1st Quarter Results
BT Group PLC
26 July 2007
July 26, 2007
FIRST QUARTER RESULTS TO JUNE 30, 2007
HIGHLIGHTS
• Revenue of £5,033 million, up 3 per cent
• New wave revenue of £1,815 million, up 11 percent
• EBITDA before specific items(1) and leaver costs of £1,425 million, up 3
per cent
• Profit before taxation, specific items(1) and leaver costs of
£658 million, up 3 per cent
• Earnings per share before specific items(1) and leaver costs of
6.0pence, up 3 percent, our twenty first consecutive quarter of growth
• Broadband net additions(2) of 0.5 million to 11.2 million connections at
June 30, 2007
• BT Retail's share of net additions was 38 per cent
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the first quarter results, said:
"We have got the year off to a strong start with another robust all round
performance. Revenue, EBITDA and earnings per share all continue to grow as BT
builds on the achievements of last year.
"There is success across the board. BT Retail's share of the broadband(2) net
additions in the quarter was 38 per cent; contract wins in BT Global Services
and BT Wholesale were £2 billion; outside the UK we gained more than 100 new
customers.
"We are keeping BT ahead of the game by delivering software driven services that
will offer faster, more resilient and cost effective services to our customers
wherever in the world they are."
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 15 to 20.
(1)Specific items are significant one off or unusual items as defined in note 4
on page 24.
(2)Includes DSL and LLU connections.
RESULTS FOR THE FIRST QUARTER ENDED JUNE 30, 2007
First quarter Year ended
--------------------------------- March 31
2007 2006 Better (worse) 2007
£m £m % £m
Revenue 5,033 4,864 3 20,223
EBITDA
- before specific items and leaver
costs 1,425 1,386 3 5,780
- before specific items 1,417 1,362 4 5,633
Profit before taxation
- before specific items and leaver
costs 658 639 3 2,642
- before specific items 650 615 6 2,495
- after specific items 600 615 (2) 2,484
Earnings per share
- before specific items and leaver
costs 6.0p 5.8p 3 23.9p
- before specific items 5.9p 5.6p 5 22.7p
- after specific items 7.4p 5.6p 32 34.4p
Capital expenditure 903 715 (26) 3,247
Free cash flow (152) (17) n/m 1,354
Net debt 8,631 7,727 (12) 7,914
The commentary focuses on the results before specific items and leaver costs.
This is consistent with the way that financial performance is measured by
management and we believe allows a meaningful analysis to be made of the trading
results of the group. Specific items are defined in note 4 on page 24. Leaver
costs are shown in note 3 on page 24.
The income statement, cash flow statement and balance sheet are provided on
pages 15 to 20. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 29. A definition and reconciliation of free
cash flow and net debt are provided on pages 26 to 28.
GROUP RESULTS
Revenue was 3.5 per cent higher at £5,033 million in the quarter with continued
strong growth in new wave revenue. EBITDA before specific items and leaver costs
grew by 2.8 per cent, the sixth consecutive quarter of growth. Earnings per
share before specific items and leaver costs increased by 3 per cent to 6.0
pence, the twenty first quarter of year on year growth.
The strong growth in new wave revenue continued and at £1,815 million was
11 per cent higher than last year. New wave revenue is mainly generated from
networked IT services and broadband and accounted for 36 per cent of the group's
revenue. Networked IT services revenue grew by 8 per cent to £1,061 million, and
broadband revenue increased by 19 per cent to £540 million.
Progress continues in our transformation into a truly global software driven
services organisation. BT Global Services contract wins were £1.7 billion in the
first quarter, with £9.2 billion achieved over the last twelve months. This
includes the wholesale white label managed services contract with the Post
Office, part of the Royal Mail Group which is a BT Global Services customer. In
addition BT Wholesale won a five year contract to manage the T-Mobile access
network in the UK.
BT had 11.2 million wholesale broadband connections (DSL and LLU) at June 30,
2007, including 2.4 million local loop unbundled lines, an increase of 2.5
million connections year on year as the broadband market continued to show
strong growth. There were 459,000 additional connections in the first quarter,
which is seasonally the slowest quarter of the year. BT Retail's share of the
net additions in the quarter was 38 per cent and it is expected to maintain its
position as the UK's number one retail broadband provider.
Revenue
Revenue from the group's traditional businesses was maintained year on year.
This performance reflects the robust defence of the traditional business despite
price reductions arising from the highly competitive nature of our markets,
regulatory intervention and migration of customers to new wave services.
Major corporate (UK and international) revenue showed growth of 5 per cent.
Migration from traditional voice only services to networked IT services
continued with new wave revenue now representing over 60 per cent of all major
corporate revenue.
Revenue from smaller and medium sized UK businesses grew 2 per cent year on
year, continuing the recent improving trend. New wave revenue grew by
12 per cent driven by growth in broadband and other new wave services. We
continue to focus on innovative pricing plans and propositions that deliver
value to our customer base by bringing together IT, broadband and communication
services.
Consumer revenue in the first quarter was 2 per cent lower year on year,
compared to a 5 per cent reduction twelve months ago. In line with our strategy,
growth in new wave revenue of 21 per cent continues to reduce our dependence on
traditional revenue which has declined by 5 per cent.
The 12 month rolling average revenue per consumer household increased by £4 to
£266, the sixth consecutive quarter of growth. Increased penetration of
broadband and the growth of value added propositions have more than offset the
lower call revenues. Following a period of sustained growth, the proportion of
contracted revenues remained at 68 per cent.
Wholesale (UK and Global Carrier) revenue increased by 7 per cent driven by
wholesale line rental (WLR) and local loop unbundling (LLU). New wave revenue
now accounts for 25 per cent of wholesale revenue.
