Half Year Results to September 30 1999

British Telecommunications PLC 11 November 1999 HALF YEAR RESULTS TO SEPTEMBER 30, 1999 BT's results for the half year and second quarter to September 30, 1999 are summarised in the table below. Sir Iain Vallance, Chairman of BT, said: 'The global communications industry is going through a period of unprecedented structural and technological change. Against this background we have achieved good growth in many areas of our business including mobile communications, data traffic and our international ventures. We have also grown earnings per share before exceptional items and goodwill amortisation by 8.6 per cent in the half year despite the short-term cost of developing new businesses and acquiring new mobile customers. Over £3 billion has been invested in the half year in our international ventures and new businesses. The cost of achieving full control of BT Cellnet is a further £3.15 billion. Growth prospects in the UK and internationally remain good but we face increasing competition as the globalisation of our industry continues. The interim dividend of 8.7 pence per share represents an increase of 7.4 per cent.' -------------------------------------------------------------- SECOND QUARTER AND HALF YEAR TO SEPTEMBER 30, 1999 -------------------------------------------------------------- Second Quarter Half Year 1999 1998 1999 1998 £m £m £m £m Total turnover 5,329 4,403 10,316 8,642 EBITDA 1,686 1,543 3,276 3,053 Total operating profit 869 857 1,704 1,677 Profit on sale of fixed asset investments 90 1,107 90 1,107 Profit before taxation 890 1,878 1,662 2,601 Profit after taxation 618 1,334 1,155 1,833 Earnings per share 9.6p 20.7p 17.9p 28.3p Earnings per share before exceptional items and goodwill amortisation 9.1p 8.8p 17.8p 16.4p Interim dividend per share 8.7p 8.1p -------------------------------------------------------------- Results ------- Earnings per share for the six months to September 30, 1999 were 17.9 pence based on a profit before tax of £1,662 million. Earnings for the second quarter were 9.6 pence per share. The results for the comparable periods of the prior year included the exceptional gain of £1,133 million on BT's sale of its interest in MCI Communications in September 1998. Excluding this and other minor exceptional items, together with the impact of goodwill amortisation, BT's earnings for the six months were 8.6 per cent ahead of last year and 3.9 per cent higher for the second quarter. As anticipated, the second quarter's results include increased losses incurred by some of BT's ventures. BT has achieved a strong growth in turnover and as a result mobile communications costs and payments to UK operators have increased. Dividend -------- The Board has declared an interim dividend of 8.7 pence per ordinary share payable on February 14, 2000 to BT shareholders on the register on January 6, 2000. This dividend, absorbing £565 million, represents a 7.4 per cent increase on last year's interim dividend. Turnover -------- Total turnover for the six months ended September 30, 1999, including BT's share of its ventures' turnover, grew by 19.4 per cent to £10,316 million. This growth has been driven by the explosive demand for mobile communications, our rapidly growing ventures in Europe and Internet related data traffic. Additionally, our acquisitions of interests in ventures in Asia-Pacific and Canada and our purchase of mobile service providers in the UK has contributed a quarter of the growth in total turnover. Excluding the ventures, group turnover grew by 12.6 per cent in the six months. Mobile communications turnover in the UK rose by 63 per cent to £1,043 million. In the six months BT Cellnet's customer base grew by 1,425,000 which was more than any of its competitors in UK cellular. In the second quarter, 924,000 customers were added, a market share of almost 34 per cent, which was 8 per cent more than any other operator. At the end of September BT Cellnet's customer base of 5.95 million was 76 per cent higher than a year earlier, and included more than 3.8 million contract (post pay) customers, making BT Cellnet the market leader in this higher-value customer category. BT Cellnet's turnover in the six months grew by £473 million (71 per cent) including £185 million from the acquisitions of Martin Dawes and DX Communications. Receipts from other UK operators increased by £189 million in the six months mainly due to the greater number of calls terminating on BT's network. Turnover from exchange lines rose by 5.2 per cent as a result of the strong