1st Quarter Results - Part 2

British Telecommunications PLC 26 July 2001 PART 2 NOTES 1 Basis of preparation The unaudited interim results of the group, which are not statutory accounts, have been prepared on the basis of the accounting policies as set out in the report and accounts for the year ended March 31, 2001, with the exception that deferred taxation is now stated on a full liability basis in accordance with FRS 19 'Deferred tax' in place of the partial provisioning basis formerly adopted. The deferred tax liabilities are not being discounted. The comparative figures in the profit and loss account and balance sheet have been restated. Figures for the year ended March 31, 2001 are extracts from the group accounts for that year as restated for the effects of FRS 19 and the earnings per share have been restated for the dilutionary effect of the company's rights issue which closed on June 15, 2001. On June 1, 2001, the group disposed of its interests in Japan Telecom and J-Phone Communications and on June 29, 2001, its interest in Airtel. On June 25, 2001, the group sold Yell, its classified advertising directory businesses in the UK and the USA. These activities are shown as discontinued operations in the profit and loss accounts. The group accounts for the year ended March 31, 2001, on which the auditors made an unqualified report which did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985, have been delivered to the Registrar of Companies. 2 Results of businesses The tables below show the results of BT's current business organisation, which was put in place during the year ended March 31, 2001. Elements of the information are a restatement of the actual results of the group to show the businesses as if they had traded as separate units throughout the relevant comparative period. There is extensive trading between many of the business units and profitability is dependent on the transfer price levels. These intra-group trading arrangements have been subject to review and have changed in certain instances. Comparative figures have been restated for these and other changes and in certain instances have been determined using apportionments and allocations. Further changes to the intra-group trading arrangements may be made during the current financial year. 2 Results of businesses continued (a) Operating results Share of associates and joint ventures total Group operating operating profit (loss) profit (loss) before goodwill before goodwill amortisation and amortisation and exceptional items EBITDA exceptional items before (i) Group exceptional turnover items (i) £m £m £m £m First quarter ended June 30, 2001 BT Retail 2,994 361 316 - BT Wholesale 2,989 960 487 - BT Ignite 1,016 36 (78) (15) BTopenworld 46 (38) (41) (4) Other 104 109 14 49 Concert - - - (81) Eliminations (2,651) - - - (iii) Total Future 4,498 1,428 698 (51) BT before exceptional items BT Wireless 1,037 64 (95) 3 Discontinued 171 41 37 68 operations Eliminations (252) - - - (iii) Total before 5,454 1,533 640 20 exceptional items Exceptional - (14) (135) (30) items and goodwill amortisation Total after 5,454 1,519 505 (10) exceptional items 2 Results of businesses continued (a) Operating results Share of associates and joint ventures total Group operating operating profit (loss) profit (loss) before goodwill before goodwill amortisation and amortisation and exceptional items EBITDA exceptional items before (i) exceptional items (i) Group turnover £m £m £m £m First quarter ended June 30, 2000 (ii) BT Retail 2,961 269 225 - BT Wholesale 2,798 1,015 595 - BT Ignite 752 (39) (101) (40) BTopenworld 26 (34) (37) (36) Other 56 138 53 (38) Concert - - - 60 Eliminations (2,594) - - - (iii) Total Future 3,999 1,349 735 (54) BT before exceptional items BT Wireless 764 116 45 (55) Discontinued 165 53 51 154 operations Eliminations (196) - - - and other (iii) Total before 4,732 1,518 831 45 exceptional items Exceptional - - (76) (41) items and goodwill amortisation Total after 4,732 1,518 755 4 exceptional items 2 Results of businesses continued (a) Operating results Share of associates and joint ventures total Group operating operating profit (loss) profit (loss) before goodwill before goodwill amortisation and amortisation and exceptional items EBITDA exceptional items before (i) exceptional items (i) Group turnover £m £m £m £m Year ended March 31, 2001(ii) BT Retail 12,063 1,072 888 - BT Wholesale 11,728 4,276 2,538 - BT Ignite 3,468 50 (309) (121) BTopenworld 140 (198) (233) (59) Other 474 592 216 (21) Concert - - - 19 Eliminations (10,741) - - - (iii) Total Future 17,132 5,792 3,100 (182) BT before exceptional items BT Wireless 3,397 356 3 (228) Discontinued 749 201 188 530 operations Eliminations (851) - - - (iii) Total before 20,427 6,349 3,291 120 exceptional items Exceptional - 143 (3,230) (517) items and goodwill amortisation Total after 20,427 6,492 61 (397) exceptional items (i) Excludes associates and joint ventures. (ii) The results of the lines of business for the quarter ended June 30, 2000 and the year ended March 31, 2001 have been restated. (iii) Includes elimination of turnover between businesses which is included in total turnover of the originating business. 