3rd Quarter Results
BT Group PLC
10 February 2005
February 10, 2005
THIRD QUARTER AND NINE MONTHS RESULTS TO DECEMBER 31, 2004
THIRD QUARTER HIGHLIGHTS
• Group turnover up 3 per cent, excluding the impact of mobile termination
rate reductions, at £4,584 million. Turnover was marginally up including
the impact of mobile termination rate reductions
• New wave turnover of £1,135 million, up 35 per cent, representing 25 per
cent of group turnover
• Profit before taxation, goodwill amortisation and exceptional items of
£545 million, up 4 per cent
• Earnings per share before goodwill amortisation and exceptional items, up
9 per cent at 4.8 pence
• Net debt of £7,940 million, 10 per cent lower than previous year Broadband
end users of 4.1 million at December 31, 2004 with a record 813,000 DSL
connections in the quarter
The full profit and loss account, cash flow statement and balance sheet, drawn
up in accordance with UK generally accepted accounting principles, from which
this information is extracted are set out on pages 12 to 17.
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the third quarter results, said:
"Our transformation strategy has now delivered underlying revenue growth in four
consecutive quarters, a significant milestone. We have seen new wave growth of
35 per cent.
"Broadband DSL connections were more than 800,000 in the quarter, a new
connection every 10 seconds of every day. We expect to achieve 5 million
broadband DSL connections a year ahead of target.
"Our global ICT presence is building strongly and our Global Services revenues
grew by 10 per cent in the quarter.
"Earnings per share before goodwill amortisation and exceptional items grew by 9
per cent to 4.8 pence.
"These results justify the confidence we have in our strategy which is
transforming BT and delivering long-term growth in shareholder value."
RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
TO DECEMBER 31, 2004
Third quarter Nine months
2004 2003 Better 2004 2003 Better
(worse) (worse)
£m £m % £m £m %
Group turnover 4,584 4,578 - 13,753 13,732 -
EBITDA
- before
exceptional
items and
leaver costs 1,450 1,499 (3) 4,343 4,454 (2)
- before
exceptional
items 1,438 1,473 (2) 4,221 4,401 (4)
Profit before
taxation
- before
goodwill,
exceptional
items and
leaver costs 557 551 1 1,650 1,607 3
- before
goodwill and
exceptional
items 545 525 4 1,528 1,554 (2)
- after
goodwill and
exceptional
items 790 518 53 1,773 1,522 16
Earnings per
share
- before
goodwill,
exceptional
items and
leaver costs 4.9p 4.6p 7 14.3p 13.4p 7
- before
goodwill and
exceptional
items 4.8p 4.4p 9 13.3p 13.0p 2
- after
goodwill and
exceptional
items 7.7p 4.5p 71 16.2p 12.9p 26
Capital
expenditure 770 699 (10) 2,267 1,829 (24)
Free cash flow 387 49 n/m 1,138 1,252 (9)
Net debt 7,940 8,795 10
The commentary focuses on the results before goodwill amortisation and
exceptional items. This is consistent with the way that financial performance is
measured by management and we believe allows a meaningful comparison to be made
of the trading results of the group.
As noted in the first quarter, the results have been restated to reflect the
requirements of UITF Abstract 38 'Accounting for ESOP trusts' and the related
amendments to UITF Abstract 17 (revised 2003) 'Employee Share Schemes' which the
group has adopted (see note 1). This restatement results in an additional
operating profit charge of £3 million for the nine months and £1 million for the
quarter ended December 31, 2003.
The full profit and loss account, cash flow statement and balance sheet are
provided on pages 12 to 17. A reconciliation of EBITDA to group operating profit
is provided on page 25.
GROUP RESULTS - THIRD QUARTER ENDED DECEMBER 31, 2004
These results show that the business has grown for the fourth consecutive
quarter. Turnover was marginally higher at £4,584 million with the strong growth
of new wave turnover more than offsetting the decline in traditional turnover.
Excluding the impact of regulatory reductions to mobile termination rates, which
have no impact on profitability, the underlying turnover increased by
3 per cent. Earnings per share before goodwill amortisation and exceptional
items increased by 9 per cent to 4.8 pence.
The strong growth in new wave turnover continued and at £1,135 million was
35 per cent higher than last year. This is the fifth consecutive quarter of
growth in excess of 30 per cent. New wave turnover now accounts for one quarter
of the group's turnover compared to 18 per cent in the third quarter of last
year. New wave turnover is mainly generated from Information and Communications
Technology (ICT) solutions and managed services, broadband and mobility. ICT
turnover grew by 21 per cent to £738 million. Broadband turnover increased by
98 per cent to £253 million. Mobility turnover at £55 million achieved growth of
112 per cent.
Turnover from the group's traditional businesses declined by 8 per cent
(4 per cent excluding the impact of reductions to mobile termination rates).
This decline reflects regulatory intervention, competition, price reductions and
also technological changes that we are using to drive customers from traditional
services to new wave services, such as broadband and Internet Protocol Virtual
Private Networks (IPVPN's).
