Interim Results
BT Group PLC
10 November 2004
BT GROUP PLC
November 11, 2004
SECOND QUARTER AND HALF YEAR RESULTS TO SEPTEMBER 30, 2004
SECOND QUARTER HIGHLIGHTS
Group turnover up 2 per cent, excluding the impact of mobile termination rate
reductions, at £4,602 million. Up 1 per cent including the impact of mobile
termination rate reductions
New wave turnover of £1,033 million, up 36 per cent
Profit before taxation, goodwill amortisation and exceptional items of
£549 million, up 4 per cent
Earnings per share before goodwill amortisation and exceptional items, up
9 per cent at 4.8 pence
Free cash flow before acquisitions, disposals and dividends of £594 million
Net debt of £8,267 million, 6 per cent lower than previous year
Broadband end users of 3.3 million at September 30, 2004 with a record 607,000
DSL connections in the quarter
HALF YEAR HIGHLIGHTS
Group turnover up 1 per cent, excluding the impact of mobile termination rate
reductions, at £9,169 million. Turnover flat including the impact of mobile
termination rate reductions
New wave turnover of £1,969 million, up 34 per cent
Profit before taxation, goodwill amortisation and exceptional items of
£983 million, down 4 per cent. Up 4 per cent before leaver costs
Earnings per share before goodwill amortisation and exceptional items maintained
at 8.5 pence. Up 7 per cent at 9.4 pence before leaver costs
Interim dividend of 3.9 pence per share, up 22 per cent
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 14 to 19.
Chairman's statement
Sir Christopher Bland, Chairman, commenting on the half year results said:
"The group is making exciting progress, delivering strong financial results
whilst transforming the business. I am very pleased to report that we will be
paying an interim dividend of 3.9 pence per share, 22 per cent higher than last
year.
"We continue to invest in our business at a rate well above others in Europe.
This investment, together with our continuing research and development
programmes, are helping BT take a world leading position."
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the second quarter results, said:
"The 36 per cent growth of new wave revenues helped us deliver the best
underlying revenue growth in almost 3 years. We continue to improve earnings per
share, up 9 per cent before goodwill amortisation and exceptional items.
"We are winning business across the globe and responding innovatively to an
intense competitive environment, particularly in the UK. Our agreement to
acquire Infonet is another step in BT's transformation into a leading provider
of IT and networking services.
"We now have more than 3.3 million broadband DSL customers, with the latest
million connections achieved in less than six months, which is a new connection
every 15 seconds.
"These results demonstrate our continuing ability to improve earnings whilst
building for the future."
RESULTS FOR THE SECOND QUARTER AND HALF YEAR
TO SEPTEMBER 30, 2004
Second quarter Half year
2004 2003 Better 2004 2003 Better
(worse) (worse)
£m £m % £m £m %
Group turnover 4,602 4,568 1 9,169 9,154 -
EBITDA
- before
exceptional
items and
leaver costs 1,449 1,485 (2) 2,893 2,955 (2)
- before
exceptional
items 1,441 1,469 (2) 2,783 2,928 (5)
Profit before
taxation
- before
goodwill,
exceptional
items and
leaver costs 557 544 2 1,093 1,056 4
- before
goodwill and
exceptional
items 549 528 4 983 1,029 (4)
- after
goodwill and
exceptional
items 567 507 12 983 1,004 (2)
Earnings per
share
- before
goodwill,
exceptional
items and
leaver costs 4.9p 4.6p 7 9.4p 8.8p 7
- before
goodwill and
exceptional
items 4.8p 4.4p 9 8.5p 8.5p -
- after
goodwill and
exceptional
items 5.0p 4.3p 16 8.6p 8.4p 2
Capital
expenditure 803 578 (39) 1,497 1,130 (32)
Free cash flow 594 585 2 751 1,203 (38)
Dividend 3.9p 3.2p 22
Net debt 8,267 8,768 6
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 £2 million for the half year and £1 million for the
quarter ended September 30, 2003.
The full profit and loss account, cash flow statement and balance sheet are
provided on pages 14 to 19. A reconciliation of EBITDA to group operating profit
is provided on page 27.
GROUP RESULTS - SECOND QUARTER ENDED SEPTEMBER 30, 2004
The results for the second quarter show that the transformation of our business
is progressing well. Turnover was 1 per cent higher at £4,602 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 2 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 £1,033 million was
36 per cent higher than last year. New wave turnover accounted for 22 per cent
of the group's turnover compared to 17 per cent in the second quarter of last
year. New wave turnover is mainly generated from Information and Communications
Technology (ICT) solutions, broadband, mobility and managed services. ICT
turnover grew by 20 per cent to £699 million. Mobility turnover at £49 million
achieved growth of 188 per cent. Broadband turnover increased by 88 per cent to
£199 million.
