1st Quarter Results
BT Group PLC
29 July 2004
FIRST QUARTER RESULTS TO JUNE 30, 2004 July 29, 2004
HIGHLIGHTS
Group turnover up 0.8 per cent, excluding the impact of mobile termination rate
reductions, at £4,567 million. Down 0.4 per cent including the impact of mobile
termination rate reductions
New wave turnover of £936 million, up 32 per cent
Profit before taxation, goodwill amortisation and exceptional items of
£434 million, down 13 per cent. Up 5 per cent before leaver costs
Earnings per share before goodwill amortisation and exceptional items, down
10 per cent at 3.7 pence. Up 10 per cent at 4.6 pence before leaver costs
Net debt of £8,317 million, 7 per cent lower than previous year
Broadband end users of 2.7 million at June 30, 2004
The full profit and loss account, cash flow statement and balance sheet, drawn
up in accordance with UK generally accepted accounting principles, from which
this information is extracted are set out on pages 12 to 16.
Chief Executive's statement
Ben Verwaayen, Chief Executive, said:
"The transformation of our business continues at pace. This is the second
consecutive quarter of underlying growth in turnover. New wave turnover,
including ICT, broadband, mobility and managed services grew by 32 per cent to
£936 million. New wave businesses generated over 20 per cent of group turnover
in the quarter. This strong growth in new wave has offset the decline in
turnover from the traditional business and these results reflect a continuation
of recent trends.
"Earnings per share before goodwill amortisation, exceptional items and leaver
costs grew by 10 per cent to 4.6 pence.
"Our 21st Century Network (21CN) programme team have announced a number of
customer trials with large scale roll out expected in 2006.
"Whilst the environment remains challenging we are confident in our strategy to
deliver long-term growth for shareholders."
RESULTS FOR THE FIRST QUARTER ENDED JUNE 30, 2004
First Quarter Year
ended
2004 2003 Better (worse) March 31
(restated) % 2004
(restated)
£m £m £m
Group turnover 4,567 4,586 - 18,519
EBITDA
- before exceptional items and
leaver costs 1,444 1,470 (2) 6,015
- before exceptional items 1,342 1,459 (8) 5,813
Profit before taxation
- before goodwill amortisation,
exceptional items and leaver 536 512 5 2,215
costs
- before goodwill amortisation
and exceptional items 434 501 (13) 2,013
- after goodwill amortisation
and exceptional items 416 497 (16) 1,945
Earnings per share
- before goodwill amortisation,
exceptional items and leaver 4.6p 4.2p 10 18.5p
costs
- before goodwill amortisation
and exceptional items 3.7p 4.1p (10) 16.9p
- after goodwill amortisation
and exceptional items 3.6p 4.1p (12) 16.4p
Capital expenditure 694 552 (26) 2,673
Free cash flow 157 618 (75) 2,071
Net debt 8,317 8,988 7 8,425
The commentary focuses on the results before goodwill amortisation, exceptional
items and leaver costs. This is consistent with the way that financial
performance is measured by management and we believe allows a meaningful
comparison to be made of the trading results of the group.
The results have been restated to reflect the requirements of UITF Abstract 38
'Accounting for ESOP trusts' and the related amendments to UITF Abstract 17
(revised 2003) 'Employee Share Schemes' which the group has adopted (see note
1). This restatement results in an additional operating profit charge of
£3 million for the year ended March 31, 2004 and of £1 million for the quarter
ended June 30, 2003.
The full profit and loss account, cash flow statement and balance sheet are
provided on pages 12 to 16. A reconciliation of EBITDA to group operating profit
is provided on page 23.
GROUP RESULTS
The results for the first quarter continue to show the transformation of our
business and reflect a continuation of recent trends. Turnover was marginally
lower at £4,567 million. Excluding the impact of regulatory reductions to mobile
termination rates the underlying turnover increased by 0.8 per cent. The
operating results in the quarter were impacted by leaver costs of £102 million
(£11 million last year). Excluding leaver costs, earnings per share before
goodwill amortisation and exceptional items increased by 10 per cent to
4.6 pence compared to the first quarter last year.
The strong growth in new wave turnover was 32 per cent, reaching £936 million in
the quarter, higher than the 30 per cent growth through last year. New wave
turnover accounted for over 20 per cent of the group's turnover compared to
15 per cent in the first quarter of last year. New wave turnover is mainly
generated from Information and Communications Technology (ICT) solutions,
broadband, mobility and managed services. ICT turnover grew by 15 per cent to
£634 million partly reflecting the strong order intake last year. Mobility
turnover at £43 million achieved growth of 169 per cent. Broadband turnover
doubled to £186 million.
Turnover from the group's traditional businesses declined by 6 per cent
(5 per cent lower excluding the impact of reductions in mobile termination
rates), a percentage point improvement compared to the fourth quarter of last
year. This decline reflects regulatory intervention, competition, price
reductions and also technological changes that we are using to drive customers
from traditional services to better value and more flexible new wave services,
such as broadband and Internet Protocol Virtual Private Networks (IPVPN's).