Operating results
Group operating costs before specific items increased by 3 per cent year on year
to £4,392 million. Staff costs before leaver costs increased by 3 per cent to
£1,299 million. The effect of increases in pay rates, the additional staff
needed to support networked IT services contracts and increased levels of
activity in the network and 21CN activities have been largely offset by improved
efficiencies. Leaver costs before specific items were £8 million in the quarter
(£24 million last year). Payments to other telecommunication operators increased
by £56 million to £1,062 million. Other operating costs before specific items of
£1,501 million increased by £64 million mainly due to increased costs of sales
from growth in networked IT and other new wave services which were partly offset
by cost savings from our efficiency programmes. Depreciation and amortisation
increased by 1 per cent to £709 million.
Group operating profit before specific items and leaver costs increased by 5 per
cent to £716 million.
Earnings
Net finance costs were £55 million, an increase of £9 million against last year.
This includes net finance income associated with the group's defined benefit
pension scheme which was flat year on year at £105 million in the first quarter.
The increase in net finance costs primarily reflects the higher net debt for the
quarter.
Profit before taxation, specific items and leaver costs of £658 million
increased by 3 per cent.
The effective tax rate on the profit before specific items was 24.8 per cent
(24.5 per cent last year) compared to the UK statutory corporation tax rate of
30 per cent, reflecting the continued focus on tax efficiency within the group.
Earnings per share before specific items and leaver costs increased by
3 per cent to 6.0 pence.
Specific items
Specific items are defined in note 4 on page 24. There was a total net credit
after tax of £119 million (£nil last year). There was a net operating charge
before tax of £50 million in the quarter (£nil last year). Restructuring costs
of £49 million (£nil last year) relating to the group's transformation and
reorganisation activities were incurred in the quarter. These mainly comprised
leaver costs and property exit costs. We expect the total restructuring costs to
be around £450 million which is expected to generate a payback within 2 to 3
years. We expect the majority of the costs to be incurred in 2007/08. In
addition, a specific tax credit of £154 million (£nil last year) has been
recognised for the re-measurement of deferred tax balances for the change in the
UK statutory corporation tax rate to 28 per cent, which becomes effective in
2008/09.
Earnings per share after specific items were 7.4 pence in the quarter (5.6 pence
last year).
Cash flow and net debt
Net cash inflow from operating activities in the first quarter amounted to
£848 million compared to £1,002 million last year. This was reflected in free
cash flow which was a net outflow of £152 million in the first quarter compared
to an outflow of £17 million last year. The main driver of the increased free
cash outflow was the working capital outflow which was £334 million higher than
last year and is expected to reverse later in the year. Pension deficiency
contributions of £320 million were paid, being the final payment until the next
triennial funding valuation as at December 31, 2008. Free cash flow also
includes the final receipt of £504 million in relation to the settlement of the
open tax years up to 2004/05 agreed with HMRC last year. The cash outflow from
the purchase of fixed assets for the quarter amounted to £819 million, £17
million higher than last year.
The net cash outflow on acquisition of subsidiaries, principally Comsat
International and i2i Enterprise, in the first quarter amounted to £164 million
compared to £35 million last year. The share buyback programme continued with
the repurchase of 113 million shares for a total consideration of £365 million
during the quarter, which compares to £50 million last year. During the quarter
the group issued £1.5 billion of debt maturing in 2014, 2017 and 2037. Debt of
£660 million matured and was repaid in the quarter. Net debt was £8,631 million
at June 30, 2007. Free cash flow and net debt are defined and reconciled in
notes 7 and 8 on pages 26 to 28.
Pensions
The IAS 19 net pension asset at June 30, 2007 was a surplus of £1.4 billion, net
of tax, (£2.0 billion gross of tax) compared with a deficit of £1.6 billion at
June 30, 2006 (£2.2 billion gross of tax), a turnaround of £3.0 billion. The BT
Pension Scheme had assets of £39.5 billion at June 30, 2007.
21st Century Network
During the quarter, BT continued the process of migrating customers to its 21st
Century Network (21CN) in South Wales and equipment has now been installed to
support the completion of the first phase of customer migrations this year.
Following the successful migration of the first live customers onto BT's 21CN,
BT completed its pioneering 21CN voice trials which carried the world's first
phone calls over an all IP next generation infrastructure in 2005. The trial
network, linking BT exchanges in central London, Woolwich and Cambridge, has
carried over 160 million calls and provided valuable testing and learning that
is now being deployed with live customers.
The preparation for national rollout is also underway with equipment installed
at hundreds of sites across the country.
The rebuild of BT's core national network is also continuing and we are on track
to launch next generation broadband services delivering up to 24Mb nationally in
early 2008. Field trials started during the quarter with the participation of a
range of internet service providers (ISPs). This follows the initial successful
pilot of next generation broadband services in Cardiff earlier this year.
The roll out of 21CN has resulted in an increased level of capital expenditure
compared to the first quarter of last year. In addition, the expansion of the
global MPLS network and the purchase of perpetual software licences has
accelerated the recognition of capital expenditure in the quarter.
Organisation structure
During the first quarter BT announced a move to a new organisation structure
that will help deliver faster, more resilient and cost effective services to
customers wherever they are. The move is designed to accelerate BT's
transformation to a networked IT services company, delivering software driven
services over broadband and also allowing the acceleration of the achievement of
cost savings. BT is bringing together its world class people from design,
operations, IT and networks into two business units. BT Design will be
responsible for the design and development of the platforms, systems and
processes which will support our services while BT Operate will be responsible
for their deployment and operation.
The existing group structure has remained in place for management and reporting
through the first quarter.
Outlook
Our performance underpins our confidence that we can continue to grow revenue,
EBITDA before specific items and leaver costs, earnings per share before
specific items and leaver costs, and dividends for the year.
