Preliminary Results

BT Group PLC 19 May 2005 May 19, 2005 PRELIMINARY RESULTS - YEAR TO MARCH 31, 2005 FOURTH QUARTER HIGHLIGHTS •Group turnover up 2 per cent at £4,870 million •New wave turnover of £1,367 million up 27 per cent •Profit before taxation, goodwill amortisation and exceptional items of £557 million, up 21 per cent •Earnings per share before goodwill amortisation and exceptional items up 26 per cent at 4.9 pence •Net debt of £7,786 million, £639 million lower than previous year •Acquisitions of Infonet and Albacom successfully completed •Broadband end users now more than 5 million with a record 825,000 DSL connections in the quarter FULL YEAR HIGHLIGHTS •Group turnover up 1 per cent (up 2 per cent excluding the impact of acquisitions and mobile termination rate reductions) at £18,623 million •New wave turnover of £4,471 million up 32 per cent •Global Services generated its first full year operating profit, at £7 million, an improvement of £112 million •Profit before taxation, goodwill amortisation and exceptional items of £2,085million, up 4percent •Earnings per share before goodwill amortisation and exceptional items of 18.1 pence, up 7 per cent •Full year dividend of 10.4 pence per share, up 22 per cent •Free cash flow before acquisitions, disposals and dividends of £2,282 million, up 10 per cent 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 16 to 21. Chairman's statement Sir Christopher Bland, Chairman, commenting on the full year results, said: "The financial results for the full year reflect the continuing strong trends that we have seen during the year. New wave revenues have grown by 32 per cent to £4.5 billion and now represent nearly a quarter of our business. Earnings per share before goodwill amortisation and exceptional items of 18.1 pence have more than doubled over the past three years. We have again generated free cash flow of more than £2 billion and reduced net debt to below £8 billion, a level with which we are comfortable. Net debt is now more than £20 billion lower than in 2001. The transformation of our business is reflected in our financial results. "I am particularly pleased to announce a full year dividend of 10.4 pence per share, which is 22 per cent higher than last year. This shows our continued commitment to improving shareholder returns whilst building for the future." Chief Executive's statement Ben Verwaayen, Chief Executive, commenting on the fourth quarter results, said: "This has been an excellent quarter to end an exciting year. "We have now delivered five consecutive quarters of underlying revenue growth and twelve consecutive quarters of growth in underlying earnings per share*. These are great results and we expect to see the overall revenue trends continuing. "We have more than doubled the number of broadband DSL connections in the year, hit the 5 million target a year early and are increasing broadband speeds by up to four times. "Our global networked IT services business is building strongly and with purpose. We have successfully completed the acquisitions of Albacom, Infonet and Radianz, extending our global reach still further. Even after excluding the effect of acquisitions, our Global Services' revenues grew by 10 per cent in the quarter. Our ICT order intake was a record £3.8 billion in the quarter and takes orders for the year to more than £7 billion. This is a profitable business today and we expect it to continue to grow. "We are delivering value through transforming the business and are confident that our strategy will continue to deliver value in the future." *before goodwill amortisation, exceptional items and leaver costs RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED MARCH 31, 2005 Fourth quarter Year 2005 2004 Better 2005 2004 Better (worse) (worse) £m £m % £m £m % Group turnover 4,870 4,787 2 18,623 18,519 1 EBITDA - before exceptional items and leaver costs 1,527 1,561 (2) 5,870 6,015 (2) - before exceptional items 1,483 1,412 5 5,704 5,813 (2) Profit before taxation - before goodwill, exceptional items and leaver costs 601 608 (1) 2,251 2,215 2 - before goodwill and exceptional items 557 459 21 2,085 2,013 4 - after goodwill and exceptional items 570 423 35 2,343 1,945 20 Earnings per share - before goodwill, exceptional items and leaver costs 5.2p 5.1p 2 19.5p 18.5p 5 - before goodwill and exceptional items 4.9p 3.9p 26 18.1p 16.9p 7 - after goodwill and exceptional items 5.1p 3.5p 46 21.4p 16.4p 30 Capital expenditure 744 844 12 3,011 2,673 (13) Free cash flow 1,144 819 40 2,282 2,071 10 Net debt 7,786 8,425 8 The commentary focuses on the results before goodwill amortisation and exceptional items. 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. As noted in the first quarter, 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 and £nil for the quarter ended March 31, 2004. The full profit and loss account, cash flow statement and balance sheet are provided on pages 16 to 21. A reconciliation of EBITDA to group operating profit is provided on page 29. GROUP RESULTS Fourth quarter ended March 31, 2005 Turnover was 2 per cent higher at £4,870 million with strong growth of new wave turnover and the impact of acquisitions more than offsetting the decline in traditional turnover. The revenue of £111 million generated from the acquisitions of Albacom and Infonet in the fourth quarter substantially offset the impact of regulatory reductions to mobile termination rates, which have no impact on profitability. Earnings per share before goodwill amortisation and exceptional items increased by 26 per cent to 4.9 pence, helped by lower leaver costs in the quarter. The strong growth in new wave turnover continued and at £1,367 million was 27 per cent higher than last year. New wave turnover accounted for 28 per cent of the group's turnover compared to 23 per cent in the fourth quarter of last year. New wave turnover is mainly generated from Information and Communications Technology (ICT), broadband and mobility. ICT turnover grew by 15 per cent to £916 million. Broadband turnover increased by 77 per cent to £292 million. Mobility turnover at £58 million achieved growth of 45 per cent. Turnover from the group's traditional businesses declined by 9 per cent (5 per cent excluding the impact of reductions to mobile termination rates). This continued decline reflects regulatory intervention, competition, price reductions and also technological changes that we are using to drive customers from traditional services to new wave services, such as broadband and Internet Protocol Virtual Private Networks (IPVPN). Total consumer turnover in the fourth quarter was 6 per cent lower (5 per cent lower excluding the impact of reductions to mobile termination rates). New wave consumer turnover increased by 81 per cent, driven by the continuing growth of broadband and mobility. Residential broadband connections almost doubled to 1,330,000 at March 31, 2005 and mobility connections increased by more than four fold to 187,000 at March 31, 2005 from 41,000 last year. In February 2005 we announced that our broadband customers would be able to receive broadband at speeds of up to 2Mbit/s (up to four times faster) at no extra cost. Traditional consumer turnover declined 11 per cent year on year reflecting the continued impact of Carrier Pre-Selection (CPS) and broadband substitution. There are now 17.6 million BT Together customers and the number of customers on the frequent user packages continues to grow. BT Together Option 2 increased by 8 per cent to 1.3 million and Option 3, which offers unlimited UK fixed line calls, increased by 80 per cent against last year to 582,000 by March 31, 2005, an increase of 5 per cent in the quarter. The underlying 12 month rolling average revenue per consumer household (net of mobile termination charges) of £256 declined by £3 compared to last quarter, with increased broadband volumes more than offset by lower call revenues. Contracted revenues increased by 2 percentage points to 63 per cent compared to last quarter, 5 percentage points higher than last year. Turnover from smaller and medium sized businesses declined by 8 per cent (6 per cent excluding the impact of reductions to mobile termination rates). New wave turnover grew by 13 per cent supported by the 40 per cent growth in Business Broadband customers to 347,000 and the continued growth in mobility. The number of BT Business Plan locations increased by 67 per cent against last year to 445,000 by March 31, 2005, an increase of 6 per cent in the quarter. Major corporate (UK and international) turnover excluding the impact of acquisitions was steady with strong growth in new wave turnover (16 per cent) more than offsetting the decline in traditional services. There is a continued migration from traditional voice only services to managed ICT solutions contracts and an increase in mobility and broadband turnover. The year on year growth in new wave turnover was lower than previous quarters in the year but was measured against a very strong fourth quarter last year which included £77 million of turnover from the NHS contracts. New wave turnover now represents 54 per cent of all major corporate turnover. In addition, Albacom and Infonet generated revenues of £111 million from their acquisition dates in February 2005. ICT contract wins were a record £3.8 billion in the fourth quarter, including a contract with Reuters expected to be worth up to £1.5 billion over eight and a half years. Total orders of £7.2 billion were achieved over the last twelve months. In addition, long term outsourcing contracts with the former joint venture partners in Albacom were signed in the quarter. Wholesale (UK and Global Carrier) turnover increased by 12 per cent (22 per cent excluding the impact of reductions to mobile termination rates). UK Wholesale new wave turnover increased by 80 per cent to £207 million, mainly driven by broadband. We reached 5 million broadband DSL lines in early April 2005, a year ahead of our target representing an increase of 126 per cent from March 31, 2004. A new broadband DSL connection was made every 10 seconds of every day in the 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 1.1 percentage points compared to last quarter to around 62 per cent whilst the estimated business market share declined by 0.4 percentage points to around 41 per cent. The group has an extensive market research programme conducted by external agencies which focuses on the level and causes of customer dissatisfaction. BT has achieved a 23 per cent reduction in the level of customer dissatisfaction on a compound annual basis over the past three years. Group operating costs before goodwill amortisation and exceptional items were flat year on year at £4,170 million, although the costs from the acquisitions of Albacom and Infonet were £123 million. Net staff costs before leaver costs increased by £80 million to £955 million due mainly to the additional staff required to service ICT contracts. Leaver costs were £44 million in the quarter (£149 million last year). Payments to other telecommunication operators were £82 million (8 per cent) lower than last year mainly reflecting the impact of the mobile termination rate reductions offset by higher volumes. Other operating costs (excluding goodwill amortisation and exceptional items) increased by £118 million, in line with our expectations. This reflects not only the costs of supporting new ICT contracts, but also investment in new wave activities, including strengthening our networked IT services delivery capabilities outside the UK, higher marketing costs and higher subscriber acquisition costs. These were partly offset by cost savings from our efficiency programmes. Depreciation was flat year on year at £739 million. Group operating profit before goodwill amortisation and exceptional items increased by 10 per cent to £739 million. Operating profit