Total consumer turnover in the first quarter was 5 per cent lower (4 per cent
lower excluding the impact of reductions to mobile termination rates) compared
to the first quarter last year. Traditional consumer turnover declined by 8 per
cent reflecting broadband substitution of dial up narrowband internet access,
increased Carrier Pre-Selection (CPS) penetration, mobile substitution and the
reduction in fixed to mobile calls. New wave consumer turnover doubled, driven
by the continuing growth of broadband and mobility. BT Together packages provide
an important element in defending traditional turnover with an increase of
119,000 customers over the first quarter last year. With effect from
July 1, 2004 we are building on the success of the BT Together family of
packages and simplifying our pricing structure. This will bring low call charges
and reductions in line rental to our three BT Together fixed monthly fee
packages and will make it easier for customers to compare the value they get
from BT with similar offerings from competitors. Nine million standard rate
customers have now joined the existing nine million BT Together customers.
The underlying 12 month rolling average revenue per customer household (net of
mobile termination charges) of £265 declined by £3 compared to last quarter with
higher revenues from broadband being offset by call revenue reductions.
Contracted revenues increased by 1 percentage point to 59 per cent compared to
the fourth quarter last year.
Turnover from smaller and medium sized businesses declined by 4 per cent
(3 per cent excluding the impact of reductions to mobile termination rates).
BT Business Plan, launched in January 2003, more than doubled the number of
business locations to 294,000 (191,000 customers) by June 30, 2004. This,
together with our BT Local Business activity, defended some of the decline in
the traditional business as well as driving the growth in new wave turnover of
40 per cent.
Major Corporate (UK and international) turnover increased by 1 per cent with the
strong growth in new wave turnover (19 per cent) offsetting the decline in
traditional services. There is a continued migration from traditional voice only
services to managed ICT solutions contracts. ICT contract wins amounted to more
than £1.3 billion in the first quarter.
Our estimate of market share by volume of fixed to fixed voice minutes is based
on our actual minutes, market data provided by Ofcom and an extrapolation of the
historical trends. BT's estimated consumer market share declined by
1.5 percentage points in the first quarter to around 66 per cent compared to
last quarter whilst the estimated business market share declined by
0.3 percentage points to around 43 per cent.
Wholesale (UK and Global Carrier) increased by 7 per cent (11 per cent excluding
the impact of reductions to mobile termination rates). Growth in new wave
turnover of 81 per cent from our UK Wholesale business was driven by broadband
and managed services, which more than compensated for the decline in our
traditional UK Wholesale product prices.
There was an installed base of 2.7 million wholesale broadband lines by
June 30, 2004, an increase of 154 per cent on the number of connections
12 months ago, with net additions in the quarter growing at more than 36,000 per
week. BT Retail had 1,102,000 broadband connections at June 30, 2004, an
increase of 98 per cent on June 30, 2003.
BT has an extensive market research programme conducted by external agencies
which focuses on the level and causes of customer dissatisfaction. The group
achieved a 3 per cent improvement in the level of customer dissatisfaction in
the quarter.
Group operating costs before goodwill amortisation, exceptional items and leaver
costs were reduced by 1 per cent compared to the first quarter of last year.
Leaver costs increased in the quarter to £102 million (£11 million last year)
with staff numbers declining by 1 per cent since March 31, 2004 to 98,700
employees. Net staff costs, excluding leaver costs, decreased by £28 million
compared to the first quarter last year to £875 million due to improved
efficiency offset by the impact of increases in pay rates. Payments to other
telecommunication operators were £51 million (5 per cent) lower than last year
mainly reflecting the impact of the mobile termination rate reductions. Other
operating costs (excluding goodwill amortisation and exceptional items)
increased by £74 million. In linewith our expectations this includes investment
in new wave initiatives, such as strengthening our ICT delivery capabilities
outside the UK and higher marketing costs. These were partly offset by
efficiency cost savings and the impact of foreign exchange.
Depreciation was £30 million lower than the first quarter of last year at
£699 million reflecting shorter life assets becoming fully depreciated and more
efficient capital expenditure over recent years.
Group operating profit before goodwill amortisation, exceptional items and
leaver costs increased by 1 per cent compared to the first quarter of last year.
The operating profit margin before leaver costs improved by 0.2 percentage
points to 16.3 per cent in the first quarter. The improved operating profit
margin reflects further cost efficiencies and reductions to mobile termination
charges and was achieved despite the lower margins from new wave businesses
compared to our traditional business. The £91 million increase in leaver costs
resulted in group operating profit, before goodwill amortisation and exceptional
items, after leaver costs being 12 per cent lower than the first quarter of last
year.
BT's share of associates and joint ventures operating losses before goodwill
amortisation and exceptional items was £5 million in the quarter (£3 million
loss last year).
Net interest payable before exceptional items was £204 million for the quarter,
an improvement of £21 million against last year reflecting the reduction in the
level of net debt. Profit before taxation, goodwill amortisation and exceptional
items of £434 million in the quarter decreased by 13 per cent and includes the
impact of the £91 million increase in leaver costs.
