Interim Results
BT Group PLC
13 November 2003
November 13, 2003
HALF YEAR AND SECOND QUARTER RESULTS TO SEPTEMBER 30, 2003
HALF YEAR HIGHLIGHTS
• Earnings per share* of 8.5 pence, up 37 per cent
• Profit before taxation* of £1,031 million, up 26 per cent
• Group turnover of £9,154 million, down 1 per cent
• Free cash generated of £1.2 billion, up 59 per cent
• Interim dividend of 3.2 pence per share, up 42 per cent
• Enhanced dividend and share buyback policy announced
SECOND QUARTER HIGHLIGHTS
• Earnings per share* of 4.4 pence, up 19 per cent
• Profit before taxation* of £529 million, up 7 per cent
• Group turnover of £4,568 million, down 2 per cent
• Net debt reduced to £8,768 million, 33 per cent lower than previous year
• Broadband end users of 1.5 million at October 31, 2003
*Before goodwill amortisation and exceptional items.
The full profit and loss account is presented on pages 15 and 17.
Chairman's statement
Sir Christopher Bland, Chairman, commenting on the half year results,
said:
"This continues to be a challenging year for our traditional business
but our new wave businesses are delivering strong growth. Whilst
investing for the future we have been able to increase earnings per
share* for the half year by 37 per cent and generate free cash flow of
£1.2 billion, up nearly 60 per cent.
I am pleased to report that we will be paying an interim dividend of
3.2 pence per share, 42 per cent higher than last year. We intend that
this year's full year dividend will represent around 50 per cent of
earnings, a year ahead of target. We are also targeting a further
increase to around 60 per cent of earnings for 2005/6. In addition we
will begin a share buyback programme whilst we reduce our debt towards a
targeted level of around £7 billion in 2006/7.
Our results demonstrate our continuing ability to reduce debt, grow
rewards for our shareholders and build for the future."
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the second quarter results, said:
"We continue to deliver our strategic goals of transforming our business
whilst improving cash flow, earnings per share and customer
satisfaction. Despite lower turnover in the second quarter, free cash
flow improved 6 per cent to £585 million, earnings per share* improved
by 19 per cent to 4.4 pence and customer satisfaction further improved.
The market is changing rapidly with the move to new technology being
driven by BT. The UK has become one of the fastest growing broadband
nations, with our broadband connections trebling over the past year.
Voice over IP is now commonplace in the corporate sector.
BT is accelerating its transformation programme, with investment in new
wave activities, the 21st century network and cost efficiency
initiatives.
Our investment and cost efficiency transformation plans and the 25 per
cent growth in our new wave revenues give us confidence for the future."
*Before goodwill amortisation and exceptional items.
The full profit and loss account is presented on pages 15 and 17.
RESULTS FOR THE SECOND QUARTER AND HALF YEAR
TO SEPTEMBER 30, 2003
BT Group's results before goodwill amortisation and exceptional items
Second quarter Half year
2003 2002 Better (worse) 2003 2002 Better (worse)
£m £m % £m £m %
Group turnover 4,568 4,661 (2) 9,154 9,248 (1)
EBITDA 1,470 1,478 (1) 2,930 2,781 5
EBITDA before leavers 1,486 1,515 (2) 2,957 2,974 (1)
Group operating profit 748 729 3 1,478 1,299 14
Net interest charge 216 295 27 441 595 26
Profit before taxation 529 496 7 1,031 818 26
Profit after taxation 381 331 15 730 546 34
Earnings per share 4.4p 3.7p 19 8.5p 6.2p 37
Capital expenditure 578 559 (3) 1,130 1,108 (2)
Free cash flow 585 552 6 1,203 758 59
Dividend 3.2p 2.25p 42
Net debt 8,768 13,112 33
The results in the table above and the commentary focus on the results before
goodwill amortisation and exceptional items.
Total earnings per share and profit before tax, after goodwill amortisation and
exceptional items, for the second quarter are 4.3 pence (2002 - 3.7 pence) and
£508 million (2002 - £489 million) respectively. For the half year they are 8.4
pence (2002 - 6.9 pence) and £1,006 million (2002 - £873 million).
The full profit and loss account, cash flow statement and balance sheet are
provided on pages 15 to 20.
GROUP RESULTS
The regulatory environment and lower pricing means that this has been a
challenging quarter in which group turnover decreased by 2 per cent year on year
to £4,568 million. The continued focus on new wave initiatives generated an
increase in new wave turnover of 25 per cent in the quarter to £761 million
compared to 23 per cent in the first quarter. This was driven by particularly
strong growth in broadband and our solutions business. However, this strong
growth was more than offset by a 6 per cent decline in turnover from the group's
traditional business.
A substantial proportion of the decline in traditional turnover is from the
impact of regulatory changes. Regulatory reductions on fixed to mobile
termination rates account for more than half of the decline in group turnover
and are passed on to BT customers resulting in lower charges but are profit
neutral. Other regulatory changes affected private circuits and directory
enquiries.