2 Results of businesses continued BT Retail analysis First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Group turnover Fixed network calls 1,155 1,238 4,966 Exchange lines 887 823 3,399 Private services 153 159 616 Customer premises equipment supply 144 152 609 Other sales and services 253 265 1,067 Sales to other BT businesses 402 324 1,406 Total group turnover 2,994 2,961 12,063 Payments to network operators and other 2,122 2,109 8,604 cost of sales Gross margin 872 852 3,459 Selling, general and administration costs 511 583 2,387 EBITDA 361 269 1,072 Depreciation 45 44 184 Group operating profit before 316 225 888 exceptional items 2 Results of businesses continued BT Wholesale analysis First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Group turnover BT Retail 1,930 1,951 7,940 Other BT lines of business 192 187 783 Concert global venture 138 166 605 UK telecommunication operators 729 494 2,400 Total group turnover 2,989 2,798 11,728 Operating costs Staff costs 250 231 1,007 Own work capitalised (127) (127) (563) Payments to network operators 843 691 3,062 Payments to other BT businesses (a) 1,028 1,008 3,823 Other operating costs 101 68 327 Other operating income (66) (88) (204) Total operating costs before 2,029 1,783 7,452 depreciation EBITDA 960 1,015 4,276 Depreciation 473 420 1,738 Group operating profit before 487 595 2,538 exceptional items (a) Includes payments to BT Wireless for 118 96 402 interconnect 2 Results of businesses continued BT Ignite analysis First Year quarter ended ended June 30 March 31 2001 2000 2001 £m £m £m Group turnover Syntegra 143 117 563 Ignite solutions (i) 407 343 1,566 Application service provision 18 13 72 Content hosting 20 10 62 Media distribution 68 63 257 European connectivity 225 66 471 UK IP and other 241 183 782 Eliminations (106) (43) (305) Total group turnover 1,016 752 3,468 EBITDA Syntegra 2 7 48 Ignite solutions (i) 36 23 136 Application service provision (5) (13) (50) Content hosting (13) (12) (46) Media distribution 17 21 92 European connectivity (24) (7) (79) UK IP and other 23 (58) (51) Total EBITDA 36 (39) 50 Operating profit (loss) before goodwill amortisation and exceptional items Syntegra (1) 4 37 Ignite solutions (i) 17 11 61 Application service provision (7) (14) (63) Content hosting (18) (14) (53) Media distribution 12 15 66 European connectivity (63) (32) (198) UK IP and other (18) (71) (159) Total operating loss before goodwill amortisation and (78) (101) (309) exceptional items (i) formerly Syncordia Solutions and strategic markets 2 Results of businesses continued BT Wireless analysis First Year quarter ended ended June 30 March 31 2001 2000 2001 £m £m £m Group turnover UK - BT Cellnet 693 686 2,894 Germany - Viag Interkom 199 - 70 Ireland - Esat Digifone 95 67 322 The Netherlands - Telfort 40 - 91 Genie 11 - 13 Other (1) 11 7 Total group turnover 1,037 764 3,397 EBITDA UK - BT Cellnet 166 124 554 Germany - Viag Interkom (66) - (20) Ireland - Esat Digifone 28 17 68 The Netherlands - Telfort (17) - (64) Genie (33) (18) (133) Other (14) (7) (49) Total EBITDA 64 116 356 Operating profit (loss) before goodwill amortisation and exceptional items UK - BT Cellnet 97 64 302 Germany - Viag Interkom (123) - (40) Ireland - Esat Digifone 15 7 21 The Netherlands - Telfort (31) - (87) Genie (38) (18) (138) Other (15) (8) (55) Total operating profit (loss) before goodwill amortisation and exceptional items (95) 45 3 Capital expenditure UK - BT Cellnet 122 112 717 Germany - Viag Interkom 79 - 31 Ireland - Esat Digifone 19 36 127 The Netherlands - Telfort 37 - 111 Genie 11 12 23 Other 16 13 96 Total capital expenditure 284 173 1,105 2 Results of businesses continued BT Wireless analysis continued First quarter ended June 30 Pro forma information 2001 2000 £m £m Group turnover As stated 1,037 764 Viag Interkom - 128 Telfort - 25 Pro forma group turnover 1,037 917 EBITDA As stated 64 116 Viag Interkom - (85) Telfort - (24) Pro forma EBITDA 64 7 Operating profit (loss) before goodwill amortisation and exceptional items As stated (95) 45 Viag Interkom - (123) Telfort - (35) Pro forma operating profit (loss) (95) (113) Capital expenditure As stated 284 173 Viag Interkom - 87 Telfort - 32 Pro forma capital expenditure 284 292 Note: Pro forma information has been provided for the three months ended June 30, 2000 to illustrate the impact of the acquisitions of Viag Interkom and Telfort as if these acquisitions had been made on April 1, 2000. 