BT (BTY) Third Quarter and Nine Months Results to December 31, 2003

    LONDON, Feb. 12 /PRNewswire-FirstCall/ --
 
      -- Earnings per share* of 4.4 pence, up 7 per cent
 
      -- Profit before taxation* of 526 million pounds sterling, up 1 per cent
 
      -- Group turnover of 4,578 million pounds, down 2.6 per cent
         (down 1.4 per cent excluding the impact of mobile termination rate
         reductions)
 
      -- New wave turnover of 838 million pounds, up 31 per cent
 
      -- Net debt of 8,795 million pounds, 32 per cent lower than previous year
 
      -- Contract wins of over 2 billion pounds in the quarter
 
      -- Broadband end users approaching 2 million
 
         *Before goodwill amortisation and exceptional items.
 
 
     Chief Executive's statement
     Ben Verwaayen, Chief Executive, commenting on the third quarter results,
 said:
 
          "The transformation of our marketplace is accelerating and BT is
      driving that change by providing our customers with new technology and
      services with greater capabilities and lower cost.
          "Our new wave revenues grew by 31 per cent in the quarter, our
      highest rate of growth yet.  This has offset much of the impact of the
      6 per cent* decline in our traditional business.
          "The momentum of this transformation is building with broadband
      volumes now approaching 2 million lines and we are now taking orders of
      over 45,000 per week.  In addition, we are becoming a major international
      ICT solutions provider with well over 2 billion pounds of orders in this
      quarter alone."
 
 
     Group Finance Director's statement
     Ian Livingston, Group Finance Director, commenting on the third quarter
 results, said:
 
          "Earnings per share before goodwill amortisation and exceptional
      items increased by 7 per cent over last year to 4.4 pence in the quarter,
      and by 26 per cent to 13.0 pence per share in the nine months which is
      more than twice the level of two years ago.
          "Profit before tax, goodwill amortisation and exceptional items
      increased by 1 per cent despite the challenges faced by our business as
      the pace of transformation quickens.  This has been achieved through the
      success of our continued cost efficiency programmes and lower interest
      charges.
          "We remain committed to growing long term shareholder value by
      transforming our revenue streams to new wave products and services;
      driving more than 1 billion pounds of cost savings over the next 3 years;
      investing for the future; and managing the group's balance sheet more
      effectively."
 
      *After adjusting for the impact of regulatory reductions to mobile
       termination rates.
 
 
                   RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
                                TO DECEMBER 31, 2003
 
       BT Group's results before goodwill amortisation and exceptional items
 
                             Third quarter                 Nine months
                                          Better                        Better
                          2003     2002   (worse)       2003    2002    (worse)
                       m pounds m pounds       %     m pounds m pounds       %
     Group turnover      4,578    4,701       (3)     13,732   13,949       (2)
 
     EBITDA              1,474    1,513       (3)      4,404   4,294         3
 
     EBITDA before
     leaver costs        1,500    1,525       (2)      4,457   4,499        (1)
 
     Group operating
     profit                743      758       (2)      2,221   2,057         8
 
     Net interest
      charge               223      285       22         664     880        25
 
     Profit before
      taxation             526      521        1       1,557   1,339        16
 
     Profit after
      taxation             382      354        8       1,112     900        24
 
     Earnings per
      share               4.4p     4.1p        7       13.0p   10.3p        26
 
     Capital
      expenditure          699      613      (14)      1,829   1,721        (6)
 
     Free cash flow        (68)      19      n/m       1,135     777        46
 
     Net debt                                          8,795  12,917        32
 
 
     The results in the table above and the commentary focus on the results
 before goodwill amortisation and exceptional items.
     Total earnings per share and profit before tax, after goodwill
 amortisation and exceptional items, for the third quarter are 4.5 pence (2002
 - 5.2 pence) and 519 million pounds (2002 - 567 million pounds) respectively.
 For the nine months they are 12.9 pence (2002 - 12.0 pence) and 1,525 million
 pounds (2002 - 1,440 million pounds).
     The full profit and loss account, cash flow statement and balance sheet
 are provided on pages 15 to 20.
 