Consumer revenues in the second quarter were 3 per cent (£44 million) lower year
on year, which includes the impact of lower mobile termination rates. BT
Together packages continue to provide an important element in defending
traditional turnover with an increase of 120,000 customers, nearly half of the
consumer base now have a UK calls package. In the consumer fixed voice market
Carrier Pre Selection (CPS) has had an impact on our business with BT's consumer
market share, as measured by volume of fixed to fixed voice minutes, declining
by 0.2 percentage points to 72.4 per cent compared to last quarter. This
marginal decline reflects the strength of our consumer propositions which have
enabled us to win back more high value customers from cable and indirect access,
offsetting the impact of CPS. The growth in broadband has contributed to the 1
per cent increase in the underlying average revenue per customer household (net
of fixed to mobile termination charges) to £271 compared to the second quarter
of last year.
Business and Major Corporate revenues were maintained at broadly the same level
as the second quarter of last year despite the mobile termination rate changes.
BT's market share of fixed to fixed voice minutes declined from the first
quarter by 0.8 percentage points to 41.2 per cent with this level of decline
being similar to the experience in the first quarter.
Business revenues reduced by £30 million from the second quarter last year,
showing the impact of call volume reductions as customers switch out of
traditional telephony services into new wave services such as broadband which is
not measured in minutes. In addition, the year on year reduction reflects the
effect of CPS with increased take up since August 2002. However, turnover in the
second quarter was in line with the previous quarter. BT Business Plan, launched
in January 2003, had successfully attracted more than 154,000 business locations
(98,500 customers) by September 30, 2003.
Major Corporate (UK and international) revenues increased by £20 million with
growing new wave turnover more than offsetting the decline in traditional UK
services. There is a continued migration of traditional voice only services to
managed ICT (Information, Communications and Technology) contracts. Sales orders
from the Solutions business amounted to £0.4 billion in the second quarter,
taking the total sales orders to £5.3 billion for the last four quarters.
The 3 per cent (£30 million) reduction in Wholesale (UK and international)
revenues was mainly attributable to the fixed to mobile termination rate change,
which affects transit revenues but has no impact on profitability. We
experienced strong new wave growth in the UK which partly compensated for the
continued impact of the network charge control pricing formulae on the
traditional UK business.
Group operating costs before goodwill amortisation reduced by 3 per cent
compared to the second quarter of last year reflecting the group's continued
focus on operational efficiency and effectiveness initiatives offset by
investment in new wave initiatives. Net staff costs increased by £16 million to
£907 million due to the impact of increases in pay rates, national insurance (£8
million) and pension costs (£28 million), offset by improved efficiency and a
£21 million reduction in leaver costs. Payments to other telecommunication
operators were broadly stable year on year reflecting a reduction in UK
payments, due to the fixed to mobile price reduction, offset by increases in
overseas payments as a result of the increase in activities and currency
movements. Other operating costs were reduced by 8 per cent, largely due to
lower marketing costs and efficiency cost savings.
Depreciation was £27 million lower than the second quarter of last year at £721
million reflecting the lower capital expenditure over recent years and assets
with shorter lives becoming fully depreciated offset by charges arising on newer
network assets such as ADSL.
As a result of these cost savings the group operating profit margin was 16.4 per
cent, an improvement from 15.6 per cent in the second quarter of last year. We
remain committed, and have cost transformation programmes in place, to deliver
further sustainable savings. Over the next 3 years, we are targeting cost
savings in excess of £1 billion from our investment in a more efficient and
flexible network, IT systems, better customer satisfaction and improved
processes.
Group operating profit before goodwill amortisation and exceptional items at
£748 million for the quarter was £19 million higher than the second quarter of
last year. This performance reflects the significant improvement in reducing the
operating losses of BT Global Services by £61 million partially offset by lower
profits in the group's traditional businesses.
BT's share of associates and joint ventures operating losses before goodwill
amortisation was £4 million in the quarter (£66 million profit last year). The
prior year included the results of Cegetel which was sold in January 2003.
Net interest payable was £216 million before exceptional items for the quarter,
an improvement of £79 million against last year as a result of the significant
reduction in the level of net debt. Profit before taxation of £529 million in
the quarter increased by 7 per cent.
The taxation rate for the quarter on the profit before exceptional items and
goodwill amortisation was 28.0 per cent (33.3 per cent last year), which is 2.5
percentage points lower than the first quarter. The lower effective tax rate
reflects reduced overseas losses for which relief is not available and greater
tax efficiency in the group. This effective rate is expected to be sustainable
for the foreseeable future.
Earnings per share before goodwill amortisation and exceptional items were 4.4
pence for the quarter (3.7 pence last year), an increase of 19 per cent.
Goodwill amortisation of £3 million for the quarter was the same as last year.
Earnings per share after goodwill amortisation and exceptional items were 4.3
pence compared to 3.7 pence last year.
Exceptional items
Exceptional items before tax in the quarter amounted to £18 million of net
interest payable. This represents a credit from the one off interest recognised
on the full repayment of loan notes received as part of the original
consideration from the disposal of Yell, offset by the premium on buying back
€1.1 billion of 7.125 per cent bonds due 2011. The net charge after tax arising
from exceptional items in the quarter amounted to £2 million.
Cash flow and net debt
Cash inflow from operating activities amounted to £1,274 million in the quarter.