We are confident in our ability to improve shareholder returns and accelerate
the strategic transformation of the business.
_____________________________________________________________________________
BT's final dividend of 10.0 pence per share will be paid on September 17, 2007
to shareholders on the register on August 24, 2007. The ex-dividend date is
August 22, 2007.
The second quarter and half year's results are expected to be announced on
November 8, 2007.
LINE OF BUSINESS RESULTS
BT Global Services
First quarter ended June 30 Year ended
----------------------------------- March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
Revenue 2,256 2,155 101 5 9,106
Gross profit 643 628 15 2 2,673
SG&A before leaver costs 404 400 (4) (1) 1,653
------ ------ ------
EBITDA before leaver costs 239 228 11 5 1,020
Depreciation and amortisation 164 148 (16) (11) 675
------ ------ ------
Operating profit before leaver
costs 75 80 (5) (6) 345
====== ====== ======
Capital expenditure 186 149 (37) (25) 695
====== ====== ======
BT Global Services revenue grew by 5 per cent to £2,256 million for the first
quarter. New wave revenue rose by £163 million to £1,802 million, an increase of
10 per cent. MPLS revenue rose by 25 per cent to £145 million.
Networked IT services contract orders were £0.9 billion in the quarter, taking
contract orders for the last twelve months to £5.1 billion which is up £1.0
billion from the position to the first quarter of last year. This includes the
wholesale white label managed services contract with the Post Office, part of
the Royal Mail Group which is a BT Global Services customer. Other contracts
ranged from the delivery and management of a global MPLS based virtual private
network linking over 1,000 sites for Nestle, to assisting Carillion in the
integration of its infrastructure with that of Mowlem, which it recently
acquired, into a single seamless network, to the provision of network
management, helpdesk support and other voice services to Allianz/Fujitsu in
Germany. Total orders in the quarter amounted to £1.7 billion, bringing the
value of total orders achieved over the last twelve months to £9.2 billion. A
further 102 new corporate customers outside the UK signed orders with BT in the
quarter.
During the first quarter BT Global Services extended its global reach and
capabilities with the completion of the acquisitions of Comsat International, a
leading provider of data communications services for corporations and public
sector organisations in Latin America, and i2i Enterprise, an enterprise
services company specialising in internet protocol communications services for
major Indian and global multi-nationals. These acquisitions underline our
commitment to providing world class services to our customers wherever they do
business.
Gross profit grew by £15 million to £643 million driven by new wave revenue but
still offset by declines in traditional telephony business, while SG&A costs
increased by £4 million. EBITDA before leaver costs increased year on year by
£11 million to £239 million, representing growth of 5 per cent. Depreciation and
amortisation charges increased by £16 million to £164 million, mostly resulting
from customer related capital expenditure in the course of last year. Overall,
this brought operating profit before leaver costs to £75 million, a reduction of
£5 million from the previous year.
Capital expenditure in the quarter was £186 million, an increase of £37 million
of which broadly half was customer contract driven following on from last year's
order intake and half was infrastructure related as we expand the global MPLS
network.
On the National Programme for IT for the NHS (NPfIT) over 20,000 connections
have been provided in England under the N3 contract, and the Scottish N3 network
is more than two-thirds complete. BT has also voice-enabled the network. This
will further reduce the cost of telephony services and bring enhanced
communications between NHS sites.
As London local service provider, BT is designing and installing new IT systems
throughout the 74 Trusts in the capital. Capability includes IT systems for
Acute, Mental Health, Community Health Trusts and over 1,600 General
Practitioners. Significant capability has been delivered to 70 per cent of trusts,
including more than half of London's Mental Health Trusts. There are plans to
install three acute patient administration systems by the end of this year.
The Spine is the central database and messaging system that BT is building and
managing for the NPfIT. BT has completed the most complex and challenging
software upgrade to date, creating the infrastructure and software to support
the roll out of the NHS Summary Care Record. The programme has delivered all of
the last 14 software releases since March 2005 on time or ahead of schedule.
BT Retail
First quarter ended June 30 Year ended
------------------------------- March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
Revenue 2,059 2,068 (9) - 8,414
------ ------ ------
Gross margin 587 560 27 5 2,350
SG&A before leaver costs 389 378 (11) (3) 1,481
------ ------ ------
EBITDA before leaver costs 198 182 16 9 869
Depreciation and amortisation 42 40 (2) (5) 171
------ ------ ------
Operating profit before leaver
costs 156 142 14 10 698
====== ====== ======
Capital expenditure 46 40 (6) (15) 166
====== ====== ======
BT Retail's EBITDA before leaver costs grew 9 per cent, the eighth consecutive
quarter of growth. There has been an improvement in gross margin of over 1
percentage point arising from improved efficiency, reducing the cost base and
innovative value based pricing plans. SG&A costs for the quarter increased 3 per
cent reflecting increased investment in advertising and service. Traditional
revenue declined 5 per cent and this was largely offset by new wave revenue
growth of 16 per cent.
Consumer customers benefited from a further round of significant price cuts on
voice packages this quarter. Successive price cuts over the past year have
reduced our Option 3 call package prices by almost half and our Option 2 package
prices by over a third. Unlimited calls to UK landlines now cost less per day
than the price of a first class stamp.
In a competitive broadband market, BT Retail revenue has grown by 19 per cent.
Net additions in the quarter of 38 per cent of DSL and LLU market additions,
reflect the success of offering the most complete broadband package. 58 per cent
of customers opted for the higher value Option 2 and 3 packages, with two thirds
of these choosing the highest value Option 3 package.
