3rd Quarter Results
BT Group PLC
13 February 2003
February 13, 2003
THIRD QUARTER AND NINE MONTHS RESULTS TO DECEMBER 31, 2002
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the third quarter results, said:
"These are excellent results. We are achieving our key goals of improving cash
flow, earnings per share and customer satisfaction. These results demonstrate a
substantial increase in profitability, with earnings per share* growth of 71 per
cent.
Revenue growth has been challenging, but we gained real momentum in the
corporate sector, winning a number of major new contracts and our solutions
business achieved record sales orders in the quarter.
We generated our highest ever broadband sales, with in excess of 25,000 per
week in January, launched a major market awareness campaign, reduced wholesale
and retail connection charges and lowered the exchange upgrade trigger levels,
demonstrating our strong commitment to broadband Britain."
THIRD QUARTER HIGHLIGHTS
• Earnings per share* of 4.1 pence, up 71 per cent
• Profit before taxation* of £521 million, up 37 per cent
• Group turnover* of £4,701 million, up 1 per cent
• Net debt reduced by £195 million to £12.9 billion
• In January 2003, we received proceeds of £2.6 billion from the sale of our
shareholding in Cegetel to further reduce net debt
• Record broadband sales in January, in excess of 25,000 per week; end users
of over 650,000 at February 7, 2003
• Further improvements in customer satisfaction
*from continuing activities before goodwill amortisation and exceptional items
Group Finance Director's statement
Ian Livingston, Group Finance Director, commenting on the third quarter results,
said:
"BT's financial position continues to strengthen. Net debt was reduced by £195
million to £12.9 billion. In January net debt has further reduced with the
receipt of the £2.6 billion proceeds from the sale of our shareholding in
Cegetel.
Underlying operating performance is strong with earnings per share* increasing
by 71 per cent over last year to 4.1 pence in the quarter and by 66 per cent to
10.3 pence in the nine months."
RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
TO DECEMBER 31, 2002*
Third quarter Nine months
2002 2001 Better (worse) 2002 2001 Better (worse)
£m £m % £m £m %
Group turnover 4,701 4,657 1 13,949 13,712 2
EBITDA before leaver costs 1,525 1,543 (1) 4,499 4,368 3
EBITDA after leaver costs 1,513 1,509 - 4,294 4,317 (1)
Group operating profit 758 771 (2) 2,057 2,121 (3)
Net interest charge 285 318 10 880 1,116 21
Profit before taxation 521 381 37 1,339 902 48
Profit after taxation 354 209 69 900 509 77
Earnings per share 4.1p 2.4p 71 10.3p 6.2p 66
Capital expenditure 613 753 19 1,721 2,118 19
Net debt 12,917 13,636 5
*BT Group's continuing activities before goodwill amortisation and exceptional
items
GROUP RESULTS
Group turnover increased year on year by one per cent to £4,701 million in the
third quarter. The core business has performed well in what remains a difficult
market. We gained real momentum in the corporate sector with a number of major
contract wins and our solutions business achieved record sales orders in the
quarter.
Group operating profit before goodwill amortisation and exceptional items at
£758 million for the quarter was £13 million lower than the third quarter of
last year. This is wholly attributable to the negative operating profit effects
of unwinding the Concert global venture and the Telereal property sale and
leaseback: these negative operating profit effects are offset by improvements in
the results from associates and joint ventures and net interest payable. Leaver
costs were £12 million (£34 million last year).
BT's share of associates and joint ventures operating profits before goodwill
amortisation and exceptional items was £47 million (£82 million loss last year)
in the quarter, mainly reflecting the unwind of the Concert joint venture.
Net interest payable was £285 million for the quarter, an improvement of £33
million against last year as a result of the reduction in the level of net debt.
Profit before taxation of £521 million in the quarter increased by 37 per cent
reflecting the underlying operating performance of the group, improved results
from associates and joint ventures and lower net interest costs.
The taxation charge for the quarter was £167 million; this represents an
effective rate of 32.1 per cent (45.1 per cent last year) on the profit before
exceptional items and goodwill amortisation. Last year's high effective rate was
mainly due to the impact of loss making subsidiaries outside the UK for which
tax relief was not immediately available.
Earnings per share before goodwill amortisation and exceptional items were 4.1
pence for the quarter (2.4 pence last year), an increase of 71 per cent; 10.3
pence for the nine months, an increase of 66 per cent.
Net exceptional items contributed £102 million to profit after taxation.
Goodwill amortisation at £5 million for the quarter was £36 million lower than
last year. This reduction reflects the disposals and goodwill impairment write
downs made last year. Earnings per share after goodwill amortisation and
exceptional items were 5.2 pence compared to 9.6 pence last year. In the third
quarter of last year we recognised net exceptional profits before tax of £606
million, relating principally to the sale of property assets.
Underlying performance
In the line of business commentaries that follow, references to "underlying
performance" are to trading performance before exceptional items and after
adjusting for the estimated impact of the Concert unwind and business
acquisitions and disposals on the line of business results. Trends in the
results of the lines of business are described by reference to the underlying
performance.
The group results have not been adjusted for the pro forma impact of the Concert
unwind.
