 March 2003 and as such, will be standing for reappointment as required by the
articles of association of the Company. Following the approval of the accounts
and the report of the directors for the year ended 31 March 2003, it is intended
that Mr C J Shaw and Mr J J White will be appointed as directors of the Company.
Accordingly they will be standing for reappointment as required by the articles
of association of the Company.
4. For the purposes of regulation 41 of the Uncertificated Securities
Regulations 2001, the members entitled to attend and vote at the Annual General
Meeting shall be those entered in the Company's Register of Members at 11.00 am
on 23 September 2003. Any subsequent changes to the Register shall be
disregarded in determining the rights of any person to attend and vote at the
Meeting.
5. On 1 August 2003 Deloitte & Touche transferred their business to Deloitte &
Touche LLP, a limited liability partnership incorporated under the Limited
Liability Partnerships Act 2000. The Company has given its consent to treating
the appointment of Deloitte & Touche as extending to Deloitte & Touche LLP with
effect from 1 August 2003.
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MARCONI PLC
By: /s/ K Smith
----------------------------
Name: K Smith
Date: August