The growth in broadband will be further supported by the recent announcement to
acquire Brightview, which currently has around 62,000 broadband customers and
operates the ISP brands Madasafish and Global Internet, as well as the
Which-award-winning Waitrose ISP.
Our strategy of offering more than just access to our broadband customers is
demonstrated by our BT Vision and VoIP propositions. The roll out of BT Vision
continues as planned, supported by a national advertising campaign promoting BT
Vision as the nation's most flexible digital television service and highlighting
the extensive content on offer to our customers. We recently announced further
enhancements to the service with BT Vision Sport providing wide coverage of
football, golf and other sports, starting at less than £1 per week.
Our advanced VoIP service grew strongly again this quarter with Broadband Talk
and BT Softphone customers increasing 23 per cent to 1.7 million at the end of
the quarter.
Within the SME sector we launched BT Tradespace, a new range of web design,
hosting and marketing services which allows businesses to build an on-line
presence in minutes with more than 10,000 customers now signed up for the
service. Our IT Manager proposition was supported with the launch of a major
advertising campaign featuring Gordon Ramsay, which has significantly increased
the awareness and understanding of our proposition in our target audience.
We made further progress in our strategy to offer our customers flexible
services in the home, office and on the move. More than a million customers can
now take advantage of Wi-Fi as part of our Total Broadband package. We continue
to grow our wireless broadband business with widespread access in the centre of
12 cities and Openzone hotspots in major public areas and business locations
such as airports, railway stations and key hotels such as Hilton and Thistle. We
also signed an agreement with Sony Computer Entertainment Europe (SCEE) to
transform the PSP gaming device by adding wireless broadband communication
features, allowing voice and video calling from your PSP.
The Enterprises division has continued to deliver strong growth with revenues up
9 per cent and EBITDA up 58 per cent against the same quarter last year. As well
as the strong growth in revenue and EBITDA, the Conferencing, Expedite and
Redcare businesses have all secured significant new contracts in the quarter.
BT Wholesale
First quarter ended June 30 Year ended
------------------------------- March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
External revenue 999 997 2 - 4,057
Internal revenue 867 850 17 2 3,527
------ ------ ------
Revenue 1,866 1,847 19 1 7,584
Variable cost of sales 950 920 (30) (3) 3,848
------ ------ ------
Gross variable profit 916 927 (11) (1) 3,736
Network and SG&A before leaver
costs 430 449 19 4 1,775
------ ------ ------
EBITDA before leaver costs 486 478 8 2 1,961
Depreciation and amortisation 285 285 - - 1,198
------ ------ ------
Operating profit before leaver
costs 201 193 8 4 763
====== ====== ======
Capital expenditure 272 200 (72) (36) 1,017
====== ====== ======
BT Wholesale external revenue in the first quarter increased by £2 million to
£999 million. Revenue from new wave services was £245 million. Internal revenue
increased by 2 per cent to £867 million due to strong growth in broadband
revenue from internal channels more than offsetting the impact of lower call
volumes and lower regulatory prices being reflected in internal charges.
Gross variable profit decreased by 1 per cent to £916 million. Network and SG&A
costs performance was strong, with a 4 per cent decrease as a result of cost
savings made through network efficiencies more than offsetting network costs on
the roll-out of 21CN.
EBITDA before leaver costs increased by 2 per cent to £486 million. Higher
depreciation due to increased 21CN activity has been offset by a reduction in
depreciation in areas of traditional technology. Operating profit before leaver
costs increased by 4 per cent year on year.
Capital expenditure was 36 per cent higher than last year driven by a
significant increase in 21CN related investment this quarter.
BT Wholesale had 8.8 million DSL broadband connections at June 30, 2007, an
increase of 701,000 year on year. There was a net reduction in connections of
55,000 in the first quarter as wholesale customers migrated to LLU as the
exchange roll out continues.
BT Wholesale's new strategy of generating growth through the provision of
managed network solutions to other communication providers is demonstrating
solid early success with new multi year contracts signed in the first quarter.
This includes a new five year managed network solutions agreement with T-Mobile
to manage the access backhaul transmission network serving the majority of
T-Mobile's base station sites across the UK. The contract will deliver T-Mobile
a cost-efficient and flexible next generation service to support its growth
plans and help avoid any investment risk in building its own capability.
Openreach
First quarter ended June 30 Year ended
------------------------------- March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
External revenue 211 130 81 62 685
Revenue from BT lines of business 1,099 1,129 (30) (3) 4,492
------ ------ ------
Revenue 1,310 1,259 51 4 5,177
Operating costs before leaver costs 839 787 (52) (7) 3,289
------ ------ ------
EBITDA before leaver costs 471 472 (1) - 1,888
------ ------ ------
Depreciation and amortisation 181 175 (6) (3) 707
------ ------ ------
Operating profit before leaver
costs 290 297 (7) (2) 1,181
====== ====== ======
Capital expenditure 277 271 (6) (2) 1,108
====== ====== ======
Openreach's revenue in the first quarter was £1,310 million, a 4 per cent
increase, driven by higher connections and increased broadband related rentals.
External revenue increased by £81 million due to volume growth on all products,
including broadband related connections. Revenues from other BT lines of
business decreased by 3 per cent to £1,099 million, reflecting the volume shift
of Wholesale Line Rental (WLR) to external revenues.
At June 30, 2007 Openreach had over 2.4 million external LLU lines (with net
additions of 514,000 in the quarter) and 8.8 million lines with other BT lines
of business. Overall LLU revenue has increased by over a third year on year as
exchange rollout continues and the broadband market expands. Openreach has over
4.2 million external WLR lines and channels and 23 million WLR lines and
channels with other BT lines of business, with overall WLR revenues remaining
flat year on year.