demand for business ISDN lines. The number of these lines increased by 300,000 in the half year which, together with a stable number of residential lines, increased BT's fixed network system size to 28.2 million at September 30, 1999, 1.5 per cent higher than a year earlier. Inland and international call volume growth continued at a high level in the six months fuelled by calls from BT's fixed network to mobile networks, Internet traffic and international transit calls. Inland call growth at 11 per cent and international call growth at 14 per cent over the twelve months to September 30, 1999 has been the strongest this decade. Price reductions continue to have an adverse effect on turnover growth with the result that inland call turnover advanced by 2.4 per cent in the six months and international call turnover rose by 5.5 per cent. The price reductions include the 25 per cent average cut in prices for calls from a BT line made to mobile networks from April 1999. Growth in BT's other sales and services was driven mainly by BT's solutions business and Concert which is shortly to become a major part of our proposed joint venture with AT&T. BT's share of its ventures' turnover grew to £1,084 million in the six months. Our 26 per cent share of Cegetel's turnover increased by 55 per cent to £374 million as a result of strong mobile growth. Cegetel had 5.9 million mobile customers in France at September 1999. BT's 18 per cent interest in Airtel's turnover nearly doubled to £121 million. Airtel has 4.0 million mobile subscribers in Spain. BT's 45 per cent interest in Viag Interkom's turnover in Germany quadrupled to £98 million. LG Telecom in the Republic of Korea has contributed £93 million to BT's share of its ventures turnover in the six months, reflecting BT's 24 per cent interest which was acquired in October 1998. Our indicative analysis of the total turnover by service type shows rapid growth in the newer products. These are mobility which grew by 82 per cent, data up 20 per cent, solutions businesses up 25 per cent, and Internet and multi- media up by 99 per cent in the six months compared with the first half of the 1999 financial year. Operating costs --------------- Operating costs grew by 14.3 per cent in the six months to September 30, 1999, primarily through the costs incurred by the fast growing mobile and Internet related activities. Approximately half of this increase is due to payments to telecommunications operators which grew by 48 per cent as a result of the rising number of fixed to mobile phone and Internet related calls terminating on their networks. The 6.5 per cent increase in staff costs reflects the greater numbers of people employed in the group, mainly through acquisitions, together with the effect of the annual pay award. Depreciation costs have risen by 8 per cent reflecting the group's higher levels of capital spend. The increase in other operating costs was associated with the cost of winning BT Cellnet's new customers in the six months and supporting its high growth. As a result of this increase in costs, BT Cellnet's operating profit before goodwill amortisation was £67 million lower in the six months than last year. Associates and joint ventures ----------------------------- The group's proportionate share of its ventures' net operating losses increased by £68 million to £199 million in the six months, prior to goodwill amortisation. Of this total, £135 million was incurred by Viag Interkom which is incurring planned losses as it develops its new integrated mobile phone business in Germany. Losses continue to be incurred by Telfort in the Netherlands and by British Interactive Broadcasting in launching its 'Open' digital TV service in the UK. Cegetel, Airtel and Maxis Communications in Malaysia are among BT's ventures contributing positively to the group's profits. Interest and taxation --------------------- Net interest for the six months of £132 million was reduced by £51 million compared with the corresponding period of the prior year. The reduction was mainly due to the interest earned on the proceeds of the MCI shares sold in September 1998. The group's interest charge will rise substantially following recent purchases and completion of the £3.15 billion acquisition of the Securicor minority interest in BT Cellnet which took place on November 10, 1999. BT's effective tax rate for the half year has been estimated at 30.5 per cent of profit. In October, BT made its first quarterly payment of corporation tax of £120 million on its profit for the year under the new UK arrangements. Acquisitions ------------ During the six months ended September 30, 1999, BT has completed a number of acquisitions of businesses or interests in ventures, located mainly outside the UK. The principal transaction has been the completion on August 31, 1999 of the joint acquisition with AT&T of a 30 per cent interest in Japan Telecom for £1.25 billion. BT has an economic interest of 20 per cent. AT&T's economic interest is reflected in the minority interest figures in the accompanying financial statements. Concurrent with this transaction, BT sold its Japanese subsidiary (BTCS) to Japan Telecom at a profit. In Canada, BT acquired an effective 9 per cent economic interest in AT&T Canada Corp. In conjunction with AT&T, BT jointly purchased 33 per cent of Rogers Cantel Communications, a leading mobile operator, leaving BT with an effective 16.5 per cent interest. The consideration paid by BT for these two investments totalled £658 million and was made on August 16, 1999. Also in August 1999, BT completed the acquisition of the Yellow Book classified directory advertising business based in New York, USA for a total consideration of £415 million. In the same month, BT acquired Control Data Systems Inc, a US based e-commerce and systems integration company for £210 million. In September, BT Cellnet acquired the whole of the retail service provider DX Communications, having previously held 26 per cent. As previously reported, in the first quarter BT acquired a 20 per cent interest in Impsat, a Latin American telecommunications company, a 20 per cent interest in SmarTone of Hong Kong and 75 per cent of the shares in Clear Communications of New Zealand bringing our shareholding to 100 per cent. Capital expenditure ------------------- Capital expenditure on plant, equipment and property totalled £1,674 million in the half year, £324 million higher than in the first half of last year. Work continues on enhancing the fixed network to enable customers to benefit from the new wave communications technologies. BT Cellnet has continued enlarging its digital cellular GSM network and is investing in GPRS technology to introduce high-speed mobile data communications. Cash flow and net debt ---------------------- Cash flow from operating activities amounted to £2,852 million in the six months. The cash outflow on acquisitions of £3,156 million consisted in the main of the interests described above as well as further funding of Viag Interkom and Telfort. In May 1999, BT issued a £600 million Eurobond repayable in 2028 at an interest rate of 5.75 per cent. In August, a US $200 million Eurobond was repaid on maturity and refinanced by a further 10 year US $200 million Eurobond. We have financed our other requirements by drawing on a commercial paper programme under which approximately £1.5 billion was outstanding at September 30, 1999. Gearing at September 30, 1999 stood at 24 per cent with net debt of £3,841 million. On October 28, 1999, BT issued a $1,000 million Eurobond repayable in 2004 at an interest rate of 6.75 per cent. Net debt will increase during the third quarter following the completion of the £3.15 billion acquisition of the BT Cellnet minority. Proposed global venture with AT&T --------------------------------- Good progress continues to be made on the formation of the 50:50 global venture with AT&T for our trans-border telecommunication activities. The global venture will be named Concert. BT will be transferring the majority of its cross-border international network assets, its international traffic, its business with selected multinational customers and its international products for business customers together with the existing Concert business into the global venture. The European Union regulatory clearance was received in March 1999, the US Department of Justice gave its anti-trust clearance in June and the global venture received regulatory clearance from the US Federal Communications Commission on October 22, 1999. All regulatory clearances have now been received. BT Cellnet ---------- BT's acquisition of Securicor's 40 per cent shareholding in BT Cellnet, announced on July 27, 1999, was completed on November 10, 1999. The consideration is to be in cash or loan notes at the option of Securicor's shareholders. The cash required of about £3.0 billion will be provided from BT's own resources. _____________________________________________________________ The half-year report, which contains the independent review report, will be advertised in the Financial Times on November 12, 1999. The company's interim dividend for