2 Results of businesses continued (b) Capital expenditure on plant, equipment and property First quarter ended Year ended June 30, March 31, 2001 2000 2001 £m £m £m BT Retail 30 53 157 BT Wholesale 445 480 2,273 BT Ignite 142 133 935 BTopenworld 2 22 10 Other 86 87 482 Total Future BT 705 775 3,857 BT Wireless 284 173 1,105 Discontinued activities 1 2 24 Total 990 950 4,986 (c) Net assets Net operating Associates and joint ventures assets (liabilities) (i) £m £m At June 30, 2001 BT Retail 1,246 - BT Wholesale 12,098 - BT Ignite 3,500 166 BTopenworld (35) 8 Concert - 1,348 Other 1,840 1,034 Total Future BT 18,649 2,556 BT Wireless 19,487 25 Total 38,136 2,581 At March 31, 2001 BT Retail 1,114 - BT Wholesale 12,511 - BT Ignite 3,584 178 BTopenworld (42) 10 Concert - 1,430 Other 1,775 2,511 Total Future BT 18,942 4,129 BT Wireless 18,634 27 Total 37,576 4,156 (i) Net operating assets 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 Other operating income First Year quarter ended ended June 30 March 31 2001 2000 2001 £m £m £m Provision of administration services to the 42 59 168 Concert global venture Other 59 29 225 Total 101 88 393 4 Group's share of losses of associates and joint ventures The results are shown after charging goodwill amortisation of £30m (2000 - £ 41m) for the three months ended June 30, 2001. The results for the year ended March 31, 2001 included £132m for the write off of subscriber acquisition costs. The results are shown after charging goodwill amortisation of £385m for the year ended March 31, 2001. The amortisation for the year ended March 31, 2001 included £200m for the impairment of goodwill in ventures. 5 Profit on sale of fixed asset investments and group undertakings The profit in the three months ended June 30, 2001 is mainly attributable to the profit of £2,364m on the sale of BT's interests in Japan Telecom and J-Phones Communications, £844m, profit on the sale of BT's interest in Airtel and £1,149m profit on the sale of Yell, the group's classified advertising directory business. The profit in the year ended March 31, 2001 is mainly attributable to the profit of £454m on the sale of BT's interest in sunrise communications in November 2000. In addition, a profit has been realised on the sale of BT's aeronautical and maritime business in December 2000 and a profit was realised in the initial public offering of I.Net SpA in April 2000. 6 Net interest payable First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Group 515 246 1,426 Joint ventures and associates 42 56 296 Total interest payable 557 302 1,722 Interest receivable (83) (63) (408) Total interest payable 474 239 1,314 7 Earnings (loss) per share The basic earnings (loss) per share are calculated by dividing the profit (loss) 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 diluted loss per share is shown as the same as the basic loss per share. Comparative figures have been restated for the rights issue which closed on June 15, 2001. The average number of shares and attributable earnings (loss) in the periods were: First quarter Year ended ended June 30 March 31 2001 2000 2001 (restated) (restated) millions of shares millions of shares Basic 7,506 7,241 7,276 Diluted 7,567 7,395 7,383 7 Earnings (loss) per share continued A reconciliation of attributable earnings (loss) to attributable earnings before goodwill amortisation and exceptional items is as follows: First Year quarter ended ended June 30 March 31 2001 2000 2001 £m £m £m Profit (loss) attributable to 4,347 306 (1,870) shareholders Exceptional items: Profit on sale of group undertakings 4,484 41 619 and fixed asset investments Rates refunds relating to prior periods - - 193 Goodwill impairment in - - (3,000) Viag Interkom Goodwill impairment in joint ventures - - (200) Write off of subscriber acquisition costs - - (139) Write down of Viag Interkom's integrated IT systems on division of business into fixed and wireless units - - (43) Interest receivable on rates refunds - - 25 BT Wireless demerger costs (14) - - Goodwill amortisation (151) (117) (558) 4,319 (76) (3,103) Tax credit (charge) attributable 4 (12) (22) Minority interests - (22) (21) Net