     GROUP RESULTS
     Whilst driving a significant transformation in our business, BT continued
 to make further progress in the quarter with earnings per share before
 goodwill amortisation and exceptional items 7 per cent ahead of the same
 quarter last year and 26 per cent ahead in the nine months to date.
     The acceleration of this transformation is demonstrated by the 31 per cent
 growth of new wave turnover to 838 million pounds compared to a 25 per cent
 increase in the second quarter. New wave turnover represented 18 per cent of
 total turnover in the quarter, compared to 14 per cent in the third quarter of
 last year.  New wave turnover is mainly generated from Information and
 Communications Technology (ICT) solutions, broadband, mobility and managed
 services.  Performance in the quarter was driven by particularly strong growth
 in broadband and our solutions businesses.  However, this was more than offset
 by an 8 per cent decline in turnover from the group's traditional businesses.
 This decline reflects regulatory intervention, price reductions and
 technological changes that we are using to drive customers from traditional
 services to better value and more flexible new wave services, such as
 broadband and IPVPN's.  The decline in traditional turnover is 6 per cent
 after excluding the impact of regulatory reductions to mobile termination
 rates.  These reductions are passed on to BT customers resulting in lower
 charges but are profit neutral.
     The pace of this change means it has continued to be a challenging quarter
 in which total group turnover decreased by 2.6 per cent year on year to 4,578
 million pounds.  Excluding the regulatory reductions on mobile termination
 rates underlying turnover fell by 1.4 per cent, which compares to the 0.6 per
 cent decline last quarter.
     Consumer revenues in the third quarter were 3 per cent lower (2 per cent
 lower excluding the impact of reductions to mobile termination rates) year on
 year.  BT Together packages provide an important element in defending
 traditional turnover with an increase of 73,000 customers over last year.  In
 the consumer fixed voice market, Carrier Pre Selection (CPS) has had some
 impact on our business with BT's consumer market share, as measured by volume
 of fixed to fixed voice minutes, declining by 0.2 percentage points to an
 estimated 72.2 per cent compared to last quarter.  The underlying average
 revenue per customer household (net of mobile termination charges) of
 269 pounds was broadly in line with the level achieved in the third quarter of
 last year.  Contracted revenues have increased to 59 per cent compared to
 56 per cent last year.
     The aggregate Business and Major Corporate revenues also declined by 3 per
 cent year on year.  BT's business market share of fixed to fixed voice minutes
 declined by only 0.2 percentage points to an estimated 41.0 per cent compared
 to last quarter despite the effect of CPS.  This compares to a quarterly
 decline of around 0.9 percentage points over the previous four quarters.
     Revenues from smaller and medium sized businesses reduced by 6 per cent
 (41 million pounds) from the third quarter last year, showing the net impact
 of call volume reductions in our traditional telephony services as customers
 switch into new wave services such as broadband.  However, BT Business Plan,
 launched in January 2003, had successfully attracted more than 216,000
 business locations (147,000 customers) by December 31, 2003, helping to stem
 the rate of market share decline.
     Major Corporate (UK and international) revenues reduced by 2 per cent
 (31 million pounds) with the growing new wave turnover not fully offsetting
 the decline in traditional UK services.  There is a continued migration of
 traditional voice only services to managed ICT contracts.  Contract wins from
 the Solutions and BT Syntegra businesses amounted to more than 2 billion
 pounds in the third quarter.  Within this are two contracts that BT Syntegra