The taxation rate on the profit before goodwill amortisation and exceptional
items was 26.5 per cent in the quarter (30.5 per cent last year). The lower
effective tax rate reflects reduced overseas losses for which relief is not
available and greater tax efficiency in the group.
Earnings per share before goodwill amortisation, exceptional items and leaver
costs increased by 10 per cent at 4.6 pence for the quarter. The high leaver
costs meant that earnings per share before goodwill amortisation and exceptional
items reduced by 10 per cent compared to the first quarter last year at 3.7
pence.
Exceptional items and goodwill
Net exceptional items in the quarter reduced profit before taxation by
£14 million. An exceptional property rationalisation charge of £17 million was
recognised in the quarter in relation to the rationalisation of the group's
provincial offices portfolio. This rationalisation programme is expected to
continue throughout the current financial year and beyond giving rise to
additional rationalisation costs. This was offset by the £3 million profit on
disposal of certain group investments, including the 4.8 per cent interest in
New Skies Satellite for consideration of €36 million (£24 million).
Goodwill amortisation was £4 million for the quarter (£3 million last year).
Earnings per share after goodwill amortisation and exceptional items were
3.6 pence in the quarter compared to 4.1 pence last year.
Cash flow and net debt
Cash inflow from operating activities amounted to £1,206 million in the quarter
compared to £1,509 million in the first quarter last year. The reduction
includes the impact of additional leaver costs of £118 million, the partial
reversal of the strong working capital position at the end of last quarter and
investment in major contracts.
Return on investments and servicing of finance reflects a net cash outflow of
£302 million compared to £290 million in the first quarter last year. This
movement was mainly driven by the increased interest payments arising from the
restructuring of the swap portfolio completed last year, offset by the impact of
the reduced net debt position.
The net cash outflow on fixed asset purchases and sales was £706 million in the
quarter which compares to £593 million last year reflecting the move to a
flatter profile of capital expenditure through the year, the investment in the
NHS contracts and transformational expenditure on the network.
Implementing a 21st Century Network (21CN) is a core element of BT's
transformation programme. 21CN is the enabling infrastructure for growth and
will drive radical operational simplification and is expected to reduce annual
cash costs by £1 billion by the 2008/9 financial year. 21CN will enable BT to
launch new services to market faster and will empower customers with new levels
of control, choice and flexibility over a range of converged communications
services.
In June 2004, we announced a number of live trials and an indicative timetable
to complete implementation of 21CN. This year we will pilot the transfer of
voice calls from our public switched telephony network (PSTN) to a new,
dedicated, Internet Protocol (IP) network and trial the technical and economic
issues behind the deployment of fibre deeper into the access network with a
focus on new installations. Subject to the trials, we expect to begin large
scale rollout of 21CN during 2006 with the deployment substantially complete by
around the end of the decade.
Free cash flow (before acquisitions and disposals, dividends and financing) was
a net inflow of £157 million in the quarter.
The share buyback programme continued with the repurchase of 17 million shares
for £31 million in the quarter.
Net debt continued to improve and was £8,317 million at June 30, 2004,
7 per cent below last year.
_____________________________________________________________________
BT's final dividend of 5.3 pence per share will be paid on September 6, 2004 to
shareholders on the register on August 6, 2004.
The second quarter and half year's results are expected to be announced on
November 11, 2004.
BT Retail
First quarter ended June 30 Year ended
2004 2003* Better (worse) March 31
2004*
£m £m £m % £m
Group turnover 3,116 3,173 (57) (2) 12,940
Gross margin 825 857 (32) (4) 3,517
Sales, general and
administration costs 533 484 (49) (10) 2,123
EBITDA 292 373 (81) (22) 1,394
Depreciation 33 47 14 30 162
Operating profit 259 326 (67) (21) 1,232
Leaver costs 43 1 (42) n/m 112
Operating profit before leaver
costs 302 327 (25) (8) 1,344
Capital expenditure 28 20 (8) (40) 118
*Restated to reflect changes in intra-group trading arrangements.
Growth in new wave turnover of 31 per cent was offset by the 7 per cent decline
in traditional turnover which resulted in an overall decline of 2 per cent
compared to the first quarter of last year. After adjusting for the regulatory
reductions to mobile termination rates, turnover declined by 1 per cent.
First quarter ended June 30 Year ended
BT Retail turnover 2004 2003* Better (worse) March 31
2004*
£m £m £m % £m
Voice Services 2,099 2,266 (167) (7) 8,906
Intermediate Products 442 468 (26) (6) 1,868
Traditional 2,541 2,734 (193) (7) 10,774
ICT 413 365 48 13 1,734
Broadband 110 57 53 93 307
Mobility 38 14 24 171 84
Other 14 3 11 n/m 41
New Wave 575 439 136 31 2,166
Total 3,116 3,173 (57) (2) 12,940
Sales to other BT businesses
incl. above 95 46 49 107 338
*Restated to reflect changes in intra-group trading arrangements.