The cash outflow on fixed asset purchases was £595 million in the quarter which
compares to £602 million last year. This reflects the continued management focus
and control over capital expenditure, whilst continuing to invest in an improved
network and systems.
Free cash flow (before acquisitions and disposals, dividends and financing) was
£585 million in the quarter, including £109 million on repayment of the Yell
loan notes and is after the £52 million premium on the bond buy back, which
compares to £552 million last year.
Net debt at September 30, 2003 was £8,768 million, a reduction of £220 million
in the quarter and 33 per cent below the second quarter last year.
Shareholder distribution
Net debt has fallen steadily to £8,768 million at September 30, 2003. The Board
continues to target a single "A" rating and believes that a gradual reduction in
net debt to around £7 billion in 2006/7 is appropriate. This has led the Board
to recommend raising the dividend pay out ratio for 2003/4 to around 50 per cent
of earnings, before goodwill amortisation and exceptional items, and targeting
further increases to around 60 per cent for 2005/6.
The Board recommends an interim dividend of 3.2 pence per share. This will be
paid on February 9, 2004 to shareholders on the register on December 30, 2003.
In addition, the strong cash flow generated by the group will also enable us to
begin a share buyback programme whilst increasing dividends and continuing to
invest. The buyback programme will be funded from cash generated over and above
that required to meet our debt target, after paying dividends and taking into
account any acquisitions or disposals. The group will continue to invest for the
future and with an efficient balance sheet enhance shareholder value.
Customer satisfaction
BT has an extensive market research programme conducted by external agencies
which focuses on the level and causes of customer dissatisfaction. The group
achieved a further 4 per cent improvement in the level of customer
dissatisfaction across the group in the quarter and this continues to be a key
area of focus.
Broadband
During the second quarter, broadband services reached exchanges serving four out
of five UK homes. There was an installed base of 1.5 million Wholesale ADSL
lines by October 31, 2003, more than triple the number of connections 12 months
ago. The increasing base is reflected in increased broadband revenue of £45
million year on year to £106 million in the quarter.
Prospects
We remain committed to our strategy and are confident in our ability to continue
to deliver our key strategic goals in a challenging environment for our
traditional business. Our investment in our new wave businesses and cost
transformational plans provide a strong base for the future.
_____________________________________________________________________
The half year report, which contains the independent review report of the
auditors, will be advertised in The Times on November 14, 2003.
The third quarter results of BT Group are expected to be announced on February
12, 2004.
OPERATING PERFORMANCE BY LINE OF BUSINESS
Second quarter ended Group Group operating profit EBITDA Capital expenditure
September 30, 2003 (i) turnover (loss) (iii)
£m £m £m £m
BT Retail 3,349 366 407 20
BT Wholesale 2,700 427 900 408
BT Global Services 1,381 (39) 117 102
Other 5 (6) 46 48
Intra-group items (ii) (2,867) - - -
Total 4,568 748 1,470 578
Half year ended Group Group operating profit EBITDA Capital expenditure
September 30, 2003 (i) turnover (loss) (iii)
£m £m £m £m
BT Retail 6,681 758 846 40
BT Wholesale 5,469 863 1,810 776
BT Global Services 2,726 (90) 212 204
Other 11 (53) 62 110
Intra-group items (ii) (5,733) - - -
Total 9,154 1,478 2,930 1,130
i. See note 2 on pages 21 to 25 for prior year figures.
ii. Elimination of intra-group turnover between businesses, which is included
in the turnover of the originating business.
iii. Before goodwill amortisation.
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 changed with effect
from April 1, 2003 in certain circumstances to reflect reorganisations within
the group and regulatory changes. The comparative figures for the lines of
business have been restated to reflect these changes but there is no impact at a
group level.
The line of business commentaries refer to EBITDA, which is defined as group
operating profit before depreciation and amortisation. In addition, reference is
made to operating free cash flow, which is defined as EBITDA less capital
expenditure.
BT Retail
Second quarter ended September 30 Half year
ended September 30
2003 2002* Better (worse) 2003 2002*
£m £m £m % £m £m
Group turnover 3,349 3,462 (113) (3) 6,681 6,807
Gross margin 946 991 (45) (5) 1,870 1,960
Sales, general and
administration costs 539 543 4 1 1,024 1,096
EBITDA 407 448 (41) (9) 846 864
Depreciation 41 56 15 27 88 107
Operating profit 366 392 (26) (7) 758 757
Capital expenditure 20 25 5 20 40 44
Operating free
cash flow 387 423 (36) (9) 806 820
*Restated to reflect changes in intra-group trading arrangements.
Growth in the new wave turnover of 21 per cent has partially offset the 6 per
cent decline in the traditional turnover, resulting in an overall decline of 3
per cent compared to the second quarter of last year.
Second quarter ended September 30 Half year
ended September 30
BT Retail turnover 2003 2002* Better (worse) 2003 2002*
£m £m £m % £m £m
Voice Services 2,268 2,450 (182) (7) 4,575 4,812
Intermediate Products 605 619 (14) (2) 1,191 1,235
Traditional 2,873 3,069 (196) (6) 5,766 6,047
ICT 385 348 37 11 750 686
Broadband 68 34 34 100 125 58
Mobility 15 9 6 67 29 14
Other 8 2 6 n/m 11 2
New Wave 476 393 83 21 915 760
Total 3,349 3,462 (113) (3) 6,681 6,807
Sales to other BT
businesses incl. above 216 215 1 - 414 407
*Restated to reflect changes in intra-group trading arrangements.
