~~Effective~~SECURITIES ~~date~~AND ~~Unexpired~~EXCHANGE 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 NoneCOMMISSION

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 - - 1Washington,~~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 ====== ====== ====== ====== ====== ====== ======20549

~~Increase~~FORM 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 6-~~--------------- ------------- ------------- ------------- ------------- -------------- M J Donovan 2 7 49 57 (4) M W J Parton 3 26 187 189 (12) S Hare* 4 73 383 369 (24)~~K

~~Increase~~REPORT ~~in INCREASE IN ACCUMULATED Transfer TRANSFER transfer value ACCRUED TOTAL value VALUE over the PENSION OVER ACCRUED of accrued~~ OF ~~ACCRUED~~FOREIGN ~~period~~PRIVATE ~~net~~ISSUER PURSUANT ~~THE PERIOD~~ TO ~~PENSION~~RULE 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 13a-~~---------------~~16 ~~-------------~~OR 15d-~~------------~~16 ~~-------------~~OF THE ~~-------------~~SECURITIES ~~--------------~~EXCHANGE MACT JOF ~~Donovan 8 72 332 336 4~~1934

AsFor atthe 1month ~~April 2002 AS AT (or later 31 MARCH 2003 appointment) Name~~ of ~~director BENEFICIAL Beneficial ---------------- ------------- ------------ M K Atkinson NIL Nil D C Bonham 156~~October,~~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~~2005

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~~ PLC (~~May~~Exact ~~2003~~name toof ~~Nov~~Registrant ~~2003)~~as Sspecified ~~Hare~~in ~~12,596~~its ~~Nil - - - - - - 12,596 NIL Jun 2001 to Nov 2009 (Nov 2003 to Nov 2009~~Charter) 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)

~~Shares~~8 Salisbury ~~under~~Square London EC4Y ~~SHARES~~8BB United ~~UNDER~~Kingdom (Address ~~award at Shares under AWARD AT 31 March lapsed 31 MARCH Name~~ of ~~director~~principal ~~2002~~executive ~~awards 2003 ---------------- ------------ ------------ ------------ M J Donovan 57,919 33,201 24,718 M W J Parton 61,897 35,414 26,483~~offices)

~~2003~~ Indicate ~~2002~~by ~~POUND~~check ~~Pound~~mark ~~STERLING~~whether ~~Sterling~~the ~~Note~~registrant ~~MILLION~~files ~~million~~or ~~----~~will ~~--------~~file ~~--------~~annual ~~TURNOVER~~reports ~~Group~~under -cover ~~Discontinued operations 4 2,002 4,310 Share~~ of ~~joint ventures~~ Form 20-F ~~257~~or ------- ------- 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) ------------------- (Form 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) ======= =======F.

~~GROUP~~Form 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)~~ -F ~~-------~~þ ~~-------~~Form 40-~~------~~F ------- 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 ======= ======= ======= =======o

~~2003~~ Indicate ~~2002~~by ~~POUND~~check ~~Pound~~mark ~~STERLING~~whether ~~Sterling~~the ~~Note~~registrant ~~MILLION~~by ~~million~~furnishing ~~----~~the ~~--------~~information ~~--------~~contained ~~Net~~in ~~cash~~this ~~inflow~~Form ~~from~~is ~~operating~~also ~~activities~~thereby ~~before~~furnishing ~~exceptional~~the ~~items~~information ~~22a~~to 8the 10Commission ~~Exceptional~~pursuant 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~~rule 12g3- 2(95b) ~~-------~~under ~~-------~~the ~~Cash~~Securities ~~(outflow)/inflow~~Exchange ~~before~~Act ~~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 ======= =======1934.

~~2003~~Yes ~~2002~~o ~~POUND~~No 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) ======= =======þ

~~2003 2002 POUND Pound STERLING Sterling MILLION million -------- --------~~ (~~Loss)/profit~~If on“Yes” ~~ordinary~~is ~~activities~~marked, ~~attributable~~indicate tobelow the ~~shareholders~~file ~~-------------------~~number ~~Group~~assigned ~~(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~~registrant ~~and actual return on scheme assets (178) (277) Experience (losses) and gains on scheme liabilities 7 9 Changes~~ in ~~assumptions~~connection ~~underlying~~with ~~the present value of scheme liabilities losses (98) (83)~~ Rule 12g3-~~------------------~~ 2(~~269~~b): ~~(351) Tax credit on net retirement benefit items debited in the statement of total recognised gains and losses~~ 82- ~~68 ------- ------- TOTAL RECOGNISED GAINS AND LOSSES (949~~________.) ~~(6,245) ======= =======~~

~~2003~~M ~~2002 POUND Pound STERLING Sterling MILLION million -------- -------- Total recognised gains and losses~~ (~~949~~2003) (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) ======= ======= plc

~~AVERAGE~~Report ~~RATES~~and ~~YEAR-END~~Financial ~~RATES~~Statements ~~-----------------~~for ~~-----------------~~the ~~2003~~year ~~2002~~ended ~~2003~~31 ~~2002 ------ ------ ------ ------ US dollar 1.5538 1.4324 1.5807 1.4240 Euro 1.5499 1.6283 1.4486 1.6323~~March 2005

(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) ======= ======= ======= =======Contents

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 ======= ======= ======= =======

1		Directors’ report

3		Statement of directors’ responsibilities

4		Independent auditors’ report to the members of M (2003) plc

5		Consolidated profit and loss account

6		Balance sheets

7		Consolidated cash flow statement

8		Consolidated statement of total recognised gains and losses

8		Reconciliation of movements in equity shareholders’ interests

8		Reconciliation of net cash flow to movements in net monetary funds/(debt)

9		Notes to the accounts

24		Notice of meeting

~~2003~~Directors’ 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 ======= =======report

~~2003~~The ~~2002~~directors ~~POUND~~present ~~Pound~~their ~~STERLING~~report ~~Sterling MILLION million -------- -------- Optical networks 439 737 Broadband switching 142 209 European access 258 361 Outside plant~~ and ~~power~~the ~~140~~financial ~~247~~statements 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~~the ~~Sterling~~Company ~~Nil~~for ~~(2002:~~the ~~Pound~~year ended ~~Sterling~~31 ~~257 million)) 135 1,826 ------- ------- 2,002 4,567 ======= =======~~March 2005.

~~NET~~Activities 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 ======= ======= ======= ======= ======= =======~~prospects

~~YEAR~~Since TO19 ~~31 MARCH~~ May 2003 ------------------------------------------ PRE- EXCEPTIONAL EXCEPTIONAL ITEMS ITEMS DISCONTINUED POUND POUND POUND STERLING STERLING STERLING MILLION MILLION MILLION ----------- ----------- ------------ Turnover 2,~~002~~ -neither ~~2,002~~the ~~Cost~~Company ofnor ~~sales~~its ~~(1,594)~~remaining ~~(21)~~subsidiaries ~~(1,615)~~have ~~-------~~operated ~~-------~~or ~~-------~~controlled any ~~Gross~~business 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) ======= ======= =======activities.

~~Year~~In torespect 31of ~~March~~the ~~2002~~period ~~--------------------------------------~~from ~~Pre-~~1 ~~exceptional~~April 2003 ~~Exceptional~~until ~~items~~19 ~~items Total Pound Pound Pound Sterling Sterling Sterling million million million ----------- ----------- -------- Turnover 4~~May 2003,~~310~~ -the ~~4,310~~Company ~~Cost~~was ofthe ~~sales~~ultimate ~~(3,253)~~holding company ~~(830)~~for ~~(4,083)~~the ~~-------~~Marconi ~~-------~~Group; ~~-------~~which ~~Gross~~designs ~~profit 1,057 (830) 227 Selling~~ and ~~distribution~~supplies ~~expenses~~telecommunications ~~(590)~~equipment ~~- (590) ---------------------------------- Administrative expenses - other (308) (703) (1,011) Research~~ and ~~development~~provides related (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) ======= ======= =======services.

~~2003~~The ~~2002~~Company ~~POUND~~ceased ~~Pound~~to ~~STERLING~~be ~~Sterling~~the ~~MILLION~~ultimate ~~million~~holding ~~--------~~company ~~--------~~of ~~Stock~~the ~~write-downs~~Marconi ~~and~~Group ~~related~~on ~~costs~~19 ~~(i)~~May 2003 -when ~~(672)~~the schemes ~~Restructuring~~of ~~costs~~arrangement ~~(ii) (21) (158) ------- ------- Included in cost~~ of ~~sales~~Marconi ~~(21)~~Corporation ~~(830)~~plc ~~------- ------- Impairment of goodwill~~ and ~~tangible~~the ~~fixed assets (iii) (36) (3~~Company,~~831)~~ ~~Restructuring~~pursuant ~~and~~to ~~reorganisation~~Section 425 ~~costs (iv) (286) (324) Systems implementation costs/(credits) (v) 7 (75) Releases/(charges) in respect~~ of ~~doubtful~~the Companies ~~debts~~Act ~~(vi)~~1985, 10became ~~(150)~~effective. ~~-------~~Trading ~~------- Included~~ in ~~administrative~~the ~~expenses~~Company’s ~~(305)~~shares ~~(4,380)~~on ~~-------~~the ~~-------~~London ~~Group~~Stock ~~operating~~Exchange ceased ~~exceptional~~on ~~items~~16 ~~(326)~~May 2003 ~~(5,210)~~and ~~Share~~the ofCompany’s ~~joint~~shares ~~ventures'~~were ~~operating~~subsequently ~~exceptional items (vii) (32) (6)~~ de-~~------ ------- Total operating exceptional items (excluding associates) (358) (5,216) ======= =======~~listed.