Total consumer turnover in the third quarter was 6 per cent lower (5 per cent
lower excluding the impact of reductions to mobile termination rates). New wave
consumer turnover increased by 97 per cent, driven by the continuing growth of
broadband and mobility. Residential broadband connections increased by
90 per cent and mobility connections increased to 179,000 at December 31, 2004
from 24,000 last year.
Traditional consumer turnover declined 11 per cent year on year. This decline
reflects the impact of Carrier Pre-Selection (CPS) and broadband substitution.
There are now 17.6 million BT Together customers and within this, the number of
customers on the frequent user packages of BT Together Option 2 increased by
6 per cent to 1.3 million and Option 3 increased by 103 per cent to 556,000.
The underlying 12 month rolling average revenue per consumer customer household
(net of mobile termination charges) of £259 declined by £3 compared to last
quarter with increased broadband volumes more than offset by lower call revenues
and broadband price reductions. Contracted revenues increased by 1 percentage
point to 61 per cent compared to last quarter, and is 4 percentage points higher
than last year.
Turnover from smaller and medium sized businesses declined by 5 per cent
(3 per cent excluding the impact of reductions to mobile termination rates). The
continued expansion of the BT Business Plan portfolio has extended its reach.
The number of business locations increased by 94 per cent against last year to
421,000 by December 31, 2004, an increase of 31 per cent in the quarter. This,
together with our 82 BT Local Businesses, defended against some of the decline
in the traditional turnover. New wave turnover grew by 42 per cent in this
customer segment supported by the 50 per cent growth in Business Broadband
customers.
Major Corporate (UK and international) turnover increased by 5 per cent with the
strong growth in new wave turnover (21 per cent) more than offsetting the
decline in traditional services. There is a continued migration from traditional
voice only services to managed ICT solutions contracts and an increase in
mobility and broadband turnover. New wave turnover represents almost half of all
Major Corporate turnover. ICT contract wins were £1.2 billion in the third
quarter, including a seven year IP based services contract with Barclays, which
results in orders of £5.7 billion over the last twelve months.
Our estimate of market share by volume of fixed to fixed voice minutes is based
on our actual minutes, market data provided by Ofcom and an extrapolation of the
historical trends. BT's estimated consumer market share declined by 1.3
percentage points compared to last quarter to around 63 per cent whilst the
estimated business market share declined by 0.5 percentage points to around 42
per cent.
Wholesale (UK and Global Carrier) turnover increased by 7 per cent (16 per cent
excluding the impact of reductions to mobile termination rates). UK Wholesale
new wave turnover increased by 80 per cent to £180 million mainly driven by
broadband.
At December 31, 2004 there was an installed base of 4.1 million wholesale
broadband DSL lines, an increase of 134 per cent over last year, with a new
connection every 10 seconds of every day in the quarter. We expect to reach 5
million broadband DSL lines in the spring, a year ahead of our target.
The group has an extensive market research programme conducted by external
agencies which focuses on the level and causes of customer dissatisfaction. BT
has achieved a 12 per cent year to date reduction in the level of customer
dissatisfaction.
Group operating costs before goodwill amortisation and exceptional items were
flat year on year at £3,888 million. Leaver costs were £12 million in the
quarter (£26 million last year). Net staff costs increased by £22 million to
£914 million due to the additional staff required to service ICT contracts.
Payments to other telecommunication operators were £43 million (5 per cent)
lower than last year mainly reflecting the impact of the mobile termination rate
reductions offset by higher volumes. Other operating costs (excluding goodwill
amortisation and exceptional items) increased by £73 million, in line with our
expectations. This reflects not only the costs of supporting new ICT contracts,
but also investment in new wave activities, including strengthening our ICT
delivery capabilities outside the UK, higher marketing costs and higher
subscriber acquisition costs. These were partly offset by cost savings from our
efficiency programmes.
Depreciation was £37 million lower than last year at £694 million reflecting
shorter life assets becoming fully depreciated.
Group operating profit before goodwill amortisation and exceptional items was
maintained at £744 million. Operating profit margins remained steady at 16.2 per
cent.
Net interest payable before exceptional items was £200 million, an improvement
of £23 million against last year reflecting the reduction in the level of net
debt.
Profit before taxation, goodwill amortisation and exceptional items of
£545 million increased by 4 per cent compared to last year.
The effective tax rate on the profit before goodwill amortisation and
exceptional items was 25.7 per cent (27.4 per cent last year). The effective tax
rate reflects tax efficient investment of surplus cash and greater tax
efficiency in the group.
Earnings per share before goodwill amortisation and exceptional items increased
by 9 per cent to 4.8 pence.
Exceptional items and goodwill
There was a net exceptional profit before taxation in the quarter of
£249 million. This included the £284 million profit on disposal of certain group
investments, including Eutelsat and Starhub. This was partly offset by an
exceptional impairment charge of £25 million, being BT's share of a write down
of Albacom's fixed assets and an exceptional property rationalisation charge of
£10 million in relation to the group's provincial office portfolio. This
rationalisation programme is expected to continue throughout the current
financial year and beyond giving rise to additional rationalisation costs.