credit (charge) 4,323 (110) (3,146) Profit attributable to shareholders before goodwill amortisation and exceptional items 24 416 1,276 Earnings (loss) per share - basic 57.9p 4.2p (25.7)p - diluted 57.4p 4.1p (25.7)p Earnings per share before goodwill amortisation and exceptional items - basic 0.3p 5.7p 17.5p - diluted 0.3p 5.6p 17.3p 8 Reconciliation of operating profit to operating cash flow First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Group operating profit 505 755 61 Depreciation and amortisation 1,014 763 6,431 Changes in working capital (308) (75) (296) Provision movements and other 43 (16) (309) Net cash flow from operating activities 1,254 1,427 5,887 9 Intangible assets First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Mobile licences 9,546 4,160 9,732 Goodwill 8,751 6,987 8,648 18,297 11,147 18,380 10 Net debt (a) Analysis At June 30 At March 31 2001 2000 2001 £m £m £m Long-term loans and other borrowings 17,633 6,736 18,775 falling due after more than one year Short-term borrowings and long-term loans and other borrowings falling due 10,990 11,538 12,136 within one year Total debt 28,623 18,274 30,911 Short-term investments (10,754) (2,575) (2,557) Cash at bank (388) (345) (412) Net debt at end of period 17,481 15,354 27,942 10 Net debt continued (b) Reconciliation of net cash flow to movement in net debt First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Net debt at beginning of period 27,942 8,700 8,700 Increase (decrease) in net debt resulting from (10,659) 5,974 18,942 cash flows Net debt assumed or issued on acquisitions (15) 35 48 Currency and other movements (147) 561 26 Other non-cash movements 360 84 226 Net debt at end of period 17,481 15,354 27,942 11 Provisions for liabilities and charges At June 30 At March 31 2001 2000 2001 (restated) (restated) £m £m £m Deferred taxation 2,290 2,378 2,285 Pension provisions 363 664 335 Other provisions 116 66 118 2,769 3,108 2,738 Following the adoption of FRS 19 on April 1, 2001, the deferred tax provision has been restated to a full liability provision method and has increased on restatement by £2,015m at March 31, 2001 and by £1,970m at June 30, 2000. 12 Share capital and reserves £m Share Capital Balance at April 1, 2001 1,646 Rights issue (a) 494 Balance at June 30, 2001 2,140 Reserves Balance at April 1, 2001, as reported 12,423 Less: adjustment for restatement of deferred tax provision (2,015) Balance at April 1, 2001, as restated 10,408 Share premium on rights issue, less £52m expenses (a) 5,382 Profit for the three months to June 30, 2001 4,347 Currency movements (b) (331) Movement relating to BT's employee share ownership trust (2) Other movements 14 Balance at June 30, 2001 19,818 Total share capital and reserves at June 30, 2001 21,958 (a) The group's rights issue closed on June 15, 2001. A total of 1,976 million ordinary shares of 25 pence were issued at 300 pence per share in a 3 for 10 rights issue bringing the total number of issued ordinary shares to 8,561 million at June 30, 2001. Of the total of £5,876m raised, net of £52m expenses, £494m has been credited to share capital and the balance to share premium account. (b) Net of £151m movement on the retranslation of foreign borrowings and other hedging instruments. 13 Esat Telecom Group On March 30, 2000, BT obtained control of the Esat Telecom Group for approximately £1.5bn. Esat operates a fixed line telecommunications network in Ireland. BT also gained control over Esat Digifone, Ireland's second mobile operator, through Esat's 49.5 per cent interest in the company and an additional 1.0 per cent interest acquired by the BT group in January 2000. The majority of the consideration for the Esat Telecom Group was paid in April 2000. In February 2001, Telenor, the owner of the remaining 49.5 per cent interest in Esat Digifone, decided to sell this interest to BT under an agreement made in January 2000. The transaction was completed on April 18, 2001 for approximately £869m including acquisition expenses. 