~~2003~~Pursuant ~~2002~~to ~~POUND~~the ~~Pound~~Company’s ~~STERLING~~scheme ~~Sterling~~of ~~MILLION~~arrangement ~~million -------- -------- Network equipment and services~~ (~~329)~~the ~~(1,312~~Scheme) ~~Other 25 (104) Goodwill impairment - (3~~,~~544)~~ ~~-------~~the ~~-------~~remaining ~~(304)~~assets ~~(4,960)~~of ~~Capital~~the ~~and~~Company will ~~disposed~~be ~~businsses~~distributed ~~(54)~~over ~~(123)~~time ~~Goodwill~~to ~~impairment~~its ~~- (133) ------- ------- (358) (5~~creditors,~~216)~~ ~~=======~~following ~~=======~~which ~~United~~it ~~Kingdom~~is ~~(191)~~intended ~~(823)~~that ~~The~~the ~~Americas~~Company will ~~(115)~~be ~~(407)~~liquidated ~~Rest~~or ofdissolved. ~~Europe~~There ~~(41)~~will ~~(282)~~be ~~Africa,~~no ~~Asia~~circumstances ~~and~~in ~~Australasia~~which ~~(11)~~any ~~(27)~~value ~~-------~~will ~~-------~~be ~~(358)~~returned to ~~(1,539)~~shareholders ~~Goodwill~~under ~~impairment~~the -terms ~~(3,677)~~of ~~-------~~the ~~------- (358) (5,216) ======= =======~~Scheme.

~~2003~~This ~~2002~~report ~~POUND~~and ~~Pound~~the ~~STERLING~~financial ~~Sterling~~statements ~~MILLION~~are ~~million~~being ~~--------~~produced ~~-------- (Loss)/gain on disposal of businesses (i) (5) 358 Gain on disposal of fixed assets~~ and ~~investments~~distributed ~~(ii)~~to 26shareholders ~~218~~to comply ~~Merger/demerger~~with ~~receipts~~the ~~(iii)~~requirements ~~123 291 Group share~~ of ~~associates'~~the ~~non-operating~~Companies ~~exceptionals~~Act ~~(3)~~1985, -which ~~-------~~continue ~~-------~~to ~~Included~~apply inirrespective ~~non-operating exceptional items 141 867 ======= ======= Gain on repurchase~~ of ~~bonds - 166 ------- ------- Included in interest and financing costs - 166 ======= =======~~the Scheme.

~~2003~~Results 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 ======= =======~~dividends

~~2003~~The ~~2002~~profit ~~POUND~~on ~~Pound~~ordinary ~~STERLING~~activities ~~Sterling~~after ~~MILLION~~taxation ~~million~~during ~~--------~~the ~~--------~~year ~~Interest~~was ~~receivable~~£nil ~~Loans~~(2004: ~~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~~,555 million). Under ~~(281)~~the ~~Loan~~terms ~~capital (1) (1) Other (3) - Interest payable - total (261) (282) ------- ------- Net interest payable - Group (214) (240) ------- ------- Share~~ of ~~net~~the ~~interest~~Scheme, ~~receivable~~no ofdividend ~~joint~~is ~~ventures and associates - 2 ------- ------- Net interest~~ payable ~~(214) (238) ======= =======~~.

~~2003~~Political 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~~charitable ~~amortisation 5 - Expected return on pension scheme assets (note 25) 157 221 ------- ------- Finance income - total 162 387 ======= ======= Net finance (expenditure)/income (6) 200 ======= =======~~contributions

~~2003~~The ~~2002~~Group ~~POUND~~made ~~Pound~~no ~~STERLING~~political ~~Sterling~~contributions ~~MILLION~~during ~~million~~the -------- -------- 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 ======= =======year.

~~2003~~Directors ~~2002~~and ~~POUND~~Scheme ~~Pound STERLING Sterling MILLION million -------- -------- Operating exceptional items - (67) Non-operating exceptional items (78) 298 ------- ------- (78) 231 ======= =======~~supervisors

~~Group~~The ~~Pound~~membership ~~Sterling~~of ~~million~~the ~~--------~~Board Atduring 1the ~~April~~year ~~2002 (18) Disposals 12 ------- AT 31 MARCH 2003 (6) =======~~was:

~~2003~~Mr ~~2002~~R ~~POUND~~A ~~Pound~~Robinson Mr ~~STERLING~~C ~~Sterling~~J ~~MILLION~~Shaw Mr ~~million~~J ~~--------~~J ~~-------- Tax effect of timing differences on: Provisions and accruals for liabilities and charges (6) (12) Accelerated capital allowances - (6) ------- ------- (6) (18) ======= =======~~White

~~2003~~On ~~2002~~19 ~~POUND~~May 2003, ~~Pound~~Mr ~~STERLING~~R ~~Sterling~~Heis ~~MILLION~~and ~~million~~Mr ~~--------~~P ~~--------~~W ~~Loss before tax (986) (5~~Wallace,~~664)~~ ~~-------~~both ~~------- Tax credit on loss at a standard rate~~ of ~~34%~~KPMG ~~(31 March 2002: 34%) (335) (1~~LLP,~~926)~~ ~~Non~~8 ~~deductible~~Salisbury ~~goodwill impairment~~Square, ~~amortisation~~London ~~and other similar items 102 1~~EC4Y 8BB,~~503~~ ~~Tax~~were ~~losses~~appointed ~~and~~initial ~~other~~supervisors ~~deferred~~pursuant ~~tax~~to ~~items not recognised in current tax 233 478 Overprovision in respect of prior years (185) (33) ------- ------- Current tax charge for~~ the ~~year (185) 22 ======= =======~~Scheme.

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 ==== ====1

~~2003~~Directors’ ~~2002~~report 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 ======= =======continued

~~Amount~~Directors’ 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 - - 2002-2003interests

~~Cost~~The ~~Pound~~interests ~~Sterling~~of ~~million~~the ~~--------~~directors Atin 1the ~~April~~share ~~2002~~capital ~~6,812 Disposals (note 24 b) (367) Adjustments in respect~~ of ~~prior~~the ~~year~~Company ~~acquisitions~~are ~~(note~~shown ~~24a) (34) Exchange rate adjustment (424) ------- AT 31 MARCH 2003 5,987 =======~~below.

~~Amortisation~~Ordinary 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 877shares:

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 ======= ======= ======= ======= ======= ======= =======


	At 1 April						At 31 March
Director	2004		Acquired		Disposed		2005

R A Robinson		11,442		—		—		11,442
C J Shaw		—		—		—		—
J J White		—		—		—		—

~~Shares~~R ~~Goodwill~~A ~~Share~~Robinson ~~cost~~had ~~less~~the ~~amortisation~~following ofinterests ~~post~~in ~~amounts~~share ~~Goodwill~~options ~~and~~as ~~acquisition~~a ~~written~~result ~~off~~of ~~cost~~his ~~impairment~~previous ~~reserves~~employment ~~Loans~~within ~~Total~~the ~~Pound~~Marconi ~~Pound~~Group, ~~Pound~~there ~~Pound~~are ~~Pound~~no circumstances ~~Pound~~under ~~GROUP~~which ~~Sterling~~any ~~Sterling~~value ~~Sterling~~will ~~Sterling~~be ~~Sterling~~attributable ~~Sterling~~to ~~JOINT~~these ~~VENTURES~~share 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 =========== ======== ============ =========== ======== ========options:

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 ========


	At 1 April								At 31 March
	2004		Granted		Exercised		Lapsed		2005

The Marconi Launch Plan		1,000		—		—		—		1,000
The Marconi Long Term Incentive Plan		15,164		—		—		—		15,164

Total		16,164		—		—		—		16,164

~~2003~~Payment ~~2002~~of ~~POUND Pound STERLING Sterling MILLION million -------- -------- Other investments - listed in the United Kingdom 10 19 ======== ========~~creditors

~~Country~~In ofits ~~CORE~~previous ~~BUSINESSES~~role ~~Voting~~as ~~rights~~the ~~Incorporation~~ultimate ~~---------------~~holding ~~-------------~~company ~~-------------~~of ~~Network~~the ~~equipment and services~~ Marconi ~~Communications~~Group, ~~Ltd.~~the ~~100%~~Company ~~Great~~had ~~Britain~~no revenue ~~Marconi~~and ~~Communications~~no Strade creditors.~~p.A.~~ ~~100%~~It ~~Italy~~is ~~Marconi~~not, ~~Communications~~therefore, ~~Inc.~~possible ~~100%~~to ~~USA~~provide ~~Marconi~~statistics ~~Communications~~for ~~GmbH.~~the Company ~~100%~~as ~~Germany~~required ~~=============~~by ~~=============~~the Companies Act 1985.