Goodwill amortisation was £4 million (£3 million last year).
Earnings per share after goodwill amortisation and exceptional items were 7.7
pence compared to 4.5 pence last year.
Cash flow and net debt
Cash inflow from operating activities amounted to £1,205 million compared to
£1,038 million last year. Last year's cash inflow was net of special and
deficiency contributions to the BT Pension Scheme totalling £362 million. The
adverse working capital movement this quarter mainly reflects the timing impact
of supplier payments.
Return on investments and servicing of finance is a net cash outflow of
£380 million compared to £216 million last year. This movement was mainly due to
the receipt of funds in the third quarter of last year on restructuring a
significant part of the group's hedging swap portfolio.
The net cash outflow on fixed asset purchases and sales was £305 million in the
quarter which compares to £599 million last year mainly reflecting the
consideration from the disposal of fixed asset investments in Eutelsat (£357
million) and Starhub (£76 million). The net cash outflow on tangible fixed asset
purchases and sales was £755 million in the quarter, compared to £665 million
last year, reflecting investment in broadband rollout, ICT contracts and
transformational expenditure on the network.
BT's plans for the implementation of its 21st century network (21CN) continue to
make progress. The first external customers are connected to the 21CN access
fibre trial and live trials to test the migration of voice calls from BT's
traditional public switched telecommunications network (PSTN) to a dedicated
Internet Protocol (IP) based platform are progressing with the first calls being
successfully made across the IP network.
Free cash flow was a net inflow of £387 million compared to £49 million last
year.
The share buyback programme continued with the repurchase of 18 million shares
for £36 million, with a net cash outflow in the quarter of £31 million.
Net debt continued to improve and was £7,940 million at December 31, 2004,
10 per cent below the level at December 31, 2003.
Post balance sheet events
In December BT agreed to acquire the 74 per cent interest in Albacom not already
held, giving BT full ownership for a minimum price of €116 million (£82
million). The transaction completed on February 4, 2005.
The integration of Albacom will allow BT to provide an unmatched service to
corporate and public sector customers in Italy and to international businesses
with operations in Italy.
The previously announced acquisition of Infonet is subject to Infonet
shareholder approval and regulatory clearances and is expected to complete in
the fourth quarter.
These acquisitions mark a significant step forward in BT's strategy of
addressing the IT and networking services needs of multi-site companies and
organisations.
In February the disposal of Intelsat completed and BT received US$120 million
proceeds from the disposal of its investment.
International Financial Reporting Standards
Our financial statements for the year ending March 31, 2006 will be prepared in
accordance with International Financial Reporting Standards (IFRS). Our project
to manage the transition from UK GAAP to IFRS is well advanced.
_____________________________________________________________________
The fourth quarter and preliminary results of BT Group are expected to be
announced on May 19, 2005.
BT Retail
=========================== =============
Third quarter ended December 31 Nine months
ended December 31
--------------------------- -------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Group turnover 3,104 3,190 (86) (3) 9,341 9,564
Gross margin 820 888 (68) (8) 2,462 2,641
Sales, general and
administration costs 518 529 11 2 1,546 1,552
EBITDA 302 359 (57) (16) 916 1,089
Depreciation 28 38 10 26 96 126
Operating profit 274 321 (47) (15) 820 963
Operating profit
before leaver costs 279 341 (62) (18) 872 993
Capital expenditure 40 32 (8) (25) 104 72
==================== ======= === ======= ========= === ======= ======== ===
*Restated to reflect changes in intra-group trading arrangements.
New wave turnover grew strongly by 38 per cent and was offset by the traditional
turnover decline of 10 per cent. Overall turnover declined by 3 per cent (1 per
cent excluding the impact of reductions to mobile termination rates).
=========================== =============
BT Retail Third quarter ended December 31 Nine months
turnover ended December 31
------------------------------ -------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Voice Services 1,972 2,221 (249) (11) 6,129 6,741
Intermediate 433 464 (31) (7) 1,303 1,403
Products
Traditional 2,405 2,685 (280) (10) 7,432 8,144
ICT 485 390 95 24 1,347 1,140
Broadband 145 81 64 79 378 206
Mobility 50 21 29 138 133 50
Other 19 13 6 46 51 24
New Wave 699 505 194 38 1,909 1,420
Total 3,104 3,190 (86) (3) 9,341 9,564
Sales to other BT
businesses incl.
above 117 77 40 52 310 198
============================================================================
*Restated to reflect changes in intra-group trading arrangements.
Turnover from voice services was 11 per cent lower than last year (9 per cent
excluding the impact of reductions to mobile termination rates). The reduction
reflects the migration to broadband, with a 28 per cent fall in dial up internet
minutes, reductions in market share and a decline in the overall fixed to fixed
calls market.
Turnover from intermediate products decreased by 7 per cent compared to last
year mainly driven by the continued decline in private circuits and ISDN as
customers migrate to new wave products including broadband and IPVPN.