OPERATING PERFORMANCE BY LINE OF BUSINESS
Group EBITDA Group operating profit Capital expenditure on
Third quarter ended December 31, turnover Before exceptional (loss) before goodwill plant, equipment and
2002 (i) £m items amortisation and property additions
£m exceptional items £m
£m
BT Retail 3,322 425 379 23
BT Wholesale 2,857 1,014 526 430
BT Ignite 1,256 61 (90) 102
BT Openworld 75 (4) (8) 2
Other 103 17 (49) 56
Intra-group items (ii) (2,912) - - -
Total 4,701 1,513 758 613
Group EBITDA Group operating profit
Nine months ended turnover before exceptional (loss) before goodwill Capital expenditure on
December 31, 2002 (i) £m items amortisation and plant, equipment and
£m exceptional items property additions
£m £m
BT Retail 9,785 1,283 1,137 69
BT Wholesale 8,440 2,849 1,411 1,174
BT Ignite 3,769 105 (335) 289
BT Openworld 207 (42) (54) 4
Other 271 99 (102) 185
Intra-group items (ii) (8,523) - - -
Total 13,949 4,294 2,057 1,721
(i) See note 2 Results of businesses for prior year figures
(ii) Includes elimination of turnover between businesses, which is included
in the turnover of the originating business
BT Retail
Third quarter ended December 31 Nine months
ended December 31
Better
2002 2001 Actual Underlying 2002 2001
£m £m % (b) £m £m
%
Group turnover 3,322 3,187 (a) 4 2 9,785 9,502 (a)
Gross margin 957 865 11 6 2,863 2,588
Sales, general 532 532 - 6 1,580 1,579
and administration costs
EBITDA 425 333 28 26 1,283 1,009
Depreciation 46 47 2 2 146 138
Operating profit 379 286 33 31 1,137 871
Capital expenditure 23 46 50 50 69 94
Operating free 402 287 40 39 1,214 915
cash flow
BT Retail increased turnover by £73 million (2 per cent), operating profits
by £90 million (31 per cent) and operating free cash flow by £112 million (39
per cent) compared to the third quarter of last year. This is the result of
continued focus on margin improvements, cost efficiencies and new wave
initiatives.
Third quarter ended December 31 Nine months
ended December 31
Better (worse)
BT Retail turnover 2002 2001 Actual Underlying 2002 2001
(a) (b) (a)
£m £m % % £m £m
Voice Services 2,425 2,401 1 (1) 7,208 7,147
Intermediate Products 701 630 11 8 2,033 1,916
Core 3,126 3,031 3 1 9,241 9,063
New Wave 196 156 26 26 544 439
Total 3,322 3,187 4 2 9,785 9,502
Sales to other BT 514 507 1 10 1,398 1,545
businesses incl. above
(a) Internal turnover restated to reflect changes in intra-group trading
arrangements
(b) Adjusting for the effect of the Concert unwind and the transfer of major
accounts to BT Wholesale
Overall turnover from voice services was 1 per cent lower than the third quarter
of last year driven primarily by lower revenues from fixed network calls
reflecting a reduction in call volumes, partly offset by higher analogue line
revenues and other services.
Fixed network call revenues were 2 per cent lower than the third quarter of last
year at £1,180 million as a result of a reduction in call volumes. In the
residential voice market BT Retail has maintained market share at around 73 per
cent and in the business voice market BT Retail's market share is slightly lower
than last quarter at around 44 per cent.
BT Retail call volumes declined year on year by 5 per cent in the quarter, with
the decline in geographic calls of 3 per cent slowing from 4 per cent last
quarter. Non geographic calls declined by 6 per cent reflecting the switch of
internet related calls to FRIACO based products.
Residential geographic call volumes are slightly ahead of the third quarter last
year, with national calls up following the continued success of the BT Together
package. Residential international call volumes fell slightly and are being
targeted through new highly attractive packages, launched in the third quarter,
to which over 100,000 customers have already signed up. Business geographic call
volumes fell, driven by a combination of customers switching out of traditional
telephony and pressure from the implementation of Carrier Pre-Selection. BT
Business Plan was launched on January 14, 2003 and this highly competitive
package places a ceiling of 10 pence on national and local business calls,
rewards loyalty and provides a single BT customer contact.
Turnover from analogue exchange lines of £770 million increased by 1 per cent
compared to the third quarter of last year due to continued rebalancing of
tariff charges.
The total number of BT Retail lines increased by 1 per cent to 29.3 million,
with a 1 per cent increase in both residential and business lines. However,
business voice lines fell by 3.5 per cent, being offset by growth in digital
lines of 8 per cent.
Turnover from intermediate products of £701 million increased by 8 per cent
compared to the third quarter of last year. ISDN lines continue to grow and at
3.8 million are 9 per cent higher than last year.
New wave revenue grew by 26 per cent in the quarter with the continued focus on
the information, communications and technology ("ICT"), broadband and mobility
products. During the quarter, significant momentum was gained in the ICT order
book. Unilever and Bradford & Bingley chose BT to be their outsourcing partner.
The NHS Information Authority announced that BT would upgrade the existing
NHSnet infrastructure to a broadband platform. In one of the largest network
upgrades within the public sector, BT will connect more than 7,000 sites
throughout England, including GP practices and NHS Trusts. These contracts,
which will also be recognised within Ignite Solutions, alone will contribute
almost £1 billion to BT Group revenues over the life of the contracts.
BT Retail's Broadband Direct showed good growth with weekly sales orders now
exceeding 7,500. Strong marketing activities are planned to further stimulate
demand next quarter. BT continues to build on existing relationships and acquire
new business partners, bringing the total number of business partners to over
seventy.
The increase in gross margin of £56 million (1 percentage point to 28.8 per
cent) compared to the third quarter of last year is driven by the success of the
BT Together packages, improved product mix and lower wholesale prices which more
than offset the impact of call volume declines.
