One Bruton Street, London W1X 8AQ Marconi Telephone: +44 (0)20 7493 8484 Annual Report and Accounts 2000 www.marconi.com Transforming to communications and information Annual Report and Accounts 2000 10 Financial Highlights 11 Chairman’s Statement 12 Chief Executive’s Review 16 Group at a Glance 18 Review: Communications Networks 21 Review: Mobile Communications 22 Review: Communications Services 24 Review: Systems 27 Review: Capital 28 Finance Director’s Review 35 Directors 36 Corporate Governance 38 Directors’ Report 41 Report to Shareholders by the Board on Directors’ Remuneration 46 Directors’ Statement on Internal Financial Control 46 Directors’ Responsibilities for the Financial Statements 47 Auditors’ Report 48 Accounting Policies 50 Consolidated Profit and Loss Account 51 Balance Sheets 52 Cash Flow Statement 52 Reconciliation of Net Cash Flow to Movement in Net Monetary (Debt)/Funds 53 Statement of Total Recognised Gains and Losses 53 Reconciliation of Movements in Shareholders’ Funds 54 Notes to the Accounts 76 Principal Subsidiaries and Associated Companies 77 Statutory Information on Associated Companies 78 Statistical Information 1996/2000 79 Information for Shareholders Cover photo: The 8 workstations in our advanced Network Operations Centre in Pittsburgh, US can manage remotely up to 32 communications networks for customers around the world For more information on Marconi, Designed and produced by Merchant with Langsford Corporate Design please visit our website: www.marconi.com Printed by CTD Marconi Annual Report and Accounts 2000 2 Optical networks delivering vast, flexible communications capacity… medical scans captured and transmitted around the globe… digital codes to tag and track millions of products… communications and applications services to take our customers into the future. Bandwidth, data and knowledge services that allow people to communicate better… faster… to any business… anywhere… at any time. Solutions and products that capture information and make it valuable. Here’s what we see ahead… Marconi Annual Report and Accounts 2000 1 Seizing the Opportunity Marconi is pursuing a once-in-a-lifetime opportunity to transform communications and knowledge management.The moment is unique because right now, the landscape of communications and information is being transformed beyond recognition. 2 Marconi Annual Report and Accounts 2000 Change is being driven by four profited were the ones who supplied the The new opportunity in data overwhelming trends prospectors with the picks, shovels and maps. As the full implications of exploding ● The Internet keeps booming. It’s doubling That is Marconi’s starting position. We bandwidth become clear, data anywhere and redoubling in almost every measure supply the picks, shovels and maps to harness will become data everywhere, and data – traffic, subscribers, applications and the power of bandwidth and information. managers will soon realise that knowledge enthusiasm. will have much greater value-added ● Applications that were previously web- The new demands of carriers than data, per se. Marconi combines independent are being irreversibly pulled As the Internet accelerates, carriers the connectivity of next generation into the Internet. Voice and video are everywhere are simultaneously adjusting communications networks with industry- joining data and graphics. to the intense pressures of deregulation. specific domain knowledge, expertise ● Internet convergence is bringing together We’ve seen traditional operators privatised, and applications. We’re transforming information and communication in new making the incumbents far more communication and information for our and powerful ways. The most mundane aggressive. And we’ve seen fierce new customers. Our Systems business delivers business routines are now being competitors appear and thrive. Internet-enabled applications in transformed. Even the time-honoured These vast changes have put traditional e-commerce, e-distribution, e-logistics practices of medicine are changing as business models under threat. In the old and e-medicine. We’re developing Healthcare Information Systems improve model, carriers designed, built, owned and Internet applications everywhere, from diagnosis and treatment. operated their infrastructure end-to-end. the Radiology lab to the petrol pump to ● Mobile communication continues to The infrastructure was the business. the soft drink vending machine. expand with more subscribers, more In the new era, the engineering resources devices, more applications and more of carriers and service providers are The Marconi vision services every day. Third Generation – stretched thin. Yet spurred by competition Marconi intends to drive the transformation the mobile Internet – will drive this even