1st Quarter Results

British Telecommunications PLC 26 July 2001 FIRST QUARTER RESULTS TO JUNE 30, 2001 BT's results for the first quarter ended June 30, 2001 are summarised in the following table. RESULTS FOR FIRST QUARTER TO JUNE 30, 2001 2001 2000 £m £m Group turnover 5,454 4,732 EBITDA 1,519 1,518 Group operating profit 505 755 Net interest charge 474 239 Profit before goodwill amortisation, exceptional items and taxation 186 637 Profit on sale of group undertakings and fixed asset investments 4,484 41 Profit before taxation 4,505 561 Profit after taxation 4,360 353 Earnings per share 57.9p 4.2p Earnings per share before exceptional items and goodwill 0.3p 5.7p amortisation Chairman's statement Sir Christopher Bland, BT's Chairman, said: 'The first quarter has been one of considerable progress in lowering group debt. Disposals and the rights issue combined to reduce net debt to £17.5 billion, compared with £27.9 billion at the end of March. The first quarter's operating performance was satisfactory. Our EBITDA was maintained at £1,519 million with a welcome improvement in BT Retail and BT Ignite offset by the negative EBITDA in Viag Interkom and Telfort consolidated for the first time.' Key features Group * Disposals of investments and businesses generating £6.0 billion in cash and £4.5 billion in profit in the quarte * Successful £5.9 billion rights issue launched and completed * Balance sheet gearing at 79 per cent with net debt at £17.5 billion at end of June 2001, a reduction of £10.4 billion in the quarter * Work continues on implementation of the radical restructuring Future BT * Future BT EBITDA increased by 5.9 per cent to £1,428 million * Group turnover in Future BT increased by 12.5 per cent to £4,498 million * Disappointing Concert global venture results - BT's share of its operating loss before goodwill amortisation at £81 million for the quarter * Capital expenditure on property, plant and equipment reduced by 9.0 per cent to £705 million in Future BT * ADSL roll out extends to 890 exchanges at June 30, 2001 serving 50 per cent of UK householders * BT Ignite's integrated broadband enabled IP network covers more than 52,000 km in 12 countries BT Wireless * BT Cellnet's customer base grew by 300,000 in the quarter to stand at 10.9 million at June 30, 2001 * Viag Interkom's mobile customer base at 3.4 million at June 30, 2001 * 3G infrastructure sharing announced with T-Mobile International in both German and UK markets * BT Cellnet's EBITDA increased by 34 per cent * Genie achieves around 5.5 million registered users world-wide The transformation of BT We have made good progress in the three months ended June 30, 2001 in transforming BT and, in particular, achieving our priority of a significant reduction in our net debt from its unsustainable level at March 31, 2001. On May 10, 2001 we announced our intention to demerge BT Wireless. We are on schedule to carry out this demerger and have announced key appointments to the BT Wireless board. We anticipate that we will be writing to shareholders with details of the process and the notice of the necessary extraordinary general meeting later this year. On May 10, 2001, we announced our intention to sell or demerge Yell, our classified advertising business. On May 26, 2001, we announced the agreement to sell Yell and this sale was completed on June 25, 2001 for approximately £2 billion. On May 2, 2001, we announced that we had agreed to sell our interests in Japan Telecom and J-Phone, and our interest in Airtel in Spain, both to Vodafone. The transactions were completed in June and July with the Japanese investments sold for £3.7 billion and our interest in Airtel for £1.1 billion. Of the consideration for the Japanese investments the final element of £634 million was received early in July 2001. On May 10, 2001, we announced a 3 for 10 rights issue at 300 pence per share. The rights issue, the largest ever in the UK, was well supported by shareholders and closed, as planned, on June 15, 2001. We issued 1.98 billion new shares for a total consideration of £5.9 billion, net of expenses. BT's continuing business, referred to as Future BT, will focus on its European network and retail business concentrating on wire and data services. Its main lines of business are BT Wholesale, BT Retail, BT Ignite and BTopenworld, together with BT Affinitis and BTexact Technologies. Our Concert joint venture with AT&T continues to operate alongside Future BT pending resolution of its future. The steps described above have resulted in cash inflows of £11.9 billion in the quarter and, taking into account cash flows from operations and capital expenditure, tax, interest and other payments, we have reduced net debt by £ 10.4 billion down to £17.5 billion at June 30, 2001. We are ahead of schedule to meet our debt reduction target. LINES OF BUSINESS BT's new lines of business were established during the year ended March 31, 2001. The results by line of business in the first quarter were: Group Group operating profit (loss) turnover before EBITDA goodwill amortisation and exceptional items £m £m £m First quarter ended June 30, 2001(i) BT Retail 2,994 361 316 BT Wholesale 2,989 960 487 BT Ignite 1,016 36 (78) BTopenworld 46 (38) (41) Other 104 109 14 Eliminations (ii) (2,651) ------ ------ Total Future BT 4,498 1,428 698 BT Wireless 1,037 64 (95) Discontinued operations 171 41 37 Eliminations and other(ii) (252) ------- - Total before exceptional 5,454 1,533 640 items (i) See note 2(a) for prior year figures (ii) Includes elimination of turnover between businesses which is included in total turnover of the originating business. BT Retail First quarter ended June 30 2001 2000 £m £m Group turnover 2,994 2,961 EBITDA 361 269 Operating profit 316 225 Capital expenditure 30 53 BT Retail achieved an operating profit of £316 million, before exceptional items, in the quarter on turnover of £2,994 million. In the corresponding quarter of last year, BT Retail contributed a profit of £225 million on turnover of £2,961 million. BT Retail's turnover is mainly derived from calls, lines, private services and total business solutions to the consumer, small and medium enterprises (SME) and major business markets. BT Retail provides an end to end service to 21 million customers over 28.2 million lines in the UK. Turnover for the quarter is summarised as follows: BT Retail turnover 2001 2000 £m £m Fixed network calls 1,155 1,238 Exchange lines 887 823 Private services 153 159 Customer premises equipment supply 144 152 Other sales and services 253 265 Total external sales 2,592 2,637 Sales to other BT businesses 402 324 Total 2,994 2,961 Turnover from fixed network calls declined by 6.7 per cent to £1,155 million compared to the corresponding quarter of last year; the prevailing trend whereby volume growth has been more than offset by price reductions continued. The trend in fixed network call volumes is illustrated in the table below: Fixed network calls volume growth 12 months moving average volume growth (decline) Jun 01 Mar 01 Dec 00 Sep 00 Jun 00 Mar 00 Dec 99 Sep 99 % % % % % % % % Non-geographic calls: Internet 21 38 57 69 87 95 112 126 related and other Fixed to mobile 24 30 36 42 46 48 49 47 Geographic calls: Local (11) (12) (12) (11) (10) (9) (8) (6) National (7) (7) (8) (7) (6) (4) (3) (1) International (2) (3) (5) (6) (5) (3) (2) 0 Overall 1 2 4 5 6 7 8 9 The adverse mix effect of the increase in calls from fixed to mobile and the internet, with declines in geographic calls, continued in the quarter. The introduction of BT Together packages offered customers lower priced calls and for the first time unmetered local calls in the evening and weekend for a fixed fee. The combined effect of the price changes to fixed network calls totalled approximately £90 million in the first quarter, which was equivalent to a 6 per cent reduction in call prices. The results include the impact of increases in free call allowances which were introduced along with increased line rental charges. The main volume growth in fixed network calls in the first quarter was derived from continued growth in calls to mobile phones and the increased use of the internet. Call volumes grew by 1 per cent, on a 12 month moving average basis. While fixed to mobile and internet related local calls continue to grow strongly, traditional geographic fixed network calls declined in volume reflecting mobile phone substitution and intense competition, offset by customer take up of new BT Together packages. Turnover from exchange lines grew by 7.8 per cent in the quarter to £887 million. The increased turnover was the combined result of the growth in business lines and rental price increases. The number of BT Retail's business lines grew by 3.8 per cent over the year to June 30, 2001, with ISDN services being the main driver behind this growth. The numbers of residential lines declined very slightly due to competition from other fixed line providers, largely offset by the high number of BT customers installing second lines. The decline in residential primary lines in the quarter to June 30, 2001 was much lower than in recent quarters which we attribute to the success of the BT Together packages in attracting and retaining customers. Overall BT Retail's total fixed network lines grew by 1.0 per cent to 28.2 million over the year to June 30, 2001. During June, BT Retail promoted BT Answer 1571. This is a free service and allows BT customers to have their calls answered even