BT Retail's new wave turnover increased by 38 per cent compared to last year, an
increase in the rate of growth from last quarter. New wave turnover accounted
for 23 per cent of BT Retail total turnover in the quarter, up from 16 per cent
last year. ICT turnover increased by 24 per cent, reflecting strong growth
compared to the overall market.
The growth of broadband continues with 1,491,000 BT Retail connections at
December 31, 2004, an increase of 16 per cent in the quarter. Net additions of
208,000 were a 26 per cent share of the DSL market additions. Broadband turnover
grew by 79 per cent to £145 million.
BT Mobile now has over 340,000 post pay contract mobile connections at December
31, 2004, increasing the number of connections in the quarter by 12 per cent and
more than treble the December 31, 2003 base. Turnover from mobility services
more than doubled to £50 million.
Gross margin decreased by 1.4 percentage points to 26.4 per cent compared to
last year primarily reflecting costs associated with the change from traditional
business to new wave services. As the broadband and mobility customer base
grows, the additional subscriber acquisition costs are written off as incurred.
In addition, the creation and development of new value added services resulted
in increased development costs.
In total £26 million more was invested in new wave activities (including new
entertainment products and bluephone) compared to last year. However, in the
traditional business, cost transformation programmes contributed to savings of
£22 million. Leaver costs of £5 million were incurred in the quarter, a decrease
of £15 million over last year.
Overall these results led to an operating profit in the quarter of £274 million
which is 15 per cent lower than last year.
BT Wholesale
=========================== =============
Third quarter ended December 31 Nine months
ended December 31
--------------------------- ------------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
External turnover 954 865 89 10 2,847 2,602
Internal turnover 1,297 1,339 (42) (3) 3,894 4,062
Group turnover 2,251 2,204 47 2 6,741 6,664
Variable cost of 544 518 (26) (5) 1,653 1,571
sales
Gross variable 1,707 1,686 21 1 5,088 5,093
profit
Network and SG&A 725 739 14 2 2,212 2,220
costs
EBITDA 982 947 35 4 2,876 2,873
Depreciation 472 481 9 2 1,425 1,428
Operating profit 510 466 44 9 1,451 1,445
Operating profit
before 511 468 43 9 1,493 1,449
leaver costs
Capital 513 489 (24) (5) 1,533 1,265
expenditure
===========================================================
*Restated to reflect changes in intra-group trading arrangements.
Wholesale turnover for the quarter of £2,251 million was 2 per cent higher and
gross variable profit of £1,707 million was 1 per cent higher than last year.
EBITDA and operating profit have increased by 4 per cent and 9 per cent,
respectively.
At £954 million external turnover increased by 10 per cent with the underlying
growth being 21 per cent (excluding the impact of regulatory reductions to
mobile termination rates). The growth continues to be driven by the increase in
new wave turnover, mainly broadband, up 80 per cent to £180 million. The growth
in underlying traditional turnover is mainly driven by interconnect traffic and
wholesale access.
The impact of further regulatory reductions to interconnect prices and private
circuits for mobile operators has reduced external turnover by £19 million.
Internal turnover declined by 3 per cent to £1,297 million reflecting the impact
of lower volumes of calls, lines and private circuits, and lower regulatory
prices being reflected in internal charges.
Gross variable profit of £1,707 million is 1 per cent higher than the same
quarter last year reflecting volume increases, offset by a change in sales mix
and regulatory price reductions.
The EBITDA increase of 4 per cent and operating profit increase of 9 per cent
has been achieved through cost reductions in addition to the higher turnover.
Network and SG&A costs are £14 million (2 per cent) lower than last year despite
higher activity levels in the network driven by broadband growth.
Capital expenditure increased by 5 per cent to £513 million when compared to
last year. This reflects expenditure to support the rapid growth in broadband
and on transforming the group's network.
BT Global Services
========================== =============
Third quarter ended December 31 Nine months
ended December 31
-------------------------- -------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Group turnover 1,543 1,407 136 10 4,453 4,133
EBITDA 148 133 15 11 379 345
Operating profit 9 (22) 31 n/m (40) (112)
(loss)
Operating profit
(loss) before 11 (16) 27 n/m (22) (93)
leaver costs
Capital 146 115 (31) (27) 464 319
expenditure
============== ======= ======= === ======= ========= === ======= ======== ==
*Restated to reflect changes in intra-group trading arrangements.
See note 2 for additional detail.
Turnover for the quarter rose by 10 per cent to £1,543 million. Solutions
turnover grew by 17 per cent reflecting the conversion of the strong order book
from recent quarters. Consulting and Systems Integration (C&SI) produced strong
turnover growth for another quarter, with the NHS contracts contributing towards
the growth of 27 per cent. Solutions and C&SI achieved orders of £1.2 billion in
the quarter which results in orders of £5.7 billion over the last twelve months.