The reduction in traditional turnover of 6 per cent has been impacted by a
number of regulatory changes. The impact of the fixed to mobile termination rate
changes, which have no impact on gross margin, the reduction in private circuit
revenues and the deregulation of the directory enquiries market have reduced
quarterly revenues by £80 million year on year. BT's market share of directory
enquiries through the 118 500 service is increasing as the benefits and
awareness of the quality of service and pricing, supported by the current
marketing campaign, become apparent. In addition, CPS has had some impact on the
traditional business with some market share loss, in a market that has declined
in the quarter.
Turnover from traditional voice services was 7 per cent lower than the second
quarter of last year.
The overall market for fixed voice calls is estimated to have declined by 4 per
cent compared to the second quarter of last year partly reflecting the migration
to new wave products and services and mobile substitution.
BT's total geographic (local, national and international) call volumes declined
by 8 per cent compared to the second quarter of last year and was partly offset
by fixed to mobile growth of 1 per cent.
Internet and data related call volumes have increased by 5 per cent, being
driven by a 19 per cent increase in flat rate internet access products. These
volumes do not include broadband which is not measured in minutes.
Turnover from intermediate products decreased by 2 per cent compared to the
second quarter of last year mainly driven by a decline in retail private
circuits as customers migrate to cheaper partial private circuits and new wave
products including IPVPN.
New wave turnover continued to reflect the trend experienced in the first
quarter with growth of 21 per cent compared to the second quarter last year.
Broadband turnover doubled reflecting the increased take up. ICT turnover
increased by £37 million with new contract wins. Mobility turnover continues to
grow and in July the BT Mobile Homeplan was soft launched marking BT's re-entry
into the consumer mobile market and was launched in retail outlets in November.
In the business market BT continues to leverage its fixed and mobile voice and
data strengths to develop new simple and complete converged services.
The total number of BT Retail lines, which includes voice, digital and
broadband, increased by 1 per cent to 29.6 million since September 30, 2002,
reflecting the continued growth in broadband.
The gross margin reduced by £45 million (0.4 percentage points to 28.2 per cent)
compared to the second quarter of last year, reflecting lower prices and the
changes in the revenue mix.
Cost transformation programmes, including a reduction in expenses such as
marketing, accommodation, IT, lower service costs resulting from improvements in
campaign effectiveness, service quality and billing initiatives have generated
£33 million savings (7 per cent) in the traditional business with these savings
reinvested in new wave initiatives.
Operating profit in the second quarter of £366 million was 7 per cent lower than
the prior year. This flows through to an operating free cash flow (EBITDA less
capital expenditure) of £387 million in the quarter which is 9 per cent lower
than the second quarter of last year.
BT Wholesale
Second quarter ended September 30 Half year
ended September 30
2003 2002* Better (worse) 2003 2002*
£m £m £m % £m £m
External turnover 844 882 (38) (4) 1,723 1,736
Internal turnover 1,856 1,951 (95) (5) 3,746 3,845
Group turnover 2,700 2,833 (133) (5) 5,469 5,581
Total operating costs
before depreciation 1,821 1,915 94 5 3,708 3,889
Other operating income 21 29 (8) (28) 49 60
EBITDA 900 947 (47) (5) 1,810 1,752
Depreciation 473 478 5 1 947 950
Operating profit 427 469 (42) (9) 863 802
Capital expenditure 408 385 (23) (6) 776 744
Operating free 492 562 (70) (12) 1,034 1,008
cash flow
*Restated to reflect changes in intra-group trading arrangements.
Operating profit declined by 9 per cent to £427 million on a 5 per cent fall in
turnover. EBITDA margin was held at 33 per cent, the same as the second quarter
of last year, with cost savings partly offsetting the revenue decline.
External turnover has reduced by £38 million to £844 million compared to the
second quarter of last year. This was mainly due to regulatory price reductions
on mobile call termination rates which have reduced transit revenues by £42
million, although this has no impact on profitability. Turnover from retail
private circuits has also continued to decline as customers migrate to lower
priced partial private circuits. A 5 per cent increase in network volumes is not
fully translated into turnover because of the impact of price reductions from
the regulatory Network Charge Control (NCC) pricing formulae which mandates
weighted average price reductions of about 6 per cent.
New wave turnover continues to grow, partly offsetting the impact of price
reductions in traditional products. The strong growth of 32 per cent over the
second quarter of last year to £74 million reflects continued gains made in
broadband, facilities management and consultancy.
Lower call and retail private circuit volumes and a reduction in prices have
contributed to a reduction in internal turnover in the second quarter of 5 per
cent year on year to £1,856 million.
Operating costs, excluding depreciation, of £1,821 million decreased by 5 per
cent reflecting the continued drive for operational efficiencies through the
best in class cost programme.