when they are on the phone. The service saves up to 10 messages and is expected to result in a significant increase in the number of completed calls. BT Retail's sales to other BT lines of businesses increased by 24 per cent, primarily in the provision of circuits to BT Wholesale for onward sale to mobile operators and provision of services to BT Ignite for sale as part of its end to end solutions services. BT Retail's gross margin has increased by £20 million to £872 million over the same quarter last year. BT Retail's operating costs including redundancy in the quarter reduced by £58 million compared to the corresponding quarter last year. This was achieved through the transformation programme which seeks to reduce BT Retail's costs by £240 million in this financial year. Much of the saving was achieved through reduction in people numbers and the number of full time employees in BT Retail at June 30, 2001 was approximately 5,700 (10 per cent) lower at 50,300 compared to June 30, 2000. BT Wholesale First quarter ended June 30 2001 2000 £m £m Group turnover 2,989 2,798 EBITDA 960 1,015 Operating profit 487 595 Capital expenditure 445 480 The majority of BT Wholesale's turnover is internal to the BT group in providing UK network services to BT Retail, BT Wireless and the other BT lines of business. Its external turnover, which totalled £867 million in the quarter, is derived from providing wholesale products and solutions to other operators, including Concert, inter-connecting with BT's UK fixed network. Turnover increased 7 per cent to £2,989 million compared with the first quarter of last year, driven by a 12 per cent growth in product volumes. Turnover generated from external sales was strong in the quarter and at £867 million was 31 per cent higher year on year. Transit and conveyance revenues generated from other UK operators interconnecting with the BT network were higher by 42 per cent. Turnover from transit traffic has a low profit margin. Private circuit revenues were 43 per cent higher reflecting a significant demand for high bandwidth circuits. Internal turnover was marginally lower mainly due to a reduction in prices with BT Retail estimated at £28 million for the quarter. Revenues generated from the Concert joint venture fell by 17 per cent to £138 million. BT Wholesale's operating costs rose by 14 per cent year on year to £2,502 million. A major element of these costs is payments to other BT lines of business which amounted to £1,028 million in the quarter. Of this total, £530 million was due to BT Retail for field engineering services and for the cost of sales of BT Retail's products mainly on sold to other network operators; £ 231 million was due to BT Affinitis mainly for building, transport and computing services and £122 million to BT Wireless largely for interconnect of calls to its customers' phones. The principal reasons for the underlying increase in operating costs in the quarter were: * Higher payments to other operators for interconnect - external payments increased by 22 per cent to £843 million largely due to increases in the volume and proportion of traffic with mobile operators. * Depreciation costs rose by 13 per cent to £473 million mainly due to the increase in levels of investment over the latter half of last year. BT Wholesale's capital expenditure on plant and equipment was £445 million, 7 per cent lower than in the corresponding quarter last year. BT Wholesale's strong cash generation capability was demonstrated by a free operating cash flow (EBITDA less capex) of £515 million, compared with £535 million in the same period last year. DSL services continue to be sold to other UK network operators, service providers and corporates through three distributor channels - BT Wholesale, BT Ignite and BT Retail. To date, 179 wholesale customers have signed up and BT has connected over 70,000 ADSL subscribers across this customer base. 50 per cent of UK households are now connected to an ADSL enabled exchange and BT Wholesale is on target to increase this to 60 per cent by the end of September when some 13 million homes will be connected to an enabled exchange. BT Wholesale has completed a 12 month project which has resulted in one of the world's largest all new Synchronous Digital Hierarchy (SDH) broadband overlay transmission networks with points of presence (PoPs) in 800 sites which cover all of the main towns and cities across the UK. The network of fibre, amounting to 30,000 kms, provides the platform to supply customers with leading-edge high capacity products and to meet demand for the new growth areas of high bandwidth data communications, broadband (DSL) and advanced private circuits. Local Loop Unbundling (LLU) is becoming an established