Turnover from voice services was 7 per cent lower than the first quarter of last
year. The overall market for fixed to fixed voice call minutes is estimated to
have declined by 3 per cent compared to the first quarter of last year, partly
reflecting the migration to new wave products and services such as IPVPN's and
substitution by e-mail, instant messaging and mobile services.
BT Group's total originating measured call volumes have decreased by 13 per cent
in the quarter compared to the first quarter last year. Part of the decline in
measured call volumes is due to the migration to broadband, which is not
measured in minutes, and the consequent reduction in dial up internet minutes.
There has been an increased penetration of pricing packages and contracted
revenues which reduces the direct relationship between call minutes and
turnover.
Turnover from intermediate products decreased by 6 per cent compared to the
first quarter of last year mainly driven by a decline in private circuits and
ISDN as customers migrate to new wave products including broadband and IPVPN.
BT Retail's new wave turnover increased by 31 per cent compared to the first
quarter of last year. ICT turnover increased by 13 per cent, reflecting strong
growth compared to the overall market with new IP based service contract wins
offset by a decline in business telephony equipment.
The growth of broadband continues with 1,102,000 BT Retail connections at
June 30, 2004, an increase of 14 per cent in the quarter. During the quarter,
BT Retail's market share of DSL net additions was 29 per cent. Broadband
turnover grew by 93 per cent compared to the first quarter last year to
£110 million. From July 1, 2004, BT has reduced its prices on BT Yahoo! 1mb,
BT Yahoo! 512k and BT Broadband in line with other competitors.
In November 2003, BT launched BT Mobile Home Plan through retail stores which
had attracted over 87,000 connections at June 30, 2004, more than doubling the
number of connections in the quarter. BT had consumer and corporate mobile
connections of 215,000 at June 30, 2004 reflecting growth of over 70,000
connections (49 per cent) on last quarter. BT Retail turnover from mobility
services increased by 171 per cent compared to the first quarter last year to
£38 million.
The gross margin reduced by 0.5 percentage points to 26.5 per cent compared to
the first quarter of last year, reflecting the change in the revenue mix from
traditional business to new wave services.
Cost transformation programmes continued to generate savings in the traditional
business with £13 million of savings before leaver costs (3 per cent) achieved
in the quarter. BT Retail incurred leaver costs of £43 million in the quarter,
an increase of £42 million over last year.
Operating profit in the quarter of £259 million was 21 per cent lower than the
prior year. However, excluding the impact of leaver costs, operating profit
decreased by 8 per cent.
BT Wholesale
First quarter ended June 30 Year ended
2004 2003* Better (worse) March 31
2004*
£m £m £m % £m
External turnover 941 886 55 6 3,473
Internal turnover 1,310 1,374 (64) (5) 5,410
Group turnover 2,251 2,260 (9) - 8,883
Variable cost of sales 553 533 (20) (4) 2,092
Gross variable profit 1,698 1,727 (29) (2) 6,791
Network and SG&A costs 764 751 (13) (2) 2,989
EBITDA 934 976 (42) (4) 3,802
Depreciation 477 474 (3) (1) 1,919
Operating profit 457 502 (45) (9) 1,883
Leaver costs 41 - (41) n/m 46
Operating profit before leaver
costs 498 502 (4) (1) 1,929
Capital expenditure 475 368 (107) (29) 1,809
*Restated to reflect changes in intra-group trading arrangements.
Wholesale turnover for the quarter of £2,251 million was £9 million lower and
gross variable profit of £1,698 million was £29 million (2 per cent) lower than
the first quarter last year. EBITDA before leaver costs was maintained year on
year.
External turnover in the quarter of £941 million increased by £55 million
(6 per cent). Excluding the impact of regulatory reductions to mobile
termination rates the underlying external turnover increased by 10 per cent. The
growth was driven by the increase in new wave turnover and offset the impact of
continued regulatory price reductions. New wave turnover grew by 81 per cent to
£130 million in the quarter which is driven by the increase in broadband and
managed services.
Internal turnover declined by 5 per cent to £1,310 million reflecting the flow
through of lower volumes of calls, lines and private circuits, as well as the
group's policy of reflecting regulatory price changes in internal charges.
The focus on cost savings continued this quarter with the achievement of
£28 million reductions in network and SG&A costs which equates to £48 million
efficiency savings in the quarter. These reductions were offset by a £41 million
increase in leaver costs over the same quarter last year.
Capital expenditure increased by 29 per cent to £475 million when compared to
the first quarter last year. This reflects a more even profile of capital
expenditure through the year and further expenditure on transforming the group's
network, particularly the hands-off access network and broadband.
BT Global Services
First quarter ended June 30 Year ended
2004 2003 Better (worse) March 31
2004
£m £m £m % £m
Group turnover 1,411 1,345 66 5 5,782
EBITDA 102 95 7 7 508
Operating loss (36) (51) 15 29 (105)
Leaver costs 13 8 (5) (63) 33
Operating loss before leaver
costs (23) (43) 20 47 (72)
Capital expenditure 149 102 (47) (46) 479
See note 2 for additional detail.
