Final Results - Part 3

British Telecommunications PLC 10 May 2001 PART 3 NOTES 1 Basis of preparation The preliminary results of the group, which are not statutory accounts, have been prepared on the basis of the accounting policies as set out in the report and accounts for the year ended March 31, 2000, except that loans and other borrowings are now stated as adjusted for the effect of currency swaps acting as hedges. The comparative figures have not been restated as the impact is not material. Figures for the year ended March 31, 2000 are extracts from the group accounts for that year. The group accounts for the year ended March 31, 2001, have not yet been filed with the Registrar of Companies or reported on by the auditors. 2 Results of businesses The tables below show the results of BT's new business organisation, which has been implemented during the year ended March 31, 2001, for the quarter and year ended March 31, 2001. Elements of the information are a restatement of the actual results and net assets of the group to show the businesses as if they had traded as separate units throughout the relevant period. The information includes allocations and apportionments of turnover and costs. These allocations and apportionments in some cases are estimated and, as such, are subject to review and may change. There is extensive trading between many of the business units and profitability is dependent on the transfer price levels. These intra-group trading arrangements are also subject to review and may change. 2 Results of businesses continued (a) Operating results EBITDA (ii) Total operating before profit (loss) before Total exceptional goodwill amortisation and turnover items exceptional items £m £m £m Fourth quarter ended March 31, 2001 BT Retail 2,955 261 203 BT Wholesale 3,061 1,122 670 BT Wireless 1,057 109 (47) BT Ignite 1,145 50 (90) Concert 605 (48) (89) Yell 236 67 63 BTopenworld 68 (66) (90) Eliminations and other (i) (1,380) 432 121 Total before exceptional 7,747 1,927 741 items Exceptional items and - (43) (3,196) goodwill amortisation Total after exceptional 7,747 1,884 (2,455) items Year ended March 31, 2001 BT Retail 11,813 1,188 1,004 BT Wholesale 11,493 4,278 2,540 BT Wireless 3,947 220 (225) BT Ignite 3,861 47 (380) Concert 2,576 170 19 Yell 778 223 210 BTopenworld 212 (253) (296) Eliminations and other (i) (5,014) 1,675 539 Total before exceptional 29,666 7,548 3,411 items Exceptional items and - 11 (3,747) goodwill amortisation Total after exceptional 29,666 7,559 (336) items (i) Includes elimination of turnover between businesses which is included in total turnover of the originating business. (ii) Includes proportionate EBITDA of associates and joint ventures. 2 Results of businesses continued Analysis of operating results of certain lines of business Operating EBITDA profit (loss) before before exceptional goodwill amortisation and Turnover items exceptional items £m £m £m Three months ended March 31, 2001 BT Wireless Group 926 126 (6) Share of 131 (17) (41) ventures Total 1,057 109 (47) BT Ignite Group 1,058 53 (66) Share of 87 (3) (24) ventures Total 1,145 50 (90) BTopenworld Group 58 (61) (83) Share of 10 (5) ( 7) ventures Total 68 (66) (90) Year ended March 31, 2001 BT Wireless Group 3,408 356 3 Share of 539 (136) (228) ventures Total 3,947 220 (225) BT Ignite Group 3,470 101 (261) Share of 391 (54) (119) ventures Total 3,861 47 (380) BTopenworld Group 167 (190) (227) Share of 45 (63) (69) ventures Total 212 (253) (296) 2 Results of businesses continued (b) Capital expenditure on plant, equipment and property Fourth quarter ended Year ended March 31, 2001 March 31, 2001 £m £m BT Retail 24 157 BT Wholesale 717 2,273 BT Wireless 486 1,105 BT Ignite 394 936 Yell 8 21 BTopenworld - 25 Other 151 469 Total 1,780 4,986 (c) Net assets Net operating Associates and joint ventures assets (liabilities) (i) £m £m At March 31, 2001 BT Retail 1,114 - BT Wholesale 12,511 - BT Wireless 18,634 27 BT Ignite 3,584 178 Concert - 1,430 Yell 710 2 BTopenworld (17) 12 Other 1,033 2,507 Total 37,569 4,156 (i) Net operating assets comprise tangible and intangible fixed assets, stocks, debtors less creditors, excluding loans and other borrowings, and provisions for liabilities and charges, excluding deferred tax. 3 