 won against multi-national IT competitors from the Department of Health as
 part of the NHS National Programme for IT, worth an expected 1.6 billion
 pounds over the next 10 years.  Group ICT turnover grew by 18 per cent to
 0.6 billion pounds in the quarter confirming BT's status as a major provider
 in this market.
     Wholesale (UK and international) revenue fell by 1 per cent (2 per cent
 increase excluding impact of reductions to mobile termination rates).  We
 achieved 52 per cent growth in new wave turnover from our UK Wholesale
 business which partly compensated for the decline in our UK Wholesale prices.
 The international carrier business turnover grew by 16 per cent in the third
 quarter, of which 5 percentage points were due to currency movements.
     Group operating costs before goodwill amortisation and exceptional items
 reduced by 3 per cent compared to the third quarter of last year reflecting
 the group's continued focus on operational efficiency and effectiveness
 initiatives offset by investment in new wave initiatives and the adverse
 impact of currency movements of 25 million pounds.  Net staff costs, excluding
 leaver costs of 26 million pounds, increased by 34 million pounds to 865
 million pounds due to the impact of increases in pay rates, national insurance
 (8 million pounds) and the SSAP24 pension charge (28 million pounds), offset
 by improved efficiency.  Payments to other telecommunication operators were
 68 million pounds (7 per cent) lower than last year mainly reflecting a
 reduction in UK payments, primarily due to the lower mobile termination rates.
 Other operating costs before goodwill amortisation and exceptional items were
 reduced by 6 per cent largely due to efficiency cost savings offset by the
 adverse impact of currency movements.
     Depreciation was 23 million pounds lower than the third quarter of last
 year at 731 million pounds reflecting more efficient capital expenditure over
 recent years.
     As a result of these cost savings the group operating profit margin before
 leaver costs was 16.8 per cent, an increase of 0.4 percentage points on the
 level achieved in the third quarter of last year.  We have cost transformation
 programmes in place to deliver further savings of more than 1 billion pounds
 over the next 3 years.
     Group operating profit before goodwill amortisation, exceptional items and
 leaver costs was flat compared to the third quarter of last year.  The
 14 million pounds increase in leaver costs this year means that the group
 operating profit after leaver costs was 2 per cent lower than the third
 quarter of last year.  This performance reflects lower profits in the group's
 UK wholesale and retail businesses partially offset by the 62 million pounds
 improvement in BT Global Services.
     BT's share of associates and joint ventures operating profits before
 goodwill amortisation and exceptional items was 5 million pounds in the
 quarter (47 million last year pounds).  The prior year included the results of
 our interest in Cegetel which was sold in January 2003.
     Net interest payable before exceptional items was 223 million pounds for
 the quarter, an improvement of 62 million pounds against last year as a result
 of the significant reduction in the level of net debt.  Profit before
 taxation, goodwill amortisation and exceptional items of 526 million pounds in
 the quarter increased by 1 per cent.
     The taxation rate on the profit before exceptional items and goodwill
 amortisation was 27.4 per cent in the quarter (32.1 per cent last year) and
 28.6 per cent for the year to date (32.8 per cent last year).  The lower
 effective tax rate reflects reduced overseas losses for which relief is not
 available and greater tax efficiency in the group.
     Earnings per share before goodwill amortisation and exceptional items were
 4.4 pence for the quarter (4.1 pence last year), an increase of 7 per cent and
 were 13.0 pence for the nine months to December 31, 2003, an increase of
 26 per cent over last year.
 