BT Wholesale has maintained its focus on managed cash costs (defined as
operating costs excluding payments to other network operators and depreciation,
plus capital expenditure). Managed cash cost savings were £59 million for the
quarter and BT Wholesale expects to exceed the full year target savings of £200
million after allowing for price and volume effects.
BT Global Services
Second quarter ended September 30 Half year
ended September 30
2003 2002* Better (worse) 2003 2002*
£m £m £m % £m £m
Group turnover 1,381 1,311 70 5 2,726 2,595
EBITDA 117 50 67 134 212 78
Group operating loss (39) (100) 61 61 (90) (212)
Capital expenditure 102 95 (7) (7) 204 191
Operating free
cash flow 15 (45) 60 n/m 8 (113)
*Restated to reflect changes in intra-group trading arrangements.
BT Global Services has produced another quarter of significantly improved
profitability and operating free cash flow despite the continuing depressed
trading environment. Operating losses for the quarter were reduced by £61
million (61 per cent) and operating free cash flow improved by £60 million to a
positive £15 million in the quarter.
Turnover for the quarter rose by 5 per cent to £1,381 million, despite turnover
from Global Carrier being broadly flat. Solutions grew by 15 per cent reflecting
the conversion of the strong order intake into revenue over the past twelve
months. Global Products grew by 9 per cent on the back of strong growth in
Multi-Protocol Label Switching (MPLS) revenues. Syntegra had an exceptionally
strong quarter benefiting from the phasing of delivery against specific contract
milestones in the financial and UK government sectors, achieving growth of 13
per cent.
Sales orders from the Solutions business amounted to £0.4 billion in the second
quarter taking the total sales orders to £5.3 billion for the last four
quarters.
EBITDA increased by £67 million from the second quarter of last year to £117
million. Increased gross margin from higher sales, together with lower network,
selling, general and administration costs following continuing cost reduction
initiatives, and lower leaver costs helped generate this improvement.
Global Services performance continues to improve. It will continue to focus on
building its revenue base whilst delivering cost savings through efficiencies
and a simplified pan European operating model.
___________________________________________________________________________
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended September 30, 2003
Before goodwill Goodwill amortisation Total
amortisation and and exceptional items
exceptional items (note 5)
(unaudited) Notes £m £m £m
Group turnover 2, 4 4,568 - 4,568
Other operating income 44 - 44
Operating costs 3 (3,864) (3) (3,867)
Group operating profit (loss) 2 748 (3) 745
Group's share of operating losses of
associates and joint ventures 4 (4) - (4)
Total operating profit (loss) 744 (3) 741
Profit on sale of property fixed assets 1 - 1
Net interest payable 6 (216) (18) (234)
Profit (loss) before taxation 529 (21) 508
Taxation (148) 16 (132)
Profit (loss) after taxation 381 (5) 376
Minority interests 1 - 1
Profit (loss) attributable to
shareholders 382 (5) 377
Earnings per share 8
- basic 4.4p 4.3p
- diluted 4.4p 4.3p
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended September 30, 2002
Before goodwill Goodwill amortisation Total
amortisation and and exceptional items
exceptional items (note 5)
(unaudited) Notes £m £m £m
Group turnover 2, 4 4,661 - 4,661
Other operating income 44 - 44
Operating costs 3 (3,976) (3) (3,979)
Group operating profit (loss) 2 729 (3) 726
Group's share of operating profits of
associates and joint ventures 4 66 - 66
Total operating profit (loss) 795 (3) 792
Loss on sale of fixed asset investments
and group undertakings - (4) (4)
Profit on sale of property fixed assets 3 - 3
Amounts written off investments (7) - (7)
Net interest payable 6 (295) - (295)
Profit (loss) before taxation 496 (7) 489
Taxation (165) - (165)
Profit (loss) after taxation 331 (7) 324
Minority interests (9) - (9)
Profit (loss) attributable to
shareholders 322 (7) 315
Earnings per share 8
- basic 3.7p 3.7p
- diluted 3.7p 3.6p
GROUP PROFIT AND LOSS ACCOUNT
for the six months ended September 30, 2003
Before goodwill Goodwill amortisation Total
amortisation and and exceptional items
exceptional items (note 5)
(unaudited) Notes £m £m £m
Group turnover 2, 4 9,154 - 9,154
Other operating income 96 - 96
Operating costs 3 (7,772) (6) (7,778)
Group operating profit (loss) 2 1,478 (6) 1,472
Group's share of operating losses of
associates and joint ventures 4 (7) - (7)
Total operating profit (loss) 1,471 (6) 1,465
Loss on sale of fixed asset investments
and group undertakings - (1) (1)
Profit on sale of property fixed assets 1 - 1