business product. BT has made more than 1,500 contract offers making available hostel space in more than 250 exchanges to LLU operators. Currently more than 40 BT exchanges have been enabled for LLU. BT has met all demand for unbundled lines since January 2001. BT Ignite First quarter ended June 30 2001 2000 £m £m Group turnover 1,016 752 EBITDA 36 (39) Group operating loss* (78) (101) Share of losses of associates and (15) (40) joint ventures* Capital expenditure 142 133 *before goodwill amortisation BT Ignite offers a wide range of services including value added IP and data services, systems integration, complex solutions, content hosting, media distribution and applications service provision. An analysis by area of activity is set out in note 2. Ignite Content Hosting provides advanced web and application hosting services for customers allowing their businesses to meet growing requirements for e-commerce. Following the acquisition in the quarter of Fluxus, a leader in the French market for managed hosting services, Ignite Content Hosting now has a presence in all major western European countries. BT Ignite's European interests are marked by presence through nine European metropolitan city networks and coverage in over 250 European towns and cities, with 22 web hosting centres. BT Ignite comprises wholly owned and other operations from 12 countries serviced by an integrated broadband enabled IP network covering more than 52,000 km. BT Ignite's group turnover was £1,016 million for the quarter ended June 30, 2001, growing by 35 per cent compared to the same period last year. Approximately half of this growth arises from the Telfort and Viag Interkom acquisitions made last year. Earnings before interest, taxation, depreciation and amortisation were £36 million. Group operating loss before goodwill amortisation was £78 million, compared to a loss of £101 million for the same period last year. The improvement was driven by the growth in UK IP revenues of approximately 50 per cent. Over 60 per cent of BT Ignite's total turnover was derived from high end value-added IP services including systems integration and outsourcing, complex solutions, content hosting and media distribution services and application service provision. BT Ignite plans to continue to build its revenues from the high end of this value chain. Turnover for these services amounted to £656 million and grew by 20 per cent year on year. Turnover from connectivity and network access services (including broadband and internet services, European connectivity and other) amounted to £466 million. Excluding acquisitions, this turnover grew by 33 per cent over the same period last year. BTopenworld First quarter ended June 30 2001 2000 £m £m Group turnover 46 26 EBITDA (38) (34) Group operating loss* (41) (37) Share of losses of associates and joint ventures* (4) (36) Capital expenditure 2 22 *before goodwill amortisation BTopenworld's revenue is derived principally from its UK narrowband internet access services as well as its new UK broadband fast and always on, internet access internet services. The total number of UK internet service provider customers of BTopenworld at June 30, 2001 was approximately 1.3 million, representing annual growth of approximately 85 per cent. With over 760,000 customers on unmetered packages on June 30, 2001, BTopenworld is the leading UK unmetered internet access provider, based on published figures. BTopenworld incurred an operating loss of £41 million on revenue of £46 million in the quarter. BTopenworld's turnover was 77 per cent up on the same quarter last year (£26 million) and 7 per cent up on the previous quarter (£43 million). The improvement is due to the significant growth in the narrowband business and the launch and steady growth of the broadband business. The operating loss in the quarter was higher than in the same quarter last year due to early losses in the broadband business which was launched in September 2000. However, BTopenworld's operating loss was £50 million lower than in the quarter to March 31, 2001 reflecting the effectiveness of cost saving measures in its core business. BTopenworld's share of associates losses was £4 million which compares favourably with the same quarter last year (£36 million). This is due to BTopenworld's recent exit from certain loss making ventures, notably BiB. BT Wireless First quarter ended June 30 2001 2000 £m £m Group turnover 1,037 764 EBITDA 64 116 Group operating profit (loss)* (95) 45 Share of profits (losses) of associates and joint 3 (55) ventures* Capital expenditure 284 173 *before goodwill amortisation BT Wireless turnover rose to £1,037 million, an increase of 36 per cent over the corresponding quarter last year. The acquisition of