margins increased by 1.2 percentage points to 15.2 per cent due to the reduction in leaver costs year on year. Net interest payable before exceptional items was £190 million, an improvement of £32 million against last year reflecting the reduction in the level of net debt. Profit before taxation, goodwill amortisation and exceptional items of £557 million increased by 21 per cent compared to last year. The effective tax rate on the profit before goodwill amortisation and exceptional items was 25.7 per cent (26.8 per cent last year). The effective tax rate reflects tax efficient investment of surplus cash and continued improvements in the tax efficiency within the group. Earnings per share before goodwill amortisation and exceptional items increased by 26 per cent to 4.9 pence. Full year results ended March 31, 2005 Group turnover increased by 1 per cent to £18,623 million in the year (up 2 per cent excluding the impact of the acquisitions of Albacom and Infonet and reductions to mobile termination rates). New wave turnover grew by 32 per cent to £4,471 million in the year driven by strong growth in ICT solutions and broadband. This strong growth more than offset the decline in traditional turnover of 7 per cent (5 per cent excluding the impact of reductions to mobile termination rates). New wave turnover represents 24 per cent of the group's turnover for the year compared to 18 per cent last year. We remain focused on financial discipline and our cost efficiency programmes achieved savings of approximately £400 million in the full year. This has enabled us to invest in growing our new wave activities. We aim to deliver at least £300 million to £400 million of savings in each of the next three years. Group operating profit before goodwill amortisation and exceptional items at £2,864 million for the year was 1 per cent lower than the prior year. This reflects the costs of supporting new networked IT services contracts, investment in new wave activities and higher marketing and subscriber acquisition costs. BT's share of associates and joint ventures operating profits before goodwill amortisation and exceptional items was £nil (£8 million losses last year). Net interest payable before exceptional items was £801 million for the year, an improvement of £85 million against last year as a result of the reduction in net debt. The group achieved a profit before taxation, goodwill amortisation and exceptional items of £2,085 million, a 4 per cent increase, reflecting the lower net interest payable. The taxation charge for the year was £539 million on the profit before exceptional items and goodwill amortisation, an effective rate of 25.9 per cent (28.2 per cent last year). Earnings per share before goodwill amortisation and exceptional items were 7 per cent higher at 18.1 pence for the year. Exceptional items and goodwill There was a net exceptional profit before taxation of £17 million in the quarter. This includes the £46 million profit on disposal of our interest in Intelsat partially offset by an exceptional property rationalisation charge of £29 million (£59 million for the full year) in relation to the group's provincial office portfolio. This rationalisation programme is expected to continue through next year giving rise to additional rationalisation costs. Other exceptional items in the full year include the profit on disposal of group investments of £312 million, including Eutelsat and StarHub. This was partly offset by BT's share of an exceptional write down of Albacom's fixed assets (£25 million) in the third quarter. Goodwill amortisation was £4 million in the quarter (£3 million last year) and £16 million for the full year (£12 million last year). Earnings per share after goodwill amortisation and exceptional items were 5.1 pence in the quarter (3.5 pence last year) and 21.4 pence for the full year (16.4 pence last year). Dividends The Board recommends a final dividend of 6.5 pence per share to shareholders, amounting to £551 million. This will be paid, subject to shareholder approval, on September 5, 2005 to shareholders on the register on August 5, 2005. The ex-dividend date is August 3, 2005. The full year dividend has increased by 22 per cent to 10.4 pence per share, compared to 8.5 pence last year. This year's dividend pay out ratio is 57 per cent of earnings before goodwill amortisation and exceptional items compared to 50 per cent last year. We continue with our progressive dividend policy. The dividend for 2005/06 will be at least 60 per cent of underlying earnings: subject to the group's overall financial position, we expect our payout ratio to rise to around two-thirds of underlying earnings by 2007/08. Cash flow and net debt Cash inflow from operating activities in the fourth quarter amounted to £2,074 million compared to £1,568 million last year, benefiting from a reduction in working capital. Last year's cash inflow was net of deficiency contributions to the BT Pension Scheme of £380 million. The full year cash inflow from operating activities was £5,898 million compared to £5,389 million last year. Returns on investments and servicing of finance is a net cash outflow of £101 million in the fourth quarter compared to a net inflow of £148 million last year. This reflects the receipt of funds in the fourth quarter of last year on restructuring part of the group's hedging swap portfolio partly offset by the lower net debt this year. The net cash outflow on fixed asset purchases and sales was £673 million in the fourth quarter which compares to £765 million last year due mainly to the consideration from the disposal of fixed asset investments and lower capital expenditure in the fourth quarter this year. BT's plans for its 21st century network (21CN) remain on track. Having consulted widely with leading vendors, operators and customers, the detailed planning and design work is well advanced to support 21CN implementation. Technical trials are progressing