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% ===== ========== =============Auditors

~~Pound~~In ~~Sterling~~accordance ~~Company~~with ~~million~~Section 384 ~~-------~~of ~~--------~~the AtCompanies 1Act ~~April~~1985, ~~2002~~a ~~602~~resolution ~~Additions~~for ~~114~~the ~~Impairments~~reappointment ~~(709)~~of Deloitte ~~--------~~& 7Touche ~~========~~LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting.

~~GROUP~~Annual ~~COMPANY~~General ------------------ -------------------- 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 - - ======== ======== ======== ========Meeting

~~GROUP~~Notice ~~COMPANY~~of ~~-------------------~~the ~~---------------------~~2005 ~~2003~~Annual ~~2002~~General ~~2003~~Meeting ~~2002~~is ~~POUND~~given ~~Pound~~on ~~POUND~~page 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 ======== ======== ======== ========24.

~~GROUP~~By ~~COMPANY~~order ~~-------------------------~~of ~~-------------------------~~the 2003 2002 2003 2002 POUND Pound POUND Pound STERLING Sterling STERLING Sterling MILLION million MILLION million -------- -------- -------- -------- Unlisted investments - 15 - - ======== ======== ======== ========Board

~~GROUP~~K ~~COMPANY~~D ------------------------- -------------------------- 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 ======== ======== ======== ========Smith Secretary

~~GROUP~~Registered ~~COMPANY~~office: 8 ~~--------------------------~~Salisbury ~~-------------------------~~Square London ~~2003~~EC4Y 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 ======== ======== ======== ========8BB

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 - - ======== ======== ======== ========September 2005

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 - - ======== ======== ======== ========

~~Warranties~~Statement ~~Share~~of ~~Deferred~~directors’ 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 ============= ======== ======== ========== ======== ========responsibilities

~~Number~~Company oflaw ~~shares~~requires ~~Pound~~the ~~Sterling~~directors ~~----------------~~to ~~--------------~~prepare financial ~~Fully~~statements ~~paid~~for ~~ordinary shares of 5p~~ each ~~Shares~~financial ~~allotted~~year atwhich 1give a ~~April~~true ~~2002~~and ~~2,792,638,820~~fair ~~139,631,941~~view ~~Shares~~of ~~allocated~~the ~~under~~state ~~share~~of ~~option~~affairs ~~schemes~~of ~~461,777~~the Company ~~23,089~~and ~~Shares~~Group ~~cancelled~~and ~~(88,646)~~of ~~(4,432)~~the ~~----------------~~profit ~~--------------~~or ~~Shares~~loss ~~allotted~~for atthat period. 31In ~~March~~preparing ~~2003~~those ~~2,793,011,951~~financial ~~139~~statements,~~650,598~~ ~~Unissued~~the directors ~~ordinary~~are ~~shares~~required ~~3,206,988,049 160,349,402 ---------------- -------------- Authorised 6,000,000,000 300,000,000 ================ ==============~~to:

~~Shares~~• ~~Share~~select ~~Profit~~suitable ~~and~~accounting topolicies ~~be premium Capital~~ and ~~loss~~then ~~issued~~apply ~~account~~them ~~reserves~~consistently; ~~account~~• ~~TOTAL~~make ~~Pound~~judgements ~~Pound~~and ~~Pound~~estimates ~~Pound~~that ~~POUND~~are ~~Sterling~~reasonable ~~Sterling~~and ~~Sterling~~prudent; ~~Sterling~~• ~~STERLING~~state ~~million~~whether ~~million~~applicable ~~million~~accounting ~~million~~standards ~~MILLION~~have ~~--------~~been ~~-------- -------- ---------- -------- At 1 April 2002 45 500 375 (2~~followed,~~618)~~ ~~(1,698)~~subject ~~Issue~~to ofany ~~ordinary~~material ~~shares~~departures -disclosed 6and -explained -in ~~6 Loss retained for~~ the ~~period~~financial -statements; -and -• ~~(802)~~prepare ~~(802)~~the ~~Exchange~~financial ~~differences~~statements -on -the -going ~~122~~concern ~~122~~basis ~~Actuarial~~unless ~~loss~~it ~~(note~~is ~~25)~~inappropriate -to -presume -that ~~(269)~~the ~~(269)~~ Group ~~share~~will ofcontinue ~~associates'~~in shares to be issued - - - 3 3 Release of shares to be issued (45) - - - (45) -------- -------- -------- ---------- -------- AT 31 MARCH 2003 - 506 375 (3,564) (2,683) ======== ======== ======== ========== ========business.

~~Profit~~The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and ~~loss~~to ~~account~~enable ~~Pound~~them ~~Sterling~~to ~~million~~ensure ~~------------~~that Atthe 1financial statements ~~April~~comply ~~2002~~with ~~(14)~~the ~~Loss~~Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the ~~year~~assets ~~(794)~~of ~~------------~~the Group ATand 31to ~~MARCH~~prevent ~~2003~~and ~~(808)~~detect ~~============~~fraud and other irregularities.

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 ======== ========3

~~2003~~Independent ~~2002~~auditors’ ~~POUND~~report ~~Pound~~to ~~STERLING~~the ~~Sterling~~members ~~DISCONTINUED~~of ~~OPERATIONS~~M ~~MILLION million ----------------------- -------- -------- Income from loans, deposits and investments 44 24 Interest paid~~ (~~180~~2003) ~~(286) -------- -------- (136) (262) ======== ========~~ plc

We have audited the financial statements of M (2003) plc ~~2002~~for ~~POUND~~the ~~Pound~~year ~~STERLING~~ended ~~Sterling~~31 ~~DISCONTINUED~~March 2005 ~~OPERATIONS~~which comprise ~~MILLION~~the ~~million~~consolidated ~~-----------------------~~profit ~~--------~~and ~~--------~~loss UKaccount, ~~corporation~~the balance ~~tax~~sheets, ~~repaid~~the 52cash 34flow ~~Overseas~~statement, ~~tax~~the ~~paid~~statement of ~~(21)~~total ~~(47)~~recognised ~~--------~~gains ~~--------~~and 31losses, the reconciliation of movements in equity shareholders’ interests, the reconciliation of movements in net cash flow to movements in net monetary funds/(13debt), ~~========~~the statement ~~========~~of accounting policies and the related notes 1 to 21. These financial statements have been prepared under the accounting policies set out therein.

~~2003~~This ~~2002~~report ~~POUND~~is ~~Pound~~made ~~STERLING~~solely ~~Sterling~~to ~~DISCONTINUED~~the ~~OPERATIONS~~Company’s ~~MILLION~~members, ~~million~~as a ~~-----------------------~~body, ~~--------~~in ~~--------~~accordance ~~Purchases~~with Section 235 of ~~tangible~~the ~~fixed~~Companies Act ~~assets~~1985. ~~(43)~~Our ~~(361)~~audit ~~Purchases~~work ofhas ~~fixed~~been ~~asset~~undertaken ~~investments~~so ~~(20)~~that ~~(342)~~we might ~~Sales~~state ofto ~~fixed~~the ~~asset~~Company’s ~~investments~~members 3those ~~334~~matters ~~Sales~~we are ofrequired ~~tangible~~to ~~fixed~~state ~~assets~~to 30them ~~173~~in ~~--------~~an ~~--------~~auditors’ ~~(30)~~report and ~~(196)~~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.

~~2003~~Respective ~~2002~~responsibilities ~~POUND Pound STERLING Sterling DISCONTINUED OPERATIONS MILLION million ----------------------- -------- -------- Investments in subsidiary companies (3) (37) Investments in joint ventures - (65) Sales~~ of ~~interests~~directors ~~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 ======== ========~~auditors

~~2003~~As ~~2002~~described ~~POUND~~in ~~Pound~~the ~~STERLING~~statement ~~Sterling~~of ~~DISCONTINUED~~directors’ responsibilities, ~~OPERATIONS~~the ~~MILLION~~Company’s ~~million~~directors ~~-----------------------~~are responsible ~~--------~~for ~~--------~~the ~~Deposits~~preparation ~~made~~of ~~with~~the ~~banks and similar~~ financial statements ~~institutions~~in ~~(169)~~accordance ~~(4,241)~~with ~~Deposits~~applicable ~~withdrawn~~United ~~from~~Kingdom law ~~banks~~ and ~~similar~~accounting ~~financial~~standards. ~~institutions~~Our 8responsibility ~~4,378~~is ~~Purchases~~to audit ofthe ~~securities~~financial ~~issued~~statements byin ~~banks~~accordance ~~and~~with relevant ~~other~~United ~~corporate~~Kingdom ~~bodies~~legal -and ~~(51)~~regulatory requirements ~~Sales of securities issued by banks~~ and ~~other~~auditing ~~corporate bodies - 100 -------- -------- (161) 186 ======== ========~~standards.