the year ending March 31, 2000 is payable on February 14, 2000 to those shareholders on the register on January 6, 2000. The last date for lodging mandates for the BT dividend investment plan is also January 6, 2000. The third quarter and nine months' results are expected to be announced on February 10, 2000. GROUP PROFIT AND LOSS ACCOUNT for the three months and six months ended September 30, 1999 -------------------------------------------------------------- Second quarter Half year 3 months ended 6 months ended September 30 September 30 1999 1998 1999 1998 (unaudited) Notes £m £m £m £m ------------------------------------------------------------- TOTAL TURNOVER 2 5,329 4,403 10,316 8,642 Group's share of associates and joint ventures turnover 2 (627) (246) (1,084) (442) ----- ----- ----- ----- GROUP TURNOVER 4,702 4,157 9,232 8,200 Other operating income 46 34 79 71 Operating costs (a) 3 (3,750) (3,278) (7,383) (6,460) ----- ----- ----- ----- Group operating profit 998 913 1,928 1,811 Group's share of operating losses of associates and joint ventures 4 (129) (56) (224) (134) ----- ----- ----- ----- Total operating profit 869 857 1,704 1,677 Profit on sale of fixed asset investments and group undertakings (b) 5 90 1,107 90 1,107 Interest receivable 47 28 93 50 Interest payable 6 (116) (114) (225) (233) ----- ----- ----- ----- PROFIT BEFORE TAXATION 890 1,878 1,662 2,601 TAXATION (272) (544) (507) (768) ----- ----- ----- ----- PROFIT AFTER TAXATION 618 1,334 1,155 1,833 Minority interests 7 - 4 (13) ----- ----- ----- ----- PROFIT ATTRIBUTABLE TO SHAREHOLDERS 625 1,334 1,159 1,820 ===== ===== ===== ===== EARNINGS PER SHARE 7 - BASIC 9.6p 20.7p 17.9p 28.3p ===== ===== ===== ===== - DILUTED 9.4p 20.2p 17.5p 27.7p ===== ===== ===== ===== EARNINGS PER SHARE BEFORE EXCEPTIONAL ITEMS AND GOODWILL AMORTISATION 7 - BASIC 9.1p 8.8p 17.8p 16.4p ===== ===== ===== ===== - DILUTED 8.9p 8.6p 17.4p 16.0p ===== ===== ===== ===== INTERIM DIVIDEND PER SHARE 8 8.7p 8.1p ===== ===== -------------------------------------------------------------- (a) Including exceptional costs relating to disengaging from MCI (11) (34) (28) (34) (b) Exceptional gain 90 1,107 90 1,107 -------------------------------------------------------------- GROUP CASH FLOW STATEMENT for the three months and six months ended September 30, 1999 -------------------------------------------------------------- Second quarter Half year 3 months ended 6 months ended September 30 September 30 1999 1998 1999 1998 (unaudited) £m £m £m £m ---------------------------------------------------------------- NET CASH INFLOW FROM OPERATING ACTIVITIES (note 9) 1,561 1,521 2,852 2,786 DIVIDENDS FROM ASSOCIATES AND JOINT VENTURES 2 1 2 1 NET CASH OUTFLOW FOR RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (76) (121) (186) (288) TAXATION PAID (1) (6) (250) (198) -------- -------- -------- -------- Purchase of tangible fixed assets (1,008) (699) (1,774) (1,481) Net sale (purchase) of fixed asset investments (38) 4,131 (142) 4,125 Sale of tangible fixed assets 33 33 57 65 -------- -------- -------- -------- NET CASH INFLOW (OUTFLOW) FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (1,013) 3,465 (1,859) 2,709 NET CASH OUTFLOW FOR ACQUISITIONS AND DISPOSALS (2,626) (807) (3,156) (973) EQUITY DIVIDENDS PAID (799) (700) (799) (700) ------ ------ ------ ------ CASH INFLOW (OUTFLOW) BEFORE USE OF LIQUID RESOURCES AND FINANCING (2,952) 3,353 (3,396) 3,337 MANAGEMENT OF LIQUID RESOURCES 1,367 (2,967) 1,364 (3,095) -------- -------- -------- -------- Issue of ordinary share capital 31 20 119 144 Issue of shares to minorities 417 13 432 13 New loans 233 - 868 - Repayment of loans (180) - (354) (4) Net movement on short- term borrowings 1,074 (355) 1,140 (316) -------- -------- -------- -------- NET CASH INFLOW (OUTFLOW)FROM FINANCING 1,575 (322) 2,205 (163) ------ ------ ------ ------ INCREASE (DECREASE) IN CASH (10) 64 173 79 ====== ====== ====== ====== DECREASE (INCREASE) IN NET DEBT (note 12) (2,504) 3,386 (2,845) 3,494 ====== ====== ====== ====== ------------------------------------------------------------- GROUP BALANCE SHEET at September 30, 1999 ------------------------------------------------------------- September 30 March 31 1999 1998 1999 (unaudited) (note 1) £m £m £m ------------------------------------------------------------- FIXED ASSETS Intangible assets (note 11) 1,390 570 742 Tangible assets 18,224 17,309 17,854 Investments 4,258 1,171 1,832 ------ ------ ------ 23,872 19,050 20,428 CURRENT ASSETS -------- -------- -------- Stocks 203 181 159 Debtors 4,368 3,728 3,995 