Global Products turnover grew by 3 per cent having benefited from continuing
growth in Multi Protocol Label Switching (MPLS) products. Global Carrier
turnover fell by 3 per cent reflecting the anticipated decline in AT&T revenues
plus a reduction in mobile termination rates throughout Europe.
The increase in turnover, together with lower network and SG&A costs and lower
depreciation, has generated an operating profit of £9 million in the quarter, a
£31 million improvement over last year. The £9 million operating profit shows a
consistent improvement from the operating losses of £36 million and £13 million
in the first and second quarter, respectively. Operating costs included the
expected increase in resources associated with strengthening the overseas
network centric solutions delivery capabilities. We expect the underlying cost
efficiency in Global Services will continue to improve.
Capital expenditure in the quarter at £146 million increased by £31 million
mainly due to expenditure on the NHS contracts. Operating free cash flow was
positive at £2 million, having been negative in the two previous quarters.
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended December 31, 2004
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited) Notes £m £m £m
-------------------- ------ ---------- ----------- ---------
Group turnover 2 4,584 - 4,584
Other operating
income 48 - 48
Operating costs 3 (3,888) (14) (3,902)
Group operating
profit (loss) 2 744 (14) 730
Group's share of
operating losses
of associates and
joint ventures (6) (25) (31)
Total operating
profit (loss) 738 (39) 699
Profit on sale
of fixed asset
investments
and group
undertakings - 284 284
Profit on sale
of property
fixed assets 7 - 7
Net interest
payable 5 (200) - (200)
Profit before
taxation 545 245 790
Taxation (140) 3 (137)
Profit after
taxation and
attributable to
shareholders 405 248 653
Earnings per share 6
- basic 4.8p 7.7p
- diluted 4.7p 7.6p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended December 31, 2003
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited, restated Notes £m £m £m
- see note 1)
-------------------- ------ ---------- ----------- ---------
Group turnover 2 4,578 - 4,578
Other operating
income 37 - 37
Operating costs 3 (3,873) (3) (3,876)
Group operating
profit (loss) 2 742 (3) 739
Group's share of
operating profit
of associates and
joint ventures 5 - 5
Total operating
profit (loss) 747 (3) 744
Profit on sale
of fixed asset
investments
and group
undertakings - 33 33
Profit on sale
of property
fixed assets 1 - 1
Net interest
payable 5 (223) (37) (260)
Profit (loss)
before
taxation 525 (7) 518
Taxation (144) 11 (133)
Profit after
taxation and
attributable to
shareholders 381 4 385
Earnings per share 6
- basic 4.4p 4.5p
- diluted 4.4p 4.4p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the nine months ended December 31, 2004
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited) Notes £m £m £m
-------------------- ------ ---------- ----------- ---------
Group turnover 2 13,753 - 13,753
Other operating
income 132 - 132
Operating costs 3 (11,760) (42) (11,802)
Group operating
profit (loss) 2 2,125 (42) 2,083
Group's share of
operating losses
of associates and
joint ventures (8) (25) (33)
Total operating
profit (loss) 2,117 (67) 2,050
Profit on sale
of fixed asset
investments
and group
undertakings - 312 312
Profit on sale
of property
fixed assets 22 - 22
Net interest
payable 5 (611) - (611)
Profit before
taxation 1,528 245 1,773
Taxation (396) 8 (388)
Profit after
taxation 1,132 253 1,385
Minority interests 1 - 1
Profit
attributable to
shareholders 1,133 253 1,386
Dividends (332)
Retained profit
for the period 1,054
Earnings per share 6
- basic 13.3p 16.2p
- diluted 13.2p 16.1p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the nine months ended December 31, 2003
-------------------- ------ ---------- ----------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited, restated Notes £m £m £m
- see note 1)
-------------------- ------ ---------- ----------- ---------
Group turnover 2 13,732 - 13,732
Other operating
income 133 - 133
Operating costs 3 (11,647) (9) (11,656)
Group operating
profit (loss) 2 2,218 (9) 2,209
Group's share of
operating losses
of associates and
joint ventures (2) - (2)
Total operating
profit (loss) 2,216 (9) 2,207
Profit on sale
of fixed asset
investments
and group
undertakings - 32 32
Profit on sale
of property
fixed assets 2 - 2
Net interest
payable 5 (664) (55) (719)
Profit (loss)
before
taxation 1,554 (32) 1,522
Taxation (445) 27 (418)
Profit (loss)
after taxation 1,109 (5) 1,104
Minority interests 7 - 7
Profit (loss)
attributable to
shareholders 1,116 (5) 1,111
Dividends (278)
Retained
profit for the
period 833
Earnings per share 6
- basic 13.0p 12.9p
- diluted 12.9p 12.8p
-------------------- ------ ---------- ----------- ---------
GROUP CASH FLOW STATEMENT
for the three months and nine months ended December 31, 2004
----------------------- ---------------- --- ----------------