~~2003~~We ~~2002~~report ~~POUND~~to ~~Pound~~you ~~STERLING~~our ~~Sterling~~opinion ~~DISCONTINUED~~as ~~OPERATIONS~~to ~~MILLION~~whether ~~million~~the ~~-----------------------~~financial statements ~~--------~~give ~~--------~~a ~~(Decrease)/increase~~true inand ~~bank~~fair ~~loans~~view ~~(63)~~and ~~1,273~~are ~~Decrease~~properly prepared in ~~debenture~~accordance ~~loans~~with -the ~~(90)~~Companies ~~Decrease~~Act 1985. We also report if, in ~~bonds~~our -opinion, ~~(209)~~the ~~Capital~~directors’ ~~element~~report ofis not ~~finance~~consistent ~~lease~~with ~~repayments~~the ~~(1)~~financial ~~(2)~~statements, ~~--------~~if ~~--------~~the Company ~~(64)~~has ~~972~~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.

~~Acquisitions/~~We ~~disposals~~read ~~(excluding~~the ~~Other~~directors’ ~~Exchange~~report ~~At 1 April cash~~ and ~~non-cash~~the ~~rate~~other information Atcontained 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~~the ~~1,309~~annual ~~(345)~~report -for -the above ~~(29) 935 Overdrafts (107) 83 - - 2 (22) --------- (262) ========= Liquid resources 65 161 - - - 226 --------- Amounts falling due within one~~ year ~~---------~~as ~~Bank~~described ~~loans~~in ~~(2,288)~~the 59contents 22section ~~(115)~~and consider ~~149~~the ~~(2,173)~~implications ~~Bonds~~for -our -report -if ~~(1,771)~~we become 9aware ~~(1,762)~~of ~~Unsecured~~any ~~debenture~~apparent ~~loans~~misstatements ~~(32)~~or material -inconsistencies -with 31the 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) ========== ========= ============= ======== ========== ===========financial statements.

~~2003~~Basis 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~~audit 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) ======== ========opinion

~~Marconi~~We ~~Marconi~~conducted ~~Applied~~our ~~Mobile~~audit ~~Technologies~~in ~~Holdings~~accordance ~~2003~~with ~~2002~~United ~~Group~~Kingdom auditing ~~S.p.A.~~standards ~~Other~~issued ~~TOTAL~~by ~~Total~~the ~~Pound~~Auditing ~~Pound~~Practices Board. ~~Pound~~An ~~POUND~~audit ~~Pound~~includes ~~Sterling~~examination, ~~Sterling~~on ~~Sterling~~a ~~STERLING~~test ~~Sterling~~basis, of ~~million~~evidence ~~million~~relevant ~~million~~to ~~MILLION~~the ~~million~~amounts ~~------------~~and ~~--------~~disclosures ~~--------~~in the ~~--------~~financial ~~--------~~statements. ~~Net~~It ~~assets~~also ~~sold~~includes ~~Tangible~~an ~~fixed~~assessment of ~~assets~~the 18significant 38estimates ~~19 75 452 Investments in joint ventures~~ and ~~associates~~judgements -made -by -the directors -in 97the ~~Inventory~~preparation 23of ~~191~~the 35financial ~~249~~statements and ~~240~~of ~~Debtors~~whether 19the ~~264~~accounting 35policies ~~318~~are ~~536~~appropriate to ~~Net~~the ~~cash/(overdrafts)~~circumstances 2of ~~(17)~~the 2Company ~~(13) 316 Borrowings (excluding overdrafts) - (17) (5) (22) - Taxation - (3) (1) (4) - Creditors~~ and ~~provisions~~the (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 1Group,~~158~~ consistently ~~============~~applied ~~======== ======== ======== ======== Accounted for by: Cash consideration 48 338 8 394 1,443 Deferred consideration~~ and ~~accrued~~adequately transaction costs - - (1) (1) (76) Shares received - - - - 263 ------------ -------- -------- -------- -------- Profit/(loss) on disposal 4 (39) - (35) 472 ============ ======== ======== ======== ========disclosed.

ATWe 31planned ~~MARCH~~and ~~2003~~performed Atour 31audit ~~March~~so ~~2002~~as ~~AVERAGE~~to ~~ASSUMPTIONS~~obtain ~~USED UK (% PA) REST OF THE WORLD (% PA) UK (% pa) Rest of~~ all the ~~world~~information (%and ~~pa)~~explanations ~~------------------------~~which ~~---------~~we ~~------------------------~~considered necessary ~~--------- ------------------------ Rate of general increase~~ in ~~salaries~~order ~~4.50%~~to ~~4.17%~~provide ~~4.75%~~us ~~4.23%~~with ~~Rate~~sufficient evidence ofto ~~increase~~give inreasonable ~~pensions~~assurance inthat ~~payment~~the financial ~~2.50%~~statements ~~1.50%~~are ~~2.75%~~free ~~1.50%~~from ~~Rate~~material misstatement, ofwhether ~~increase~~caused ~~for~~by ~~deferred~~fraud ~~pensioners~~or ~~2.50%~~other irregularity ~~N/A~~or 2error.~~75%~~ ~~N/A~~In ~~Rate~~forming ofour 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 65opinion, ~~N/A~~we 6%also evaluated ~~pre~~the ~~65,~~overall ~~7.5%~~adequacy ~~post~~of ~~65,~~the ~~REDUCING~~presentation TOof information 6%in ~~AFTER~~the ~~2012~~financial reducing to 5% after 2005 --------- ------------------------ --------- ------------------------ Expected prescription drug trend rates N/A 15% REDUCING TO N/A N/A 6% AFTER 2012 ========= ======================== ========= ========================statements.

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) ======== ========Opinion

~~VALUE~~In ATour ~~Value~~opinion atthe ~~LONG-TERM~~financial 31statements ~~MARCH~~give ~~Long-term~~a 31true and ~~March~~fair ~~EXPECTED~~view ~~2003~~of ~~expected~~the ~~2002~~state ~~RATE~~of OFaffairs ~~POUND rate~~ of ~~Pound~~the ~~RETURN~~Company and ~~STERLING~~the ~~return~~Group ~~Sterling~~as %at ~~MILLION~~31 %March 2005 ~~million~~and ~~---------~~of the ~~--------~~result --------- -------- 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~~the ~~liabilities~~Group ~~(263)~~for ~~(259)~~the ~~--------~~year ~~--------~~then ~~Net~~ended 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 have ~~net~~been ~~pension~~properly ~~liability~~prepared ~~before~~in ~~deferred~~accordance ~~tax~~with ~~(29)~~the Companies ~~(38)~~Act ~~Deferred tax asset - 9 -------- -------- Net pension liability after deferred tax (29) (29) ======== ========~~1985.

~~2003~~Deloitte ~~2002~~& ~~POUND~~Touche ~~STERLING~~LLP Chartered ~~MILLION~~Accountants ~~Pound~~and ~~Sterling~~Registered 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 ========== =========== ========== ===== ========== =========== ========== =====Auditors Birmingham

~~2003~~Consolidated ~~2002~~profit 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)~~loss 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 ========== =========== ========== ===== ========== =========== ========== =====account

~~2003~~For ~~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)~~ended ~~(81)~~31 (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) ========== =========== ========== ===== ========== =========== ========== =====March 2005


							2005						2004
	Note			£000			£000			£000			£000

Turnover

Group — Discontinued operations		2			—						168,000

		3						—						168,000
Operating loss
Group operating loss — Discontinued operations
Excluding goodwill amortisation and exceptional items					—						(37,946	)
Goodwill amortisation					—						(13,210	)
Operating exceptional items		5	a		—						(1,971	)
Other operating expenses					(226	)					—

		4						(226	)					(53,127	)

Group and joint venture operating loss before goodwill amortisation and exceptional items		3						(226	)					(38,205	)

Operating loss		3						(226	)					(53,127	)
Non-operating exceptional items
Gains on disposal of business		5	b					—						2,582,000
Net interest receivable		6						411						6,000
Net finance income
Group excluding exceptional items		7						—						21,000

Profit on ordinary activities before taxation		2–5						185
Excluding goodwill amortisation and exceptional items					—						(11,000	)
Goodwill amortisation and exceptional items					—						2,566,873

								—						2,555,873
Tax charge on profit on ordinary activities
Excluding tax on goodwill amortisation and exceptional items		8	a					(185	)					(1,000	)