Turnover from the group's traditional businesses declined by 6 per cent
(5 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 second quarter was 5 per cent lower (4 per cent
lower excluding the impact of reductions to mobile termination rates) compared
to last year. New wave consumer turnover increased by 65 per cent, driven by the
continuing growth of broadband and mobility. Broadband connections increased by
over 100 per cent and mobility connections increased to over 160,000 at
September 30, 2004 from 11,000 last year. In July, BT Communicator was launched,
allowing customers to make voice over internet calls, e-mail, instant messaging
through Yahoo! messenger and text messaging to give consumers a truly converged
multi-media communications experience.
BT Together packages provide an important element in defending traditional
turnover. From July 1, 2004 we built on the success of the BT Together family of
packages and simplified our pricing structure. This change brings lower call
charges and reductions to our three BT Together fixed monthly fee packages and
will make it easier for customers to compare the value they get from BT with
similar offerings from competitors. Customer numbers on BT Together increased by
8.7 million compared to September 30, 2003 mainly as a result of this
simplification and there are now 17.6 million BT Together customers. Within
this, the number of customers on the frequent user packages of BT Together
Option 2 increased by 8 per cent to 1.3 million and Option 3 increased by
145 per cent to 0.5 million.
Traditional consumer turnover declined by 8 per cent compared to last year,
consistent with the previous quarter. This decline reflects the migration to new
wave products, Carrier Pre-Selection (CPS) penetration and mobile substitution.
The underlying 12 month rolling average revenue per consumer customer household
(net of mobile termination charges) of £262 declined by £3 compared to last
quarter with increased broadband volumes offset by lower call revenues and
broadband price reductions. Contracted revenues increased by 1 percentage point
to 60 per cent compared to last quarter, and is 3 percentage points higher than
last year.
Turnover from smaller and medium sized businesses declined by 4 per cent
(3 per cent excluding the impact of reductions to mobile termination rates). The
continued expansion of the BT Business Plan portfolio, originally launched in
January 2003, has extended its reach. The number of business locations had more
than doubled against last year to 322,000 by September 30, 2004, an increase of
9 per cent in the quarter. This, together with our 82 BT Local Businesses,
defended some of the decline in the traditional revenue. New wave turnover grew
by 49 per cent in this customer segment supported by the 61 per cent growth in
Business Broadband customers. A new product structure, announced in September,
increases the bandwidth size of Business Broadband products, whilst maintaining
current prices. The introduction of additional value added services, such as
internet trading and security, have helped increase the number of customers
using BT to provide their business applications. 58 per cent of new Business
Broadband customers now choose BT for one or more of their application
requirements.
Major Corporate (UK and international) turnover increased by 2 per cent with the
strong growth in new wave turnover (23 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 now represents almost half of
Major Corporate turnover. ICT contract wins were £0.9 billion in the second
quarter which results in orders of £6.5 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 percentage
point compared to last quarter to around 65 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 10 per cent (14 per cent
excluding the impact of reductions to mobile termination rates). A doubling of
the UK Wholesale new wave turnover to £147 million was driven by broadband and
managed services.
There was an installed base of 3.3 million wholesale broadband lines by
September 30, 2004, an increase of 146 per cent over last year, with net
additions in the quarter growing at more than 46,000 per week. In early
September BT was able to lengthen the distance from an exchange over which
broadband can be provided, resulting in 99.8 per cent of lines connected to
upgraded exchanges now being able to receive broadband. BT Retail had 1,283,000
broadband connections at September 30, 2004, an increase of 93 per cent on
September 30, 2003.
The group has an extensive market research programme conducted by external
agencies which focuses on the level and causes of customer dissatisfaction. BT
achieved an 8 per cent improvement in the level of customer dissatisfaction in
the quarter, taking the year to date improvement to 11 per cent.
Group operating costs before goodwill amortisation and exceptional items
increased by 1 per cent compared to last year. Leaver costs were £8 million in
the quarter (£16 million last year). Net staff costs decreased by £61 million,
before leaver costs, to £831 million due to improved efficiency partially offset
by the impact of increases in pay rates and the additional staff required to
service ICT contracts. Payments to other telecommunication operators were
£62 million (6 per cent) lower than last year mainly reflecting the impact of
the mobile termination rate reductions. Other operating costs (excluding
goodwill amortisation and exceptional items) increased by £192 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, such as
the recent campaign highlighting BT's leadership in the digital networked
economy and higher subscriber acquisition costs. These were partly offset by
cost savings from our efficiency programmes.
Depreciation was £19 million lower than last year at £702 million reflecting
shorter life assets becoming fully depreciated and more efficient capital
expenditure over recent years.