Cost transformation programmes have generated a 6 per cent saving in sales,
general and administration costs of £33 million against the third quarter of
last year. These savings have been driven by the reduction in people related
expenses such as travel, accommodation and communications, lower service costs
resulting from improvements in service quality, billing initiatives and other
similar cost transformation programmes. On a full year basis these programmes
are expected to deliver at least £200 million savings in the core business,
although new wave costs will increase as revenues grow.
EBITDA in the third quarter was £89 million (26 per cent) higher than the prior
year which enabled BT Retail to contribute an operating free cash flow (EBITDA
less capital expenditure) of £402 million in the quarter; £112 million better
than the third quarter of last year.
The third quarter saw further improvements in customer satisfaction with
Consumer, Business and Major Business all showing substantial reductions in
dissatisfaction levels. In order to improve the level of satisfaction in
Business and building on the success of BT Together, BT Business Plan was
launched to enhance value and service levels.
BT Wholesale
Third quarter ended December 31 Nine months
ended December 31
Better (worse)
2002 2001 Actual Underlying* 2002 2001
£m £m % % £m £m
External turnover 878 987 (11) (1) 2,583 2,868
Internal turnover 1,979 2,086 (5) (2) 5,857 6,221
Group turnover 2,857 3,073 (7) (2) 8,440 9,089
Total operating costs 1,877 2,071 9 - 5,685 6,256
before depreciation
Other operating income 34 62 (45) 13 94 182
EBITDA 1,014 1,064 (5) (5) 2,849 3,015
Depreciation 488 474 (3) (3) 1,438 1,415
Operating profit 526 590 (11) (11) 1,411 1,600
Capital expenditure 430 453 5 5 1,174 1,337
Operating free 584 611 (4) (4) 1,675 1,678
cash flow
*Adjusting for the effect of the Concert unwind and transfer of major accounts
from other BT businesses
BT Wholesale's turnover for the quarter of £2,857 million, was 2 per cent
lower and operating profit of £526 million was 11 per cent lower than the third
quarter of last year. However, the comparative period last year included a £38
million out of period revenue benefit, the effect of which resulted in a £10
million (1 per cent) year on year decrease in external turnover in the quarter
to £878 million.
New wave external revenues at £54 million showed strong growth. The 108 per
cent increase over the third quarter of last year reflected gains being made in
internet connectivity, content and applications. Wholesale ADSL lines had an
installed base of over 650,000 at February 7, 2003 and in January achieved
record weekly orders in excess of 25,000 compared to 4,000 at the end of the
third quarter last year.
Within traditional products, the impact of price reductions - due to flat
rate price packages, new Network Charge Control (NCC) pricing formulae and Oftel
determinations - coupled with unfavourable market conditions have continued to
slow turnover growth. FRIACO revenues continue to grow but are partly offset by
the slow down in the conveyance revenues they replace. Also, revenues from
retail private circuits have reduced, due to the migration of customers to lower
priced partial private circuits.
Internal turnover in the quarter of £1,979 million showed a decrease of £48
million (2 per cent) due to price reductions, partly offset by an increase in
volumes.
Despite an increase in network volumes, BT Wholesale's operating costs,
excluding depreciation, of £1,877 million were broadly flat against the third
quarter of last year. Full time equivalent staff numbers have reduced by 7 per
cent since the third quarter of last year, reflecting the continued drive
towards improved operational efficiencies.
Depreciation at £488 million increased by £14 million (3 per cent) mainly
due to the move towards shorter asset lives as BT continues its programme of
network investment.
Operating profit decreased by £65 million (11 per cent) reflecting the
lower revenues. The operating profit margin of 18 per cent remains flat against
the second quarter.
Capital expenditure at £430 million decreased by £23 million (5 per cent)
reflecting continued cost control, tight governance and alignment of capital
spend with the development of the future network strategy. BT Wholesale has
maintained its focus on managed cash costs (defined as operating costs excluding
payments to other network operators and depreciation, plus capital expenditure).
Managed cash costs at £1,480 million decreased by 2 per cent despite the 5 per
cent increase in network volumes. Cash cost savings are £175 million, year to
date, and BT Wholesale is ahead of schedule to achieve its full year target
savings of £200 million.
BT Ignite
Third quarter ended December 31 Nine months
ended
December 31
Better (worse)
2002 2001 Actual Underlying* 2002 2001
£m £m % % £m £m
Group turnover 1,256 1,114 13 (1) 3,769 3,260
EBITDA 61 46 33 771 105 116
Group operating loss (90) (80) (13) 34 (335) (245)
Capital expenditure 102 149 32 46 289 395
Operating free cash flow (41) (103) 60 77 (184) (279)
*Adjusting for the effect of the Concert unwind, acquisitions and disposals and
the transfer of a major account to BT Wholesale
BT Ignite continued to generate a significant improvement in underlying
profitability and cash flow despite the continuing difficult trading conditions
in the corporate sector and reduced carrier revenues. Underlying operating
losses for the quarter were reduced by 34 per cent on last year.
Underlying turnover for the quarter fell by 1 per cent to £1,256 million.
This includes the impact of a 23 per cent fall in Global Carrier turnover as a
result of the decline in trade with AT&T and Worldcom following the unwind of
the Concert global venture. Excluding Global Carrier, BT Ignite's turnover grew
by more than 6 per cent with Global Products and Solutions both growing by 11
per cent. Syntegra has outperformed the declining systems integration market,
holding turnover at around last year's level. European Connectivity turnover
increased by 2 per cent to £250 million, however excluding the impact of exiting
non profitable elements of the SME and consumer markets in Europe, growth in
core European Connectivity revenues was 7 per cent compared to the third quarter
of last year.