Profit on ordinary activities after taxation								—						2,554,873

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% ========== =========== ========== ===== ========== =========== ========== =====~~

~~GROUP~~Consolidated ~~COMPANY~~balance --------------------------- --------------------------- 2003 2002 2003 2002 POUND Pound POUND Pound STERLING Sterling STERLING Sterling MILLION million MILLION million -------- -------- -------- -------- Contingent liabilities at year end 20 10 - - ======== ======== ======== ========sheet

~~GROUP~~As COMPANY --------------------------- --------------------------- 2003 2002 2003 2002 POUND Pound POUND Pound STERLING Sterling STERLING Sterling MILLION million MILLION million -------- -------- -------- -------- Commitments contracted at ~~year~~31 ~~end 4 3 - - ======== ======== ======== ========~~March 2005

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 - - ======== ======== ======== ========


			2005			2004
	Note		£000			£000

Current assets
Debtors: amounts falling due within one year		12		136			90
Cash at bank and in hand		13		8,130			8,882

				8,266			8,972
Creditors: amounts falling due within one year		14		(414	)		(1	)

Net current assets				7,852			8,971

Total assets less current liabilities				7,852			8,971
Provisions for liabilities and charges				(7,852	)		(8,971	)

Net assets before retirement benefit surpluses and deficits		20		—			—

Net assets after retirement benefits surpluses and deficits				—			—


Capital and reserves
Called up equity share capital		16		139,651			139,651
Share premium account		16		506,349			506,349
Profit and loss account		16		(646,000	)		(646,000	)

Equity shareholders’ interests				—			—

~~GROUP~~These ~~COMPANY~~financial ~~---------------------------~~statements ~~---------------------------~~were ~~2003~~approved ~~2002~~by ~~2003~~the ~~2002~~Board ~~POUND~~of ~~Pound~~directors ~~POUND~~on ~~Pound~~30 ~~STERLING~~September ~~Sterling STERLING Sterling MILLION million MILLION million -------- -------- -------- -------- Audit services 1 2 - - Audit-related services 13 4 - - Tax services~~ and ~~other~~were ~~compliance~~signed on ~~work~~its 2behalf ~~2 - - Business support and other services 1 3 - - -------- -------- -------- -------- 17 11 - - ======== ======== ======== ========~~by:

R A Robinson
Director

Company balance sheet

As at 31 March 2005


			2005			2004
	Note		£000			£000

Fixed assets
Investments		11		—			—
Current assets
Debtors: amounts falling due within one year		12		136			90
Cash at bank and in hand		13		8,130			8,871

				8,266			8,961
Creditors: amounts falling due within one year		14		(425	)		(1	)

Net current assets				7,841			8,960

Total assets less current liabilities				7,841			8,960
Provisions for liabilities and charges				(7,841	)		(8,960	)

Net assets before retirement benefit surpluses and deficits		20		—			—

Net assets after retirement benefits surpluses and deficits				—			—


Capital and reserves
Called up equity share capital		16		139,651			139,651
Share premium account		16		506,349			506,349
Profit and loss account		16		(646,000	)		(646,000	)

Equity shareholders’ interests				—			—

These financial statements were approved by the Board of directors on 30 September and were signed on its behalf by:

R A Robinson
Director

Consolidated cash flow statement

For the year ended 31 March 2005


			2005			2004
	Note		£000			£000

Net cash (outflow)/inflow from operating activities before exceptional items		17a		(967	)		39,000
Exceptional cash flows from operating activities		5c		—			(55,000	)

Net cash outflow from operating activities after exceptional items:
Discontinued operations				(967	)		(16,000	)

Returns on investments and servicing of finance		17b		411			3,000
Tax paid		17c		(185	)		(1,000	)
Capital expenditure and financial investment		17d		—			(5,000	)
Acquisitions and disposals		17e		—			(568,000	)

Cash outflow before management of liquid resources and financing				(741	)		(587	)

Net cash inflow from management of liquid resources		17f		—			14,000
Net cash outflow from financing				—			(333,000	)
Net cash outflow from changes in debt and lease financing		17g		—			(1,000	)

Decrease in cash and net bank balances repayable on demand				(741	)		(907,000	)

Consolidated statement of total recognised gains and losses

For the year ended 31 March 2005


	2005		2004
	£000		£000

Profit on ordinary activities attributable to the shareholders
Group		—		2,554,873
Exchange differences on translation: Group		—		(12,000	)

Total recognised gains and losses		—		2,542,873

Reconciliation of movements in equity shareholders’ interests

For the year ended 31 March 2005


	2005		2004
	£000		£000

Total recognised gains and losses		—		2,542,873

Total movement in the year		—		2,542,873
Equity shareholders’ interests at 1 April		—		(2,542,873	)

Equity shareholders’ interests at the end of year		—		—

Reconciliation of net cash flow to movements in net monetary funds/(debt)

For the year ended 31 March 2005


			2005			2004
	Note		£000			£000

Decrease in cash and net bank balances repayable on demand				(741	)		(907,000	)
Net cash inflow from management of liquid resources				—			(14,000	)
Net cash outflow from changes in debt and lease financing				—			1,000

				(741	)		(920,000	)
Net debt acquired with subsidiaries				—			(173,000	)
Other non-cash changes				—			3,918,000
Effect of foreign exchange rate changes				—			10,000

Movement in net monetary debt in the year				(741	)		2,835,000
Net monetary funds/(debt) at 1 April		18		8,871			(2,826,129	)

Net monetary funds at the end of the year		18		8,130			8,871

Notes

Forming part of the financial statements

1 Restructuring

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. Therefore the Company ceased to be the ultimate holding company of the Marconi Group on 19 May 2003 and 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 the Marconi Group for nil proceeds. This resulted in a gain of £3,386 million on the transfer of ownership of Marconi Group being equivalent to its consolidated net liabilities. On the same date, the scheme of arrangement of Marconi Corporation plc came into effect resulting in an £804 million receivable from the Marconi Group being waived by the Company and its subsidiary undertakings.

Pursuant to 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.

Consequently, the Group after 19 May 2003 consists of the Company and its subsidiaries, Ancrane, M Antsy Limited, M Nominees Limited, Photoniqa Limited and Yeslink Unlimited.

2 Accounting policies

The financial statements have been prepared in accordance with accounting standards applicable in the UK.

The more important 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 accounting convention.

Basis of consolidation

The financial statements consolidate the accounts of the Company 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 2005.

Turnover

Prior to the financial restructuring, 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, the Group’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

Prior to the financial restructuring, 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

2005

2004

2005

2004

US dollar

1.8449

1.7023

1.8896

1.8379

Euro

1.4669

1.4435

1.4540

1.4956

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.

Notes continued

2 Accounting policies continued

Acquisitions and disposals

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.

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 by financing in the related currency.

Exchange gains or losses arising on the hedging borrowings are dealt with as movement in reserves, to the extent they offset losses or gains on the hedged investment.

Equity forward contracts

The Group has established three trusts for the purchase of shares and share-related instruments for the benefit of employees — the Marconi Employee Trust (MET), the GEC Employee Share Trust and the GEC Special Purpose Trust. These trusts from the 19 May 2003 are consolidated in the financial statements of the Marconi Corporation plc group.

The independent trustee of the MET, Bedell Cristin Trustees Limited (BCTL), entered into contracts (the Equity Forward Contracts) to hedge the potential cost of the Group’s share plans. These contracts were closed out on 19 May 2003. The agreed settlement amount of £35 million was classified as a provision within the Group’s balance sheet at 31 March 2003 and utilised in the year ended 31 March 2004.

Interest rate risk exposure

Prior to the financial restructuring, 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.

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

Unlisted fixed asset investments are stated at cost less provision for impairment in value.

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.

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 2004 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.

2 Accounting policies continued

Finance costs

Prior to the financial restructuring, 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.

3 Segmental information

Analysis of results and net assets/(liabilities) by class of business


	Profit/(loss) before tax						Turnover				( Net assets/(liabilities)
	2005			2004			2005		2004		2005		2004
	£000			£000			£000		£000		£000		£000

Discontinued operations		—			(37,946	)		—		168,000		—		—

Goodwill and goodwill amortisation		—			(13,210	)						—		—
Operating exceptional items (note 5a)		—			(1,971	)						—		—
Other operating expenses		(226	)		—							—		—

Operating profit/(loss)		(226	)		(53,127	)						—		—
Non-operating exceptional items (note 5b)		—			2,582,000							—		—
Net interest receivable/(payable) and interest bearing assets and liabilities		411			6,000							—		—
Net finance income/(expenditure)		—			21,000							—		—

Group operating profit		185			2,555,873							—		—

The Group previously divided its business into two segments: Core and Capital.

Capital comprises the businesses the Group managed for value and ultimately for disposal.