well. Through Consult21, we are giving wholesale customers an opportunity to input and influence 21CN development. In April 2005 we announced a final list of eight preferred suppliers after two years of discussions and negotiations. This has been an extremely competitive process in what is one of the largest single procurement programmes ever undertaken in the communications industry. We expect to conclude the commercial agreements over the summer, which will include open standards and a focus on whole life costs. Free cash flow was a net inflow of £1,144 million in the fourth quarter compared to £819 million last year mainly reflecting a strong working capital reduction. Free cash flow for the full year was a net inflow of £2,282 million compared to £2,071 million last year. The inflow includes the proceeds from the sale of fixed asset investments of £537 million. The net cash outflow from acquisitions was £418 million in the quarter and relates mainly to Infonet and Albacom. The share buyback programme continued with the repurchase of 29 million shares for £60 million, with a cash outflow of £63 million in the quarter, taking the full year share repurchase to 101 million shares for £195 million. Net debt continued to improve and was £7,786 million at March 31, 2005, £639 million below the level at March 31, 2004. This is a level with which we are comfortable and we are no longer targeting net debt of around £7 billion in 2006/07. Pensions The FRS17 position at March 31, 2005 showed a deficit of £3.3 billion, net of tax, being a reduction of £0.3 billion since March 31, 2004. Post balance sheet events In March 2005 BT agreed to acquire Radianz, the leading financial services extranet provider, from Reuters for consideration of £107 million for the business including the cash on the balance sheet, subject to working capital adjustments, at completion date. Regulatory clearance was received in April and the transaction completed on April 29, 2005. International Financial Reporting Standards We estimate the pro forma impact of adopting IFRS on the 2004/05 reported UK GAAP results would have been negligible on the underlying profit before tax, and underlying earnings per share. However, due to the inherent volatilities introduced by IFRS, no such statement can be made in respect of future years. These estimates exclude the mark-to-market effects of IAS 39 on financial instruments which we are not required to apply until April 1, 2005. _____________________________________________________________________________ The Annual Report and Form 20-F is expected to be published on June 1, 2005. The Annual General Meeting of BT Group plc will be held at the Harrogate International Centre, Harrogate on July 13, 2005. BT Retail Fourth quarter ended March 31 Year ended March 31 --------------------------- ------------- 2005 2004* Better(worse) 2005 2004* £m £m £m % £m £m Group turnover 3,221 3,376 (155) (5) 12,562 12,940 ----- ------ ------ ------ Gross margin 838 876 (38) (4) 3,300 3,517 Sales, general and administration costs 505 571 66 12 2,051 2,123 --- --- ----- ----- EBITDA 333 305 28 9 1,249 1,394 Depreciation 33 36 3 8 129 162 -- -- --- --- Operating profit 300 269 31 12 1,120 1,232 === === ===== ===== Operating profit before leaver costs 315 351 (36) (10) 1,187 1,344 --- --- ----- ---- Capital expenditure 50 46 (4) (9) 154 118 == === === === *Restated to reflect changes in intra-group trading arrangements. New wave turnover grew by 17 per cent but was more than offset by the traditional turnover decline of 11 per cent. Overall turnover declined by 5 per cent (3 per cent excluding the impact of reductions to mobile termination rates). BT Retail Fourth quarter ended March 31 Year ended March 31 --------------------------- ------------- 2005 2004* Better (worse) 2005 2004* £m £m £m % £m £m Voice Services 1,925 2,165 (240) (11) 8,054 8,906 Intermediate Products 425 465 (40) (9) 1,728 1,868 --- --- ----- ----- Traditional 2,350 2,630 (280) (11) 9,782 10,774 ----- ----- ----- ------ ICT 631 594 37 6 1,978 1,734 Broadband 163 101 62 61 541 307 Mobility 51 34 17 50 184 84 Other 26 17 9 53 77 41 -- -- -- -- New Wave 871 746 125 17 2,780 2,166 --- --- ----- ----- Total 3,221 3,376 (155) (5) 12,562 12,940 ===== ===== ====== ====== Sales to other 137 140 (3) (2) 447 338 BT businesses incl.above *Restated to reflect changes in intra-group trading arrangements. Turnover from voice services was 11 per cent lower than last year (9 per cent excluding the impact of reductions to mobile termination rates). The reduction includes the effects of the highest migration to broadband in a quarter with a 35 per cent fall in dial up internet minutes, a 5 per cent decline in the overall fixed to fixed calls market and a reduction in market share reflecting regulatory and competitive pressure. Turnover from intermediate products decreased by 9 per cent compared to last year mainly driven by the continued 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 17 per cent compared to the strong quarter of last year and accounted for 27 per cent of BT Retail's total turnover in the quarter, up from 22 per cent last year. ICT turnover increased by 6 per cent compared to the fourth quarter of last year, which had benefited from high initial revenues from the NHS contracts, reflecting strong growth compared to the overall market. Broadband turnover grew by 61 per cent to £163 million. The growth of broadband has accelerated with 1,752,000 BT Retail connections at March 31, 2005, an increase of 18 per cent in the quarter. Net additions of 261,000 in the quarter included the impact of BT Yahoo!'s successful narrowband upgrade programme and results in a 29 per cent share of the broadband DSL market additions in the full year and 32 per cent in the quarter. Turnover from mobility services increased by 50 per cent to £51 million. BT Mobile had over 372,000 contract mobile connections at March 31, 2005, increasing the customer