We gained real momentum in the corporate sector with a number of major contract
wins and Solutions achieved record sales orders of £1.6 billion in the quarter.
Cost efficiencies continue to be delivered with EBITDA improving by £54 million
over the third quarter of last year. All businesses generated an improvement in
EBITDA compared to the third quarter of last year.
European operations have made excellent progress towards their targeted
EBITDA break even run rate by March 31, 2003 with their combined EBITDA
improving by £40 million to a loss of £1 million. During the third quarter, the
Netherlands became EBITDA positive, following Ireland and Spain earlier in the
year.
The operating loss was £83 million in the quarter before early leaver costs
of £7 million (£11 million last year), a £43 million underlying improvement from
the third quarter of last year.
Capital expenditure was £102 million in the quarter, £86 million lower than
the third quarter of last year (including Concert). As a result, the operating
free cash outflow (EBITDA less capital expenditure) of £41 million was an
improvement of 77 per cent over the third quarter of last year.
BT Openworld
Third quarter ended December 31 Nine months
ended December 31
2002 2001 Better (worse) 2002 2001
£m £m % £m £m
Group turnover 75 59 27 207 161
EBITDA (4) (23) 83 (42) (86)
Group operating loss (8) (23) 65 (54) (100)
Capital expenditure 2 - n/m 4 5
Operating free cash flow (6) (23) 74 (46) (91)
BT Openworld made continued improvements in turnover, profitability and
cash flow. Turnover for the third quarter was £75 million, an increase of £16
million (27 per cent) on the third quarter of last year. The improvement is
mainly due to growth in the new broadband products and continued revenue growth
in the core narrowband product range.
EBITDA loss for the third quarter was £4 million, an improvement of £19
million (83 per cent) on the third quarter last year. The reduced losses reflect
economies of scale, in particular in the narrowband business, which was EBITDA
positive last quarter and is now profitable.
With effect from January 1, 2003, BT Openworld is under the management
responsibility of BT Retail and will report its results as part of BT Retail.
This decision reflects the maturity of BT Openworld's services and will allow
the realisation of synergies, particularly in administration and back-office
costs.
EXCEPTIONAL ITEMS
The net profit on sale of fixed asset investments and group undertakings
amounted to £99 million. Of this amount, £61 million relates to the sale of the
final tranche of BSkyB shares.
An exceptional property rationalisation charge of £198 million was
recognised in the quarter in relation to the rationalisation of the group's
London offices. This is at the upper end of the previously indicated scale as
the conditions in the London property market have deteriorated.
The exit from Blu was successfully completed on more favourable financial
terms than anticipated, with an exceptional gain of £169 million.
PENSIONS
The triennial BT Pension Scheme funding valuation ("Funding Valuation") exercise
is under way. The Funding Valuation is determined by the pension scheme's
actuary and approved by the pension scheme's trustees and will not be available
until May 2003. At that time we shall also determine a final valuation for
accounting purposes ("SSAP 24 Valuation") to be applied from April 1, 2003.
However, based on a preliminary view, the company's actuary believes that the
SSAP 24 Valuation deficit based on the position at December 31, 2002 would have
been in the range £1 billion to £1.5 billion, compared to £0.2 billion at March
31, 2000 following the previous valuation.
The SSAP 24 Valuation determines the profit and loss account charge whilst the
Funding Valuation determines the cash contribution requirements. By their
nature, the Funding Valuation assumptions are more conservative than the
expected outcomes used for the SSAP 24 Valuation. At the time of the last
triennial Funding Valuation the more conservative funding assumptions gave a
deficit £0.8 billion higher than the SSAP 24 Valuation.
CASH FLOW AND NET DEBT
Cash inflow from operating activities amounted to £1,041 million in the quarter.
This is after making special and annual deficiency contributions to the BT
Pension Scheme of £329 million (£600 million last year). The reported cash
inflow last year of £1,074 million in the quarter was generated from both the
continuing and discontinued activities of the group.
The cash outflow on fixed asset purchases was £635 million in the quarter which
compares to £743 million from the continuing activities last year reflecting the
continued management focus and control over capital expenditure. This year's
capital expenditure is now expected to be around £2.6 billion.
Free cash flow (before acquisitions and disposals, dividends and financing but
after the special and deficiency contributions to the BT Pension Scheme) was £19
million in the quarter.
Net debt at December 31, 2002 was £12.9 billion, a reduction of £195 million in
the quarter. In January 2003, net debt was further reduced with the receipt of
the £2.6 billion sale proceeds on completion of the sale of our shareholding in
Cegetel, further strengthening the group's financial position.
POST BALANCE SHEET EVENTS
Regulatory cost reductions on fixed to mobile calls are expected to reduce BT
Group costs in the year to March 31, 2004 by approximately £350 million.
However, BT Group revenues will reduce by an equivalent amount, subject to
volume changes, with the benefit of lower termination costs from mobile
operators being passed on to BT Group customers.
In December, Vivendi exercised its pre-emption right in respect of our 26 per
cent stake in Cegetel. This transaction became unconditional and completed in
January 2003 when consideration of €4 billion (£2.6 billion) was received in
cash. An exceptional profit on sale of around £1.4 billion will be recognised in
the fourth quarter.
____________________________________________________________________
The fourth quarter and preliminary results of BT Group are expected to be
announced on May 22, 2003.