Investments 2,071 3,777 3,278 Cash at bank and in hand 159 125 102 ----- ----- ----- 6,801 7,811 7,534 ----- ----- ----- CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR Loans and other borrowings 1,883 820 947 Other creditors 6,816 5,660 7,082 ----- ----- ----- 8,699 6,480 8,029 ----- ----- ----- -------- -------- -------- NET CURRENT ASSETS (LIABILITIES) (1,898) 1,331 (495) ------ ------ ------ TOTAL ASSETS LESS CURRENT LIABILITIES 21,974 20,381 19,933 ====== ====== ====== CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Loans and other borrowings 4,188 3,608 3,386 PROVISIONS FOR LIABILITIES AND CHARGES (note 13) 1,550 2,053 1,391 MINORITY INTERESTS 636 210 216 CAPITAL AND RESERVES -------- -------- -------- Called up share capital 1,626 1,615 1,617 Reserves (note 14) 13,974 12,895 13,323 -------- -------- -------- TOTAL EQUITY SHAREHOLDERS' FUNDS 15,600 14,510 14,940 ------ ------ ------ 21,974 20,381 19,933 ====== ====== ====== NOTES -------------------------------------------------------------- 1 Basis of preparation -------------------- The unaudited interim results of the group, which are not statutory accounts, have been prepared on the basis of the accounting policies as set out in the report and accounts for the year ended March 31, 1999. Figures for the year ended March 31, 1999 are extracts from the group accounts for that year. The group accounts for the year ended March 31, 1999, on which the auditors made an unqualified report which did not contain a statement under Section 237(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. 2 Turnover -------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Inland calls 1,307 1,286 2,597 2,536 Exchange lines 871 829 1,726 1,640 Mobile communications 535 330 1,043 639 International calls 383 373 773 733 Private circuits 316 292 614 581 Receipts from UK operators 245 140 469 280 Customer premises equip- ment supply 217 223 426 443 Yellow Pages and other directories 157 125 278 249 Other UK sales and services 456 413 928 812 Other non-UK operations 215 146 378 287 ------ ------ ------ ------ Group turnover 4,702 4,157 9,232 8,200 Share of associates and joint ventures turnover 627 246 1,084 442 ------ ------ ------ ------ Total turnover 5,329 4,403 10,316 8,642 ====== ====== ====== ====== 3 Operating costs --------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Staff costs 1,047 977 2,052 1,926 Own work capitalised (121) (110) (223) (218) Depreciation and amortisation (a) 686 621 1,343 1,233 Payments to tele- communication operators 723 495 1,420 961 Other operating costs (b) 1,404 1,261 2,763 2,524 ----- ----- ----- ----- Total operating costs before exceptional costs 3,739 3,244 7,355 6,426 Exceptional costs (c) 11 34 28 34 ----- ----- ----- ----- Total operating costs 3,750 3,278 7,383 6,460 ===== ===== ===== ===== (a) Includes goodwill amortisation of £7m for the three months and £11m for the six months ended September 30, 1999. (b) Includes redundancy costs. (c) The exceptional costs relate to the group's disengagement from MCI. 4 Group's share of losses of associates and joint ventures -------------------------------------------------------- The results include goodwill amortisation of £14m for the three months ended September 30, 1999 (1998 - £2m) and £25m (1998 - £3m) for the six months ended September 30, 1999. 5 Profit on sale of fixed asset investments and group --------------------------------------------------- undertakings ------------ The profit on sale in the three and six months ended September 30, 1999 is mainly attributable to the sale of BT Communications Services KK to Japan Telecom in August 1999. In September 1998, the group completed the sale of its interest in MCI for £4,159m at a pre-tax profit of £1,133m and the gain for the three and six months ended September 30, 1998 was mainly this item. 6 Interest payable ---------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Group 103 108 197 221 Joint ventures and associates 13 6 28 12 ----- ----- ----- ----- Total interest payable 116 114 225 233 ===== ===== ===== ===== 7 Earnings per share ------------------ The basic earnings per share are calculated by dividing the profit attributable to shareholders by the average number of shares in issue after deducting the company's shares held by employee share ownership trusts. 