base in the quarter by 9 per cent. We plan to launch Project Bluephone shortly, a converged mobile service, enabling customers to use a single device that can switch seamlessly between fixed and mobile networks. BT Openzone has grown significantly this year with paid minutes across the network almost four times higher and the number of access sites is now over 20,000 worldwide. Other new wave turnover has grown by 53 per cent, primarily driven by revenues from BT Phone Books (now covering 171 different regions) increasing to £22 million. Gross margin remained flat at 26 per cent compared to last year with improved broadband margins offset by the changing mix between traditional business and new wave services. Cost transformation programmes contributed to SG&A savings of £21 million in the traditional business. However, against this £23 million more was invested in new wave activities (including new entertainment products and mobility convergence products). Leaver costs of £15 million were incurred in the quarter, significantly below the £82 million incurred in the fourth quarter last year. Overall these results led to an operating profit in the quarter of £300 million which is 12 per cent higher than last year. BT Wholesale Fourth quarter ended March 31 Year ended March 31 --------------------------- ------------- 2005 2004* Better (worse) 2005 2004* £m £m £m % £m £m External turnover 965 871 94 11 3,812 3,473 Internal turnover 1,273 1,348 (75) (6) 5,167 5,410 ----- ----- ----- ----- Group turnover 2,238 2,219 19 1 8,979 8,883 Variable cost of sales 509 521 12 2 2,162 2,092 --- --- ----- ----- Gross variable profit 1,729 1,698 31 2 6,817 6,791 Network and SG&A costs 756 769 13 2 2,968 2,989 --- --- ----- ----- EBITDA 973 929 44 5 3,849 3,802 Depreciation 484 491 7 1 1,909 1,919 --- --- ----- ----- Operating profit 489 438 51 12 1,940 1,883 Operating profit before leaver costs 492 480 12 3 1,985 1,929 --- --- ----- ----- Capital 440 544 104 19 1,973 1,809 expenditure ======= ======= === ======= ========= === ======= ======== *Restated to reflect changes in intra-group trading arrangements. Wholesale turnover for the quarter of £2,238 million was 1 per cent higher. External turnover of £965 million increased by 11 per cent (underlying growth being 21 per cent excluding the impact of regulatory reductions to mobile termination rates). The growth continues to be driven by new wave services, mainly broadband and managed services, up 80 per cent to £207 million. The impact of regulatory reductions on November 30, 2004, to interconnect prices and private circuits for mobile operators has continued this quarter reducing external turnover by £27 million. Internal turnover declined by 6 per cent to £1,273 million reflecting the impact of lower volumes of calls, lines and private circuits, and lower regulatory prices being reflected in internal charges. Gross variable profit of £1,729 million is 2 per cent higher than the fourth quarter last year reflecting volume increases and a favourable change in sales mix. A combination of cost reductions, higher turnover and the phasing of leaver costs has resulted in the EBITDA increase of 5 per cent and operating profit increase of 12 per cent in the quarter. Cost savings for the full year have more than offset higher activity levels in the network, driven by broadband. Capital expenditure in the quarter is 19 per cent lower but for the full year is 9 per cent higher than last year as a result of expenditure to support the rapid growth in broadband and the transformation of the group's network. BT Global Services Fourth quarter ended March 31 Year ended March 31 -------------------------- ------------- 2005 2004* Better(worse) 2005 2004* £m £m £m % £m £m Group turnover 1,928 1,649 279 17 6,381 5,782 EBITDA 201 163 38 23 580 508 Operating profit (loss) 47 7 40 n/m 7 (105) Operating profit (loss) before leaver costs 62 21 41 195 40 (72) Capital 164 160 (4) (3) 628 479 expenditure ======= ======= === ======= ========= === ======= ======== *Restated to reflect changes in intra-group trading arrangements. See note 2 for additional detail. Turnover for the quarter rose by 17 per cent to £1,928 million, including £111 million of turnover from the acquired businesses, Albacom and Infonet. Excluding acquisitions, turnover grew strongly by 10 per cent. Solutions turnover grew by 20 per cent reflecting the conversion of the continued strong order book. Consulting and Systems Integration (C&SI) revenues showed a decrease of 8 per cent due to very high initial NHS contract turnover in the fourth quarter of last year. C&SI growth excluding the NHS contracts was 12 per cent. Solutions and C&SI achieved record orders of £3.8 billion in the quarter which results in orders of £7.2 billion over the last twelve months. Global Products turnover grew by 4 per cent having benefited from continuing growth in Multi Protocol Label Switching (MPLS) products. Global Carrier turnover increased by 1 per cent reflecting the increases in termination revenues in Europe partly offset by the anticipated decline in AT&T revenues. The increase in turnover, together with lower network and SG&A costs and lower depreciation, generated an operating profit of £47 million in the quarter, representing a £40 million improvement over last year. The acquisitions contributed an operating loss of £10 million in the period. BT Global Services has generated its first ever full year operating profit before goodwill amortisation and exceptional items, at £7 million, which is an improvement of £112 million over last year. Operating costs include the expected increase in resources associated with strengthening the overseas network centric solutions delivery capabilities. We expect the underlying cost efficiency in Global Services to continue to improve. Capital expenditure in the quarter at £164 million increased by £4 million with underlying reductions offset by expenditure on the NHS