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended December 31, 2002
Continuing activities
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items except-ional items
(note 8)
(unaudited) Notes £m £m £m
Total turnover 5,124 - 5,124
Group's share of associates and joint ventures (423) - (423)
turnover
Group turnover 2 4,701 - 4,701
Other operating income 52 - 52
Operating costs 4 (3,995) (203) (4,198)
Group operating profit (loss) 2 758 (203) 555
Group's share of operating profits of 5 47 150 197
associates and joint ventures
Total operating profit (loss) 805 (53) 752
Profit on sale of fixed asset investments and 6 - 99 99
group undertakings
Profit on sale of property fixed assets 1 - 1
Net interest payable 7 (285) - (285)
Profit before taxation 521 46 567
Taxation (167) 51 (116)
Profit after taxation 354 97 451
Minority interests 1 (7) (6)
Profit attributable to shareholders 355 90 445
Earnings per share 9
- basic 4.1p 5.2p
- diluted 4.1p 5.1p
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended December 31, 2001
Continuing activities
Before goodwill Goodwill Discontinued Total
amortisation and amortisation and activities and
exceptional items except-ional eliminations
items (note 1)
(note 8)
(unaudited) Notes £m £m £m £m
Total turnover 5,383 - 433 5,816
Group's share of associates and joint (929) - (24) (953)
ventures turnover
Trading between group and principal 203 - - 203
joint venture
Group turnover 2 4,657 - 409 5,066
Other operating income 3 91 - - 91
Operating costs 4 (3,977) (78) (502) (4,557)
Group operating profit (loss) 2 771 (78) (93) 600
Group's share of operating losses of 5 (82) (92) - (174)
associates and joint ventures
Total operating profit (loss) 689 (170) (93) 426
Profit (loss) on sale of fixed asset - (165) 2 (163)
investments and group undertakings
Profit on sale of property fixed 10 1,062 - 1,072
assets
Net interest payable 7 (318) (162) (5) (485)
Profit (loss) before taxation 381 565 (96) 850
Taxation (172) 48 (5) (129)
Profit (loss) after taxation 209 613 (101) 721
Minority interests - - - -
Profit (loss) attributable to 209 613 (101) 721
shareholders
Earnings per share 9
- basic 2.4p 8.4p
- diluted 2.4p 8.3p
GROUP PROFIT AND LOSS ACCOUNT
for the nine months ended December 31, 2002
Continuing activities
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items except-ional
items
(note 8)
(unaudited) Notes £m £m £m
Total turnover 15,216 - 15,216
Group's share of associates and joint (1,267) - (1,267)
ventures turnover
Group turnover 2 13,949 - 13,949
Other operating income 148 - 148
Operating costs 4 (12,040) (214) (12,254)
Group operating profit (loss) 2 2,057 (214) 1,843
Group's share of operating profits of 5 162 150 312
associates and joint ventures
Total operating profit (loss) 2,219 (64) 2,155
Profit on sale of fixed asset investments 6 - 165 165
and group undertakings
Profit on sale of property fixed assets 7 - 7
Amounts written off investments (7) - (7)
Net interest payable 7 (880) - (880)
Profit before taxation 1,339 101 1,440
Taxation (439) 51 (388)
Profit after taxation 900 152 1,052
Minority interests (10) (7) (17)
Profit attributable to shareholders 890 145 1,035
Dividends (194) - (194)
Retained profit for the period 696 145 841
Earnings per share 9
- basic 10.3p 12.0p
- diluted 10.3p 12.0p
GROUP PROFIT AND LOSS ACCOUNT
for the nine months ended December 31, 2001
Continuing activities
Before goodwill Goodwill Discontinued Total
amortisation and amortisation and activities and
exceptional items except-ional eliminations
items (note 1)
(note 8)
(unaudited) Notes £m £m £m £m
Total turnover 16,304 - 2,827 19,131
Group's share of associates and joint (3,117) - (715) (3,832)
ventures turnover
Trading between group and principal 525 - - 525
joint venture
Group turnover 2 13,712 - 2,112 15,824
Other operating income 3 258 - 1 259
Operating costs 4 (11,849) (244) (2,546) (14,639)
Group operating profit (loss) 2 2,121 (244) (433) 1,444
Group's share of operating profits 5 (125) (935) 62 (998)
(losses) of associates and joint
ventures
Total operating profit (loss) 1,996 (1,179) (371) 446
Profit (loss) on sale of fixed asset - (36) 4,368 4,332
investments and group undertakings
Profit on sale of property fixed 22 1,062 - 1,084
assets
Amounts written off investments - (535) - (535)
Net interest payable 7 (1,116) (162) (43) (1,321)
Profit (loss) before taxation 902 (850) 3,954 4,006
Taxation (393) 50 (58) (401)
Profit (loss) after taxation 509 (800) 3,896 3,605
Minority interests (1) - (13) (14)
Profit (loss) attributable to 508 (800) 3,883 3,591
shareholders
Earnings per share 9
- basic 6.2p 43.7p
- diluted 6.1p 43.2p
GROUP CASH FLOW STATEMENT
for the three months and nine months ended December 31, 2002
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
(unaudited) £m £m £m £m
Net cash inflow from operating 1,041 1,074 3,776 3,761
activities* (note 10)
Dividends from associates and joint 3 1 4 2
ventures
Net cash outflow for returns on (372) (649) (978) (1,328)
investments and servicing of finance
Taxation paid (130) (45) (276) (283)
Purchase of tangible fixed assets (635) (948) (1,904) (3,188)
Net sale of fixed asset investments 87 - 88 70