Operating costs increased by £52 million to £839 million. Headcount has
increased by 500 in the quarter to support the increase in operational volumes
of over 20 per cent year on year. These volume increases, effects of
inflationary rises and increased maintenance and support costs of the new
systems have been partly offset by efficiency programme savings across the
business to keep the overall increase in operating costs to 7 per cent.
Overall this has resulted in a £1 million decrease in EBITDA before leaver
costs.
Depreciation and amortisation costs of £181 million have increased by £6 million
because of the impact of depreciation on the Equivalence Management Platform and
LLU assets from the large capital investment in prior periods. Operating profit
before leaver costs decreased by £7 million to £290 million.
Capital expenditure in the quarter was 2 per cent higher at £277 million.
Increased customer driven spend on network infrastructure and 21CN work have
been partially offset by lower but continued, committed spend on system
development required under the Undertakings.
Openreach has made significant investment in delivering the new Wholesale Line
Rental product (WLR3) to the industry and ensuring that all Communications
Providers, including BT Retail, can exploit the benefits of WLR3 by June 30,
2007. This has included training of service management centre agents and all of
the Openreach field engineers. Openreach has now delivered this solution and is
in the process of ramping up customer migrations, while continuing to make good
progress towards the next milestones, including WLR Digital.
GROUP INCOME STATEMENT
for the three months ended June 30, 2007
-----------------------------------------------------------------------------
Before Specific items
specific items (note 4) Total
(unaudited) Notes £m £m £m
-----------------------------------------------------------------------------
Revenue 2 5,033 - 5,033
Other operating income 67 (1) 66
Operating costs 3 (4,392) (49) (4,441)
------ ------ ------
Operating profit 708 (50) 658
Finance costs (680) - (680)
Finance income 625 - 625
------ ------ ------
Net finance costs 5 (55) - (55)
Share of post tax losses
of associates and joint
ventures (3) - (3)
------ ------ ------
Profit before taxation 650 (50) 600
Taxation (161) 169 8
------ ------ ------
Profit for the period 489 119 608
====== ====== ======
Attributable to:
Equity shareholders 488 119 607
Minority interest 1 - 1
====== ====== ======
Earnings per share 6
- basic 5.9p 7.4p
====== ======
- diluted 5.8p 7.2p
====== ======
GROUP INCOME STATEMENT
for the three months ended June 30, 2006
-----------------------------------------------------------------------------
Before Specific items
specific items (note 4) Total
(unaudited) Notes £m £m £m
-----------------------------------------------------------------------------
Revenue 2 4,864 - 4,864
Other operating income 50 - 50
Operating costs 3 (4,255) - (4,255)
------ ------ ------
Operating profit 659 - 659
Finance costs (642) - (642)
Finance income 596 - 596
------ ------ ------
Net finance costs 5 (46) - (46)
Share of post tax profits
of associates and joint
ventures 2 - 2
------ ------ ------
Profit before taxation 615 - 615
Taxation (151) - (151)
------ ------ ------
Profit for the period
attributable to equity
shareholders 464 - 464
====== ====== ======
Earnings per share 6
- basic 5.6p 5.6p
====== ======
- diluted 5.5p 5.5p
====== ======
GROUP INCOME STATEMENT
for the year ended March 31, 2007
-----------------------------------------------------------------------------
Before specific Specific items
items (note 4) Total
Notes £m £m £m
-----------------------------------------------------------------------------
Revenue 2 20,223 - 20,223
Other operating income 236 (3) 233
Operating costs 3 (17,746) (169) (17,915)
------ ------ ------
Operating profit 2,713 (172) 2,541
Finance costs (2,604) - (2,604)
Finance income 2,371 139 2,510
------ ------ ------
Net finance (costs) income 5 (233) 139 (94)
Share of post tax profits
of associates and joint
ventures 15 - 15
Profit on disposal of
associate - 22 22
------ ------ ------
Profit before taxation 2,495 (11) 2,484
Taxation (611) 979 368
------ ------ ------
Profit for the period 1,884 968 2,852
====== ====== ======
Attributable to:
Equity shareholders 1,882 968 2,850
Minority interest 2 - 2
====== ====== ======
Earnings per share 6
- basic 22.7p 34.4p
====== ======
- diluted 22.2p 33.6p
====== ======
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the three months ended June 30, 2007
---------------------------------------------------------------------------------
First quarter ended June 30 Year ended
March 31
2007 2006 2007
(unaudited)
£m £m £m
---------------------------------------------------------------------------------
Profit for the period 608 464 2,852
====== ====== ======
Actuarial gains on defined
benefit pension schemes 2,012 305 1,409
Net gains (losses) on cash flow
hedges 26 (24) 163
Exchange differences on
translation of foreign operations (19) (54) (95)
Tax on items taken directly to equity (684) (87) (486)
------ ------ ------
Net gains recognised directly in
equity 1,335 140 991
------ ------ ------
Total recognised income for the
period 1,943 604 3,843
====== ====== ======
Attributable to:
Equity shareholders 1,942 604 3,843
Minority interests 1 - -
------ ------ ------
1,943 604 3,843
====== ====== ======
GROUP CASH FLOW STATEMENT
for the three months ended June 30, 2007
---------------------------------------------------------------------------------
First quarter ended June 30 Year ended
March 31
2007 2006 2007
(unaudited)
£m £m £m
---------------------------------------------------------------------------------