Goodwill arising on acquisitions was amortised over a period not exceeding 20 years. Separate components of goodwill were identified and amortised over the appropriate useful economic life.

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
	2005		2004		2005		2004
	£000		£000		£000		£000

Capital and disposed business (including joint ventures)		—		42,000		—		126,000

Analysis of turnover by territory of destination


	2005		2004
	£000		£000

United Kingdom		—		42,000
The Americas		—		55,000
Rest of Europe		—		58,000

Africa, Asia and Australasia		—		13,000

		—		168,000

Analysis of segment turnover by product grouping


	2005		2004
	£000		£000

Capital and disposed businesses		—		168,000

Notes continued

3 Segmental information continued

Analysis of operating loss before goodwill amortisation and exceptional items, turnover and net assets by territory of origin


	Operating loss						Turnover				Net assets/(liabilities)
	2005			2004			2005		2004		2005		2004
	£000			£000			£000		£000		£000		£000

United Kingdom		(226	)		(20,103	)		—		58,000		—		—
The Americas		—			1,055			—		62,000		—		—
Rest of Europe		—			(17,059	)		—		34,000		—		—
Africa, Asia and Australasia		—			(2,098	)		—		14,000		—		—

		(226	)		(38,205	)		—		168,000		—		—

4 Group operating loss

Year to 31 March 2005

Pre-

exceptional

Exceptional

items

Discontinued

£000

Turnover

—

Cost of sales

—

Gross profit

—

Selling and distribution expenses

—

Administrative expenses — other

(226

)

—

(226

)

Research and development

—

Goodwill amortisation

—

Administrative expenses — total

(226

)

—

(226

)

Other operating expenses

—

Operating loss

(226

)

—

(226

)


	Year to 31 March 2004
	Pre-
	exceptional			Exceptional
	items			items			Discontinued
	£000			£000			£000


Turnover		168,000			—			168,000
Cost of sales		(137,000	)		1,000			(136,000	)


Gross profit		31,000			1,000			32,000
Selling and distribution expenses		(26,946	)		—			(26,946	)

Administrative expenses — other		(12,000	)		(2,971	)		(14,971	)
Research and development		(30,000	)		—			(30,000	)
Goodwill amortisation		(13,210	)		—			(13,210	)

Administrative expenses — total		(55,210	)		(2,971	)		(58,181	)


Operating loss		(51,156	)		(1,971	)		(53,127	)

Exceptional items are shown in further detail in note 5.

The Group ceased to own Marconi Corporation plc and its subsidiaries on 19 May 2003, all activities have been treated as discontinued. Further information on disposals is provided in note 19(b).

5 Exceptional items

These charges have been analysed as follows:

a Operating exceptional items


			2005		2004
			£000		£000

Restructuring costs included in cost of sales		(i)		—		1,000
Impairment of goodwill and tangible fixed assets	(ii)			—		2,029
Restructuring and reorganisation costs	(iii)			—		(5,000	)

Total operating exceptional items (excluding associates)				—		(1,971	)

(i) In the year ended 31 March 2004 £1 million was credited to restructuring costs. This related to the outsource of certain manufacturing operations.

(ii) In the year ended 31 March 2004 £2 million was released to the profit and loss account in relation to onerous contracts representing certain liabilities to which the Group was committed as a result of operational restructuring.

(iii) In the year ended 31 March 2004 as part of the Group’s cost reduction actions, a charge of £5 million was recorded.

Analysis by segment


	2005		2004
	£000		£000

Capital and disposed businesses		—		(1,971	)

United Kingdom		—		(1,971	)
The Americas		—		—
Rest of Europe		—		—
Africa, Asia and Australasia		—		—

		—		(1,971	)

b Non-operating exceptionals


	2005		2004
	£000		£000

Gain/(loss) on disposal of businesses		—		2,582,000

Included in non-operating exceptional items		—		2,582,000

c Exceptional cash flows


	2005		2004
	£000		£000

Operating
ESOP settlement		—		(35,000	)
Restructuring		—		(20,000	)

		—		(55,000	)

Non-operating
Scheme consideration		—		(333,000	)

Notes continued

6 Net interest receivable


	2005		2004
	£000		£000

Interest receivable
Loans and deposits		363		6,000
Foreign exchange gain		48		—

Interest receivable		411		6,000

7 Net finance income/(expenditure)


	2005		2004
	£000		£000

Finance costs
Interest on pension scheme liabilities (see note 20)		—		(19,000	)

Finance income
Gain on unhedged foreign exchange borrowings		—		22,000
Expected return on pension scheme assets (note 20)		—		18,000

Finance income		—		40,000

Net finance income/(expenditure)		—		21,000

8 Taxation

a Analysis of charge in period


	2005		2004
	£000		£000

UK corporation tax
Corporation tax at 30% (31 March 2004: 30%)		123		—
UK under provision in respect of prior years		62		—
Overseas current tax on income		—		1,000

		185		1,000

Deferred taxation
Changes arising from:
Timing differences — origination and reversal		—		—
Estimated recoverable amount of deferred tax assets		—		—

Total current tax		185		1,000

b Reconciliation of current taxation charge for the year


	2005		2004
	£000		£000

Profit before tax		185		2,555,873

Tax charge on profit a standard rate of 30% (31 March 2004: 30%)		56		766,762
Non deductible goodwill impairment, amortisation and other similar items		—		(765,762	)
Expenses not deductible for tax purposes		67		—
Net under provision for prior years		62		—

Current tax charge for the year		185		1,000

The standard rate is calculated based on the locally enacted statutory rates in the jurisdictions in which the Group operates.

c Factors that may affect future tax charges

There are no factors which may affect future tax charges.

9 Equity dividends

The directors do not propose any dividends for the year ending 31 March 2005. No dividends were declared during the year to 31 March 2004.

10 Employees

a Directors’ remuneration


	2005		2004
	£000		£000

Directors emoluments		48		338
Company contributions to money purchase pension schemes		—		61
Amounts paid to third parties in respect of directors’ services		—		7

The aggregate of emoluments of highest paid director were £23,834 (31 March 2004: £113,000). None of the directors received any compensation in the fiscal year 2005 in respect of any pension or defined benefit scheme.

b Average monthly number of employees by sector


	2005		2004
	Number		Number

Capital and disposed businesses		—		2
Group employees		—		2

c Staff costs


	2005		2004
	£000		£000

Wages and salaries		—		73,000
Social security costs		—		10,000
Other pension costs		—		1,000

		—		84,000

United Kingdom		—		27,000
The Americas		—		27,000
Rest of Europe		—		25,000
Africa, Asia and Australasia		—		5,000

		—		84,000

d Share options

At 31 March 2005 options were still outstanding in respect of the Company’s ordinary shares of 5p under the Company’s options schemes:


							Date
	Number		Amount		Subscription		normally
	of shares		of shares		price		exercised

The Marconi Launch Share Plan		19,589,228		1.0		—		2002—2006
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 Marisposa Technology, Inc 1988 Employee Incentive Plan		320,684		—		9—56p		2002—2010
Long Term Incentive Plan		61,963		—		—		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 subsidiaries are set out in the directors’ report.

Notes continued

11 Fixed asset investments


	Interests in
	associated
	undertakings
	£000

Group
Cost
At beginning and end of the year		—

Net book value
As at 31 March 2005		—

As at 31 March 2004		—

Class and

percentage

Country of

Principal

of ordinary

Undertakings

incorporation

activity

shares held

Ancrane

England and Wales

Non-trading

100

M Ansty Limited

England and Wales

Dormant

100

M Nominees Limited

England and Wales

Dormant

100

Photoniqa Limited

England and Wales

Dormant

100

Yeslink Unlimited*

England and Wales

Dormant

100


*		Yeslink Unlimited is a subsidiary of Photoniqa Limited

GEC Reconstructions Limited was dissolved in June 2004 and is therefore no longer classed as an investment. (2004: GEC Reconstructions Limited was a 50% investment.)

12 Debtors

Group

Company

2005

2004

2005

2004

£000

£000

£000

£000

Amounts falling due within one year:

Other debtors

136

13 Cash at bank and in hand


	Group				Company
	2005		2004		2005		2004
	£000		£000		£000		£000

Cash at bank and in hand		8,130		8,882		8,130		8,871

14 Creditors


	Group				Company
	2005		2004		2005		2004
	£000		£000		£000		£000

Accruals		229		1		229		1
Taxation		185		—		185		—
Amounts owed to group companies		—		—		11		—

		414		1		425		1

15 Provisions for liabilities and charges


	Other		Total
	£000		£000

At 1 April 2004	8,960		8,960
Utilised	(1,108	)	(1,108	)

At 31 March 2005	7,852		7,852

a Maturity of provisions for liabilities and charges is as follows:


	At 31 March
	2005
	£000

Within one year		700
In second to fifth years		7,152

		7,852

The provision at 31 March 2005 covers the estimated costs relating to the scheme of arrangement.