Viag Interkom and Telfort contributed £239 million of this growth. Earnings before interest, tax depreciation and amortisation (EBITDA) were £64 million. BT Cellnet contributed £166 million, an increase of 34 per cent. This was partly offset by losses at our newer businesses, Viag Interkom, Telfort and Genie. BT Wireless incurred an operating loss of £95 million before goodwill amortisation and exceptional items in the quarter against a profit of £45 million in the same quarter of the previous year. The principal reason for the change is the incorporation of operating losses from Viag Interkom and Telfort amounting to £154 million. BT Wireless has redefined the method of counting active customers in its customer bases and it now excludes all pre-pay customers who have not made or received a call within the last three months. On this basis, at June 30, 2001, BT Wireless had 16.2 million active mobile subscribers, a rise of 3 per cent on the quarter. BT Cellnet's customer base increased by about 300,000 over the quarter to 10.9 million active customers. Operating profit before exceptional items was £97 million, a growth of 52 per cent year on year. This results from improving post-pay ARPUs and continued cost savings. BT Cellnet's service revenue, the turnover from its customers' use of their phones from calls, interconnect and roaming, grew by 10 per cent. Viag Interkom had a 3.4 million customer base of active users at June 30, 2001, an increase of 4 per cent on the quarter. Turnover grew by 55 per cent to £199 million and the operating loss was £123 million in the quarter. Viag Interkom's service revenue grew by 38 per cent. BT Wireless is focusing on the cost base of Viag Interkom. Genie's turnover was £11 million in the quarter with an operating loss of £38 million. At June 30, 2001, Genie had about 5.5 million registered customers, a 41 per cent increase of new registrations over the last quarter. Genie has also shown a strong usage growth of 37 per cent to reach a monthly average of 103 million WAP page impressions. In advance of demerger later this year, the management team has been strengthened in recent months with the appointment of David Varney as Chairman-designate. David Finch will become Finance Director. Andrew Sukawaty has been appointed to be the non-executive Deputy Chairman of the new group and Paul Myners to be a non-executive director. Additionally, actions have been taken to improve operating performance and cost containment, reflected in the recent announcement on 3G infrastructure sharing with T-Mobile International in both the German and UK markets. GROUP RESULTS Group turnover increased by 15.3 per cent to £5,454 million in the three months to June 30, 2001. The principal areas of growth were through the acquisitions of full control over Viag Interkom and Telfort in the 2001 financial year and from interconnect with UK operators. BT's EBITDA for the quarter was maintained at £1,519 million with improvement in BT Retail and BT Ignite offset by the negative EBITDA in Viag Interkom and Telfort consolidated for the first time. BT's group operating profit before goodwill amortisation and exceptional items declined by 23 per cent to £640 million mainly arising from higher depreciation charges both in newly consolidated wireless networks in continental Europe and in the UK fixed network. The number of people employed by BT at June 30, 2001 was 132,400 of which 16,300 were in BT Wireless. We have identified productivity improvements and cost savings to reduce costs by approximately £575 million in the current financial year. We are on track to achieve these savings. BT's share of its ventures' operating profits for the quarter was £20 million before goodwill amortisation compared with £45 million in the corresponding quarter of last year. The adverse change was principally due to the Concert joint venture which incurred an operating loss of £81 million in the quarter. BT continues to hold a 26 per cent interest in Cegetel which contributed £44 million to total operating profit before goodwill amortisation. Ventures in which BT is no longer a continuing investor, principally in Japan, contributed £68 million to total operating profit in the quarter before goodwill amortisation. Concert Concert's loss attributable to BT in the quarter was £81 million, compared to a profit of £60 million in the prior year. Concert has experienced reducing prices in a highly competitive international market and its network capacity utilisation is low. Management actions to improve the financial position include redundancies and a strict control of capital expenditure. BT and AT&T are discussing ways to improve the performance of the business. Disposals One of the main features of