and user appetites for data, the demand and convergence of communications faster with voice, video and data available for new services is growing exponentially. and information. We will add relevant to handsets. So carriers are beginning to embrace what information and knowledge management was nearly unthinkable just a decade ago. to our customers’ businesses. We will meet Picks, shovels and maps They are procuring fully converged, end- the needs of carriers by defining the New The Internet boom is a high-tech gold to-end networks and network management Public Network. In this way, we will profit rush, a latter day Klondike of bits and from outside partners. Marconi has already and grow, supplying the picks, shovels and bandwidth. In that earlier gold rush, some proved it can be the ideal partner to exploit maps of the Internet gold rush. prospectors struck it rich. Some went this new opportunity. With newly acquired broke. But the people who consistently and expanded capabilities, we’re prepared to design, plan, build and operate carrier and service provider networks that transform the communications landscape. Marconi Annual Report and Accounts 2000 3 Connecting with Customers Our Customer’s Aim… Enabling a new telecom operator to leapfrog into the fast-growing market for broadband Internet access. Marconi Solution… Marconi helped to make Atlantic Telecom one of the UK’s first – and fastest – Every enterprise aspires to understand its The result? A new, intelligent online broadband Internet service providers. customers. At Marconi, we aspire to more. vending machine that will engage Marconi integrated and built the system, We aim to transform communications and customers as never before. Potential including Marconi Wireless Internet information. And that means we give our applications include cashless vending via Protocol Local Loop (WipLL) access and customers the communication networks, credit cards and debit cards; audio, video Marconi ATM switching, along with connectivity and services they need to and touch screen interactivity; couponing servers and software from other vendors. transform their businesses. To do this, and Internet browsing. This new Internet- The new ‘always on’ atlantic-e.com service we get to know our customers and their age application is just the latest development delivers access speeds up to 25 times faster businesses intimately, rolling up our sleeves in our long-standing relationship with than ISDN, making possible full-frame and digging into the details. Pursuing this Coca-Cola and its bottlers. Already they video over the Internet. strategy has led to substantial victories. have nearly 60,000 vending machines Some represent huge sales. Some represent online, thanks to Marconi technology. Our Customer’s Aim… world firsts or bests. All of them Connecting global airports, offices represent a significant transformation of Our Customer’s Aim… and reservations call centres with data, communication and information for our Managing the exploding demand for voice voice and video. customers, as these examples illustrate. and data services by creating an advanced, Marconi Solution… multi-service switching architecture for Delta Air Lines turned to Marconi for an Our Customer’s Aim… a global communications company. ATM network, including ATM core Staying ahead of insatiable customer Marconi Solution… switches and Ethernet edge switches. The demand for bandwidth-intensive When Sprint needed to expand the network provides a single infrastructure applications and new services. capacity of their network, they turned to for data, voice and video and paves the way Marconi Solution… the Marconi ASX™-4000 Asynchronous for new applications in customer service, In a $1 billion agreement with BellSouth, Transfer Mode (ATM) switches, connecting operations and revenue management. Marconi is supplying the world’s largest Points of Presence across North America. Delta imposed an aggressive rollout Fibre in the Loop deployment. Using the With the ASX-4000, Sprint will be able schedule and had a host of legacy Marconi Deep Fiber™ access platform, the to offer customer services at up to 622 equipment with which the new network build-out will bring fibre optic distribution megabits per second – equal to the components needed to work – constraints to within 500 feet of residential and bandwidth of over 9,000 simultaneous that might have made other vendors think business subscribers. The resulting network voice conversations. Marconi also offers twice. Marconi is already well on the way will support high-speed data, voice and Sprint an easy migration path to even to meeting these requirements. video applications, at up to 200 times faster higher bandwidth – and an expanding range Telling our story than today’s dial-up