Cash flows from operating activities
Cash generated from operations
(note 7 (a)) 464 1,092 5,245
Income taxes received (paid) 384 (90) (35)
------ ------ ------
Net cash inflow from operating
activities 848 1,002 5,210
Cash flow from investing activities
Net acquisition of subsidiaries,
associates and joint ventures (164) (38) (237)
Net purchase of property, plant,
equipment and software (819) (802) (3,209)
Interest received 75 15 147
Dividends received from
associates and joint ventures 1 3 6
Net (purchase) sale of short
term investments and non current
asset investments (79) (729) 258
------ ------ ------
Net cash used in investing
activities (986) (1,551) (3,035)
Cash flows from financing activities
Net repurchase of ordinary share
capital (368) (62) (279)
New borrowings 1,503 - 11
Repayments of borrowings (660) (22) (1,085)
Net movement on commercial paper 642 304 309
Interest paid (257) (235) (797)
Equity dividends paid (2) (5) (1,057)
------ ------ ------
Net cash received (used) in
financing activities 858 (20) (2,898)
Effects of exchange rate changes (3) - (37)
------ ------ ------
Net increase (decrease) in cash
and cash equivalents 717 (569) (760)
====== ====== ======
Cash and cash equivalents at
beginning of period 1,024 1,784 1,784
Cash and cash equivalents, net
of bank overdrafts, at end of
period (note 7 (c)) 1,741 1,215 1,024
====== ====== ======
Free cash flow (note 7 (b)) (152) (17) 1,354
====== ====== ======
Increase in net debt from cash
flows (note 8) 686 122 219
====== ====== ======
GROUP BALANCE SHEET
at June 30, 2007
---------------------------------------------------------------------------------
June 30 June 30 March 31
2007 2006 2007
(unaudited)
£m £m £m
---------------------------------------------------------------------------------
Non current assets
Goodwill and other intangible assets 2,807 1,819 2,584
Property, plant and equipment 15,124 15,329 14,997
Trade and other receivables 579 366 523
Retirement benefit assets of the BT
Pension Scheme 2,070 - -
Other non current assets 130 81 119
Deferred tax assets 27 667 117
------ ------ ------
20,737 18,262 18,340
------ ------ ------
Current assets
Inventories 140 138 133
Trade and other receivables 4,469 4,183 4,073
Current tax receivables - - 504
Other financial assets 85 1,052 30
Cash and cash equivalents 2,245 1,391 1,075
------ ------ ------
6,939 6,764 5,815
------ ------ ------
Total assets 27,676 25,026 24,155
Current liabilities
Loans and other borrowings 2,718 2,888 2,203
Trade and other payables 6,662 6,394 6,719
Other current liabilities 638 1,043 695
------ ------ ------
10,018 10,325 9,617
------ ------ ------
Total assets less current liabilities 17,658 14,701 14,538
====== ====== ======
Non current liabilities
Loans and other borrowings 7,743 7,042 6,387
Deferred tax liabilities 2,128 1,498 1,683
Retirement benefit obligations 96 2,222 389
Other non current liabilities 1,878 1,755 1,807
------ ------ ------
11,845 12,517 10,266
------ ------ ------
Capital and reserves
Called up share capital 432 432 432
Reserves 5,347 1,701 3,806
------ ------ ------
Total equity shareholders' funds 5,779 2,133 4,238
Minority interest 34 51 34
------ ------ ------
Total equity 5,813 2,184 4,272
------ ------ ------
17,658 14,701 14,538
====== ====== ======
NOTES
1 Basis of preparation and accounting policies
These primary statements and selected notes comprise the unaudited interim
consolidated financial results of BT Group plc for the quarters ended June 30,
2007 and 2006, together with the audited results for the year ended March 31,
2007. These interim financial results do not comprise statutory accounts within
the meaning of Section 240 of the Companies Act 1985. Statutory accounts for the
year ended March 31, 2007 were approved by the Board of Directors on May 16,
2007 and published on May 30, 2007. The report of the auditors on those accounts
was unqualified and did not contain any statement under Section 237 of the
Companies Act 1985.
The accounting policies which have been applied to prepare the interim financial
results are the same as those used for the preparation of the consolidated
financial statements for the year ended March 31, 2007.
Certain comparative balance sheet amounts have been reclassified as at June 30,
2006 to conform with the presentation adopted as at March 31, 2007 and June 30,
2007.
2 Results of businesses
(a) Operating results
External Internal Group EBITDA Group operating
revenue revenue revenue (ii) profit (loss)
(ii)
£m £m £m £m £m
First quarter ended
June 30, 2007
BT Global Services 1,853 403 2,256 239 75
BT Retail 1,963 96 2,059 198 156
BT Wholesale 999 867 1,866 486 201
Openreach 211 1,099 1,310 471 290
Other 7 - 7 31 (6)
Intra-group items(i) - (2,465) (2,465) - -
------- ------- ------- ------- -------
Total 5,033 - 5,033 1,425 716
======= ======= ======= ======= =======
First quarter ended
June 30, 2006
BT Global Services 1,754 401 2,155 228 80
BT Retail 1,977 91 2,068 182 142
BT Wholesale 997 850 1,847 478 193
Openreach 130 1,129 1,259 472 297
Other 6 - 6 26 (29)
Intra-group items(i) - (2,471) (2,471) - -
------- ------- ------- ------- -------
Total 4,864 - 4,864 1,386 683
======= ======= ======= ======= =======
Year ended
March 31, 2007
BT Global Services 7,467 1,639 9,106 1,020 345
BT Retail 7,997 417 8,414 869 698
BT Wholesale 4,057 3,527 7,584 1,961 763
Openreach 685 4,492 5,177 1,888 1,181
Other 17 - 17 42 (127)
Intra-group items(i) - (10,075) (10,075) - -
------- ------- ------- ------- -------
Total 20,223 - 20,223 5,780 2,860
======= ======= ======= ======= =======
(i) Elimination of intra-group revenue between businesses, which is included
in the total revenue of the originating business.