Net interest payable 6 (441) (18) (459)
Profit (loss) before taxation 1,031 (25) 1,006
Taxation (301) 16 (285)
Profit (loss) after taxation 730 (9) 721
Minority interests 7 - 7
Profit (loss) attributable to
shareholders 737 (9) 728
Dividends 7 (278)
Retained profit for the period 450
Earnings per share 8
- basic 8.5p 8.4p
- diluted 8.5p 8.4p
GROUP PROFIT AND LOSS ACCOUNT
for the six months ended September 30, 2002
Before goodwill Goodwill amortisation Total
amortisation and and exceptional items
exceptional items (note 5)
(unaudited) Notes £m £m £m
Group turnover 2, 4 9,248 - 9,248
Other operating income 96 - 96
Operating costs 3 (8,045) (11) (8,056)
Group operating profit (loss) 2 1,299 (11) 1,288
Group's share of operating profits of
associates and joint ventures 4 115 - 115
Total operating profit (loss) 1,414 (11) 1,403
Profit on sale of fixed asset investments
and group undertakings - 66 66
Profit on sale of property fixed assets 6 - 6
Amounts written off investments (7) - (7)
Net interest payable 6 (595) - (595)
Profit before taxation 818 55 873
Taxation (272) - (272)
Profit after taxation 546 55 601
Minority interests (11) - (11)
Profit attributable to shareholders 535 55 590
Dividends 7 (194)
Retained profit for the period 396
Earnings per share 8
- basic 6.2p 6.9p
- diluted 6.2p 6.8p
GROUP CASH FLOW STATEMENT
for the three months and six months ended September 30, 2003
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
(unaudited) £m £m £m £m
Net cash inflow from operating
activities (note 9) 1,274 1,423 2,783 2,735
Dividends from associates and joint
ventures 1 1 1 1
Net cash outflow for returns on
investments and servicing of
finance (169) (235) (459) (606)
Taxation paid (1) (58) (9) (146)
Purchase of tangible fixed assets (595) (602) (1,202) (1,269)
Net sale of fixed asset investments 61 1 61 1
Sale of tangible fixed assets 14 22 28 42
Net cash outflow for capital
expenditure and financial
investments (520) (579) (1,113) (1,226)
Free cash flow before acquisitions,
disposals and dividends 585 552 1,203 758
Acquisitions (5) (105) (5) (127)
Disposals 1 - 1 128
Net cash (outflow) inflow for
acquisitions and disposals (4) (105) (4) 1
Equity dividends paid (368) (173) (368) (173)
Cash inflow before use of liquid
resources and financing 213 274 831 586
Management of liquid resources 892 334 501 1,117
Issue of ordinary share capital - - - 42
New loans - 17 - 20
Repayment of loans (1,139) (381) (1,151) (1,467)
Net movement on short-term
borrowings - - - (64)
Net cash outflow from financing (1,139) (364) (1,151) (1,469)
(Decrease) increase in cash (34) 244 181 234
Decrease in net debt from cash flows 213 274 831 628
(note 10)
GROUP BALANCE SHEET
at September 30, 2003
September 30 March 31
2003 2002 2003
(unaudited)
£m £m £m
Fixed assets
Intangible assets 201 230 218
Tangible assets 15,525 15,995 15,888
Investments 419 946 555
16,145 17,171 16,661
Current assets
Stocks 91 104 82
Debtors 4,930 5,384 5,043
Investments 6,036 3,748 6,340
Cash at bank and in hand 42 118 91
11,099 9,354 11,556
Creditors: amounts falling due within one year
Loans and other borrowings 2,262 1,584 2,548
Other creditors 6,888 7,180 7,132
9,150 8,764 9,680
Net current assets 1,949 590 1,876
Total assets less current liabilities 18,094 17,761 18,537
Creditors: amounts falling due after more than
one year
Loans and other borrowings 12,584 15,394 13,456
Provisions for liabilities and charges (note 11) 2,351 2,304 2,376
Minority interests 50 67 63
Capital and reserves (note 12)
Called up share capital 434 434 434
Reserves 2,675 (438) 2,208
Total equity shareholders' funds (deficiency) 3,109 (4) 2,642
18,094 17,761 18,537
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, 2003. Figures
for the year ended March 31, 2003 are extracts from the group accounts for that
year.
The group accounts for the year ended March 31, 2003, on which the auditors
issued an unqualified report which did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985, have been delivered to the Registrar of
Companies.
2. Results of businesses
The tables below show the results of BT's lines of business. There is extensive
trading between many of the business units and profitability is dependent on the
transfer price levels. These intra-group trading arrangements are subject to
review and have changed in certain instances. Comparative figures have been
restated for these changes but there is no impact at a group level. The
eliminations are intra-group eliminations.
With effect from January 1, 2003 the operations of BT Openworld were transferred
under the management control of BT Retail. The comparative figures have been
restated to report BT Openworld as part of BT Retail for all the periods under
review.