Turnover for the quarter rose by 5 per cent to £1,411 million. Excluding the
adverse impact of exchange rates turnover growth was 6.4 per cent, which equates
to an additional 0.5 per cent underlying turnover growth at a group level.
Solutions turnover grew by 12 per cent reflecting the conversion of the strong
order intake over the past twelve months. BT Syntegra produced another strong
quarter's turnover growth, with the NHS contracts contributing towards the
growth of 33 per cent. Solutions and BT Syntegra achieved orders of £1.3 billion
in the quarter which results in orders of £6.3 billion over the last twelve
months. Global Products turnover grew by 5 per cent (7 per cent excluding the
impact of exchange rates) benefiting from growth in Multi Protocol Label
Switching (MPLS) turnover. Global Carrier turnover grew by 3 per cent.
EBITDA increased by 7 per cent from the first quarter of last year to
£102 million. The increase in turnover, together with lower network, selling,
general and administration costs, following continuing cost reduction
initiatives, helped generate a £15 million improvement in operating losses. The
costs included the expected increase in resources associated with strengthening
the overseas network centric solutions delivery capabilities and leaver costs of
£13 million (£8 million last year). We expect the underlying cost base in Global
Services will continue to improve.
Capital expenditure in the quarter at £149 million increased by £47 million
compared to quarter one last year mainly due to expenditure on the NHS
contracts.
___________________________________________________________________________
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended June 30, 2004
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited) Notes £m £m £m
-------------------- ------ ---------- ----------- ---------
Group turnover 2 4,567 - 4,567
Other operating
income 41 - 41
Operating
costs 3 (3,965) (21) (3,986)
Group operating
profit (loss) 2 643 (21) 622
Group's share
of operating
losses of
associates and
joint ventures (5) - (5)
Total
operating
profit (loss) 638 (21) 617
Profit on sale
of fixed asset
investments
and group
undertakings - 3 3
Net interest
payable 5 (204) - (204)
Profit (loss)
before
taxation 434 (18) 416
Taxation (115) 4 (111)
Profit (loss)
after taxation
and attributable to
shareholders 319 (14) 305
Earnings per
share 6
- basic 3.7p 3.6p
- diluted 3.7p 3.5p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended June 30, 2003
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited, restated Notes £m £m £m
- see note 1) ------ ---------- ----------- ---------
--------------------
Group turnover 2 4,586 - 4,586
Other operating
income 52 - 52
Operating
costs 3 (3,909) (3) (3,912)
Group operating
profit (loss) 2 729 (3) 726
Group's share
of operating
losses of
associates and
joint ventures (3) - (3)
Total
operating
profit (loss) 726 (3) 723
Loss on sale
of fixed asset
investments
and group
undertakings - (1) (1)
Net interest
payable 5 (225) - (225)
Profit (loss)
before
taxation 501 (4) 497
Taxation (153) - (153)
Profit (loss)
after taxation 348 (4) 344
Minority
interests 6 - 6
Profit (loss)
attributable to
shareholders 354 (4) 350
Earnings per
share 6
- basic 4.1p 4.1p
- diluted 4.1p 4.0p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the year ended March, 31, 2004
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(restated - see note Notes £m £m £m
1) ------ ---------- ----------- ---------
--------------------
Group turnover 2 18,519 - 18,519
Other operating
income 177 - 177
Operating
costs 3 (15,807) (19) (15,826)
Group operating
profit (loss) 2 2,889 (19) 2,870
Group's share
of operating
losses of
associates and
joint ventures (8) (26) (34)
Total operating
profit (loss) 2,881 (45) 2,836
Profit on sale
of fixed asset
investments
and group
undertakings 4 32 36
Profit on sale
of property
fixed assets 14 - 14
Net interest
payable 5 (886) (55) (941)
Profit (loss)
before
taxation 2,013 (68) 1,945
Taxation (568) 29 (539)
Profit (loss)
after taxation 1,445 (39) 1,406
Minority
interests 8 - 8
Profit (loss)
attributable to
shareholders 1,453 (39) 1,414
Dividends (732)
Retained
profit for the
period 682
Earnings per
share 6
- basic 16.9p 16.4p
- diluted 16.8p 16.3p
-------------------- ------ ---------- ----------- ---------
GROUP CASH FLOW STATEMENT
for the three months ended June 30, 2004
-------------------------- ------------------ --------- ----
First quarter ended June Year
30 (unaudited) ended
March 31
2004 2003 2004
£m £m £m
--------------------------- -------- --------- --- --------- ----
Net cash inflow from operating
activities* (note 7) 1,206 1,509 5,389
Dividends from associates and
joint ventures - - 3
Net cash outflow for returns on
investments and servicing of
finance** (302) (290) (527)
Taxation paid (41) (8) (317)
-------- --------- ---------
Purchase of tangible fixed
assets (744) (607) (2,684)
Net sale of fixed asset
investments 23 - 131
Sale of tangible fixed assets 15 14 76
-------- --------- ---------
Net cash outflow for capital
expenditure and financial
investments (706) (593) (2,477)
--------------------------- -------- --------- --- --------- ----