contracts. Excluding acquisitions, capital expenditure in the quarter was £8 million lower than last year. Operating free cash flow (EBITDA less capital expenditure) was positive at £37 million, reducing the full year outflow to £48 million. GROUP PROFIT AND LOSS ACCOUNT for the three months ended March 31, 2005 -------------------- ------ ---------- ----------- --------- Before goodwill Goodwill Total amortisation and amortisation and exceptional items exceptional items (note 4) (unaudited) Notes £m £m £m -------------------- ------ ---------- ----------- --------- Group turnover 2 4,870 - 4,870 Other operating income 39 - 39 Operating costs 3 (4,170) (33) (4,203) ------- ---- ------ Group operating profit (loss) 2 739 (33) 706 Group's share of operating profits of associates and joint ventures 8 - 8 -- - - Total operating profit (loss) 747 (33) 714 Profit on sale of fixed asset investments and group undertakings - 46 46 Net interest payable 5 (190) - (190) ----- -- ----- Profit before taxation 557 13 570 Taxation (143) 8 (135) ----- - ---- Profit after taxation and attributable to shareholders 414 21 435 === == === Earnings per share 7 - basic 4.9p 5.1p ==== === - diluted 4.8p 5.1p ==== ==== GROUP PROFIT AND LOSS ACCOUNT for the three months ended March 31, 2004 -------------------- ------ ---------- ----------- --------- 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 4,787 - 4,787 Other operating income 44 - 44 Operating costs 3 (4,160) (10) (4,170) ------- ---- ------- Group operating profit (loss) 2 671 (10) 661 Group's share of operating losses of associates and joint ventures (6) (26) (32) --- ---- ---- Total operating profit (loss) 665 (36) 629 Profit on sale of fixed asset investments and group undertakings 4 - 4 Profit on sale of property fixed assets 12 - 12 Net interest payable 5 (222) - (222) ----- -- ----- Profit (loss) before taxation 459 (36) 423 Taxation (123) 2 (121) ----- -- ----- Profit (loss) after taxation 336 (34) 302 Minority interests 1 - 1 -- -- -- Profit (loss) attributable to shareholders 337 (34) 303 === ==== ==== Earnings per share 7 - basic 3.9p 3.5p ==== ==== - diluted 3.9p 3.5p ==== ==== GROUP PROFIT AND LOSS ACCOUNT for the year ended March 31, 2005 -------------------- ------ ---------- ----------- --------- Before goodwill Goodwill Total amortisation and amortisation and exceptional items exceptional items (note 4) Notes £m £m £m -------------------- ------ ---------- ----------- --------- Group turnover 2 18,623 - 18,623 Other operating income 171 - 171 Operating costs 3 (15,930) (75) (16,005) -------- ---- -------- Group operating profit (loss) 2 2,864 (75) 2,789 Group's share of operating losses of associates and joint ventures - (25) (25) - ---- ---- Total operating profit (loss) 2,864 (100) 2,764 Profit on sale of fixed asset investments and group undertakings - 358 358 Profit on sale of property fixed assets 22 - 22 Net interest payable 5 (801) - (801) ----- -- ----- Profit before taxation 2,085 258 2,343 Taxation (539) 16 (523) ----- -- ----- Profit after taxation 1,546 274 1,820 Minority interests 1 - 1 -- -- -- Profit attributable to shareholders 1,547 274 1,821 ===== === ===== Dividends 6 (883) ----- Retained profit for the period 938 Earnings per share 7 - basic 18.1p 21.4p ===== ===== - diluted 18.0p 21.2p ===== ===== 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 6 (732) Retained profit for the period 682 Earnings per share 7 - basic 16.9p 16.4p ===== ===== - diluted 16.8p 16.3p ===== ===== GROUP CASH FLOW STATEMENT for the three months and year ended March 31, 2005 ----------------------- ---------------- --- ---------------- Fourth quarter Year ended March 31 ended March 31 2005 2004 2005 2004 (unaudited) £m £m £m £m Net cash inflow from operating activities* 2,074 1,568 5,898 5,389 (note 8) Dividends from associates and joint ventures 1 - 2 3 Net cash (outflow) inflow for returns on investments and servicing of finance** (101) 148 (878) (527) Taxation paid (157) (132) (332) (317) -------- -------- --------- --------- Purchase of tangible fixed assets (744) (802) (3,056) (2,684) Net sale of fixed asset investments 62 4 537 131 Sale of tangible fixed assets 9 33 111 76 -------- -------- --------- --------- Net cash outflow for capital expenditure and financial investments (673) (765) (2,408) (2,477) ----------------------- -------- --- -------- --------- --- --------- Free cash inflow before acquisitions, disposals and dividends 1,144 819 2,282 2,071 ----------------------- -------- --- -------- --- --------- --- --------- -------- -------- --------- --------- Acquisitions (418) (33) (453) (61) Disposals - - 35 1 -------- -------- --------- --------- Net cash outflow for acquisitions and disposals (418) (33) (418) (60) Equity dividends paid (330) (277) (784) (645) Cash inflow before use of liquid resources and financing 396 509 1,080 1,366 Management of liquid resources 33 857 587 1,123 -------- -------- -------- --------- Repurchase of ordinary share capital (63) (86) (193) (144) New loans 5 6 5 1,326 Repayment of loans (126) (1,475) (1,297) (3,627) -------- -------- -------- --------- Net cash outflow from financing (184) (1,555) (1,485) (2,445) Increase (decrease) in cash 245 (189) 182 44 Decrease in net debt from cash flows 333 423 887 1,222 (note 9) ----------------------- -------- --- -------- --- --------- --- --------- * Net of deficiency and special pension contributions - (380) (6) (742) ** Including additonal interest (payments) receipts on restructuring currency swap portfolio 2 303 (65) 420 GROUP BALANCE SHEET at March 31, 2005 ------------------------- --------- --------- March 31 March 31 2005 2004 (restated*) £m £m ------------------------- --------- --------- Fixed assets Intangible assets 623 204 Tangible assets 15,916 15,487 Investments 115 324 --- --- 16,654 16,015 Current assets --------- --------- Stocks 106 89 Debtors 5,387 5,189 Investments 4,597 5,163 Cash at bank and in hand 206 109 