14 Earnings before interest, taxation, depreciation and amortisation (EBITDA) First Year quarter ended ended June 30 March 31 2001 2000 2001 £m £m £m Group operating profit 505 755 61 Depreciation 887 687 3,045 Amortisation 127 76 3,386 EBITDA 1,519 1,518 6,492 Exceptional items excluding depreciation and 14 - (143) amortisation 1,533 1,518 6,349 EBITDA before exceptional items 15 Results of associates and joint ventures EBITDA Total operating before profit (loss) before exceptional goodwill amortisation and items exceptional items Turnover Group's share £m £m £m First quarter ended June 30, 2001 Concert global 600 (33) (81) venture Cegetel 252 72 44 Other continuing 279 22 (11) Discontinued 634 148 68 investments Total 1,765 209 20 First quarter ended June 30, 2000 Concert global 594 99 60 venture Cegetel 192 (3) 4 Other continuing 468 (96) (173) Discontinued 968 162 154 investments Total 2,222 162 45 Year ended March 31, 2001 Concert global 2,576 170 19 venture Cegetel 860 196 90 Other continuing 1,673 (247) (519) Discontinued 4,828 1,077 530 investments Total 9,937 1,196 120 16 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. First quarter Year ended ended June 30 March 31 2001 2000 2001 £m £m £m Net income (loss) attributable to shareholders 3,752 240 (2,357) Earnings (loss) per ADS (£) 5.00 0.33 (3.63) Each American Depositary Share (ADS) represents 10 ordinary shares of 25p each. Shareholders' equity, calculated in accordance with United States Generally Accepted Accounting Principles, is £18,894m at June 30, 2001 (June 30, 2000 - £13,553m, March 31, 2001 - £10,231m). Non-financial statistics As at June 30, 2001, unless otherwise stated BT Wireless - selected operations BT Cellnet: Pre-pay customer base (000s) 7,455 Post-pay customer base (000s) 3,435 Total customer base (000s) 10,890 21/2 generation and WAP customers (000s) 788 ARPU Network Group Pre-pay ARPU (£ per year) 110 110 Post-pay ARPU (£ per year) 529 486 Blended ARPU (£ per year) 267 251 Viag Interkom: Pre-pay customer base (000s) 1,654 Post-pay customer base (000s) 1,724 Total customer base (000s) 3,378 21/2 generation and WAP customers (000s) 239 Pre-pay ARPU (£ per year) 79 Post-pay ARPU (£ per year) 304 Blended ARPU (£ per year) 204 Esat Digifone: Pre-pay customer base (000s) 655 Post-pay customer base (000s) 342 Total customer base (000s) 997 21/2 generation and WAP customers (000s) 38 Pre-pay ARPU (£ per year) 224 Post-pay ARPU (£ per year) 625 Blended ARPU (£ per year) 370 Telfort: Pre-pay customer base (000s) 636 Post-pay customer base (000s) 199 Total customer base (000s) 835 Pre-pay ARPU (£ per year) 81 Post-pay ARPU (£ per year) 472 Blended ARPU (£ per year) 158 Notes: (i) Customer bases are active customers. Pre-pay customers are defined as active if they have used the network by sending or receiving a call within the last three months. (ii) ARPU is the annual average revenue per user. Both Group ARPU and Network ARPU is shown for BT Cellnet. Non-financial statistics continued As at June 30, 2001, unless otherwise stated Group UK exchange lines: Business, including wholesale (000s) 8,963 Residential, including service providers (000s) 20,028 BT Wholesale Optical fibre in network (km millions) 5.4 SDH nodes 2,123 Next generation trunk switches 59 BT Dial IP ports connected to groomed local exchanges (000s) (a) 305 ADSL enabled exchanges 890 ADSL lines provided (000s) 68 (a) Grooming applies to internet type calls originating from BT customers. These calls are grouped together and then routed directly to BT's Dial IP platform or other operators' networks. Grooming occurs at all BT's digital local exchanges. BT Ignite Inter-city fibre network (kms) 52,000 Web hosting centres 22 Dial access ports 480,000 BTopenworld Fixed ISP UK customers: Pay As You Go (000s) 551 ISP Customers (unmetered) (000s) 761 Total (000s) 1,312 ADSL customers (000s) 37 ______________________________________________________________________ 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 turnover, costs, growth and the communications industry; the possible or assumed future results of operations of BT and/or its associates and joint ventures; the impact on BT of Concert, the global venture with AT&T; expectations regarding capital expenditure and investment plans; expectations regarding the disposal of non-core businesses and group property, intentions regarding the demerger of BT Wireless and the level of BT's borrowings. 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 new businesses; future regulatory actions and conditions in BT's operating areas, including competition from others in the UK and other international communications markets; technological innovations, including the cost of developing new products and the need to increase expenditure 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 timing of entry and profitability of BT, its new businesses and Concert in certain national and international markets; fluctuations in foreign currency exchange rates and interest rates; general financial market conditions affecting BT's ability to fulfil its intentions regarding BT Wireless and its debt reduction.

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