Group operating profit before goodwill amortisation and exceptional items
decreased by 1 per cent compared to last year. As a result of the costs of
supporting the new wave activities, operating profit margins declined by 0.4
percentage points compared to the second quarter last year to 16.0 per cent.
BT's share of associates and joint ventures operating profits before goodwill
amortisation and exceptional items was £3 million compared to a £4 million loss
last year.
Net interest payable before exceptional items was £207 million, an improvement
of £9 million against last year reflecting the reduction in the level of net
debt.
The profit on sale of property fixed assets of £15 million includes the sale of
Mondial House for consideration of £51 million.
Profit before taxation, goodwill amortisation and exceptional items of
£549 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 (28.0 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
£22 million. This reflected the £25 million profit on disposal of certain of the
group's investments, including PayPoint for consideration of £34 million. This
was partly offset by an exceptional property rationalisation charge of
£3 million in relation to the group's provincial office portfolio. This
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
5.0 pence compared to 4.3 pence last year, an improvement of 16 per cent.
Cash flow and net debt
Cash inflow from operating activities amounted to £1,413 million compared to
£1,274 million last year. The improved cash flow reflects a better working
capital performance.
Return on investments and servicing of finance is a net cash outflow of
£95 million compared to £169 million last year. This movement was mainly driven
by the timing of interest payments on debt that was repaid subsequent to
September 30, 2003.
The net cash outflow on fixed asset purchases and sales was £724 million in the
quarter which compares to £520 million last year reflecting the move to a
flatter profile of capital expenditure through the year, investment in the NHS
contracts and transformational expenditure on the network.
Progress continues to be made with our plans for the implementation of BT's 21st
century network (21CN) programme announced earlier this year. 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 have begun in recent weeks with new multi service equipment currently
being installed at 18 exchanges.
Free cash flow (before acquisitions and disposals, dividends and financing) was
a net inflow of £594 million compared to £585 million last year.
The share buyback programme continued with the repurchase of 37 million shares
for £68 million in the quarter.
Net debt continued to improve and was £8,267 million at September 30, 2004,
6 per cent below the level at September 30, 2003.
Post balance sheet events
In November BT signed a definitive agreement to acquire Infonet, one of the
world's leading providers of international managed voice and data network
services. The transaction values Infonet at US$965 million (£520 million).
Excluding Infonet's net cash balance of US$390 million at March 31, 2004 the
aggregate value of the deal is US$575 million (£310 million). The deal is
subject to Infonet shareholder approval and regulatory clearances and is
expected to complete in the first half of 2005.
The acquisition of Infonet marks a significant step forward in BT's strategy of
addressing the IT and networking services needs of multi-site companies and
organisations. It will greatly extend BT's global reach and will deepen the
company's presence in North America and Asia Pacific. Infonet's recognised
strengths in innovation, product quality and customer service will complement
BT's strengths in the managed network services market.
The agreed sale of BT's interest in Intelsat for US$120 million is subject to
regulatory clearance but is expected to complete in the third quarter. BT also
sold its interest in Starhub for £71 million in October.
Shareholder distributions
An interim dividend of 3.9 pence per share, an increase of 22 per cent on last
year, will be paid on February 7, 2005 to shareholders on the register on
December 31, 2004. The ex dividend date is December 29, 2004. In the first half
year 54 million shares were repurchased for £99 million under the group's share
buyback programme.
Prospects
We remain committed to our strategy and continue to deliver our key strategic
goals. Our traditional business continues to operate in what remains a
challenging environment. Our new wave businesses show strong growth both in the
UK and internationally. We expect to continue to see the benefits from our
investment in new wave activities and cost transformation plans.
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 major areas
of impact will be due to the different treatment of financial instruments,
pensions, property leases, share based payments and dividends.
_____________________________________________________________________
The half year report, which contains the independent review report of the
auditors, will be advertised in The Times on November 12, 2004.
The third quarter results of BT Group are expected to be announced on
February 10, 2005.
BT Retail
=========================== =============
Second quarter ended September 30 Half year
ended September
--------------------------- 30
-------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Group turnover 3,121 3,201 (80) (2) 6,237 6,374
Gross margin 817 896 (79) (9) 1,642 1,753
Sales, general
and 495 539 44 8 1,028 1,023
administration
costs
EBITDA 322 357 (35) (10) 614 730
Depreciation 35 41 6 15 68 88
Operating profit 287 316 (29) (9) 546 642
Operating profit
before 291 325 (34) (10) 593 652
leaver costs
Capital 36 20 (16) (80) 64 40
expenditure ======= ======= ======= ========= ======= ========
*Restated to reflect changes in intra-group trading arrangements.