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: Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m million shares million shares Basic 6,491 6,446 6,479 6,427 Diluted 6,640 6,598 6,636 6,571 The items in the calculation of the earnings per share before exceptional items and goodwill amortisation are: Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Profit on sale of group undertakings 90 - 90 - Costs relating to the disengagement from MCI (11) (34) (28) (34) Profit on sale of MCI shares - 1,133 - 1,133 Provision against another fixed asset investment - (26) - (26) Goodwill amortisation (21) (2) (36) (3) ----- ----- ----- ----- 58 1,071 26 1,070 Tax charge attributable (24) (302) (19) (302) ----- ----- ----- ----- Net credit 34 769 7 768 ===== ===== ===== ===== 8 Interim dividend per share -------------------------- The interim dividend of 8.7p per share (1998 - 8.1p) is payable on February 14, 2000 to shareholders registered at the close of business on January 6, 2000 and will absorb £565m (1998 - £523m). 9 Reconciliation of operating profit to operating cash flow --------------------------------------------------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Operating profit 998 913 1,928 1,811 Depreciation 688 630 1,348 1,242 Changes in working capital (91) (26) (375) (278) Provision movements and other (34) 4 (49) 11 ----- ----- ----- ----- Net cash flow from operating activities 1,561 1,521 2,852 2,786 ===== ===== ===== ===== 10 Expenditure on tangible fixed assets ------------------------------------ Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Plant and equipment: Transmission equipment 410 306 702 580 Exchange equipment 87 93 173 177 Other network equipment 191 116 299 217 Computers and office equipment 149 83 229 164 Motor vehicles and other 88 75 152 121 Land and buildings 55 48 119 91 ----- ----- ----- ----- Total expenditure 980 721 1,674 1,350 ===== ===== ===== ===== 11 Intangible assets ----------------- Goodwill arising on acquisitions of subsidiary undertakings in the six months ended September 30, 1999 amounted to £682m principally relating to Yellow Book and Control Data Systems. Goodwill is being amortised over periods not exceeding 20 years. In September 1998, the group acquired MCI's 24.9% interest in Concert Communications Company for £607m. Goodwill of £568m arose on this transaction. This goodwill is not being amortised and Concert is to be transferred into the proposed global venture with AT&T in the foreseeable future at a value higher than its current book value including this goodwill. Amortisation for the period would not be material. 12 Net debt -------- (a) Analysis At September 30 At March 31 1999 1998 1999 £m £m £m Long-term loans and other borrowings falling due after more than one year 4,188 3,608 3,386 Short-term borrowings and long-term loans and other borrowings falling due within one year 1,883 820 947 ----- ----- ----- Total debt 6,071 4,428 4,333 Short-term investments (2,071) (3,777) (3,278) Cash at bank (159) (125) (102) ----- ----- ----- Net debt at end of period 3,841 526 953 ===== ===== ===== (b) Reconciliation of net cash flow to movement in net debt Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Net debt at beginning of period 1,391 3,909 953 3,977 Increase (decrease) in net debt through cash flow 2,504 (3,386) 2,845 (3,494) Currency and other movements (54) 3 43 43 ----- ----- ----- ----- Net debt at end of period 3,841 526 3,841 526 ===== ===== ===== ===== 13 Provisions for liabilities and charges -------------------------------------- At September 30 At March 31 1999 1998 1999 £m £m £m Pension provisions 927 1,207 953 Deferred taxation 538 733 350 Other provisions 85 113 88 ----- ----- ----- 1,550 2,053 1,391 ===== ===== ===== 14 Reserves -------- £m Balance at April 1, 1999 13,323 Profit attributable to shareholders for the six months ended September 30, 1999 1,159 Interim dividend - payable February 14, 2000 (565) Currency movements (a) (59) Premium on allotment of ordinary shares 354 Movement relating to BT's employee share ownership trust (244) Goodwill, written off to reserves before April 1, 1998, taken back to the profit and loss account 6 ------ Balance at September 30, 1999 13,974 ====== (a) Including £14m movement on the retranslation of foreign borrowings and other hedging instruments. 15 Analysis of turnover by service type ------------------------------------ Second quarter Half year ended ended September 30 September 30 1999 1998 Increase 1999 1998 Increase £m £m % £m £m % Fixed voice 2,741 2,679 2 5,428 5,282 3 Mobility 981 532 84 1,848 1,013 82 Data 563 453 24 1,106 918 20 Solutions 287 237 21 531 426 25 Internet and multi-media 168 83 102 323 162 99 Customer premises equip- ment, Yellow pages and other 589 419 41 1,080 841 28 ----- ----- ------ ----- Total turnover 5,329 4,403 21 10,316 8,642 19 ===== ===== ====== ===== This analysis involves the use of apportionments and allocations and should be taken as indicative. 