Turnover Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Fixed network calls 1,383 1,440 5,655 5,908 Exchange lines 970 898 3,674 3,526 Receipts from other operators (a) 805 572 2,814 1,974 Wireless (b) 752 557 2,760 2,170 Private services 277 256 1,091 1,135 Solutions 340 236 1,074 915 Yellow Pages and other 236 198 754 642 directories Customer premises equipment 178 197 726 847 supply Other sales and services 481 389 1,879 1,598 Group turnover 5,422 4,743 20,427 18,715 Share of associates and 2,512 1,435 9,937 3,364 joint ventures turnover (note 20) Group trading with principal (187) (176) (698) (176) joint venture Total turnover 7,747 6,002 29,666 21,903 3 Turnover continued Fourth Year ended quarter ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m (a) Receipts from other operators Concert global venture 204 181 804 181 International operators for incoming and transit international calls to or through the - - - 483 UK UK operators and other 601 391 2,010 1,310 Total 805 572 2,814 1,974 (b) Wireless UK 561 557 2,293 2,170 Non UK 191 - 467 - Total 752 557 2,760 2,170 4 Other operating income Fourth Year quarter ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Provision of administration services to the 37 79 168 79 Concert global venture Other 102 53 225 163 Total 139 132 393 242 5 Operating costs Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Staff costs 1,187 1,104 4,625 4,296 Own work capitalised (173) (150) (693) (498) Depreciation 893 729 3,045 2,752 Amortisation of goodwill 3,120 52 3,386 89 and other intangibles (a) Payments to 994 851 3,802 3,086 telecommunication operators (b) Other operating costs (c) 1,923 1,488 6,594 5,634 Total operating costs (d) 7,944 4,074 20,759 15,359 (a) Amortisation of goodwill and other intangibles Goodwill amortisation 115 52 373 89 Goodwill impairment charge 3,000 - 3,000 - Other intangibles amortisation 5 - 13 - Total 3,120 52 3,386 89 (b) Payments to telecommunication operators UK fixed network payments to UK operators 694 527 2,437 1,694 UK fixed network payments to Concert global 136 180 609 668 venture or non-UK operators for international calls BT Cellnet payments to other operators 49 83 273 348 Non UK operations 115 61 483 376 Total 994 851 3,802 3,086 (c) Other operating costs UK fixed network and other costs 1,180 978 3,848 3,635 Wireless 330 286 1,610 1,284 Non-UK fixed network operations 291 100 707 389 Yellow Pages and other directories 113 84 325 267 Total before redundancy costs 1,914 1,448 6,490 5,575 Redundancy costs 9 40 104 59 Total 1,923 1,488 6,594 5,634 5 Operating costs continued (d) Includes exceptional costs (credits) Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Rates refunds - - (193) - Goodwill impairment in Viag 3,000 - 3,000 - Interkom (Note 13) Write down of Viag Interkom's 43 - 43 - IT systems assets on division of company into fixed and wireless businesses Write off of subscriber - - 7 - acquisition costs Costs relating to group's - 22 - 64 disengagement from MCI Costs relating to closure of BT Cellnet's analogue - 47 - 47 cellular system Total costs 3,043 69 2,857 111 6 Group's share of losses of associates and joint ventures The results for the year ended March 31, 2001 include £132m for the write off of subscriber acquisition costs. The results are shown after charging goodwill amortisation of £385m for the year ended March 31, 2001 (2000 - £84m) and £38m (2000 - £28m) for the three months ended March 31, 2001. The amortisation for the year ended March 31, 2001 includes £200m for the impairment of goodwill in ventures. 7 Profit on sale of fixed asset investments and group undertakings The profit in the year ended March 31, 2001 is mainly attributable to the profit of £454m on the sale of BT's interest in sunrise communications in November 2000. In addition, a profit has been realised on the sale of BT's aeronautical and maritime business in December 2000 and a profit was realised in the initial public offering of I.Net SpA in April 2000. The profit on sale in the year ended March 31, 2000 was mainly attributable to the sale of BT Communications Services KK to Japan Telecom in August 1999. 