2 Results of businesses continued
a. Operating results
External Internal Group Group operating EBITDA
turnover turnover turnover profit (loss)
(iii)
£m £m £m £m £m
Second quarter ended
September 30, 2003
BT Retail 3,133 216 3,349 366 407
BT Wholesale 844 1,856 2,700 427 900
BT Global Services 587 794 1,381 (39) 117
Other 4 1 5 (6) 46
Intra-group items (ii) - (2,867) (2,867) - -
Total 4,568 - 4,568 748 1,470
Second quarter ended
September 30, 2002 (i)
BT Retail 3,247 215 3,462 392 448
BT Wholesale 882 1,951 2,833 469 947
BT Global Services 519 792 1,311 (100) 50
Other 13 - 13 (32) 33
Intra-group items (ii) - (2,958) (2,958) - -
Total 4,661 - 4,661 729 1,478
Half year ended
September 30, 2003
BT Retail 6,267 414 6,681 758 846
BT Wholesale 1,723 3,746 5,469 863 1,810
BT Global Services 1,154 1,572 2,726 (90) 212
Other 10 1 11 (53) 62
Intra-group items (ii) - (5,733) (5,733) - -
Total 9,154 - 9,154 1,478 2,930
Half year ended
September 30, 2002 (i)
BT Retail 6,400 407 6,807 757 864
BT Wholesale 1,736 3,845 5,581 802 1,752
BT Global Services 1,086 1,509 2,595 (212) 78
Other 26 - 26 (48) 87
Intra-group items (ii) - (5,761) (5,761) - -
Total 9,248 - 9,248 1,299 2,781
i. The results of the lines of business for the quarter ended September 30, 2002
and the half year ended September 30, 2002 have been restated to reflect
changes to intra-group trading arrangements.
ii. Elimination of intra-group turnover between businesses, which is included in
the total turnover of the originating business.
iii. Before goodwill amortisation.
2 Results of businesses continued
BT Global Services analysis
Second quarter ended Half year
September 30 ended September 30
2003 2002 Better (worse) 2003 2002
£m £m £m % £m £m
Group turnover
Solutions 661 577 84 15 1,295 1,122
Syntegra 162 143 19 13 306 285
Global Products 443 408 35 9 876 801
Global Carrier 235 237 (2) (1) 466 483
Other and eliminations (i) (120) (54) (66) n/m (217) (96)
1,381 1,311 70 5 2,726 2,595
EBITDA
Solutions 76 73 3 4 138 135
Syntegra 5 5 - - 9 8
Global Products 27 (20) 47 n/m 48 (50)
Global Carrier 32 32 - - 72 72
Other (i) (23) (40) 17 43 (55) (87)
117 50 67 n/m 212 78
Group operating
profit (loss) (ii)
Solutions 57 54 3 6 100 99
Syntegra 3 2 1 50 5 3
Global Products (70) (116) 46 40 (144) (239)
Global Carrier 10 11 (1) (9) 27 28
Other (i) (39) (51) 12 24 (78) (103)
(39) (100) 61 61 (90) (212)
Capital expenditure 102 95 (7) (7) 204 191
Operating free cash flow 15 (45) 60 n/m 8 (113)
i. Other is after charging leaver costs of £5m in the second quarter (£14m last
year) and £13m in the half year ended September 30, 2003 (£39m last year).
ii. Before goodwill amortisation.
(b) Group turnover analysis
Second quarter ended Half year
September 30 ended September 30
2003 2002 Better (worse) 2003 2002
£m £m £m % £m £m
Traditional 3,807 4,051 (244) (6) 7,683 8,059
New wave 761 610 151 25 1,471 1,189
4,568 4,661 (93) (2) 9,154 9,248
Consumer 1,498 1,542 (44) (3) 2,995 3,013
Business 654 684 (30) (4) 1,304 1,373
Major Corporate 1,420 1,400 20 1 2,843 2,815
Wholesale/Carrier 992 1,022 (30) (3) 2,002 2,021
Other 4 13 (9) (69) 10 26
4,568 4,661 (93) (2) 9,154 9,248
Note: New wave includes the external new wave turnover of BT Retail and
BT Wholesale and the external turnover of Global Solutions and Syntegra.
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.
(c) Capital expenditure on plant, equipment and motor vehicle additions
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
BT Retail 20 25 40 44
BT Wholesale
Access 232 206 447 414
Switch 22 42 33 82
Transmission 46 61 100 124
Products/systems support 108 76 196 124
408 385 776 744
BT Global Services
Syntegra and Solutions 25 12 61 24
UK Networks 35 32 59 59
Other 42 51 84 108
102 95 204 191
Other 48 54 110 129
Total 578 559 1,130 1,108
(d) Net operating assets (liabilities)
September 30 March 31
2003 2003
£m £m
BT Retail 42 (430)
BT Wholesale 11,861 12,041
BT Global Services 1,467 1,912
Other 155 217
Total 13,525 13,740
Note: Net operating assets (liabilities) comprise tangible and
intangible fixed assets, stocks, debtors less creditors (excluding loans
and other borrowings) and provisions for liabilities and charges
(excluding deferred tax).