16 Selected group activities ------------------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m TURNOVER (a) BT Cellnet 604 334 1,139 666 Yellow Pages 159 125 278 249 Syntegra 123 100 220 189 OPERATING PROFIT BEFORE GOODWILL AMORTISATION BT Cellnet 5 41 31 98 Yellow Pages 58 52 94 99 Syntegra 7 4 10 6 (a) Turnover includes sales to other group companies or units. 17 Selected group ventures ----------------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m TOTAL RESULTS (a) Turnover Cegetel 775 501 1,437 926 Airtel Movil 378 212 677 394 LG Telecom 236 n/a 391 n/a Viag Interkom 123 30 218 54 Telfort 64 22 112 38 Operating profit (loss) before goodwill amortisation Cegetel 64 10 105 (8) Airtel Movil 67 38 111 56 LG Telecom (47) n/a (38) n/a Viag Interkom 151 (98) (301) (196) Telfort (35) (22) (63) (57) GROUP'S SHARE OF ASSOCIATES AND JOINT VENTURES' RESULTS (a): Turnover Cegetel (26%) 202 130 374 241 Airtel Movil (18%) 68 33 121 62 LG Telecom (24%) 57 n/a 93 n/a Viag Interkom (45%) 55 13 98 24 Telfort (50%) 32 11 56 19 Operating profit (loss) before goodwill amortisation Cegetel (26%) 16 2 27 (2) Airtel Movil (18%) 12 6 20 9 LG Telecom (24%) (11) n/a (9) n/a Viag Interkom (45%) (67) (44) (135) (88) Telfort (50%) (17) (11) (31) (28) (a) Results are stated on BT's accounting policies. n/a = not a BT investment in the reporting period. 18 Earnings before interest, taxation, depreciation and ---------------------------------------------------- amortisation (EBITDA) --------------------- Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Group operating profit 998 913 1,928 1,811 Depreciation and amortisation 688 630 1,348 1,242 ----- ----- ----- ----- EBITDA 1,686 1,543 3,276 3,053 Exceptional items, excluding depreciation 9 25 23 25 ----- ----- ----- ----- EBITDA before exceptional items 1,695 1,568 3,299 3,078 ===== ===== ===== ===== 19 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. Second quarter Half year ended September 30 ended September 30 1999 1998 1999 1998 £m £m £m £m Net income attributable to shareholders 542 1,293 990 1,607 Earnings per ADS (£) 0.84 2.01 1.53 2.50 Earnings per ADS before exceptional items (£) 0.75 0.83 1.46 1.32 Each American Depositary Share (ADS) represents 10 ordinary shares of 25p each. Shareholders' equity, calculated in accordance with United States Generally Accepted Accounting Principles, was £13,865m at September 30, 1999 (September 30, 1998 -£13,128m, March 31, 1999 - £13,674m). ----------------------------------------------------------------- ADDITIONAL INFORMATION Year 2000 --------- The London Stock Exchange requires companies to summarise their preparedness for the Year 2000 in their 1999 results statements. BT's current position is described in the following paragraphs. The Year 2000 problem arises from the inability of many computer-based systems to handle correctly the century date change and other significant dates such as February 29, 2000. BT has recognised this issue for some time and, in December 1995, established a programme to tackle the problem. Working to guidelines defined by the British Standards Institution, we set out to deploy conformant systems, including those, which support billing and finance, into our computer and telecommunications networks by December 31, 1998. BT has now substantially completed its technical work and subject to the risks identified below, we plan to offer customers normal levels of service during the transition into the year 2000 and beyond. The programme is now in its final phase where the focus is on the continuity of our business and on providing information on our products and services during the century date change period. This includes maintaining conformance and regular reviews of our contingency plans to manage the risks of the Year 2000 transition. BT is working closely with other UK operators, Oftel, the utilities and HM Government (including Action 2000, the Government appointed body dealing with Year 2000) to ensure that not only is BT ready but also that its risks and dependencies are fully understood. Progress on global services is complicated by the group's dependency on non-UK operators at the national and local level. BT is part of the International Telecommunications Union Taskforce and is involved in a number of activities which include information sharing, workshops in high-risk regions, and testing between operators. We believe much