the quarter ended June 30, 2001 was the success we achieved in disposing of non-core businesses as part of our drive to reduce our debt. The consideration for these disposals totalled £7,007 million and £ 6,010 million was received in cash in the quarter. The profit before taxation from the disposals totalled £4,484 million as shown in the following table. Consideration Profit before tax £m £m Japan Telecom and J-Phone Communications 3,709 2,364 Airtel 1,084 844 Yell 1,960 1,149 BiB 241 120 Other 13 7 Total 7,007 4,484 BT completed the sale of its economic 20 per cent interest in Japan Telecom and its 20 per cent interest in J-Phone Communications on June 1, 2001 to Vodafone and subsequently its interest in J-Phone group companies. Of the total proceeds of sale of £3,709 million, £3,075 million was received in June 2001 and the balance was received earlier in July. The profit of £2,364 million compares with BT's original investment of £836 million in Japan Telecom in August 1999. BT completed the sale of its 18 per cent interest in Airtel, a major Spanish wireless operator, to Vodafone for £1,084 million on June 29, 2001. The profit of £844 million on the sale compares with BT's investment in the company of £ 223 million, built up during the 1990s. The sale of Yell, BT's classified advertising directory businesses in the UK and the USA was completed on June 25, 2001 for a consideration of £1,960 million, giving a profit of £1,149 million, subject to certain final adjustments for the net asset position on disposal. In May 2001, the UK Office of Fair Trading announced that the price controls over the UK Yellow Pages advertising rates were to be tightened significantly. The price we achieved for the sale of Yell, which was announced on May 26, 2001, reflected the impact of these controls on Yell's prospects. Our former interest in British Interactive Broadcasting was diluted in July 2000 when BSkyB gained control and in May 2001 we agreed to exchange our residual interest in BiB for tranches of shares in BSkyB. We received the first tranche of 19 million BSkyB shares with an initial value of £128 million on June 28, 2001, 50 per cent of which we are required to hold for at least twelve months. We are due to receive the second tranche of BSkyB shares with a similar value in November 2002. If BiB develops satisfactorily, we stand to gain a further tranche of BSkyB shares in due course. The profit of £120 million on this exchange which we have recognised in the three months to June 30, 2001 relates to the BSkyB shares which we may sell on receipt. Under UK accounting rules, we shall recognise the remaining gain on the transaction of £121 million, based on current values, when we are permitted to market the shares. We have sold our interest in Rogers Wireless to AT&T for £269 million. This sale completed in July 2001 but we have recognised the loss of £24 million on this transaction in the three months to June 30, 2001. On May 4, 2001, we announced that we had agreed in principle to sell our interest in Maxis Communications in Malaysia for £350 million. This transaction is subject to regulatory and other approvals. Interest Net interest, including BT's share of its ventures' interest charge, rose by £ 235 million to £474 million in the quarter. Of the total charge, £440 million arose in the BT group and £34 million relates to ventures. The increase in the group's interest charge of £255 million is a consequence of the debt incurred by the group to finance its acquisitions and the third generation mobile licences in the 2001 financial year. Net interest in future quarters of the year is expected to fall from the level of the first quarter reflecting the significant reduction in net debt in the quarter. Taxation The tax charge of £145 million is based on profit before taxation before the profit on disposals. We have adopted the new FRS 19 'deferred tax' accounting standard this quarter. Although it has not had a significant effect on the tax charge, we have transferred £2,015 million from reserves to the deferred tax provision in the balance sheet in respect of previously unprovided deferred tax. This new standard does not affect the amount of tax payable in cash. Earnings per share BT's earnings per share for the quarter ended June 30, 2001 were 57.9 pence based on a profit before taxation of £4,505 million. This profit included the following exceptional items: * Profit of £4,484 million from the disposal of fixed asset investments and group undertakings, principally on our investments in Japan * Costs related to the BT Wireless demerger of £14 million Earnings per share before these exceptional items and goodwill amortisation were 0.3 pence compared with 5.7 pence in the first quarter