3 Operating costs
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Net staff costs* 907 891 1,820 1,922
Depreciation 721 748 1,450 1,480
Payments to telecommunication operators 1,006 997 2,023 1,979
Other operating costs 1,230 1,340 2,479 2,664
Total before goodwill amortisation
and exceptional items 3,864 3,976 7,772 8,045
Goodwill amortisation 3 3 6 11
Total 3,867 3,979 7,778 8,056
*Includes leaver costs of 16 37 27 193
4 Group's share of associates and joint ventures
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Share of associates and joint ventures 99 433 206 844
turnover
Share of operating (losses) profits of
associates and joint ventures (4) 66 (7) 115
5 Exceptional items and goodwill amortisation
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
(Loss) profit on sale of fixed asset
investments and group undertakings - (4) (1) 66
Net interest payable (18) - (18) -
Goodwill amortisation (3) (3) (6) (11)
Net (charge) credit before tax and
minority interests (21) (7) (25) 55
6 Net interest payable
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Group 352 343 640 678
Joint ventures and associates 5 6 10 16
Total interest payable 357 349 650 694
Interest receivable (123) (54) (191) (99)
Net interest payable 234 295 459 595
Analysed:
Before exceptional items 216 295 441 595
Exceptional items 18 - 18 -
Total 234 295 459 595
7 Dividends
Half year Half year
ended September 30 ended September 30
2003 2002 2003 2002
pence per share £m £m
Interim dividend 3.20 2.25 278 194
An interim dividend of 3.20 pence per share will be paid on February 9, 2004 to
shareholders on the register on December 30, 2003.
8 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
2003 2002 2003 2002
million of shares million of shares
Basic 8,633 8,613 8,628 8,609
Diluted 8,695 8,649 8,675 8,659
9. Reconciliation of operating profit to operating cash flow
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Group operating profit 745 726 1,472 1,288
Depreciation and amortisation 725 752 1,458 1,493
Changes in working capital (223) (99) (211) (166)
Provision movements and other 27 44 64 120
Net cash inflow from operating
activities 1,274 1,423 2,783 2,735
10 Net debt
a. Analysis
At September 30 At March 31
2003 2002 2003
£m £m £m
Long-term loans and other borrowings falling due
after more than one year 12,584 15,394 13,456
Short-term borrowings and long-term loans and
other borrowings falling due within one year 2,262 1,584 2,548
Total debt 14,846 16,978 16,004
Short-term investments (6,036) (3,748) (6,340)
Cash at bank (42) (118) (91)
Net debt at end of period 8,768 13,112 9,573
10 Net debt continued
b. Reconciliation of net cash flow to movement in net debt
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Net debt at beginning of period 8,988 13,397 9,573 13,701
Decrease in net debt resulting from (213) (274) (831) (628)
cash flows
Net debt assumed or issued on
acquisitions - - - (13)
Currency and other movements (3) (16) 2 17
Other non-cash movements (4) 5 24 35
Net debt at end of period 8,768 13,112 8,768 13,112
11 Provisions for liabilities and charges
At September 30 At March 31
2003 2002 2003
£m £m £m
Deferred taxation 2,017 2,146 2,017
Pension provisions (a) 32 33 33
Other provisions 302 125 326
2,351 2,304 2,376
(a) The pension prepayment relating to the BT Pension Scheme of £567m at
September 30, 2003 (£231m last year) is included in debtors and falls
due after more than one year.
12 Share capital and reserves
Share capital Reserves Total
£m £m £m
Balances at April 1, 2003 434 2,208 2,642
Profit for the six months ended September 30, 2003 - 728 728
Dividend - (278) (278)
Currency movements (a) - 17 17
Balances at September 30, 2003 434 2,675 3,109
a. Includes £44m movement on the retranslation of foreign borrowings and other
hedging instruments in the six months ended September 30, 2003.
13 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Second quarter Half year
ended September 30 ended September 30
2003 2002 2003 2002
£m £m £m £m
Group operating profit before
exceptional items 745 726 1,472 1,288
Depreciation 722 749 1,452 1,482
Amortisation 3 3 6 11
EBITDA before exceptional items 1,470 1,478 2,930 2,781
14 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
2003 2002 2003 2002
Net income attributable to 90 514 378 725
shareholders (£m) including
exceptional items
Earnings per ADS (£)
- basic 0.10 0.60 0.44 0.84
- diluted 0.10 0.59 0.44 0.84
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 £2,213m deficit at September 30, 2003
(September 30, 2002 - £3,798m deficit, March 31, 2003 - £2,258m deficit).
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: cash flow, earnings per share and customer satisfaction targets;
intentions regarding future dividend levels; expectations regarding broadband
growth and revenues from new wave initiatives; the possible or assumed future
results of operations of BT and/or its lines of business; expectations regarding
revenue growth, debt reduction, capital expenditure, continued investment whilst
rewarding shareholders, increased dividends, an efficient balance sheet,
enhanced shareholder value, cost efficiencies and sustainable cash savings; and
BT's ability to deliver its key strategic goals.
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 and its lines of
business; future regulatory actions and conditions in BT's operating areas,
including competition from others in the UK and other international
communications markets; selection by BT and its lines of business of the
appropriate trading and marketing models for its products and services;
fluctuations in foreign currency exchange rates and interest rates;
technological innovations, including the cost of developing new products and the
need to increase expenditures for improving the quality of service; prolonged
adverse weather conditions resulting in a material increase in overtime, staff
or other costs; developments in the convergence of technologies; the anticipated
benefits and advantages of new technologies, products and services, including
broadband and other new wave initiatives, not being realised; the timing of
entry and profitability of BT and its lines of business in certain communication
markets; significant changes in market shares for BT and its principal products
and services; to the extent that BT chooses to sell assets or minority interests
in its subsidiaries, prevailing market levels for such sales; general financial
market conditions affecting BT's performance. 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
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