Free cash inflow before
acquisitions, disposals and
dividends 157 618 2,071
--------------------------- -------- --------- --- --------- ----
-------- --------- ---------
Acquisitions (2) - (61)
Disposals - - 1
-------- --------- ---------
Net cash outflow for
acquisitions and disposals (2) - (60)
Equity dividends paid - - (645)
Cash inflow before use of liquid
resources and financing 155 618 1,366
Management of liquid resources 56 (391) 1,123
-------- --------- ---------
Repurchase of ordinary share
capital (31) - (144)
New loans - - 1,326
Repayment of loans (172) (12) (3,627)
-------- --------- ---------
Net cash outflow from financing (203) (12) (2,445)
Increase in cash 8 215 44
Decrease in net debt from cash
flows (note 8) 124 618 1,222
--------------------------- -------- --------- --- --------- ----
*Net of deficiency and special
pension contributions - - (742)
**Net of interest (payments)
receipts on restructuring
currency swap portfolio (18) - 420
GROUP BALANCE SHEET
at June 30, 2004
------------------------- --------- --------- ---------
June 30 June 30 March 31
2004 2003 2004
(restated*) (restated*)
£m £m £m
------------------------- --------- --------- ---------
Fixed assets
Intangible assets 204 205 204
Tangible assets 15,466 15,676 15,487
Investments 297 453 324
15,967 16,334 16,015
Current assets
--------- --------- ---------
Stocks 111 92 89
Debtors 5,261 4,784 5,189
Investments 5,071 6,928 5,163
Cash at bank and in hand 144 77 109
10,587 11,881 10,550
Creditors: amounts falling due within one
year
Loans and other borrowings 1,112 2,684 1,271
Other creditors 7,142 6,861 7,252
8,254 9,545 8,523
--------- --------- ---------
Net current assets 2,333 2,336 2,027
Total assets less current liabilities 18,300 18,670 18,042
Creditors: amounts falling due after more
than one year
Loans and other borrowings 12,420 13,309 12,426
Provisions for liabilities and charges 2,491 2,350 2,504
Minority interests 46 57 46
Capital and reserves (note 9)
--------- --------- ---------
Called up share capital 432 434 432
Reserves 2,911 2,520 2,634
--------- --------- ---------
Total equity shareholders' funds 3,343 2,954 3,066
18,300 18,670 18,042
------------------------- --------- --------- ---------
*See note 1 for details of restatement.
NOTES
1 Basis of preparation
The unaudited interim results of BT Group, which are not statutory accounts,
have been prepared on the basis of the accounting policies as set out in the
Report and Accounts of BT Group plc for the year ended March 31, 2004, except
that during the quarter ending June 30, 2004, the group adopted UITF Abstract 38
'Accounting for ESOP trusts' and the related amendments to UITF Abstract 17
(revised 2003) 'Employee Share Schemes'. UITF 38 changes the presentation of an
entity's own shares held in an ESOP trust from previously being held as assets
to being deducted in arriving at shareholders' funds. UITF 17 (revised 2003)
requires the amounts recognised in the profit and loss account in respect of
share awards from previously being based on the book value of shares held in the
ESOP trusts to being based on the fair value of shares at the date the award is
made.
An additional charge of £3 million for the year ended March 31, 2004 and of
£1 million for the quarter ended June 30, 2003 has been made to the group profit
and loss account. The effect on the group's balance sheet at March 31, 2004 has
been to reduce fixed assets by £53 million, to reduce other creditors by £25
million and to reduce shareholders' funds by £28 million. The effect at
June 30, 2003 has been to reduce fixed assets by £98 million, to reduce other
creditors by £37 million and to reduce shareholders' funds by £61 million.
Figures for the year ended March 31, 2004 are extracts from the group accounts
for that year with the exception of the accounting policy change noted above.
The group accounts for the year ended March 31, 2004, on which the auditors
issued an unqualified report which did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985, were approved by the Board of Directors on
May 19, 2004 and published on June 2, 2004.
2 Results of businesses
(a) Operating results
External Internal Group Group operating EBITDA
turnover turnover turnover profit (loss) (ii)
(ii)
£m £m £m £m £m
First quarter ended
June 30, 2004
BT Retail 3,021 95 3,116 259 292
BT Wholesale 941 1,310 2,251 457 934
BT Global
Services 598 813 1,411 (36) 102
Other 7 - 7 (37) 14
Intra-group items (i) - (2,218) (2,218) - -
Total 4,567 - 4,567 643 1,342
First quarter ended
June 30, 2003
(restated - see
below)
BT Retail 3,127 46 3,173 326 373
BT Wholesale 886 1,374 2,260 502 976
BT Global
Services 567 778 1,345 (51) 95
Other 6 - 6 (48) 15
Intra-group items (i) - (2,198) (2,198) - -
Total 4,586 - 4,586 729 1,459
Year ended March 31,
2004
(restated - see
below)
BT Retail 12,602 338 12,940 1,232 1,394
BT Wholesale 3,473 5,410 8,883 1,883 3,802
BT Global
Services 2,410 3,372 5,782 (105) 508
Other 34 1 35 (121) 109
Intra-group items (i) - (9,121) (9,121) - -
Total 18,519 - 18,519 2,889 5,813
(i) Elimination of intra-group turnover between businesses, which is included
in the total turnover of the originating business.