of the last financial year. Loss per share of continuing operations on this basis of 0.3 pence compared with earnings of 4.5 pence in the comparable period. The lower earnings in the current period were mainly due to higher interest charges following BT's acquisition of businesses and third generation licences over the past year, and losses incurred by the Concert global venture and Viag Interkom. Cash flow and net debt Cash inflow from operating activities amounted to £1,254 million in the quarter ended June 30, 2001. The group's significant cash flows in the quarter leading to the £10 billion reduction in net debt are summarised in the following table. First quarter ended June 30, 2001 £m Net cash outflow from capital expenditure on property, plant and equipment, and interest and tax payments less cash inflow from operating activities (417) Acquisitions of subsidiaries and funding of ventures* (942) Disposals of businesses and ventures 6,010 Other movements 132 Net cash inflow before financing 4,783 Proceeds of rights issue 5,876 Reduction in net debt through cash flow 10,659 *primarily Esat Digifone (see below) Our credit rating was lowered in the quarter by Moody's and Standard and Poors' with the consequence that the interest payable on our global and Eurobond bonds with a combined principal value of £13 billion was increased by 25 basis points. Gearing (net debt as a percent of shareholders' funds and minority interests) at June 30, 2001 stood at 79 per cent with net debt of £17.5 billion compared with £27.9 billion at March 31, 2001. We have temporarily invested a significant part of the proceeds of our rights issue and the proceeds of our divestments in short-term financial instruments before applying the funds to reduce our gross debt. Shareholders' funds have increased in the quarter by £ 7,889 million from those previously reported at March 31, 2001 mainly due to the beneficial effect of the rights issue of £5,876 million and the profit on disposals partly offset by the restatement effect of adopting FRS 19 which reduced reserves by £2,015 million. Shareholders funds stood at £21,958 million at June 30, 2001. Capital expenditure Capital expenditure on plant, equipment and property in the quarter of £990 million compared with £950 million in the first quarter of the previous year. The expenditure in the quarter includes £149 million spent by our newly acquired subsidiaries in Germany and The Netherlands. Work continues on enhancing the UK fixed network to enable customers to benefit from new wave communications technologies. For the financial year ending March 31, 2002, we continue to expect capital expenditure on plant, equipment and property to be around £4.9 billion, of which £1.5 billion would be incurred by BT Wireless. Esat Digifone On April 18, 2001, the group completed the purchase of the 49.5 per cent interest in Esat Digifone it did not already own for £869 million. Property On June 13, 2001, BT announced that it had reached a stage in its commercial discussions with Land Securities Trillium and William Pears group which allowed it to proceed with the proposed transaction to divest BT's property portfolio, subject to financing. On completion, which is expected later this summer, BT will receive a cash payment of approximately £2.3 billion, subject to changes in interest rates. The second quarter and half year's results are expected to be announced on November 8, 2001. GROUP PROFIT AND LOSS ACCOUNT for the three months ended June 30, 2001 Continuing Discontinued Total activities activities (note 1) (unaudited) Notes £m £m £m Total turnover 6,249 805 7,054 Group's share of associates (1,131) (634) (1,765) and joint ventures turnover Trading between group and 165 - 165 principal joint venture Group turnover 2 5,283 171 5,454 Other operating income 3 101 - 101 Operating costs (4,912) (138) (5,050) Group operating profit 2 472 33 505 Group's share of operating 4 (67) 57 (10) profits (losses) of associates and joint ventures Total operating profit 405 90 495 Profit on sale of fixed asset 5 127 4,357 4,484 investments and group investments Net interest payable 6 (456) (18) (474) Profit before taxation 76 4,429 4,505 Profit before goodwill 7 94 92 186 amortisation, exceptional items and taxation Taxation (111) (34) (145) Profit (loss) after taxation (35) 4,395 4,360 Minority interests - (13) (13) Profit (loss) attributable to (35) 4,382 4,347 shareholders Earnings (loss) per share 7 - basic (0.5)p 58.4p 57.9p - diluted (0.5)p 57.9p 57.4p Earnings (loss) per share 7 before goodwill amortisation and exceptional items - basic (0.3)p 0.6p 0.3p - diluted (0.3)p 0.6p 0.3p GROUP PROFIT AND LOSS ACCOUNT for the three months ended June 30, 2000 Continuing Discontinued Total