8 Dividends Year ended Year ended March 31 March 31 2001 2000 2001 2000 pence per share £m £m Interim dividend 8.70 8.70 571 565 Proposed final dividend - 13.20 - 861 8.70 21.90 571 1,426 9 Interest payable Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Group 482 154 1,426 488 Joint ventures and associates 80 36 296 87 Total interest payable 562 190 1,722 575 Interest receivable (a) (140) (50) (408) (193) Net interest payable 422 140 1,314 382 (a) Includes exceptional credit of £25m in the three months ended December 31, 2001 relating to interest on rates refunds. 10 Earnings (loss) per share The basic earnings (loss) per share are calculated by dividing the profit (loss) attributable to shareholders by the average number of shares in issue after deducting the company's shares held by employee share ownership trusts. In calculating the diluted earnings per share, share options outstanding and other potential ordinary shares have been taken into account. The diluted loss per share is shown as the same as the basic loss per share. 10 Earnings (loss) per share continued The average number of shares in the periods were: Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 millions of shares millions of shares Basic 6,539 6,496 6,525 6,488 Diluted 6,608 6,650 6,621 6,642 The items in the calculation of the earnings per share before exceptional items and goodwill amortisation are: Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Profit on sale of group 54 36 619 126 undertakings and fixed asset investments Rates refunds relating to - - 193 - prior periods Goodwill impairment in Viag (3,000) - (3,000) - Interkom Goodwill impairment in joint - - (200) - ventures Write off of subscriber - - (139) - acquisition costs Write down of Viag Interkom's (43) - (43) - integrated IT systems on division of business into fixed and wireless units Interest receivable on rates - - 25 - refunds Costs relating to the closure - (47) - (47) of the analogue cellular systems Costs relating to the - (22) - (64) disengagement from MCI Goodwill amortisation (153) (80) (558) (173) (3,142) (113) (3,103) (158) Tax credit (charge) 13 10 (22) (5) attributable Minority interests - - (21) - attributable Net charge (3,129) (103) (3,146) (163) 11 Reconciliation of operating profit to operating cash flow Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Group operating profit (2,383) 801 61 3,598 (loss) Depreciation and 4,013 781 6,431 2,841 amortisation Changes in working capital 712 241 (296) (241) Provision movements and (156) (306) (309) (349) other Net cash inflow from 2,186 1,517 5,887 5,849 operating activities 12 Expenditure on tangible fixed assets Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Plant and equipment: Transmission equipment 810 464 2,295 1,563 Exchange equipment 137 113 479 413 Other network equipment 474 261 1,180 703 Computers and office 222 186 574 502 equipment Motor vehicles and other 69 73 251 257 Changes in engineering (3) 3 (3) 13 stores Land and buildings 71 60 210 229 Total expenditure 1,780 1,160 4,986 3,680 13 Intangible assets At March 31 2001 2000 £m £m Goodwill 8,648 5,775 Mobile licences and other 9,732 2 18,380 5,777 In June 2000, the group completed the acquisition of the Dutch railways' 50% interest in Telfort for £1,207m, including expenses. Goodwill of £986m arose on this transaction which is being amortised over a period of 20 years. 13 Intangible assets continued In January and February 2001, the group completed the acquisition of the 55% interest in Viag Interkom that it did not already own for £5,605m, including expenses. Goodwill of £4,992m arose on this transaction. The consideration for acquisition of the 55% interest was negotiated in August 2000. An impairment review of the Viag Interkom goodwill has been undertaken as required by FRS 11, the UK accounting standard on the impairment of fixed assets. Under this review, a value in use for Viag Interkom has been established as at March 31, 2001 using the discounted cash flow methodology prescribed by the accounting standard. The assumptions have incorporated reduced expectations for the rate of growth in profits in the medium term. The resulting impairment of £3,000m in goodwill has been charged as an exceptional item in the three months and year ended March 31, 2001. The net book value of this goodwill amounting to £1,921m after the impairment provision is being amortised over 20 years. In April 2000, the group won a third generation mobile licence in the UK government's auction. The licence, which cost £4,030m, will be amortised over its remaining 20-year term from the date of launch of services using the licensed radio spectrum. In August 2000, Viag Interkom won a third generation mobile licence in the German government's auction. The licence, which cost £5,164m, will be similarly amortised over its remaining 20-year term from the date of launch of service. 