10,296 10,550 Creditors: amounts falling due within one year Loans and other borrowings 4,498 1,271 Other creditors 7,963 7,252 12,461 8,523 --------- --------- Net current (liabilities) assets (2,165) 2,027 ------- ----- Total assets less current liabilities 14,489 18,042 ====== ===== Creditors: amounts falling due after more than one year Loans and other borrowings 8,091 12,426 Provisions for liabilities and charges 2,497 2,504 Minority interests 50 46 Capital and reserves (note 10) --------- --------- Called up share capital 432 432 Reserves 3,419 2,634 --------- --------- Total equity shareholders' funds 3,851 3,066 ----- ------ 14,489 18,042 ====== ====== *See note 1 for details of restatement. NOTES 1 Basis of preparation The preliminary 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 year ended March 31, 2005, the group has 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 to be based on the fair value of shares at the date the award is made, rather than the previous treatment of being based on the book value of shares held in the ESOP trusts. An additional charge of £3 million for the year ended March 31, 2004 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. There was no effect in the quarter to March 31, 2004. Financial information for the years ended 31 March 2005 and 2004 is derived from the group accounts for those years. The group accounts for the year ended March 31, 2005, 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 18, 2005, and have not yet been delivered to the Registrar of Companies but are expected to be published on June 1, 2005. 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 Fourth quarter ended March 31, 2005 BT Retail 3,084 137 3,221 300 333 BT Wholesale 965 1,273 2,238 489 973 BT Global Services 815 1,113 1,928 47 201 Other 6 - 6 (97) (24) Intra-group items (i) - (2,523) (2,523) - - --- ------- ------- -- -- Total 4,870 - 4,870 739 1,483 ===== ===== ===== ==== ===== Fourth quarter ended March 31, 2004 (restated - see note 1) BT Retail 3,236 140 3,376 269 305 BT Wholesale 871 1,348 2,219 438 929 BT Global Services 665 984 1,649 7 163 Other 15 - 15 (43) 15 Intra-group items (i) - (2,472) (2,472) - - ---- ------- ------- -- -- Total 4,787 - 4,787 671 1,412 ===== === ===== === ===== Year ended March 31, 2005 BT Retail 12,115 447 12,562 1,120 1,249 BT Wholesale 3,812 5,167 8,979 1,940 3,849 BT Global Services 2,671 3,710 6,381 7 580 Other 25 - 25 (203) 26 Intra-group items (i) - (9,324) (9,324) - - -- ------- ------- -- -- Total 18,623 - 18,623 2,864 5,704 ====== == ====== ===== ===== Year ended March 31, 2004 (restated - see note (1) 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 were 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. (b) BT Global Services analysis ------------------------ ------------- Fourth quarter Year ended March 31 ended March 31 ------------------------ ------------- 2005 2004 Better (worse) 2005 2004 £m £m £m % £m £m Group turnover Solutions 967 804 163 20 3,202 2,736 C&SI 234 253 (19) (8) 824 721 Global Products 506 487 19 4 1,897 1,831 Global Carrier 254 252 2 1 981 962 Other and eliminations (33) (147) 114 78 (523) (468) ---- ----- --- --- ---- ---- 1,928 1,649 279 17 6,381 5,782 ===== ===== === === ===== ===== EBITDA Solutions 134 119 15 13 363 337 C&SI 16 17 (1) (6) 40 37 Global Products 52 36 16 44 159 113 Global Carrier 53 51 2 4 178 163 Other (i) (54) (60) 6 10 (160) (142) ---- ---- -- -- ---- ----- 201 163 38 23 580 508 === === === == ==== === Operating profit (loss) (ii) Solutions 114 100 14 14 284 261 C&SI 14 14 - - 32 28 Global Products (36) (61) 25 41 (202) (273) Global Carrier 33 29 4 14 94 74 Other (i) (78) (75) (3) (4) (201) (195) ---- ---- --- --- ----- ----- 47 7 40 n/m 7 (105) === == === ===== (i) Other is after charging leaver costs of £15m in the fourth quarter (£14m last year) and £33m in the year ended March 31, 2005 (£33m last year). Also included are turnover, EBITDA and operating losses from acquisitions in 2005 of £111m, £8m and £10m, respectively. (ii) Before goodwill amortisation. (c) Group turnover analysis ------------------------ ------------- Fourth quarter Year ended March 31 ended March 31 ------------------------ ------------- 2005 2004 Better (worse) 2005 2004 £m £m £m % £m £m Traditional 3,392 3,709 (317) (9) 14,041 15,132 New wave 1,367 1,078 289 27 4,471 3,387 Albacom and Infonet 111 - 111 n/m 111 - --- -- --- --- 4,870 4,787 83 2 18,623 18,519 ====== ===== ====== ====== Consumer 1,382 1,474 (92) (6) 5,637 5,974 Business 606 660 (54) (8) 2,464 2,600 Major Corporate 1,760 1,645 115 7 6,101 5,881 Wholesale/Carrier 1,116 993 123 12 4,396 4,030 Other 6 15 (9) (60) 25 34 -- -- -- --- 4,870 4,787 83 2 18,623 18,519 ===== ===== ====== ====== Note: New wave includes the external new wave turnover of BT Retail (ICT, broadband, mobility and classified directories), BT Wholesale (broadband and managed services), the external turnover of Global Solutions and C&SI. 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 externalturnover of BT Global Services, with the exception of Global Carrier. Includes £111m turnover from the acquisitions of Albacom and Infonet. Wholesale/Carrier includes the external turnover of BT Wholesale and Global Carrier. (d) New wave turnover analysis ------------------------ ------------- Fourth quarter Year ended March 31 ended March 31 ------------------------ ------------- 2005 2004 Better (worse) 2005 2004 £m £m £m % £m £m ICT 916 799 117 15 2,987 2,546 Broadband 292 165 127 77 930 491 Mobility 58 40 18 45 205 99 Other 101 74 27 36 349 251 ---- -- --- ---- 1,367 1,078 289 27 4,471 3,387 ===== ===== ===== ===== (e) Capital expenditure on plant, equipment and motor vehicle additions Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 £m £m £m £m BT Retail 50 46 154 118 BT Wholesale Access 225 249 1,037 966 Switch 14 17 100 87 Transmission 62 64 230 213 Products/systems support 139 214 606 543 --- --- --- --- 440 544 1,973 1,809 