activities Activities (note 1) (unaudited) Notes £m £m £m Total turnover 5,658 1,133 6,791 Group's share of (1,254) (968) (2,222) associates and joint ventures turnover Trading between group and 163 - 163 principal joint venture Group turnover 2 4,567 165 4,732 Other operating income 3 88 - 88 Operating costs (3,946) (119) (4,065) Group operating profit 2 709 46 755 Group's share of 4 (126) 130 4 operating profits (losses) of associates and joint ventures Total operating profit 583 176 759 Profit on sale of fixed 5 41 - 41 asset Investments and group investments Net interest payable 6 (211) (28) (239) Profit before taxation 413 148 561 Profit before goodwill 7 456 181 637 amortisation, exceptional items and taxation Taxation (147) (61) (208) Profit after taxation 266 87 353 Minority interests (17) (30) (47) Profit attributable to 249 57 306 shareholders Earnings per share 7 - basic 3.4p 0.8p 4.2p - diluted 3.4p 0.7p 4.1p Earnings per share 7 before goodwill amortisation and exceptional items - basic 4.5p 1.2p 5.7p - diluted 4.4p 1.2p 5.6p GROUP PROFIT AND LOSS ACCOUNT for the year ended March 31, 2001 Continuing Discontinued Total activities Activities (note 1) Notes £m £m £m Total turnover 24,089 5,577 29,666 Group's share of (5,109) (4,828) (9,937) associates and joint ventures turnover Trading between 698 - 698 group and principal joint venture Group turnover 2 19,678 749 20,427 Other operating 3 393 - 393 income Operating costs (20,176) (583) (20,759) Group operating 2 (105) 166 61 profit (loss) Group's share of 4 (821) 424 (397) operating profits of associates and joint ventures Total operating (926) 590 (336) profit (loss) Profit on sale of 5 619 - 619 fixed asset Investments and group investments Net interest payable 6 (1,211) (103) (1,314) Profit (loss) before (1,518) 487 (1,031) taxation Profit before 7 1,456 616 2,072 goodwill amortisation, exceptional items and taxation Taxation (509) (203) (712) Profit (loss) after (2,027) 284 (1,743) taxation Minority interests (2) (125) (127) Profit (loss) (2,029) 159 (1,870) attributable to shareholders Earnings (loss) per 7 share - basic (27.9)p 2.2p (25.7)p - diluted (27.9)p 2.2p (25.7)p Earnings per share 7 before goodwill amortisation and exceptional items - basic 13.6p 3.9p 17.5p - diluted 13.4p 3.9p 17.3p GROUP CASH FLOW STATEMENT for the three months ended June 30, 2001 First quarter ended Year ended June 30 March 31 2001 2000 2001 (unaudited) (note 1) 2001 £m £m Net cash inflow from operating 1,254 1,427 5,887 activities (note 8) Dividends from associates and - 5 10 joint ventures Net cash outflow from returns (541) (219) (727) on investments and servicing of finance Taxation paid (94) (119) (669) Purchase of intangible fixed - (3,929) (4,208) assets Purchase of tangible fixed (1,036) (1,038) (4,756) assets Net sale of fixed asset 15 2 82 investments Sale of tangible fixed assets 117 23 440 Net cash outflow for capital (904) (4,942) (8,442) expenditure and financial investment Acquisitions (942) (2,327) (14,501) Disposals 6,010 92 747 Net cash inflow (outflow) for 5,068 (2,235) (13,754) acquisitions and disposals Equity dividends paid - - (1,432) Cash inflow (outflow) before 4,783 (6,083) (19,127) use of liquid resources and financing Management of liquid resources (7,837) (521) (480) Issue of ordinary share 5,876 109 149 capital (note 12) Issue of shares to minorities - - 36 New loans 1 1,396 14,552 Repayment of loans (290) (211) (225) Net movement on short-term (1,932) 5,340 5,223 borrowings Net cash inflow from financing 3,655 6,634 19,735 Increase in cash 601 30 128 Decrease (increase) in net 10,659 (5,974) (18,942) debt (note 10) GROUP BALANCE SHEET at June 30, 2001 June 30 March 31 2001 2000 2001 (unaudited) (note 1) (note 1) £m £m £m Fixed assets Intangible assets (note 9) 18,297 11,147 18,380 Tangible assets 21,610 18,787 21,625 Investments 3,675 6,910 5,204 43,582 36,844 45,209 Current assets Stocks 289 233 361 Debtors 7,380 5,734 6,260 Investments 10,754 2,575 2,557 Cash at bank and in hand 388 345 412 18,811 8,887 9,590 Creditors: amounts falling due within one year Loans and other borrowings 10,990 11,538 12,136 Other creditors 8,961 9,094 8,597 19,951 20,632 20,733 Net current liabilities (1,140) (11,745) (11,143) Total assets less current liabilities 42,442 25,099 34,066 Creditors: amounts falling due after more than one year Loans and other borrowings 17,633 6,736 18,775 Provisions for liabilities and charges 2,769 3,108 2,738 (note 11) Minority interests 82 579 499 Capital and reserves Called up share capital 2,140 1,636 1,646 Reserves (note 12) 19,818 13,040 10,408 Total equity shareholders' funds 21,958 14,676 12,054 42,442 25,099 34,066 MORE TO FOLLOW

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