(ii) Before goodwill amortisation and exceptional items.
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. The
intra-group trading arrangements are subject to review and changed with effect
from April 1, 2004 in certain circumstances to reflect simplification of
internal trading flows and reorganisations within the group. The comparative
figures for the lines of business have been restated to reflect these changes
but there is no impact at a group level. In addition, the group adopted UITF 38
and UITF 17 (revised 2003) which impacted the comparative figures and is
discussed further in note 1.
2 Results of businesses continued
BT Global Services analysis
First quarter ended June 30 Year ended
--------------------------
March 31
2004 2003 Better (worse) 2004
£m £m £m % £m
Group turnover
Solutions 686 614 72 12 2,736
Syntegra 192 144 48 33 721
Global Products 453 433 20 5 1,831
Global Carrier 239 231 8 3 962
Other and eliminations (159) (77) (82) (106) (468)
1,411 1,345 66 5 5,782
EBITDA
Solutions 63 62 1 2 337
Syntegra 4 4 - - 37
Global Products 30 21 9 43 113
Global Carrier 45 40 5 13 163
Other (i) (40) (32) (8) (25) (142)
102 95 7 7 508
Operating profit (loss) (ii)
Solutions 44 43 1 2 261
Syntegra 2 2 - - 28
Global Products (61) (74) 13 18 (273)
Global Carrier 24 17 7 41 74
Other (i) (45) (39) (6) (15) (195)
(36) (51) 15 29 (105)
Capital expenditure 149 102 (47) (46) 479
(i) Other is after charging leaver costs of £13m in the first quarter (£8m
in the first quarter last year and £33m in the year ended 31 March 2004).
(ii) Before goodwill amortisation.
2 Results of businesses continued
(b) Group turnover analysis
First quarter ended June 30 Year ended
March 31
2004 2003 Better (worse) 2004
£m £m £m % £m
Traditional 3,631 3,876 (245) (6) 15,132
New wave 936 710 226 32 3,387
4,567 4,586 (19) - 18,519
Consumer 1,425 1,497 (72) (5) 5,974
Business 623 650 (27) (4) 2,600
Major Corporate 1,424 1,416 8 1 5,881
Wholesale/Carrier 1,088 1,017 71 7 4,030
Other 7 6 1 17 34
4,567 4,586 (19) - 18,519
Note: New wave includes the external new wave turnover of BT Retail (ICT,
broadband, mobility and classified directories) and BT Wholesale (broadband and
managed services) and the external turnover of Global Solutions and BT Syntegra.
Consumer includes the external turnover of BT Retail from consumer customers.
Business includes the external turnover of BT Retail from SME customers.
Major Corporate includes the external turnover of BT Retail from major corporate
customers and the external turnover of BT Global Services, with the exception of
Global Carrier.
Wholesale/Carrier includes the external turnover of BT Wholesale and Global
Carrier.
(c) Capital expenditure on plant, equipment and motor vehicle additions
Year ended
First quarter ended June 30 March 31
2004 2003 2004
£m £m £m
BT Retail 28 20 118
BT Wholesale
Access 269 215 966
Switch 30 11 87
Transmission 45 54 213
Products/systems support 131 88 543
475 368 1,809
BT Global Services
Syntegra and Solutions 47 36 121
UK Networks 37 24 131
Other 65 42 227
149 102 479
Other (including fleet vehicles
and property) 42 62 267
Total 694 552 2,673
3 Operating costs
Year ended
First quarter ended June 30 March 31
2004 2003 2004
(restated) (restated)
£m £m £m
Net staff costs before leaver
costs 875 903 3,536
Leaver costs 102 11 202
Net staff costs 977 914 3,738
Depreciation 699 729 2,921
Payments to telecommunication
operators 988 1,039 3,963
Other operating costs 1,301 1,227 5,185
Total before goodwill amortisation 3,965 3,909 15,807
and exceptional items
Goodwill amortisation 4 3 12
Exceptional items 17 - 7
Total 3,986 3,912 15,826
4 Exceptional items and goodwill amortisation
Year ended
First quarter ended June 30 March 31
2004 2003 2004
£m £m £m
Exceptional operating costs (17) - (7)
Profit (loss) on sale of fixed
asset investments and group
undertakings 3 (1) 32
Impairment of investments - - (26)
Net interest payable - - (55)
Goodwill amortisation (4) (3) (12)
Net charge before tax and minority
interests (18) (4) (68)
5 Net interest payable
Year ended
First quarter ended June 30 March 31
2004 2003 2004
£m £m £m
Group 259 288 1,220
Joint ventures and associates 2 5 19
Total interest payable 261 293 1,239
Interest receivable (57) (68) (298)
Net interest payable 204 225 941
Analysed:
Before exceptional items 204 225 886
Exceptional items - - 55
Total 204 225 941
6 Earnings per share
The basic earnings per share are calculated by dividing the profit attributable
to shareholders by the average number of shares in issue after deducting the
company's shares held by employee share ownership trusts and treasury shares.