Growth in new wave turnover of 33 per cent was offset by the 9 per cent decline
in traditional turnover resulting in an overall decline of 2 per cent compared
to last year.
=========================== =============
BT Retail Second quarter ended September 30 Half year
turnover ended September30
--------------------------------- -------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Voice Services 2,058 2,254 (196) (9) 4,157 4,520
Intermediate 428 471 (43) (9) 870 939
Products
Traditional 2,486 2,725 (239) (9) 5,027 5,459
ICT 449 385 64 17 862 750
Broadband 123 68 55 81 233 125
Mobility 45 15 30 200 83 29
Other 18 8 10 125 32 11
New Wave 635 476 159 33 1,210 915
Total 3,121 3,201 (80) (2) 6,237 6,374
Sales to other BT
businesses incl. 98 75 23 31 193 121
above ======= ======= ======= ========= ======= ========
*Restated to reflect changes in intra-group trading arrangements.
Turnover from voice services was 9 per cent lower than last year (8 per cent
excluding the impact of reductions to mobile termination rates). This reflects
the migration to broadband with a 22 per cent fall in dial up internet minutes,
reductions in market share and the decline in the overall fixed to fixed call
minutes market.
Turnover from intermediate products decreased by 9 per cent compared to last
year mainly driven by a 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 33 per cent compared to last year, an
increase in the rate of growth from last quarter and above the average for last
year. ICT turnover increased by 17 per cent, reflecting strong growth compared
to the overall market with new IP based service contract wins.
The growth of broadband continues with 1,283,000 BT Retail connections at
September 30, 2004, an increase of 16 per cent in the quarter. Net additions of
181,000 were a 30 per cent share of the DSL market additions. Broadband turnover
grew by 81 per cent compared to last year to £123 million. On July 1, 2004, BT
Retail reduced its prices on BT Yahoo! 1mb, BT Yahoo! 512k and BT Broadband.
From October 1, 2004 BT Retail has further reduced its price on BT Broadband
Basic from £19.99 to £17.99.
In November 2003, BT launched BT Mobile Home Plan through retail stores.
Consumer Mobile has now attracted over 160,000 connections at September 30,
2004, increasing the number of connections in the quarter by84 per cent. BT had
consumer and corporate post pay contract mobile connections of 305,000 at
September 30, 2004 reflecting growth of over 90,000 connections (42 per cent)
since June 30, 2004. Turnover from mobility services trebled compared to last
year, to £45 million.
Gross margin decreased by 1.8 percentage points to 26.2 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 strongly, 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.
Cost transformation programmes continue to generate savings in the traditional
business with an estimated £69 million of savings before leaver costs
(15 per cent) compared to last year, of which £29 million was invested in new
wave activities. Leaver costs of £4 million were incurred in the quarter, a
decrease of £5 million over last year.
Operating profit in the quarter of £287 million was 9 per cent lower than last
year.
BT Wholesale
=========================== =============
Second quarter ended September 30 Half year
ended September
--------------------------- 30
-------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
External turnover 952 851 101 12 1,893 1,737
Internal turnover 1,287 1,349 (62) (5) 2,597 2,723
Group turnover 2,239 2,200 39 2 4,490 4,460
Variable cost of 556 520 (36) (7) 1,109 1,053
sales
Gross variable 1,683 1,680 3 - 3,381 3,407
profit
Network and SG&A 723 730 7 1 1,487 1,481
costs
EBITDA 960 950 10 1 1,894 1,926
Depreciation 476 473 (3) (1) 953 947
Operating profit 484 477 7 1 941 979
Operating profit
before 484 479 5 1 982 981
leaver costs
Capital 545 408 (137) (34) 1,020 776
expenditure ======= ======= ======= ========= ======= ========
*Restated to reflect changes in intra-group trading arrangements.
Wholesale turnover for the quarter of £2,239 million was 2 per cent higher and
gross variable profit of £1,683 million was flat compared to last year. EBITDA
and operating profit have increased by 1 per cent year on year.
External turnover in the quarter of £952 million increased by 12 per cent.
Excluding the impact of regulatory reductions to mobile termination rates
external turnover increased by 17 per cent. The growth was driven by the
increase in new wave turnover, up 99 per cent to £147 million in the quarter,
which continues to be from increases in broadband and managed services. The
growth in traditional turnover is mainly driven by wholesale access.
During the second half of the year the impact of recent regulatory decisions
will result in reductions in prices for interconnect and private circuits for
mobile operators. This is expected to have an impact of about £20 million per
quarter.
Internal turnover declined by 5 per cent to £1,287 million reflecting the impact
of lower volumes of calls, lines and private circuits, as well as lower
regulatory prices being reflected in internal charges.