(ii) Before specific items and leaver costs
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. For regulated
products and services those transfer prices are market based, whilst for other
products and services, the transfer prices are agreed between the relevant lines
of business on an arms length basis. These intra-group trading arrangements are
subject to periodic review.
(b) Revenue analysis
First quarter ended June 30 Year ended
------------------------------------ March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
Traditional 3,218 3,223 (5) - 12,849
New wave 1,815 1,641 174 11 7,374
------- ------- --------
5,033 4,864 169 3 20,223
======= ======= ========
Major Corporate 1,785 1,699 86 5 7,244
Business 601 588 13 2 2,353
Consumer 1,231 1,252 (21) (2) 5,124
Wholesale/Carrier 1,409 1,319 90 7 5,485
Other 7 6 1 17 17
------- ------- --------
5,033 4,864 169 3 20,223
======= ======= ========
(c) New wave revenue analysis
First quarter ended June 30 Year ended
------------------------------------ March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
Networked IT services 1,061 981 80 8 4,386
Broadband 540 454 86 19 2,016
Mobility 75 71 4 6 294
Other 139 135 4 3 678
------- ------- --------
1,815 1,641 174 11 7,374
======= ======= ========
(d) Capital expenditure on property, plant, equipment, software and motor
vehicles
First quarter ended June 30 Year ended
------------------------------------ March 31
2007 2006 Better (worse) 2007
£m £m £m % £m
BT Global Services 186 149 (37) (25) 695
BT Retail 46 40 (6) (15) 166
BT Wholesale 272 200 (72) (36) 1,017
Openreach 277 271 (6) (2) 1,108
Other (including
fleet vehicles
and property) 122 55 (67) n/m 261
------- ------- --------
903 715 (188) (26) 3,247
======= ======= ========
Transmission
equipment 289 297 8 3 1,209
Exchange equipment 31 14 (17) n/m 118
Other network
equipment 260 160 (100) (63) 854
Computers and
office equipment 34 28 (6) (21) 149
Software 257 180 (77) (43) 807
Motor vehicles and
other 15 14 (1) (7) 49
Land and buildings 17 22 5 23 61
------- ------- --------
903 715 (188) (26) 3,247
======= ======= ========
3 (a) Operating costs
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Staff costs before leaver costs 1,299 1,256 5,076
Leaver costs 8 24 147
------- ------- --------
Staff costs 1,307 1,280 5,223
Own work capitalised (187) (171) (718)
------- ------- --------
Net staff costs 1,120 1,109 4,505
Depreciation and amortisation 709 703 2,920
Payments to telecommunication operators 1,062 1,006 4,162
Other operating costs 1,501 1,437 6,159
------- ------- --------
Total before specific items 4,392 4,255 17,746
Specific items (note 4) 49 - 169
------- ------- --------
Total 4,441 4,255 17,915
======= ======= ========
(b) Leaver costs
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
BT Global Services 4 17 52
BT Retail - 2 24
BT Wholesale 3 1 39
Openreach - 2 4
Other 1 2 28
------- ------- --------
Total before specific items 8 24 147
Specific items 25 - -
------- ------- --------
Total 33 24 147
======= ======= ========
4 Specific items
BT separately identifies and discloses any significant one off or unusual items
(termed "specific items"). This includes profit and losses on the disposal of
investments and businesses, and asset impairment charges. This is consistent
with the way that financial performance is measured by management and we believe
assists in providing a meaningful analysis of the trading results of the group.
Specific items may not be comparable to similarly titled measures used by other
companies.
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Restructuring costs 49 - -
Creation of Openreach - - 30
Property rationalisation costs - - 64
Write off of circuit inventory and
working capital balances - - 65
Cost associated with settlement of
open tax years - - 10
------- ------- --------
Specific operating costs 49 - 169
Loss (profit) on sale of non current
asset investments 1 - (19)
Interest on settlement of open tax
years - - (139)
------- ------- --------
Net specific items charge before tax 50 - 11
Tax credit on specific items (15) - (41)
Tax credit on re-measurement of
deferred tax (154) - -
Tax credit in respect of settlement
of open tax years - - (938)
------- ------- --------
Net specific items credit after tax (119) - (968)
======= ======= ========
5 Net finance costs
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Finance costs(1) before pension
interest 173 175 732
Interest on pension scheme liabilities 507 467 1,872
------- ------- --------
Finance costs 680 642 2,604
------- ------- --------
Finance income(2) before pension
income (13) (24) (218)
Expected return on pension scheme
assets (612) (572) (2,292)
------- ------- --------
Finance income (625) (596) (2,510)
------- ------- --------
Net finance costs 55 46 94
======= ======= ========
Net finance costs before pensions 160 151 514
Interest associated with pensions (105) (105) (420)
------- ------- --------
Net finance costs 55 46 94
======= ======= ========
(1)Finance costs in the first quarter ended June 30, 2007 and June 30, 2006 and
the year ended March 31, 2007 include a net credit of £6 million and £3 million
and net charge of £4 million, respectively, arising from the re-measurement of
financial instruments which under IAS 39 are not in hedging relationships on a
fair value basis.
(2)Finance income in the year ended March 31, 2007 includes £139 million of
interest on settlement of open tax years.
6 Earnings per share
The basic earnings per share are calculated by dividing the profit attributable
to shareholders by the average number of shares in issue after deducting the
company's shares held by employee
share ownership trusts and treasury shares. In calculating the diluted earnings
per share, share options outstanding and other potential ordinary shares have
been taken into account.