BT Global Services C&SI and Solutions 87 41 261 121 UK Networks 25 39 121 131 Other 52 80 246 227 -- -- --- --- 164 160 628 479 Other (including fleet vehicles and property) 90 94 256 267 -- -- --- --- Total 744 844 3,011 2,673 === === ===== ===== 3 Operating costs Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 (restated) (restated) £m £m £m £m Net staff costs before leaver costs 955 875 3,563 3,536 Leaver costs 44 149 166 202 --- --- --- --- Net staff costs 999 1,024 3,729 3,738 Depreciation 739 740 2,834 2,921 Payments to telecommunication 891 973 3,725 3,963 operators Other operating costs 1,541 1,423 5,642 5,185 ----- ----- ----- ----- Total before goodwill amortisation 4,170 4,160 15,930 15,807 and exceptional items Goodwill amortisation 4 3 16 12 Exceptional items 29 7 59 7 -- - --- -- Total 4,203 4,170 16,005 15,826 ===== ===== ====== ====== The fourth quarter ended March 31, 2005 included costs of £123m associated with the acquired businesses, Albacom and Infonet. Excluding these, operating costs before goodwill amortisation and exceptional items were £4,047m (2004 - £4,160m). 4 Exceptional items and goodwill amortisation Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 £m £m £m £m Exceptional operating costs (29) (7) (59) (7) Impairment of fixed assets of joint ventures - (26) (25) (26) Profit on sale of fixed asset investments and group undertakings 46 - 358 32 Net interest payable - - - (55) Goodwill amortisation (4) (3) (16) (12) --- --- ---- ---- Net credit (charge) before tax and minority interests 13 (36) 258 (68) === ==== === ==== 5 Net interest payable Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 £m £m £m £m Group 257 265 1,043 1,220 Joint ventures and associates 9 5 23 19 - -- --- --- Total interest payable 266 270 1,066 1,239 Interest receivable (76) (48) (265) (298) ---- ---- ----- ----- Net interest payable 190 222 801 941 ==== ===== === === Analysed: Before exceptional items 190 222 801 886 Exceptional items - - - 55 ---- -- ---- --- Total 190 222 801 941 ==== ==== === === 6 Dividends Year ended Year ended March 31 March 31 2005 2004 2005 2004 pence per share £m £m Interim dividend 3.90 3.20 332 278 Proposed final dividend 6.50 5.30 551 454 ----- ---- ---- --- 10.40 8.50 883 732 ====== ==== === === 7 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 number of shares in the periods were: Fourth quarter Year ended ended March 31 ended March 31 2005 2004 2005 2004 millions of shares millions of shares Basic 8,493 8,597 8,524 8,621 Diluted 8,576 8,645 8,581 8,676 8 Reconciliation of operating profit to operating cash flow Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 (restated) (restated) £m £m £m £m Group operating profit 706 661 2,789 2,870 Depreciation and amortisation 748 744 2,856 2,936 Changes in working capital 596 528 155 249 Provision movements, pensions and other 24 (365) 98 (666) ---- ----- --- ----- Net cash inflow from operating activities 2,074 1,568 5,898 5,389 ======= ===== ===== ===== 9 Net debt (a) Analysis At March 31 2005 2004 £m £m Long-term loans and other borrowings falling due after more than one year 8,091 12,426 Short-term borrowings and long-term loans and other borrowings falling due within one year 4,498 1,271 ----- ------ Total debt 12,589 13,697 Short-term investments (4,597) (5,163) Cash at bank (206) (109) ----- ----- Net debt at end of period 7,786 8,425 ===== ===== (b) Reconciliation of net cash flow to movement in net debt Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 £m £m £m £m Net debt at beginning of period 7,940 8,795 8,425 9,573 Decrease in net debt resulting from cash flows (333) (423) (887) (1,222) Net debt assumed on acquisitions 159 1 159 1 Currency and other movements 2 15 2 4 Other non-cash movements 18 37 87 69 -- --- -- --- Net debt at end of period 7,786 8,425 7,786 8,425 ====== ====== ===== ===== 10 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 financial year - 1,821 1,821 Dividends - (883) (883) Currency movements - 19 19 Purchase of own shares - (195) (195) Other - 23 23 -- --- --- Balances at March 31, 2005 432 3,419 3,851 ===== ===== ===== 11 Earnings before interest, taxation, depreciation and amortisation (EBITDA) Fourth quarter Year ended ended March 31 March 31 2005 2004 2005 2004 (restated) (restated) £m £m £m £m Group operating profit 706 661 2,789 2,870 Exceptional items 29 7 59 7 Depreciation and intangible 744 741 2,840 2,924 amortisation Goodwill amortisation 4 3 16 12 -- -- -- --- EBITDA before exceptional items 1,483 1,412 5,704 5,813 ====== ====== ===== ==== 12 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 2005 2004 2005 2004 Net income attributable to 314 373 1,297 883 shareholders including exceptional items (£m) Earnings per ADS (£) - basic 0.37 0.43 1.52 1.02 - diluted 0.37 0.43 1.51 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 £584m deficit at March 31, 2005 (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: continued growth in new wave turnover from broadband, ICT solutions, mobility and managed services growth; implementation and development of BT's 21st century network; expectations regarding revenue growth, dividend payout ratio, and cost efficiency and savings; and commitment to improving shareholder returns. Due to a number of new and revised Standards included within the body of Standards that comprise IFRS, there is not yet a significant body of established practice on which to draw in forming opinions regarding interpretation and application. Accordingly, practice is continuing to evolve. At this preliminary stage, therefore, the full financial effect of reporting under IFRS as it will be applied and reported on in the group's first IFRS financial statements cannot be determined with certainty and may be subject to change. 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, networks and solutions 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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