Gross variable profit of £1,683 million has remained flat against last year
reflecting the regulatory price reductions and changing mix.
The continued drive to reduce costs, whilst handling higher volumes of activity
to support the growth in turnover, is reflected in the £7 million year on year
reduction in network and SG&A costs contributing to the 1 per cent growth in
EBITDA and operating profit.
Capital expenditure increased by 34 per cent to £545 million when compared to
last year. This reflects expenditure on transforming the group's network,
particularly to support the rapid growth in broadband.
BT Global Services
=========================== =============
Second quarter ended September 30 Half year
ended September
--------------------------- 30
-------------
2004 2003* Better (worse) 2004 2003*
£m £m £m % £m £m
Group turnover 1,499 1,381 118 9 2,910 2,726
EBITDA 129 117 12 10 231 212
Operating loss (13) (39) 26 67 (49) (90)
Operating loss
before (10) (34) 24 71 (33) (77)
leaver costs
Capital 169 102 (67) (66) 318 204
expenditure ======= ======= ======= ========= ======= ========
*Restated to reflect changes in intra-group trading arrangements.
See note 2 (b) for additional detail.
Turnover for the quarter rose by 9 per cent to £1,499 million. Excluding the
adverse impact of exchange rates turnover growth was 10 per cent. Solutions
turnover grew by 18 per cent reflecting the conversion of the underlying order
book. Consulting and Systems Integration (C&SI) (formerly BT Syntegra) produced
strong turnover growth for another quarter, with the NHS contracts contributing
towards the growth of 19 per cent. Solutions and C&SI achieved orders of
£0.9 billion in the quarter which results in orders of £6.5 billion over the
last twelve months. Global Products turnover grew by 3 per cent (5 per cent
excluding the impact of exchange rates) having benefited from continuing growth
in Multi Protocol Label Switching (MPLS) products. Global Carrier turnover grew
by 7 per cent following continued high termination revenues in Europe.
The increase in turnover, together with lower network, selling, general and
administration costs, following continued cost reduction initiatives, helped
generate a £26 million improvement in operating losses. 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 £169 million increased by £67 million
compared to last year mainly due to expenditure on the NHS contracts.
___________________________________________________________________________
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended September 30, 2004
-------------------- ------ ----------------- ---------------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited) Notes £m £m £m
-------------------- ------ ----------------- ---------------- ---------
Group turnover 2 4,602 - 4,602
Other
operating
income 43 - 43
Operating
costs 3 (3,907) (7) (3,914)
Group
operating
profit (loss) 2 738 (7) 731
Group's share
of operating
profits of
associates and
joint ventures 3 - 3
Total
operating
profit (loss) 741 (7) 734
Profit on sale
of fixed asset
investments
and group
undertakings - 25 25
Profit on sale
of property
fixed assets 15 - 15
Net interest
payable 5 (207) - (207)
Profit before
taxation 549 18 567
Taxation (141) 1 (140)
Profit after
taxation 408 19 427
Minority
interests 1 - 1
Profit
attributable
to
shareholders 409 19 428
Earnings per
share 7
- basic 4.8p 5.0p
- diluted 4.8p 5.0p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended September 30, 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 4,568 - 4,568
Other
operating
income 44 - 44
Operating
costs 3 (3,865) (3) (3,868)
Group
operating
profit (loss) 2 747 (3) 744
Group's share
of operating
losses of
associates and
joint ventures (4) - (4)
Total
operating
profit (loss) 743 (3) 740
Profit on sale
of property
fixed assets 1 - 1
Net interest
payable 5 (216) (18) (234)
Profit (loss)
before
taxation 528 (21) 507
Taxation (148) 16 (132)
Profit (loss)
after taxation 380 (5) 375
Minority
interests 1 - 1
Profit (loss)
attributable
to
shareholders 381 (5) 376
Earnings per
share 7
- basic 4.4p 4.3p
- diluted 4.4p 4.3p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the six months ended September 30, 2004
-------------------- ------ ------------------ ----------------- ---------
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 4)
(unaudited) Notes £m £m £m
-------------------- ------ ----------------- ----------------- ---------
Group turnover 2 9,169 - 9,169
Other
operating
income 84 - 84
Operating
costs 3 (7,872) (28) (7,900)
Group
operating
profit (loss) 2 1,381 (28) 1,353
Group's share
of operating
losses of
associates and
joint ventures (2) - (2)
Total
operating
profit (loss) 1,379 (28) 1,351