The average number of shares in the periods were:
First quarter ended Year ended
June 30 March 31
2007 2006 2007
millions of shares
Basic 8,216 8,314 8,293
Diluted 8,461 8,455 8,479
7 (a) Reconciliation of profit before tax to cash generated from operations
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Profit before tax 600 615 2,484
Depreciation and amortisation 709 703 2,920
Associates and joint ventures 3 (2) (15)
Employee share scheme costs 17 20 93
Net finance costs 55 46 94
Profit on disposal of non current
asset investments 1 - (19)
Changes in working capital (691) (357) (52)
Provisions movements, pensions and
other (230) 67 (260)
------- ------- --------
Cash generated from operations 464 1,092 5,245
======= ======= =======
(b) Free cash flow
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Cash generated from operations 464 1,092 5,245
Income taxes repaid (paid) 384 (90) (35)
------- ------- --------
Net cash inflow from operating
activities 848 1,002 5,210
Included in cash flows from investing
activities
Net purchase of property, plant,
equipment and software (819) (802) (3,209)
Net purchase of non current asset
investments - - (3)
Dividends received from associates 1 3 6
Interest received 75 15 147
Included in cash flows from financing
activities
Interest paid (257) (235) (797)
------- ------- --------
Free cash flow (152) (17) 1,354
======= ======= =======
Free cash flow is defined as the net increase in cash and cash equivalents less
cash flows from financing activities (except interest paid), less the
acquisition or disposal of group undertakings and less the net sale of short
term investments. It is not a measure recognised under IFRS but is a key
indicator used by management in order to assess operational performance.
(c) Cash and cash equivalents
At June 30 At March 31
2007 2006 2007
£m £m £m
Cash at bank and in hand 854 464 568
Short term deposits 1,391 927 507
------- ------- --------
Cash and cash equivalents 2,245 1,391 1,075
Bank overdrafts (504) (176) (51)
------- ------- --------
1,741 1,215 1,024
======= ======= ========
8 Net debt
Net debt at June 30, 2007 was £8,631 million (June 30, 2006 - £7,727 million).
Net debt consists of loans and other borrowings less current asset investments
and cash and cash equivalents. Loans and other borrowings are measured at the
net proceeds raised, adjusted to amortise any discount over the term of the
debt. For the purpose of this analysis current asset investments and cash and
cash equivalents are measured at the lower of cost and net realisable value.
Currency denominated balances within net debt are translated to sterling at
swapped rates where hedged.
This definition of net debt measures balances at the expected value of future
cash flows due to arise on maturity of financial instruments and removes the
balance sheet adjustments made for the re-measurement of hedged risks under fair
value hedges and the use of the amortised cost method as required by IAS 39. In
addition, the gross balances are adjusted to take account of netting
arrangements amounting to £502 million. Net debt is a non GAAP measure since it
is not defined in IFRS but it is a key indicator used by management in order to
assess operational performance.
8 (a) Analysis
At June 30 At March 31
2007 2006 2007
£m £m £m
Loans and other borrowings 10,461 9,930 8,590
Cash and cash equivalents (2,245) (1,391) (1,075)
Other current financial assets(1) (84) (1,036) (3)
------- ------- --------
8,132 7,503 7,512
Adjustments:
To retranslate currency denominated
balances at swapped rates where
hedged 614 371 577
To recognise borrowings and
investments at net proceeds and
unamortised discount (115) (147) (175)
------- ------- --------
Net debt 8,631 7,727 7,914
======= ======= ========
After allocating the element of the adjustments to net debt which impact loans
and other borrowings, gross debt at June 30, 2007 was £10,456 million (June 30,
2006 - £9,975 million, March 31, 2007 - £8,943 million).
1Excluding derivative financial instruments of £nil, £16 million and £27 million
at June 30, 2007 and 2006 and March 31, 2007, respectively.
8 (b) Reconciliation of movement in net debt
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Net debt at beginning of period 7,914 7,534 7,534
Increase in net debt resulting from
cash flows 686 122 219
Net debt assumed or issued on
acquisitions 24 9 11
Currency movements 2 63 124
Other non cash movements 5 (1) 26
------- ------- --------
Net debt at end of period 8,631 7,727 7,914
======= ======= ========
9 Statement of changes in equity
First quarter ended Year ended
June 30 March 31
2007 2006 2007
£m £m £m
Shareholders' funds 4,238 1,555 1,555
Minority interest 34 52 52
------- ------- --------
Equity at beginning of period 4,272 1,607 1,607
Total recognised income for the
period 1,943 604 3,843
Share based payment (4) 20 71
Issues of shares 10 1 24
Tax on items taken directly to equity - - 82
Net purchase of treasury shares (407) (47) (284)
Dividends on ordinary shares - - (1,053)
Minority interest (1) (1) (18)
------- ------- --------
Net changes in equity for the period 1,541 577 2,665
Equity at end of period
Shareholders' funds 5,779 2,133 4,238
Minority interest 34 51 34
------- ------- --------
Total equity 5,813 2,184 4,272
======= ======= ========
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
First quarter Year ended
ended June 30 March 31
2007 2006 2007
£m £m £m
Operating profit 658 659 2,541
Specific items (note 4) 50 - 172
Depreciation and amortisation
(note 3) 709 703 2,920
-------- -------- -------
EBITDA before specific items 1,417 1,362 5,633
======= ======= =======
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
before specific items is not a measure recognised under IFRS, but it is a key
indicator used by management in order to assess operational performance.
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 revenue, EBITDA and earnings per share; growth
in new wave revenue, mainly from networked IT services and broadband;
implementation of BT's 21st Century Network; roll out of next generation
broadband services and the benefits of BT's new organisation structure including
accelerated strategic transformation and achievement of cost savings.
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
END
QRFUVVBRBVRBUAR
Latest directors dealings
- 1 hour ago Kenmare Resources (CDI)
- 1 hour ago Earnz
- 2 hours ago Wetherspoon (J.D.)
- 2 hours ago Informa
- 3 hours ago Dowlais Group