Sale of tangible fixed assets 25 2,488 67 2,626
Net cash inflow (outflow) for capital (523) 1,540 (1,749) (492)
expenditure and financial investments
Acquisitions (12) (47) (139) (1,021)
Disposals 210 470 338 6,863
Net cash inflow for acquisitions and 198 423 199 5,842
disposals
Equity dividends paid - - (173) -
Cash inflow before use of liquid 217 2,344 803 7,502
resources and financing
Management of liquid resources (467) 708 650 (3,251)
Issue of ordinary share capital - 58 42 6,041
Inflow on demerger of mmO2 - 440 - 440
New loans - 4 20 6
Repayment of loans (46) (199) (1,513) (988)
Net movement on short-term borrowings - (3,236) (64) (9,533)
Net cash outflow from financing (46) (2,933) (1,515) (4,034)
Increase (decrease) in cash (296) 119 (62) 217
Decrease in net debt from cash flows 217 2,842 845 13,983
(note 11)
*Net of deficiency and special pension 329 600 329 600
contributions
Free cash flow before acquisitions and 19 1,921 777 1,660
disposals, dividends and financing
GROUP BALANCE SHEET
at December 31, 2002
December 31 March 31
2002 2001 2002
(unaudited) (note 1)
£m £m £m
Fixed assets
Intangible assets 219 2,248 252
Tangible assets 15,829 16,173 16,078
Investments 754 1,424 1,221
16,802 19,845 17,551
Current assets
Stocks 92 129 111
Debtors 5,473 5,003 5,272
Investments 3,951 5,996 4,581
Cash at bank and in hand 88 231 158
9,604 11,359 10,122
Creditors: amounts falling due within one year
Loans and other borrowings 2,326 2,644 2,195
Other creditors 6,484 6,534 7,195
8,810 9,178 9,390
Net current assets 794 2,181 732
Total assets less current liabilities 17,596 22,026 18,283
Creditors: amounts falling due after more than one year
Loans and other borrowings 14,630 17,219 16,245
Provisions for liabilities and charges (note 12) 2,507 2,287 2,324
Minority interests 70 73 72
Capital and reserves (note 13)
Called up share capital 434 434 434
Reserves (45) 2,013 (792)
Total equity shareholders' funds (deficiency) 389 2,447 (358)
17,596 22,026 18,283
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, 2002. Figures
for the year ended March 31, 2002 are extracts from the group accounts for that
year.
The group accounts for the year ended March 31, 2002, 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, have been delivered to the Registrar of
Companies.
The activities of mmO2, Japan Telecom, J-Phone Communications, Airtel and Yell
were disposed of in the year ended March 31, 2002, and are shown as discontinued
operations in the profit and loss account for the comparative periods. The
eliminations are intra-group eliminations.
2 Results of businesses
The tables below show the results of BT's lines of business. 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 subject to
review and have changed in certain instances. Comparative figures have been
restated for these changes.
2 Results of businesses continued
(a) Operating results
Group turnover EBITDA before Group operating
exceptional items profit (loss) before
goodwill amortisation
and exceptional items
£m £m £m
Third quarter ended December 31, 2002
BT Retail 3,322 425 379
BT Wholesale 2,857 1,014 526
BT Ignite 1,256 61 (90)
BT Openworld 75 (4) (8)
Other 103 17 (49)
Intra-group items (ii) (2,912) - -
Total before exceptional items 4,701 1,513 758
Third quarter ended December 31, 2001 (i)
BT Retail 3,187 333 286
BT Wholesale 3,073 1,064 590
BT Ignite 1,114 46 (80)
BT Openworld 59 (23) (23)
Other 97 89 (2)
Intra-group items (ii) (2,873) - -
Total continuing activities before exceptional items 4,657 1,509 771
Discontinued activities 566 58 (39)
Intra-group items (ii) (157) - -
Total before exceptional items 5,066 1,567 732
i. The results of the lines of business for the quarter ended December 31,
2001 and the nine months ended December 31, 2001 have been restated to reflect
changes to intra-group trading arrangements.
ii Includes elimination of intra-group turnover between businesses which is
included in the total turnover of the originating business.
2 Results of businesses continued
a. Operating results continued
Group turnover EBITDA before Group operating
exceptional items profit (loss) before
goodwill amortisation
and exceptional items
£m £m £m
Nine months ended December 31, 2002
BT Retail 9,785 1,283 1,137
BT Wholesale 8,440 2,849 1,411
BT Ignite 3,769 105 (335)
BT Openworld 207 (42) (54)
Other 271 99 (102)
Intra-group items (ii) (8,523) - -
Total before exceptional items 13,949 4,294 2,057
Nine months ended December 31, 2001 (i)
BT Retail 9,502 1,009 871
BT Wholesale 9,089 3,015 1,600
BT Ignite 3,260 116 (245)
BT Openworld 161 (86) (100)
Other 270 263 (5)
Intra-group items (ii) (8,570) - -
Total continuing activities before exceptional items 13,712 4,317 2,121
Discontinued activities 2,836 234 (191)
Intra-group items (ii) (724) - -
Total before exceptional items 15,824 4,551 1,930
(i) The results of the lines of business for the quarter ended December 31,
2001 and the nine months ended December 31, 2001 have been restated to reflect
changes to intra-group trading arrangements.
(ii) Includes elimination of intra-group turnover between businesses which
is included in the total turnover of the originating business.