progress has been made around the world but concern exists for a minority of international operators where information is sparse. The total cost of the Year 2000 programme is expected to be around £300 million, which is being funded by displacement of other activities. We believe that costs will be held within this forecast as much of the spending had been completed by September 30, 1999. All Year 2000 related investigation, remedial work and testing costs have been written off as incurred as these relate to making existing computer software Year 2000 conformant. As the technical work is now substantially complete, the risk of an internal failure arising from a date related problem has been reduced. We believe the greatest risks are external to the group and they include: - The failure of suppliers or other third parties to meet their obligations to BT or the failure of parts of the services or systems of another operator could result in liability or loss of revenue for BT; - Unusual demand on the network. BT expects demand for telecommunications services to exceed its normal peak at the beginning of 2000. In particular, the long holiday means that demands on the return to work will be unusually high; - Many small failures, inside or outside BT, could occur simultaneously and multiply; - Failure in the supply chain causing stock shortages and disruption in the transport network; - Extreme bad weather at the turn of the year could add a further burden. Contingency plans are in place to mitigate these risks, which have been built upon existing incident management and emergency plans. These plans have then been enhanced and developed to include a transition operating plan to deal with the special needs of this particular new year. BT has invested in additional equipment to manage congestion and protect the 999 emergency service. Where there remains a risk, additional contingency plans are in place and a special remuneration package has been arranged for employees to ensure that key areas of the business are properly resourced over the New Year period. Contingency plans will be reviewed throughout the remainder of 1999 as the requirements of our customers become clearer. Several rehearsals of our plans have been held. We shall be providing information on the performance of our key products and services over the New Year period via our Year 2000 Internet site. The activities of BT's Year 2000 programme focus on achieving a significant reduction of the Year 2000 risk. However, due to various unknowns, mainly relating to insufficient information regarding the readiness of non-UK carriers and other third parties, the effect of this issue on BT will not be known until January 2000. There can be no assurance or guarantee that the Year 2000 problem will not have a material adverse effect on our business, financial condition or results of BT's operations. A Year 2000 failure could result in BT being unable to continue to provide its services to its customers, loss of network capability, inaccurate billing, loss of revenue and reputation, legal and regulatory exposure and failure of management controls. BT believes, however, that its Year 2000 programme is reducing the level of uncertainty and, together with its continuity planning, will reduce the risks it faces. The above disclosure is a Year 2000 readiness disclosure within the meaning of the US Year 2000 Information and Readiness Disclosure Act of 1998 to the extent that the disclosure relates to Year 2000 processing by BT or products or services offered by BT. 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: prospects in the UK and internationally; the positioning of BT, expectations regarding competition, prices, costs, growth and the communications industry; the impact and the consequences of the Year 2000 issue; the possible or assumed future results of operations of BT and/or its associates and joint ventures; the impact on BT of Concert, the proposed global venture with AT&T; and increased interest charges and net debt. 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 such differences 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 in the UK and other international telecommunications markets; technological innovations; convergence of technologies; the timing of entry and profitability of BT in certain national and international markets; the risks, costs and uncertainties (including the lack of available information) in addressing Year 2000 issues; and fluctuations in foreign currency exchange rates.

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