16 Equity shareholders’ interests
a Share capital


	Number of shares		£

Fully paid ordinary shares of 5p each
Shares allotted at 1 April 2004		2,793,011,951		139,650,598

Shares allotted at 31 March 2005		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


	Share				Profit and
	premium		Capital		and loss
	account		reserves		account			Total
	£000		£000		£000			£000

At 1 April 2004 and 31 March 2005		506,349		—		(646,000	)		(139,651	)

The amount in the profit and loss reserve relating to the defined benefit liability is £nil (31 March 2004: £nil liability).

c Company reserves

Profit and

premium

and loss

account

Total

£000

£000

At 1 April 2004 and 31 March 2005

506,349

(646,000

)

(139,651

)

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 profit of the Company for the financial year amounted to £nil (2004: profit £162 million).

Notes continued

17 Cash flow

a Net cash inflow from operating activities


	2005			2004
	£000			£000

Discontinued operations
Group operating loss after exceptionals		(226	)		(53,127	)
Operating exceptionals		—			1,971

Group operating loss before exceptionals		(226	)		(51,156	)
Depreciation charge		—			10,000
Goodwill amortisation		—			13,210
Decrease in stock		—			1,000
(Increase)/decrease in debtors		(46	)		100,000
Increase/(decrease) in creditors		413			(26,054	)
Decrease in provisions		(1,108	)		(8,000	)

		(967	)		39,000

b Returns on investments and servicing of finance


	2005		2004
	£000		£000

Discontinued operations
Income from loans, deposits and investments		—		4,000
Interest received		411		—
Interest paid		—		(1,000	)

		411		3,000

c Tax paid


	2005			2004
	£000			£000

Discontinued operations
UK corporation tax repaid		(185	)		—
Overseas tax paid		—			(1,000	)

		(185	)		(1,000	)

d Capital expenditure and financial investment


	2005		2004
	£000		£000

Discontinued operations
Purchases of tangible fixed assets		—		(5,000	)

e Acquisitions and disposals


	2005		2004
	£000		£000

Discontinued operations
Net overdraft disposed with subsidiary companies		—		(568,000	)

f Net cash inflow from management of liquid resources

Comprising term deposits generally of less than one year and other readily disposable current asset investments


	2005		2004
	£000		£000

Discontinued operations
Deposits withdrawn from banks and similar financial institutions		—		14,000

g Net cash outflow from financing


	2005		2004
	£000		£000

Discontinued operations
Decrease in bank loans		—		(1,000	)

18 Analysis of net monetary debt


						Acquisitions/
						disposals		Non-cash
						(excluding		changes re		Other		Exchange
	At 1 April					cash and		scheme of		non-cash		rate		At 31 March
	2004		Cash flow			overdrafts)		arrangement		changes		adjustment		2005
	£000		£000			£000		£000		£000		£000		£000

Cash at bank and in hand		8,871		(741	)		—		—		—		—		8,130
Overdrafts		—		—			—		—		—		—		—

Liquid resources		—		—			—		—		—		—		—

Amounts falling due within one year
Bank loans		—		—			—		—		—		—		—
Bonds		—		—					—		—		—		—
Finance leases		—		—			—		—		—		—		—
Amounts falling due after more than one year
Bank loans		—		—			—		—		—		—		—

Finance leases		—		—			—		—		—		—		—


		8,871		(741	)		—		—		—		—		8,130

19 Acquisitions and disposals

a Investments in subsidiary companies

No subsidiaries were acquired in the year ended 31 March 2005. GEC Reconstructions Limited was dissolved in March 2004.

b Sales of interests in subsidiaries


	2005		2004
	Marconi		Marconi
	Corporation		Corporation
	Group		Group
	£000		£000

Net (liabilities)/assets sold:
Tangible fixed assets		—		232,000
Investments in joint ventures, associates and other investments		—		64,000
Inventory		—		237,000
Debtors		—		526,000
Net cash/(overdrafts)		—		1,117,000
Borrowings (excluding overdrafts)		—		(4,722,222	)
Taxation		—		—
Creditors and provisions		—		(1,062,000	)
Finance lease creditors		—		(3,000	)
Goodwill		—		580,000
Minority interests		—		(3,000	)
Retirement benefit deficit		—		(352,000	)

		—		(3,386,222	)

Accounted for by:
Amounts waived on scheme of arrangement		—		804,222

Profit on disposal		—		2,582,000

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 the Marconi Group for nil proceeds. This resulted in a gain of £3,386 million on the transfer of ownership of Marconi Corporation plc being equivalent of its consolidated net liabilities. On the same date, the scheme of arrangement of Marconi Corporation plc came into effect resulting in £804 million receivable from the Marconi Group being waived by the Company and its subsidiary undertakings.

Notes continued

20 Post retirement benefits

On 19 May 2003 the Company and its then subsidiary, Marconi Corporation plc, entered into schemes of arrangement, as described in note 1. As a result of this, the pension schemes are not part of the M (2003) plc Group as at 31 March 2005. Further, the pension schemes have always been, and remain, liabilities of the Marconi Group.

The Marconi businesses previously held by the Group operated defined benefit pension plans in the UK, US and Europe, and post retirement benefit plans in the US. The most significant plan is the GEC 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 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 £nil (31 March 2004: £2 million). For the unfunded pension plans and the post retirement medical plans, payments are made when the benefits are provided.

The Group assumptions used by the actuaries to determined the liabilities on a FRS 17 basis at 31 March 2003 for the significant defined benefit plans are set out below:

As at 19 May 2003 the actuarial assumptions were unchanged from 31 March 2003.


	At 31 March 2003
Average assumptions used	UK (% pa)			Rest of the world (% pa)

Rate of general increase in salaries		4.50	%		4.17	%
Rate of increase in pensions in payment		2.50	%		1.50	%
Rate of increase for defined pensioners		2.50	%		N/A
Rate of credited interest		4.00	%		N/A
Discount rate applied to liabilities		5.25	%		6.00	%
Inflation assumption		2.50	%		2.22	%
Expected healthcare trend rates		N/A		12% pre and post 65, reducing to 6% after 2012
Expected prescription drug trend rates		N/A		15% reducing to 6% after 2012

The UK Plan provided benefits to members on the best of three bases. One of the bases was a money purchase underpin in which credited interest was applied to a percentage of members’ contributions. The practice was revised further between 31 March 2002 and 31 March 2003. The discretionary level of credited interest has been treated as a constructive obligation.

The assets in the UK Plan and the expected rates of return are:


	Long-term				Long-term				Long-term
	expected		Value at		expected		Value at		expected		Value at
	rate of		31 March		rate of		31 March		rate of		31 March
	return		2005		return		2004		return		2003
	%		£000		%		£000		%		£000

Equities		—		—		—		—		825		497,000
Bonds		—		—		—		—		4.84		1,702,000
Other		—		—		—		—		6.75		111,000
Cash		—		—		—		—		4.00		30,000

Total market value of assets		—		—		—		—		5.65		2,340,000

Present value of plan liabilities				—				—				(2,535,000	)

Net pension liability before deferred tax				—				—				(195,000	)

Deferred tax liability				—				—				—

Net pension liability after deferred tax				—				—				(195,000	)

20 Post retirement benefits continued

The assets in the overseas plans and the expected rates of return were:


	Long-term				Long-term				Long-term
	expected		Value at		expected		Value at		expected		Value at
	rate of		31 March		rate of		31 March		rate of		31 March
	return		2005		return		2004		return		2003
	%		£000		%		£000		%		£000

Equities		—		—		—		—		10.00		64,512
Bonds		—		—		—		—		6.00		59,303
Other		—		—		—		—		9.00		10,162

Total market value of assets		—		—		—		—		8.15		133,977

Present value of plan liabilities				—				—				(263,222	)

Net pension liability before deferred tax				—				—				(129,245	)

Deferred tax liability				—				—				—

Net pension liability after deferred tax				—				—				(129,245	)


	Value at		Value at		Value at
	31 March		31 March		31 March
	2005		2004		2003
	£000		£000		£000

Other post retirement benefits
Present value of plan liabilities and net pension liability before deferred tax		—		—		(29,083	)
Deferred tax asset		—		—		—

Net pension liability after deferred tax		—		—		(29,083	)

Analysis of the amount charged to operating loss


	2005								2004								2003
			Rest of		Post						Rest of		Post						Rest of		Post
	UK		the world		retirement				UK		the world		retirement				UK		the world		retirement
	pension		pension		medical				pension		pension		medical				pension		pension		medical
	plan		plans		plans		Total		plan		plans		plans		Total		plan		plans		plans			Total
	£000		£000		£000		£000		£000		£000		£000		£000		£000		£000		£000			£000

Current service cost		—		—		—		—		2,000		1,000		—		3,000		24,000		10,000		—			34,000
Past service cost		—		—		—		—		—		—		—		—		—		—		(1,000	)		(1,000	)

Total service costs		—		—		—		—		2,000		1,000		—		3,000		24,000		10,000		(1,000	)		33,000

Analysis of other amounts charged to profit and loss account


	2005								2004								2003
			Rest of		Post						Rest of		Post							Rest of			Post
	UK		the world		retirement				UK		the world		retirement				UK			the world			retirement
	pension		pension		medical				pension		pension		medical				pension			pension			medical
	plan		plans		plans		Total		plan		plans		plans		Total		plan			plans			plans			Total
	£000		£000		£000		£000		£000		£000		£000		£000		£000			£000			£000			£000

(Gain)/loss on settlements		—		—		—		—		—		—		—		—		—			(32,873	)		—			(32,873	)
Gain on curtailments		—		—		—		—		—		—		—		—		(19,100	)		2,728			(4,900	)		(21,272	)

Net (gain)/loss charged to
profit and loss account		—		—		—		—		—		—		—		—		(19,100	)		(30,145	)		(4,900	)		(54,145	)

Of the amounts above £nil (2004: £nil) was credited to non-operating items and £nil (2004: £nil) was debited to operating profit.