2 Results of businesses continued
BT Ignite analysis
Third quarter ended December 31 Nine months ended
December 31
Better (worse)
Before goodwill amortisation 2002 2001 Actual Underlying (i) 2002 2001
and exceptional items £m £m % % £m £m
Group turnover
Solutions 504 454 11 11 1,423 1,298
Syntegra 146 146 - - 431 434
Global Products 479 426 12 11 1,378 1,163
Global Carrier 232 73 218 (23) 731 197
Other and eliminations (105) 15 (194) 168
1,256 1,114 13 (1) 3,769 3,260
European connectivity included 250 252 (1) 2 740 725
above
EBITDA
Solutions 47 41 130 110
Syntegra 11 10 19 15
Global Products (19) 2 (83) (4)
Global Carrier 29 2 105 6
Other (ii) (7) (9) (66) (11)
61 46 33 771 105 116
European connectivity included (1) (41) 98 98 (20) (94)
above
Group operating
profit (loss)
Solutions 29 23 76 52
Syntegra 9 7 12 7
Global Products (117) (77) (370) (192)
Global Carrier 7 (4) 39 (33)
Other (ii) (18) (29) (92) (79)
(90) (80) (13) 34 (335) (245)
European connectivity included (42) (89) 53 53 (143) (220)
above
Capital expenditure 102 149 32 46 289 395
Operating free cash flow (41) (103) 60 (184) (279)
77
i. Adjusted for the effect of the Concert unwind, acquisitions and disposals and
the transfer of a major account to BT Wholesale.
ii. Other is after charging leaver costs of £7m in the third quarter (£11m last
year) and £46m (£16m last year) in the nine months ended December 31, 2002.
BT Ignite's comparative figures for the segmental results have been reclassified
to reflect the new internal financial reporting lines that were introduced with
effect from March 31, 2002.
2 Results of businesses continued
b. Capital expenditure on plant, equipment and motor vehicle additions
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
BT Retail 23 46 69 94
BT Wholesale 430 453 1,174 1,337
BT Ignite 102 149 289 395
BT Openworld 2 - 4 5
Other 56 105 185 287
Total continuing activities 613 753 1,721 2,118
Discontinued activities - 184 - 808
Total 613 937 1,721 2,926
(c) Net operating assets (liabilities)
December 31 March 31
2002 2002
£m £m
BT Retail (21) (187)
BT Wholesale 12,213 12,163
BT Ignite 1,497 1,486
BT Openworld (22) (28)
Other 1,101 900
Total 14,768 14,334
Note: Net operating assets (liabilities) comprise tangible and intangible fixed
assets, stocks, debtors less creditors (excluding loans and other borrowings)
and provisions for liabilities and charges (excluding deferred tax). The March
31, 2002 comparatives have been restated to reflect changes to the method of
allocating central balances to the lines of business.
3 Other operating income
In the quarter and nine months ended December 31, 2001 other operating income
included income from the provision of administration services to the Concert
global venture of £32m and £102m, respectively.
4 Other operating costs
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Before goodwill amortisation and
exceptional items
Net staff costs 843 887 2,738 2,661
Depreciation 754 737 2,234 2,195
Payments to telecommunication operators 973 1,102 2,952 3,207
Other operating costs 1,425 1,251 4,116 3,786
Total continuing activities 3,995 3,977 12,040 11,849
Goodwill amortisation 5 30 16 91
Exceptional items 198 48 198 153
Discontinued activities - 502 - 2,546
Total 4,198 4,557 12,254 14,639
5. Group's share of profits (losses) of associates and joint ventures
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Share of operating profits (losses) before 47 (82) 162 (125)
goodwill amortisation and exceptional items
Provision for impairment of Concert - (55) - (861)
tangible fixed assets and goodwill, and
share of redundancy and unwind costs
Impairment of other associates and joint 150 (26) 150 (36)
ventures and release (charge) for related
costs
Amortisation of goodwill - (11) - (38)
Share of operating profits (losses) of 197 (174) 312 (1,060)
continuing associates and joint ventures
Discontinued activities - - - 62
Total share of operating profits (losses) 197 (174) 312 (998)
of associates and joint ventures
6 Profit on sale of fixed asset investments and group undertakings
The profit in the third quarter ended December 31, 2002 of £99m is mainly
attributable to the profit on sale of BSkyB shares of £61m. Other disposals
include our shareholdings in Blu, Mediaset and SmarTone. The profit in the nine
months ended December 31, 2002 of £165m is mainly attributable to the profit on
sale of BSkyB shares of £131m.