Profit on sale
of fixed asset
investments
and group
undertakings - 28 28
Profit on sale
of property
fixed assets 15 - 15
Net interest
payable 5 (411) - (411)
Profit before
taxation 983 - 983
Taxation (256) 5 (251)
Profit after
taxation 727 5 732
Minority
interests 1 - 1
Profit
attributable
to
shareholders 728 5 733
Dividends 6 (332)
Retained
profit for the
period 401
Earnings per
share 7
- basic 8.5p 8.6p
- diluted 8.5p 8.5p
-------------------- ------ ---------- ----------- ---------
GROUP PROFIT AND LOSS ACCOUNT
for the six months ended September 30, 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 9,154 - 9,154
Other
operating
income 96 - 96
Operating
costs 3 (7,774) (6) (7,780)
Group
operating
profit (loss) 2 1,476 (6) 1,470
Group's share
of operating
losses of
associates and
joint ventures (7) - (7)
Total
operating
profit (loss) 1,469 (6) 1,463
Loss on sale
of fixed asset
investments
and group
undertakings - (1) (1)
Profit on sale
of property
fixed assets 1 - 1
Net interest
payable 5 (441) (18) (459)
Profit (loss)
before
taxation 1,029 (25) 1,004
Taxation (301) 16 (285)
Profit (loss)
after taxation 728 (9) 719
Minority
interests 7 - 7
Profit (loss)
attributable
to
shareholders 735 (9) 726
Dividends 6 (278)
Retained
profit for the
period 448
Earnings per
share 7
- basic 8.5p 8.4p
- diluted 8.5p 8.4p
-------------------- ------ ---------- ----------- ---------
GROUP CASH FLOW STATEMENT
for the three months and six months ended September 30, 2004
------------------------------ ------------------- -------------------
Second quarter Half year
ended September 30 ended September 30
2004 2003 2004 2003
(unaudited) £m £m £m £m
Net cash inflow from operating
activities 1,413 1,274 2,619 2,783
(note 8)
Dividends from associates and
joint ventures 1 1 1 1
Net cash outflow for returns on (95) (169) (397) (459)
investments and servicing of
finance*
Taxation paid (1) (1) (42) (9)
-------- -------- --------- --------
Purchase of tangible fixed (794) (595) (1,538) (1,202)
assets
Net sale of fixed asset
investments 2 61 25 61
Sale of tangible fixed assets 68 14 83 28
-------- -------- --------- --------
Net cash outflow for capital
expenditure and financial
investments (724) (520) (1,430) (1,113)
----------------------------- -------- -------- --------- --------
Free cash inflow before
acquisitions, 594 585 751 1,203
disposals and dividends
----------------------------- -------- -------- --------- --------
-------- -------- --------- --------
Acquisitions (21) (5) (23) (5)
Disposals 34 1 34 1
-------- -------- --------- --------
Net cash inflow (outflow) for
acquisitions and disposals 13 (4) 11 (4)
Equity dividends paid (454) (368) (454) (368)
Cash inflow before use of
liquid 153 213 308 831
resources
and financing
Management of liquid resources 33 892 89 501
-------- -------- --------- --------
Repurchase of ordinary share
capital (68) - (99) -
Repayment of loans (104) (1,139) (276) (1,151)
-------- -------- --------- --------
Net cash outflow from financing (172) (1,139) (375) (1,151)
Increase (decrease) in cash 14 (34) 22 181
Decrease in net debt from cash
flows 85 213 209 831
(note 9)
----------------------------- -------- -------- --------- --------
*Net of interest payments on
restructuring currency swap
portfolio (18) - (36) -
GROUP BALANCE SHEET
at September 30, 2004
-------------------------------------- ---------------------- ---------
September 30 March 31
2004 2003 2004
(unaudited)
(restated*) (restated*)
£m £m £m
-------------------------------------- ---------- ---------- ---------
Fixed assets
Intangible assets 201 201 204
Tangible assets 15,552 15,525 15,487
Investments 313 366 324
16,066 16,092 16,015
Current assets
--------- --------- ---------
Stocks 118 91 89
Debtors 5,374 4,930 5,189
Investments 5,046 6,036 5,163
Cash at bank and in hand 117 42 109
10,655 11,099 10,550
Creditors: amounts falling due within
one year
Loans and other borrowings 1,017 2,262 1,271
Other creditors 7,354 6,873 7,252
8,371 9,135 8,523
--------- --------- ---------
Net current assets 2,284 1,964 2,027
Total assets less current liabilities 18,350 18,056 18,042
Creditors: amounts falling due after
more than one year
Loans and other borrowings 12,413 12,584 12,426
Provisions for liabilities and charges 2,475 2,351 2,504
Minority interests 48 50 46
Capital and reserves (note 10)
--------- --------- ---------
Called up share capital 432 434 432
Reserves 2,982 2,637 2,634
--------- --------- ---------
Total equity shareholders' funds 3,414 3,071 3,066
18,350 18,056 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 from previously being based on the book value of shares held in the
ESOP trusts to being based on the fair value of shares at the date the award is
made.