Notes continued

20 Post retirement benefits continued

Analysis of the amount credited to other finance income


	2005								2004											2003
			Rest of		Post							Rest of			Post								Rest of			Post
	UK		the world		retirement				UK			the world			retirement					UK			the world			retirement
	pension		pension		medical				pension			pension			medical					pension			pension			medical
	plan		plans		plans		Total		plan			plans			plans		Total			plan			plans			plans			Total
	£000		£000		£000		£000		£000			£000			£000		£000			£000			£000			£000			£000

Expected return on pension scheme assets		—		—		—		—		(17,000	)		(1,000	)		—		(18,000	)		(144,100	)		(13,438	)		—			157,538
Interest on pension scheme liabilities		—		—		—		—		17,000			2,000			—		19,000			144,000			16,609			2,148			162,757

Total finance cost/(income)		—		—		—		—		—			1,000			—		1,000			(100	)		3,171			2,148			5,219

Net (income)/cost		—		—		—		—		2,000			2,000			—		4,000			4,900			(15,974	)		(3,752	)		(14,826	)

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)


	2005								2004								2003
			Rest of		Post						Rest of		Post							Rest of		Post
	UK		the world		retirement				UK		the world		retirement				UK			the world		retirement
	pension		pension		medical				pension		pension		medical				pension			pension		medical
	plan		plans		plans		Total		plan		plans		plans		Total		plan			plans		plans			Total
	£000		£000		£000		£000		£000		£000		£000		£000		£000			£000		£000			£000

Expected return less actual return on pension scheme assets losses		—		—		—		—		—		—		—		—		147,300			30,533		—			177,833
Experience losses and (gains) arising on the scheme liabilities		—		—		—		—		—		—		—		—		(4,000	)		3,446		(5,717	)		(6,271	)
Changes in assumptions underlying the present value of the scheme liabilities losses		—		—		—		—		—		—		—		—		66,000			24,041		8,172			98,213

Actuarial loss recognised in STRGL		—		—		—		—		—		—		—		—		209,300			58,020		2,455			269,775

The main element of the amount recognised in the STRGL in 2003 resulted from the difference between the actual rate of return and expected rate of return on the plans’ assets. Actual investment returns in the UK and US plans fell well below expected investment returns resulting in substantial asset losses.

The second largest element was gains and losses resulting from changes in assumptions underlying the present value of the plans’ liabilities. This resulted principally from the changes in assumptions used at each period end for the Plan. These changes in assumptions resulted in an increase in the present value of liabilities at 31 March 2003.

Movement in (deficit)/surplus during the year


	2005								2004												2003
			Rest of		Post							Rest of			Post									Rest of			Post
	UK		the world		retirement				UK			the world			retirement						UK			the world			retirement
	pension		pension		medical				pension			pension			medical						pension			pension			medical
	plan		plans		plans		Total		plan			plans			plans			Total			plan			plans			plans			Total
	£000		£000		£000		£000		£000			£000			£000			£000			£000			£000			£000			£000

(Deficit)/surplus at the beginning of the year		—		—		—		—		(195,000	)		(129,000	)		(29,000	)		(353,000	)		(7,000	)		(81,000	)		(38,000	)		(126,000	)
Movement in year:
Current service cost		—		—		—		—		(2,000	)		—			—			(2,000	)		(24,400	)		(10,349	)		—			(34,749	)
Past service cost		—		—		—		—		—			—			—			—			—			—			975			975
Contributions and benefit payments		—		—		—		—		1,000			1,000			—			2,000			25,500			7,068			3,998			36,566
Settlement gain		—		—		—		—		—			—			—			—			—			32,873			—			32,873
Curtailment gain/(loss)		—		—		—		—		—			—			—			—			19,100			(2,728	)		4,900			21,272
Other finance income/(charge)		—		—		—		—		—			—			—			—			—			(4,171	)		(2,148	)		(6,319	)
Actuarial loss		—		—		—		—		—			—			—			—			(209,300	)		(58,020	)		(2,455	)		(269,775	)
Foreign exchange		—		—		—		—		—			—			1,000			1,000			—			(13,000	)		3,000			(10,000	)
Transfer on scheme of arrangement		—		—		—		—		196,000			128,000			28,000			352,000			—			—			—			—

Deficit at the end of the year included in the Group account		—		—		—		—		—			—			—			—			(196,100	)		129,327			(29,730	)		(355,157	)

20 Post retirement benefits continued

The net (deficit) or surplus before deferred taxation is analysed by jurisdiction as follows:


	2005								2004								2003
			Rest of		Post						Rest of		Post							Rest of			Post
	UK		the world		retirement				UK		the world		retirement				UK			the world			retirement
	pension		pension		medical				pension		pension		medical				pension			pension			medical
	plan		plans		plans		Total		plan		plans		plans		Total		plan			plans			plans			Total
	£000		£000		£000		£000		£000		£000		£000		£000		£000			£000			£000			£000

Deficits		—		—		—		—		—		—		—		—		(195,000	)		(129,326	)		(28,730	)		(353,056	)

Net deficit at the end of the year		—		—		—		—		—		—		—		—		(195,000	)		(129,326	)		(28,730	)		(353,056	)

History of experience gains and losses


	2005								2004								2003
			Rest of		Post						Rest of		Post							Rest of			Post
	UK		the world		retirement				UK		the world		retirement				UK			the world			retirement
	pension		pension		medical				pension		pension		medical				pension			pension			medical
	plan		plans		plans		Total		plan		plans		plans		Total		plan			plans			plans			Total

Difference between the expected and actual return on scheme assets losses:
Amount (£000)		—		—		—		—		—		—		—		—		147,300			30,533			—			177,833
Percentage of scheme assets (%)		—		—		—		—		—		—		—		—		6.3	%		23.1	%		—			7.2	%
Amount (£000)		—		—		—		—		—		—		—		—		(4,000	)		3,446			(5,717	)		(6,271	)
Percentage of the present value of the scheme liabilities (%)		—		—		—		—		—		—		—		—		(0.2	)%		1.1	%		(20.7	)%		(0.3	)%
Total amount recognised in statement of total recognised gains and losses:
Amount (£000)		—		—		—		—		—		—		—		—		209,300			58,019			2,455			268,775
Percentage of the present value of the scheme liabilities (%)		—		—		—		—		—		—		—		—		8.2	%		22.1	%		6.9	%		9.5	%

21 Other information

a Contingent liabilities

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.

b Operating leases


	Group				Company
	2005		2004		2005		2004
	£000		£000		£000		£000

Charges in the year
Land and buildings		—		4,000		—		—
Other items		—		1,000		—		—

		—		5,000		—		—

c Fees paid to auditors


	Group				Company
	2005		2004		2005		2004
	£000		£000		£000		£000

Audit services		35		75		35		75

None of the above costs have been charged to expenditure in either 2005 or 2004.

Notice of meeting

Notice is hereby given that the ANNUAL GENERAL MEETING of M (2003) plc will be held at The New Connaught Rooms, 61—65 Great Queen Street, London WC2B 5DA on Monday, 5 December 2005 at 11.00am 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 2005. (Resolution 1)

2.		To reappoint Mr C J Shaw as a director of the Company. (Resolution 2)

3.		To reappoint Deloitte & Touche LLP as auditors of the Company. (Resolution 3)

4.		To authorise the directors to determine the auditors’ remuneration. (Resolution 4)

By Order of the Board
M (2003) plc

K D Smith

Company Secretary
8 Salisbury Square
London EC4Y 8BB

30 September 2005

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.		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 11.00am on 3 December 2005. Any subsequent changes to the Register shall be disregarded in determining the rights of any person to attend and vote at the meeting in person.

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.


M (2003) PLC
By:	/s/ K Smith
	Name:	K Smith

Date: October 28, 2005

Filing Compare · M 2003 PLC