Third quarter Nine months
ended December 31 ended December 31
2004 2003 2004 2003
(unaudited) £m £m £m £m
Net cash inflow from operating
activities* 1,205 1,038 3,824 3,821
(note 7)
Dividends from associates and
joint ventures - 2 1 3
Net cash outflow for returns on (380) (216) (777) (675)
investments and servicing of
finance**
Taxation paid (133) (176) (175) (185)
-------- -------- --------- --------
Purchase of tangible fixed
assets (774) (680) (2,312) (1,882)
Net sale of fixed asset
investments 450 66 475 127
Sale of tangible fixed assets 19 15 102 43
-------- -------- --------- --------
Net cash outflow for capital
expenditure and financial
investments (305) (599) (1,735) (1,712)
----------------------- -------- --- -------- --- --------- --- --------
Free cash inflow before
acquisitions, 387 49 1,138 1,252
disposals and dividends
----------------------- -------- --- -------- --- --------- --- --------
-------- -------- --------- --------
Acquisitions (12) (23) (35) (28)
Disposals 1 - 35 1
-------- -------- --------- --------
Net cash outflow for
acquisitions and disposals (11) (23) - (27)
Equity dividends paid - - (454) (368)
Cash inflow before use of
liquid resources 376 26 684 857
and financing
Management of liquid resources 465 (235) 554 266
-------- -------- --------- --------
Repurchase of ordinary share
capital (31) (58) (130) (58)
New loans - 1,320 - 1,320
Repayment of loans (895) (1,001) (1,171) (2,152)
-------- -------- --------- --------
Net cash (outflow) inflow from
financing (926) 261 (1,301) (890)
(Decrease) increase in cash (85) 52 (63) 233
Decrease (increase) in net debt
from cash flows (note 8) 345 (32) 554 799
----------------------- -------- --- -------- --- --------- --- --------
* Net of deficiency and special
pension contributions - (362) (6) (362)
** Including interest
(payments) receipts on
restructuring currency swap
portfolio (31) 117 (67) 117
GROUP BALANCE SHEET
at December 31, 2004
------------------------- ------------------ ---------
December 31 March 31
2004 2003 2004
(unaudited)
(restated*) (restated*)
£m £m £m
------------------------- --------- --------- ---------
Fixed assets
Intangible assets 202 184 204
Tangible assets 15,633 15,460 15,487
Investments 120 349 324
15,955 15,993 16,015
Current assets
--------- --------- ---------
Stocks 119 95 89
Debtors 5,199 5,301 5,189
Investments 4,466 6,236 5,163
Cash at bank and in hand 132 124 109
9,916 11,756 10,550
Creditors: amounts falling due within
one year
Loans and other borrowings 2,322 2,372 1,271
Other creditors 6,759 6,831 7,252
9,081 9,203 8,523
--------- --------- ---------
Net current assets 835 2,553 2,027
Total assets less current liabilities 16,790 18,546 18,042
Creditors: amounts falling due after
more than one year
Loans and other borrowings 10,216 12,783 12,426
Provisions for liabilities and charges 2,470 2,325 2,504
Minority interests 49 50 46
Capital and reserves (note 9)
--------- --------- ---------
Called up share capital 432 432 432
Reserves 3,623 2,956 2,634
--------- --------- ---------
Total equity shareholders' funds 4,055 3,388 3,066
16,790 18,546 18,042
------------------------- --------- --------- ---------
*See note 1 for details of restatement.
NOTES
1 Basis of preparation
The unaudited interim results of BT Group, which are not statutory accounts,
have been prepared on the basis of the accounting policies as set out in the
Report and Accounts of BT Group plc for the year ended March 31, 2004, except
that during the year ending March 31, 2005, the group has adopted UITF Abstract
38 'Accounting for ESOP trusts' and the related amendments to UITF Abstract 17
(revised 2003) 'Employee Share Schemes'. UITF 38 changes the presentation of an
entity's own shares held in an ESOP trust from previously being held as assets
to being deducted in arriving at shareholders' funds. UITF 17 (revised 2003)
requires the amounts recognised in the profit and loss account in respect of
share awards to be based on the fair value of shares at the date the award is
made rather than the previous treatment of being based on the book value of
shares held in the ESOP trusts.
An additional charge of £3 million for the year ended March 31, 2004 and of £3
million for the nine months and £1 million for the quarter ended December
31, 2003 has been made to the group profit and loss account. The effect on the
group's balance sheet at March 31, 2004 has been to reduce fixed assets by
£53 million, to reduce other creditors by £25 million and to reduce
shareholders' funds by £28 million. The effect at December 31, 2003 has been to
reduce fixed assets by £53 million, to reduce other creditors by £21 million and
to reduce shareholders' funds by £32 million.
The group accounts for the year ended March 31, 2004, on which the auditors
issued an unqualified report which did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985, were approved by the Board of Directors on
May 19, 2004, published on June 2, 2004 and have been delivered to the Registrar
of Companies.