14 Net debt (a) Analysis At March 31 2001 2000 £m £m Long-term loans and other borrowings 18,775 5,354 falling due after more than one year Short-term borrowings and long-term loans and other borrowings falling due 12,136 5,650 within one year Total debt 30,911 11,004 Short-term investments (2,557) (2,051) Cash at bank (412) (253) Net debt at end of period 27,942 8,700 14 Net debt continued (b) Reconciliation of net cash flow to movement in net debt Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Net debt at beginning of 19,050 6,987 8,700 953 period Increase in net debt 8,678 925 18,942 6,582 resulting from cash flows Net debt assumed or issued 2 732 48 971 on acquisitions Currency movements 5 58 26 124 Other non-cash movements 207 (2) 226 70 Net debt at end of period 27,942 8,700 27,942 8,700 15 Provisions for liabilities and charges At March 31 2001 2000 £m £m Pension provisions 335 629 Deferred taxation 270 354 Other provisions 118 73 723 1,056 16 Reserves £m Balance at April 1, 2000 14,168 Loss for the financial year transferred (2,381) Currency movements (a) 429 Premium on allotment of ordinary shares 615 Movement relating to BT's employee share ownership trust (359) Other movements (49) Balance at March 31, 2001 12,423 (a) Including £65m movement on the retranslation of foreign borrowings and other hedging instruments. 17 Esat Telecom Group On March 30, 2000, BT obtained control of the Esat Telecom Group for approximately £1.5bn. Esat operates a fixed line telecommunications network in Ireland. BT also gained control over Esat Digifone, Ireland's second mobile operator, through Esat's 49.5 per cent interest in the company and an additional 1.0 per cent interest acquired by the BT group in January 2000. The majority of the consideration for the Esat Telecom Group was paid in April 2000. In February 2001, Telenor, the owner of the remaining 49.5 per cent interest in Esat Digifone, decided to sell this interest to BT for approximately US$1,238m under an agreement made in January 2000. The transaction was completed on April 18, 2001. 18 Contingencies BT has provided guarantees amounting to £782m in respect of bank loans provided to J-Phone Communications. 19 Earnings before interest, taxation, depreciation and amortisation (EBITDA) Fourth quarter Year ended ended March 31 ended March 31 2001 2000 2001 2000 £m £m £m £m Group operating profit (2,383) 801 61 3,598 (loss) Depreciation 893 729 3,045 2,752 Amortisation 3,120 52 3,386 89 EBITDA 1,630 1,582 6,492 6,439 Exceptional items, 43 30 (143) 63 excluding depreciation and amortisation Estimated impact of - - - (191) the Concert global venture Impact of acquisitions 70 - 111 - EBITDA before exceptional items, the 1,743 1,612 6,460 6,311 impact of the Concert global venture and acquisitions 20 Results of associates and joint ventures Group's share Turnover EBITDA Total operating £m before profit (loss) before exceptional items goodwill amortisation £m and exceptional items £m Fourth quarter ended March 31, 2001 Japanese investments 1,547 221 48 and other Concert global 605 (48) (89) venture Cegetel 178 77 44 Viag Interkom 106 (25) (54) (to February 19, 2001) Airtel 76 26 17 Total 2,512 251 (34) Year ended March 31, 2001 Japanese investments 5,766 917 231 and other (a) Concert global 2,576 170 19 venture Cegetel 860 196 90 Viag Interkom 449 (174) (277) (to February 19, 2001) Airtel 286 87 57 Total 9,937 1,196 120 (a) In the six months to September 30, 2000, BT's share of Japan Telecom's and J-Phone's results were EBITDA of £498m, operating profit of £253m before goodwill amortisation on turnover of £2,180m. After interest, tax and minority interests, the profit attributable to BT's shareholders from these investments was £22m. 21 Results of certain subsidiaries Turnover EBITDA Total operating £m before profit (loss) before