7 Net interest payable
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Group 322 546 1,000 1,521
Joint ventures and associates 5 13 21 90
Total interest payable 327 559 1,021 1,611
Interest receivable (42) (74) (141) (290)
Net interest payable 285 485 880 1,321
Analysed:
Continuing activities, before exceptional 285 318 880 1,116
items
Exceptional items - 162 - 162
Discontinued activities - 5 - 43
285 485 880 1,321
8 Exceptional items and goodwill amortisation
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Attributable to continuing activities:
Property rationalisation costs (198) - (198) -
Impairment of Concert and AT&T Canada - - - (1,153)
investments
Impairment of other investments and release 150 (55) 150 (276)
(charge) for related costs
Costs related to mmO2 demerger - (16) - (98)
Concert unwind transaction costs - (58) - (58)
Profit (loss) on sale of group undertakings 99 (165) 165 (36)
and fixed asset investments
Profit on sale of property fixed assets - 1,062 - 1,062
Finance cost of novating interest rate - (162) - (162)
swaps
Goodwill amortisation (5) (41) (16) (129)
Net credit (charge) before tax and minority 46 565 101 (850)
interests
Attributable to discontinued activities:
Profit on sale of group undertakings and - 2 - 4,368
fixed asset investments
mmO2 demerger costs - (5) - (11)
Goodwill amortisation - (49) - (243)
Net credit (charge) before tax and minority - (52) - 4,114
interests
Total exceptional items and goodwill 46 513 101 3,264
amortisation
9 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. 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:
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
million of shares million of shares
Basic 8,623 8,585 8,614 8,213
Diluted 8,656 8,652 8,653 8,320
10 Reconciliation of operating profit to operating cash flow
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Group operating profit 555 600 1,843 1,444
Depreciation and amortisation 760 943 2,253 2,988
Changes in working capital (147) 172 (313) (40)
Provision, pension movements and other (127) (641) (7) (631)
Net cash inflow from operating activities 1,041 1,074 3,776 3,761
11 Net debt
a. Analysis
At December 31 At March 31
2002 2001 2002
£m £m £m
Long-term loans and other borrowings falling due 14,630 17,219 16,245
after more than one year
Short-term borrowings and long-term loans and other 2,326 2,644 2,195
borrowings falling due within one year
Total debt 16,956 19,863 18,440
Short-term investments (3,951) (5,996) (4,581)
Cash at bank (88) (231) (158)
Net debt at end of period 12,917 13,636 13,701
11 Net debt continued
a Reconciliation of net cash flow to movement in net debt
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Net debt at beginning of period 13,112 16,529 13,701 27,942
Decrease in net debt resulting from cash (217) (2,842) (845) (13,983)
flows
Debt assumed by demerger and disposal of - (60) (13) (75)
undertakings
Currency and other movements 15 10 32 37
Other non-cash movements 7 (1) 42 (285)
Net debt at end of period 12,917 13,636 12,917 13,636
12 Provisions for liabilities and charges
At December 31 At March 31
2002 2001 2002
£m £m £m
Deferred taxation 2,146 2,084 2,140
Pension provisions (a) 33 26 29
Other provisions 328 177 155
2,507 2,287 2,324
(a) The pension prepayment relating to the BT Pension Scheme of £560m at
December 31, 2002 (£228m last year) is included in debtors.
13 Share capital and reserves
Share capital Reserves Total
£m £m £m
Balances at April 1, 2002 434 (792) (358)
Profit for the nine months ended December 31, 2002 - 1,035 1,035
Dividend - (194) (194)
Goodwill written back on disposals - 7 7
Currency movements (a) - (101) (101)
Balances at December 31, 2002 434 (45) 389
a. Includes £16m movement on the retranslation of foreign borrowings and other
hedging instruments in the nine months ended December 31, 2002.
14 Earnings before interest, taxation, depreciation and amortisation
(EBITDA)
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
£m £m £m £m
Group operating profit before exceptional 753 653 2,041 1,608
items
Depreciation and intangible amortisation 755 835 2,237 2,621
Goodwill amortisation 5 79 16 322
EBITDA before exceptional items 1,513 1,567 4,294 4,551
Analysed:
Continuing activities 1,513 1,509 4,294 4,317
Discontinued activities - 58 - 234
Total before exceptional items 1,513 1,567 4,294 4,551
15 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.
Third quarter Nine months
ended December 31 ended December 31
2002 2001 2002 2001
Net income (loss) attributable to 422 (563) 1,147 2,142
shareholders (£ million) including
discontinued activities and exceptional items
Earnings (loss) per ADS (£)
- basic 0.49 (0.66) 1.33 2.61
- diluted 0.49 (0.66) 1.33 2.57
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 £3,601m deficit at December 31, 2002
(December 31, 2001 - £1,630m deficit, March 31, 2002 - £4,247m deficit).
Non-financial statistics
December 31, 2002 December 31, 2001
BT Group
Exchange lines:
Business, including wholesale (000s) 9,084 9,031
Residential, including service providers (000s) 20,224 20,063
BT Wholesale
Optical fibre in network (km millions) 6.4 5.7
SDH nodes 2,123 2,123
Next generation trunk switches 71 70
ADSL enabled exchanges 1,129 1,010
ADSL lines provided (000s) 555 124
BT Ignite
Inter-city fibre network (kms) (a) 57,000 55,000
Large towns/cities with Metropolitan Area Networks 22 n/a
Web hosting centres 19 21
Dial access ports (000s) 626 630
(a) Of which over 43,300 route kilometres are held through our wholly owned
businesses in Europe and 10,500 route kilometres are held through our interest
in Cegetel.
BT Openworld
Narrowband PAYG (000s) 621 610
Narrowband unmetered (000s) 857 946
Broadband (000s) 244 84
Total customer base (000s) 1,722 1,640
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 broadband growth and the benefits of
other new wave initiatives; the possible or assumed future results of operations
of BT and/or its lines of business; expectations regarding revenue growth,
capital expenditure, investment plans, cost reductions, return on capital
employed and pension deficit and funding.
Although BT Group 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 lines of business; future regulatory actions and conditions in BT's
operating areas, including competition from others in the UK and other
international communications markets; 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; the timing of
entry and profitability of BT and its lines of business in certain communication
markets; significant changes in market shares for BT and its principal products
and services; to the extent that BT chooses to sell assets or minority interests
in its subsidiaries, prevailing market levels for such sales; general financial
market conditions affecting BT's performance; the reintegration of Concert; and
the outcome of the actuarial pension funding valuation as at December 31, 2002.
BT Group 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
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