2 Results of businesses
(a) Operating results
External Internal Group Group EBITDA
turnover turnover turnover operating
profit (loss)
(ii) (ii)
£m £m £m £m £m
Third quarter ended
December 31, 2004
BT Retail 2,987 117 3,104 274 302
BT Wholesale 954 1,297 2,251 510 982
BT Global
Services 637 906 1,543 9 148
Other 6 - 6 (49) 6
Intra-group items (i) - (2,320) (2,320) - -
Total 4,584 - 4,584 744 1,438
Third quarter ended
December 31, 2003
(restated - see page 20)
BT Retail 3,113 77 3,190 321 359
BT Wholesale 865 1,339 2,204 466 947
BT Global
Services 591 816 1,407 (22) 133
Other 9 - 9 (23) 34
Intra-group items (i) - (2,232) (2,232) - -
Total 4,578 - 4,578 742 1,473
Nine months ended
December 31, 2004
BT Retail 9,031 310 9,341 820 916
BT Wholesale 2,847 3,894 6,741 1,451 2,876
BT Global
Services 1,856 2,597 4,453 (40) 379
Other 19 - 19 (106) 50
Intra-group items (i) - (6,801) (6,801) - -
Total 13,753 - 13,753 2,125 4,221
Nine months ended
December 31, 2003
(restated - see page 20)
BT Retail 9,366 198 9,564 963 1,089
BT Wholesale 2,602 4,062 6,664 1,445 2,873
BT Global
Services 1,745 2,388 4,133 (112) 345
Other 19 1 20 (78) 94
Intra-group items (i) - (6,649) (6,649) - -
Total 13,732 - 13,732 2,218 4,401
(i) Elimination of intra-group turnover between businesses, which is included
in the total turnover of the originating business
(ii) Before goodwill amortisation and exceptional items.
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. The
intra-group trading arrangements are subject to review and were changed with
effect from April 1, 2004 in certain circumstances to reflect simplification of
internal trading flows and reorganisations within the group. The comparative
figures for the lines of business have been restated to reflect these changes
but there is no impact at a group level. In addition, the group adopted UITF 38
and UITF 17 (revised 2003) which impacted the comparative figures and is
discussed further in note 1.
(b) BT Global Services analysis
------------------------ -------------
Third quarter ended Nine months
December 31 ended December 31
------------------------ -------------
2004 2003 Better (worse) 2004 2003
£m £m £m % £m £m
Group turnover
Solutions 786 673 113 17 2,235 1,932
C&SI 206 162 44 27 590 468
Global Products 482 468 14 3 1,391 1,344
Global Carrier 237 244 (7) (3) 727 710
Other and eliminations (168) (140) (28) (20) (490) (321)
1,543 1,407 136 10 4,453 4,133
EBITDA
Solutions 84 80 4 5 229 218
C&SI 12 11 1 9 24 20
Global Products 40 29 11 38 107 77
Global Carrier 41 40 1 3 125 112
Other (i) (29) (27) (2) (7) (106) (82)
148 133 15 11 379 345
Operating profit (loss) (ii)
Solutions 64 61 3 5 170 161
C&SI 10 9 1 11 18 14
Global Products (50) (68) 18 26 (166) (212)
Global Carrier 20 18 2 11 61 45
Other (i) (35) (42) 7 17 (123) (120)
9 (22) 31 n/m (40) (112)
Capital expenditure 146 115 (31) (27) 464 319
(i) Other is after charging leaver costs of £2m in the third quarter (£6m last
year) and £18m in the nine months ended December 31, 2004 (£19m last year).
(ii) Before goodwill amortisation.
(c) Group turnover analysis
------------------------ -------------
Third quarter ended Nine months
December 31 ended December 31
------------------------ -------------
2004 2003 Better (worse) 2004 2003
£m £m £m % £m £m
Traditional 3,449 3,740 (291) (8) 10,649 11,423
New wave 1,135 838 297 35 3,104 2,309
4,584 4,578 6 - 13,753 13,732
Consumer 1,409 1,505 (96) (6) 4,255 4,500
Business 606 636 (30) (5) 1,858 1,940
Major Corporate 1,473 1,407 66 5 4,341 4,236
Wholesale/Carrier 1,090 1,021 69 7 3,280 3,037
Other 6 9 (3) (33) 19 19
4,584 4,578 6 - 13,753 13,732
Note: New wave includes the external new wave turnover of BT Retail (ICT,
broadband, mobility and classified directories), BT Wholesale (broadband and
managed services), the external turnover of Global Solutions
and C&SI.
Consumer includes the external turnover of BT Retail from consumer customers.
Business includes the external turnover of BT Retail from SME customers.
Major Corporate includes the external turnover of BT Retail from major corporate
customers and the external turnover of BT Global Services, with the exception of
Global Carrier.
Wholesale/Carrier includes the external turnover of BT Wholesale and Global
Carrier.