An additional charge of £3 million for the year ended March 31, 2004 and of £2
million for the half year and £1 million for the quarter endedSeptember 30,
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 fixedassets by £53
million, to reduce other creditors by £25 million and to reduce shareholders'
funds by £28 million. The effect at September 30, 2003 has been to reduce fixed
assets by £53 million, to reduce other creditors by £15 million and to reduce
shareholders' funds by £38 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 operating EBITDA
turnover turnover turnover profit (loss) (ii)
(ii)
£m £m £m £m £m
Second quarter
ended
September 30, 2004
BT Retail 3,023 98 3,121 287 322
BT Wholesale 952 1,287 2,239 484 960
BT Global
Services 621 878 1,499 (13) 129
Other 6 - 6 (20) 30
Intra-group items
(i) - (2,263) (2,263) - -
Total 4,602 - 4,602 738 1,441
Second quarter
ended
September 30, 2003
(restated - see page
22)
BT Retail 3,126 75 3,201 316 357
BT Wholesale 851 1,349 2,200 477 950
BT Global
Services 587 794 1,381 (39) 117
Other 4 1 5 (7) 45
Intra-group items
(i) - (2,219) (2,219) - -
Total 4,568 - 4,568 747 1,469
Half year ended
September 30, 2004
BT Retail 6,044 193 6,237 546 614
BT Wholesale 1,893 2,597 4,490 941 1,894
BT Global
Services 1,219 1,691 2,910 (49) 231
Other 13 - 13 (57) 44
Intra-group items
(i) - (4,481) (4,481) - -
Total 9,169 - 9,169 1,381 2,783
Half year ended
September 30, 2003
(restated - see page
22)
BT Retail 6,253 121 6,374 642 730
BT Wholesale 1,737 2,723 4,460 979 1,926
BT Global
Services 1,154 1,572 2,726 (90) 212
Other 10 1 11 (55) 60
Intra-group items
(i) - (4,417) (4,417) - -
Total 9,154 - 9,154 ,476 2,928
(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.
2 Results of businesses continued
(a) Operating results continued
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
------------------------ -------------
Second quarter ended Half year
September 30 ended September
------------------------ 30
-------------
2004 2003 Better (worse) 2004 2003
£m £m £m % £m £m
Group turnover
Solutions 763 645 118 18 1,449 1,259
C&SI (i) 192 162 30 19 384 306
Global Products 456 443 13 3 909 876
Global Carrier 251 235 16 7 490 466
Other and eliminations (163) (104) (59) (57) (322) (181)
1,499 1,381 118 9 2,910 2,726
EBITDA
Solutions 82 76 6 8 145 138
C&SI (i) 8 5 3 60 12 9
Global Products 37 27 10 37 67 48
Global Carrier 39 32 7 22 84 72
Other (ii) (37) (23) (14) (61) (77) (55)
129 117 12 10 231 212
Operating profit (loss)
(iii)
Solutions 62 57 5 9 106 100
C&SI (i) 6 3 3 100 8 5
Global Products (55) (70) 15 21 (116) (144)
Global Carrier 17 10 7 70 41 27
Other (ii) (43) (39) (4) (10) (88) (78)
(13) (39) 26 67 (49) (90)
Capital expenditure 169 102 (67) (66) 318 204
(i) Formerly known as BT Syntegra.
(ii) Other is after charging leaver costs of £3m in the second
quarter (£5m last year) and £16m in the half year ended September 30, 2004 (£13m
last year).
(iii) Before goodwill amortisation.
2 Results of businesses continued
(c) Group turnover analysis
------------------------ -------------
Second quarter ended Half year
September 30 ended September
------------------------ 30
-------------
2004 2003 Better (worse) 2004 2003
£m £m £m % £m £m
Traditional 3,569 3,807 (238) (6) 7,200 7,683
New wave 1,033 761 272 36 1,969 1,471
4,602 4,568 34 1 9,169 9,154
Consumer 1,421 1,498 (77) (5) 2,846 2,995
Business 629 654 (25) (4) 1,252 1,304
Major Corporate 1,444 1,413 31 2 2,868 2,829
Wholesale/Carrier 1,102 999 103 10 2,190 2,016
Other 6 4 2 50 13 10
4,602 4,568 34 1 9,169 9,154
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 (formerly
BT 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.