exceptional items goodwill amortisation £m and exceptional items £m Fourth quarter ended March 31, 2001 BT Cellnet group 765 205 119 Viag Interkom 316 (75) (160) Esat Digifone 92 27 13 Telfort 86 (23) (47) Esat Telecom 35 (5) (15) Year ended March 31, 2001 BT Cellnet group 3,031 591 336 Viag Interkom 1,078 (407) (656) Esat Digifone 312 69 20 Telfort 301 (118) (195) Esat Telecom 124 (12) (48) 22 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. Fourth quarter Year ended ended March 31 March 31 2001 2000 2001 2000 £m £m £m £m Net income (loss) (2,720) 8 (2,357) 1,393 attributable to shareholders Earnings (loss) per ADS (£) (4.16) 0.01 (3.61) 2.15 Each American Depositary Share (ADS) represents 10 ordinary shares of 25p each. Shareholders' equity, calculated in accordance with United States Generally Accepted Accounting Principles, is £10,231m at March 31, 2001 (2000 - £13,634m). _____________________________________________________________________ Non-financial statistics As at March 31, 2001, unless otherwise stated BT Wireless - selected operations BT Cellnet: Pre-pay customer base (000s) 7,707 Post-pay customer base (000s) 3,455 Total customer base (000s) 11,162 21/2 generation and WAP customers (000s) 1,500 Pre-pay ARPU (£ per year) 100 Post-pay ARPU (£ per year) 525 Blended ARPU (£ per year) 269 Viag Interkom: Pre-pay customer base (000s) 2,026 Post-pay customer base (000s) 1,694 Total customer base (000s) 3,720 21/2 generation and WAP customers (000s) 346 Pre-pay ARPU (£ per year) 81 Post-pay ARPU (£ per year) 330 Blended ARPU (£ per year) 219 Esat Digifone: Pre-pay customer base (000s) 727 Post-pay customer base (000s) 332 Total customer base (000s) 1,059 21/2 generation and WAP customers (000s) 135 Pre-pay ARPU (£ per year) 211 Post-pay ARPU (£ per year) 672 Blended ARPU (£ per year) 376 Telfort: Pre-pay customer base (000s) 745 Post-pay customer base (000s) 173 Total customer base (000s) 918 Pre-pay ARPU (£ per year) 72 Post-pay ARPU (£ per year) 482 Blended ARPU (£ per year) 139 Note: ARPU is the annual average revenue per user Non-financial statistics continued As at March 31, 2001, unless otherwise stated BT Retail and Wholesale Exchange lines: Business, including wholesale (000s) 8,910 Residential, including service providers (000s) 20,040 Optical fibre in network (km millions) 5.1 SDH nodes 2,123 Next generation trunk switches 57 Digital local exchanges with IP grooming (a) 780 BT Dial IP ports connected to groomed local exchanges (000s) 284 ADSL enabled exchanges 839 ADSL lines provided (000s) 49 (a) Grooming applies to internet type calls originating from BT customers. These calls are grouped together and then routed directly to BT's Dial IP platform or other operators' networks. BT Ignite Inter-city fibre network (kms) 52,000 Web hosting centres 21 BTopenworld Fixed ISP customers: Through wholly owned subsidiaries (000s) 1,787 Through ventures (000s) 2,677 Equity customers (000s) 2,596 ADSL customers (000s) 25 _____________________________________________________________________ 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: expectations regarding turnover, costs, growth and the communications industry; the possible or assumed future results of operations of BT and/or its associates and joint ventures; the impact on BT of Concert, the global venture with AT&T; expectations regarding capital expenditure and investment plans; expectations regarding the disposal of non-core businesses, intentions regarding the demerger of BT Wireless and the demerger or sale of Yell and the level of BT's borrowings. 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 and its new businesses; future regulatory actions and conditions in BT's operating areas, including competition from others in the UK and other international communications markets; technological innovations, including the cost of developing new products and the need to increase expenditure 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 timing of entry and profitability of BT, its new businesses and Concert in certain national and international markets and fluctuations in foreign currency exchange rates and interest rates; BT's ability to fulfil its intentions regarding BT Wireless and Yell.

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