(d) Capital expenditure on plant, equipment and motor vehicle additions
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
£m £m £m £m
BT Retail 40 32 104 72
BT Wholesale
Access 269 270 812 717
Switch 31 37 86 70
Transmission 73 49 168 149
Products/systems support 140 133 467 329
513 489 1,533 1,265
BT Global Services
C&SI and Solutions 66 19 174 80
UK Networks 24 33 96 92
Other 56 63 194 147
146 115 464 319
Other (including fleet vehicles and
property) 71 63 166 173
Total 770 699 2,267 1,829
3 Operating costs
Third quarter Nine months
ended December 31 ended December 31
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Net staff costs before leaver costs 902 866 2,608 2,661
Leaver costs 12 26 122 53
Net staff costs 914 892 2,730 2,714
Depreciation 694 731 2,095 2,181
Payments to telecommunication 881 924 2,834 2,990
operators
Other operating costs 1,399 1,326 4,101 3,762
Total before goodwill amortisation 3,888 3,873 11,760 11,647
and exceptional items
Goodwill amortisation 4 3 12 9
Exceptional items 10 - 30 -
Total 3,902 3,876 11,802 11,656
4 Exceptional items and goodwill amortisation
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
£m £m £m £m
Exceptional operating costs (10) - (30) -
Impairment of fixed assets of joint
ventures (25) - (25) -
Profit on sale of fixed asset
investments and group undertakings 284 33 312 32
Net interest payable - (37) - (55)
Goodwill amortisation (4) (3) (12) (9)
Net credit (charge) before tax and
minority interests 245 (7) 245 (32)
5 Net interest payable
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
£m £m £m £m
Group 259 315 786 955
Joint ventures and associates 5 4 14 14
Total interest payable 264 319 800 969
Interest receivable (64) (59) (189) (250)
Net interest payable 200 260 611 719
Analysed:
Before exceptional items 200 223 611 664
Exceptional items - 37 - 55
Total 200 260 611 719
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:
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
millions of shares millions of shares
Basic 8,512 8,629 8,535 8,629
Diluted 8,579 8,682 8,591 8,686
7 Reconciliation of operating profit to operating cash flow
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Group operating profit 730 739 2,083 2,209
Depreciation and amortisation 698 734 2,108 2,192
Changes in working capital (240) (58) (441) (279)
Provision movements, pensions 17 (377) 74 (301)
and other
Net cash inflow from operating 1,205 1,038 3,824 3,821
activities
8 Net debt
(a) Analysis
At December 31 At March 31
2004 2003 2004
£m £m £m
Long-term loans and other borrowings falling due
after more than one year 10,216 12,783 12,426
Short-term borrowings and long-term loans and
other borrowings falling due within one year 2,322 2,372 1,271
Total debt 12,538 15,155 13,697
Short-term investments (4,466) (6,236) (5,163)
Cash at bank (132) (124) (109)
Net debt at end of period 7,940 8,795 8,425
(b) Reconciliation of net cash flow to movement in net debt
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
£m £m £m £m
Net debt at beginning of period 8,267 8,768 8,425 9,573
(Decrease) increase in net debt
resulting from cash flows (345) 32 (554) (799)
Currency and other movements - (13) - (11)
Other non-cash movements 18 8 69 32
Net debt at end of period 7,940 8,795 7,940 8,795
9 Share capital and reserves
Reserves Total
Share capital (restated) (restated)
£m £m £m
Balances at April 1, 2004 432 2,634 3,066
Profit for the nine months ended
December 31, 2004 - 1,386 1,386
Dividends - (332) (332)
Currency movements - 47 47
Other - (112) (112)
Balances at December 31, 2004 432 3,623 4,055
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Group operating profit 730 739 2,083 2,209
Exceptional items 10 - 30 -
Depreciation 694 731 2,096 2,183
Goodwill amortisation 4 3 12 9
EBITDA before exceptional items 1,438 1,473 4,221 4,401
11 United States Generally Accepted Accounting Principles
The results set out above have been prepared in accordance with accounting
principles generally accepted in the United Kingdom. The table below sets out
the results calculated in accordance with United States Generally Accepted
Accounting Principles.
Third quarter ended Nine months
December 31 ended December 31
2004 2003 2004 2003
Net income attributable to
Shareholders including
exceptional items (£m) 503 132 983 510
Earnings per ADS (£)
- basic 0.59 0.15 1.15 0.59
- diluted 0.58 0.15 1.14 0.59
Each American Depositary Share (ADS) represents 10 ordinary shares of
BT Group plc.
Shareholders' equity, calculated in accordance with United States Generally
Accepted Accounting Principles, is a £1,304m deficit at December 31, 2004
(December 31, 2003 - £2,484m, March 31, 2004 - £1,455m).
Forward-looking statements - caution advised
Certain statements in this results release are forward-looking and are made in
reliance on the safe harbour provisions of the US Private Securities Litigation
Reform Act of 1995. These statements include, without limitation, those
concerning: continued growth in new wave turnover from broadband, ICT solutions,
mobility and managed services growth; expectations regarding broadband DSL line
connections; implementation of BT's 21st century network; completion of the
acquisition of Infonet; expectations regarding cost transformation and cost
efficiency; and delivery of long-term growth in shareholder value.
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; conditions, including
regulatory clearances, to completion of the acquisition of Infonet not being
satisfied; 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.
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