(d) Capital expenditure on plant, equipment and motor vehicle additions
Second quarter ended Half year
September 30 ended September
30
2004 2003 2004 2003
£m £m £m £m
BT Retail 36 20 64 40
BT Wholesale
Access 274 232 543 447
Switch 25 22 55 33
Transmission 50 46 95 100
Products/systems support 196 108 327 196
545 408 1,020 776
BT Global Services
C&SI and Solutions 61 25 108 61
UK Networks 35 35 72 59
Other 73 42 138 84
169 102 318 204
Other (including fleet vehicles
and 53 48 95 110
property)
Total 803 578 1,497 1,130
3 Operating costs
Second quarter Half year
ended September 30 ended September 30
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Net staff costs before leaver costs 831 892 1,706 1,795
Leaver costs 8 16 110 27
Net staff costs 839 908 1,816 1,822
Depreciation 702 721 1,401 1,450
Payments to telecommunication 965 1,027 1,953 2,066
operators
Other operating costs 1,401 1,209 2,702 2,436
Total before goodwill amortisation 3,907 3,865 7,872 7,774
and exceptional items
Goodwill amortisation 4 3 8 6
Exceptional items 3 - 20 -
Total 3,914 3,868 7,900 7,780
4 Exceptional items and goodwill amortisation
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
£m £m £m £m
Exceptional operating costs (3) - (20) -
Profit (loss) on sale of fixed
asset 25 - 28 (1)
investments and group
undertakings
Net interest payable - (18) - (18)
Goodwill amortisation (4) (3) (8) (6)
Net charge before tax and
minority 18 (21) - (25)
interests
5 Net interest payable
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
£m £m £m £m
Group 268 352 527 640
Joint ventures and associates 7 5 9 10
Total interest payable 275 357 536 650
Interest receivable (68) (123) (125) (191)
Net interest payable 207 234 411 459
Analysed:
Before exceptional items 207 216 411 441
Exceptional items - 18 - 18
Total 207 234 411 459
6 Dividends
Half year Half year
ended September 30 ended September 30
2004 2003 2004 2003
pence per share £m £m
Interim dividend 3.90 3.20 332 278
An interim dividend of 3.90 pence per share will be paid on February 7, 2005 to
shareholders on the register on December 31, 2004.
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 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:
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
millions of shares millions of shares
Basic 8,535 8,633 8,546 8,628
Diluted 8,596 8,695 8,597 8,675
8 Reconciliation of operating profit to operating cash flow
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Group operating profit 731 744 1,353 1,470
Depreciation and amortisation 707 725 1,410 1,458
Changes in working capital (37) (234) (201) (221)
Provision movements, pensions 12 39 57 76
and other
Net cash inflow from operating
activities 1,413 1,274 2,619 2,783
9 Net debt
(a) Analysis
At September 30 At March 31
2004 2003 2004
£m £m £m
Long-term loans and other borrowings falling due
after more than one year 12,413 12,584 12,426
Short-term borrowings and long-term loans and
other borrowings falling due within one year 1,017 2,262 1,271
Total debt 13,430 14,846 13,697
Short-term investments (5,046) (6,036) (5,163)
Cash at bank (117) (42) (109)
Net debt at end of period 8,267 8,768 8,425
(b) Reconciliation of net cash flow to movement in net debt
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
£m £m £m £m
Net debt at beginning of period 8,317 8,988 8,425 9,573
Decrease in net debt resulting
from (85) (213) (209) (831)
cash flows
Currency and other movements - (3) - 2
Other non-cash movements 35 (4) 51 24
Net debt at end of period 8,267 8,768 8,267 8,768
10 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 six months ended
September 30, 2004 - 733 733
Dividend - (332) (332)
Currency movements - 12 12
Other - (65) (65)
Balances at September 30, 2004 432 2,982 3,414
11 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Second quarter ended Half year
September 30 ended September 30
2004 2003 2004 2003
(restated) (restated)
£m £m £m £m
Group operating profit 731 744 1,353 1,470
Exceptional items 3 - 20 -
Depreciation 703 722 1,402 1,452
Goodwill amortisation 4 3 8 6
EBITDA before exceptional items 1,441 1,469 2,783 2,928
12 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 ended Half year
September 30 ended September 30
2004 2003 2004 2003
Net income attributable to 407 90 480 378
shareholders including
exceptional items (£m)
Earnings per ADS (£)
- basic 0.48 0.10 0.56 0.44
- diluted 0.47 0.10 0.56 0.44
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 £1,442m deficit at September 30, 2004
(September 30, 2003 - £2,213m, 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: expectations regarding broadband, ICT, mobility and managed services
growth, DSL broadband roll out, and revenues from new wave products and
services; implementation of BT's 21st century network; the completion and
expected benefits of the acquisition of Infonet; and expectations regarding cost
transformation, investment and improving earnings whilst building for the
future.
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 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.
This information is provided by RNS
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