In calculating the diluted earnings per share, share options outstanding and
other potential ordinary shares have been taken into account.
The average numbers of shares in the periods were:
Year ended
First quarter ended June 30 March 31
2004 2003 2004
millions of shares
Basic 8,557 8,623 8,621
Diluted 8,597 8,673 8,676
7 Reconciliation of operating profit to operating cash flow
Year ended
First quarter ended June 30 March 31
2004 2003 2004
(restated) (restated)
£m £m £m
Group operating profit 622 726 2,870
Depreciation and amortisation 703 733 2,936
Changes in working capital (164) 13 240
Provision movements, pensions 45 37 (657)
and other
Net cash inflow from operating
activities 1,206 1,509 5,389
8 Net debt
(a) Analysis
At June 30 At March 31
2004 2003 2004
£m £m £m
Long-term loans and other borrowings falling due
after more than one year 12,420 13,309 12,426
Short-term borrowings and long-term loans and
other borrowings falling due within one year 1,112 2,684 1,271
Total debt 13,532 15,993 13,697
Short-term investments (5,071) (6,928) (5,163)
Cash at bank (144) (77) (109)
Net debt at end of period 8,317 8,988 8,425
8 Net debt continued
(b) Reconciliation of net cash flow to movement in net debt
Year ended
First quarter ended June 30 March 31
2004 2003 2004
£m £m £m
Net debt at beginning of period 8,425 9,573 9,573
Decrease in net debt resulting
from cash flows (124) (618) (1,222)
Net debt assumed or issued on
acquisitions - - 1
Currency and other movements - 5 4
Other non-cash movements 16 28 69
Net debt at end of period 8,317 8,988 8,425
9 Share capital and reserves
Reserves Total
Share capital (restated) (restated)
£m £m £m
Balances at April 1, 2004 432 2,634 3,066
Profit for the three months ended
June 30, 2004 - 305 305
Currency movements - (4) (4)
Other - (24) (24)
Balances at June 30, 2004 432 2,911 3,343
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Year ended
First quarter ended June 30 March 31
2004 2003 2004
(restated) (restated)
£m £m £m
Group operating profit 622 726 2,870
Exceptional items 17 - 7
Depreciation 699 730 2,924
Goodwill amortisation 4 3 12
EBITDA before exceptional items 1,342 1,459 5,813
11 United States Generally Accepted Accounting Principles
The results set out above have been prepared in accordance with accounting
principles generally accepted in the United Kingdom. The table below sets out
the results calculated in accordance with United States Generally Accepted
Accounting Principles.
Year ended
First quarter ended June 30 March 31
2004 2003 2004
Net income attributable to 73 288 883
shareholders including
exceptional items (£m)
Earnings per ADS (£)
- basic 0.09 0.33 1.02
- diluted 0.08 0.33 1.02
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with United States Generally
Accepted Accounting Principles, is a £1,849m deficit at June 30, 2004 (June 30,
2003 - £2,334m, March 31, 2004 - £1,455m).
Forward-looking statements - caution advised
Certain statements in this results release are forward-looking and are made in
reliance on the safe harbour provisions of the US Private Securities Litigation
Reform Act of 1995. These statements include, without limitation, those
concerning: cash flow and earnings per share; expectations regarding broadband,
ICT, mobility and managed services growth, ADSL broadband roll out, and revenues
from new wave products and services; the possible or assumed future results of
operations of BT and/or its lines of business; investment in, and rollout of,
the 21st century network and the generation of long-term cost savings and
customer benefits; and expectations regarding long term growth for shareholders.
Although BT believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations will
prove to have been correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.
Factors that could cause differences between actual results and those implied by
the forward-looking statements include, but are not limited to: material adverse
changes in economic conditions in the markets served by BT; future regulatory
actions and conditions in BT's operating areas, including competition from
others; selection by BT and its lines of business of the appropriate trading and
marketing models for its products and services; fluctuations in foreign currency
exchange rates and interest rates; technological innovations, including the cost
of developing new products and the need to increase expenditures for improving
the quality of service; prolonged adverse weather conditions resulting in a
material increase in overtime, staff or other costs; developments in the
convergence of technologies; the anticipated benefits and advantages of new
technologies, products and services, including broadband and other new wave
initiatives, not being realised; and general financial market conditions
affecting BT's performance. BT undertakes no obligation to update any
forward-looking statements whether as a result of new information, future events
or otherwise.
This information is provided by RNS
The company news service from the London Stock Exchange
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