     Exceptional items and goodwill
     There was a net exceptional charge before taxation of 4 million pounds in
 the quarter.  During the quarter the group's main disposal was its 7.8 per
 cent interest in Inmarsat which was sold for US $118 million (67 million
 pounds) realising an exceptional profit on disposal of 32 million pounds.
      An exceptional net interest charge of 37 million pounds was incurred in
 the quarter, being the premium on buying back US $195 million (135 million
 pounds) of the group's US dollar bonds.
     Goodwill amortisation was 3 million pounds for the quarter (5 million
 pounds last year).  Earnings per share after goodwill amortisation and
 exceptional items were 4.5 pence compared to 5.2 pence last year reflecting
 the net exceptional credit in 2002/03 relating to the sale of fixed asset
 investments and group undertakings and the exit from Blu.
 
     Net debt and cash flow
     Net debt at December 31, 2003 was 8,795 million pounds, 32 per cent below
 the third quarter last year.  Cash inflow from operating activities amounted
 to 1,038 million pounds in the quarter.  This is after making special and
 annual deficiency contributions to the BT Pension Scheme of 362 million pounds
 (329 million pounds last year).
     The net cash outflow on fixed asset purchases and sales was 599 million
 pounds in the quarter which compares to 523 million pounds last year
 reflecting the rising investment in our network transformation programme.
     The cash generation in the third quarter is usually lower than the other
 quarters due to the annual special and deficiency pension payment and interest
 payment dates in December.  Free cash flow (before acquisitions and disposals,
 dividends and financing) was a net outflow of 68 million pounds in the quarter
 compared to an inflow of 19 million pounds last year reflecting the higher
 capital expenditure and the premium on the bond buy back.
     The group commenced its share buyback programme in the quarter with
 33 million shares repurchased for 58 million pounds.  This programme is
 expected to continue in the next quarter.
     The group's swap portfolio which hedges foreign exchange and interest rate
 exposures is being restructured.  During the quarter this resulted in a
 117 million pounds reduction in net debt and this restructuring activity is
 expected to continue in the next quarter.
     Although net debt was not impacted, the group issued a US $172 million
 0.75 per cent exchangeable bond due in 2008, exchangeable into ordinary shares
 of LG Telecom, BT's Korean based associate.  The group also undertook a sale
 and leaseback of circuit switches which had no effect on net debt but
 increased both gross debt and cash by around 1 billion pounds. The liability
 will effectively be repaid over four years.
 
     Customer satisfaction
     BT has an extensive market research programme conducted by external
 agencies which focuses on the level and causes of customer dissatisfaction.
 The group achieved a further 8 percentage point improvement in the level of
 customer dissatisfaction in the quarter to 18 per cent in the year to date.
 
     Broadband
     During the third quarter, additional investment enabled broadband services
 to be available in exchanges serving 85 per cent of UK homes and we have plans
 to increase broadband coverage to 90 per cent of UK communities by this
 summer.  We aim to reach a target of 100 per cent broadband coverage of every
 UK community during 2005.
     There was an installed base of 1.93 million Wholesale broadband lines by
 February 6, 2004, three times the number of connections 12 months ago, with
 net additions growing at more than 33,000 per week.  The increasing base is
 reflected in a 129 per cent increase in broadband revenues to 128 million
 pounds in the quarter.
 
     The fourth quarter and preliminary results of BT Group are expected to be
 announced on May 20, 2004.
 
     Forward-looking statements - caution advised
     Certain statements in this results release are forward-looking and are
 made in reliance on the safe harbour provisions of the US Private Securities
 Litigation Reform Act of 1995.  These statements include, without limitation,
 those concerning: cash flow, earnings per share and customer satisfaction
 targets; expectations regarding broadband growth, provision of new technology
 and services with greater capabilities and lower costs, and revenues from new
 wave products and services; the possible or assumed future results of
 operations of BT and/or its lines of business; expectations regarding revenue
 growth, debt reduction and growing shareholder value by investing for the
 future and more effectively managing the balance sheet; and cost efficiencies
 and delivery of sustainable cash savings.
     Although BT believes that the expectations reflected in these forward-
 looking statements are reasonable, it can give no assurance that these
 expectations will prove to have been correct.  Because these statements
 involve risks and uncertainties, actual results may differ materially from
 those expressed or implied by these forward-looking statements.
     Factors that could cause differences between actual results and those
 implied by the forward-looking statements include, but are not limited to:
 material adverse changes in economic conditions in the markets served by BT
 and its lines of business; future regulatory actions and conditions in BT's
 operating areas, including competition from others in the UK and other
 international communications markets; selection by BT and its lines of
 business of the appropriate trading and marketing models for its products and
 services; fluctuations in foreign currency exchange rates and interest rates;
 technological innovations, including the cost of developing new products and
 the need to increase expenditures for improving the quality of service;
 prolonged adverse weather conditions resulting in a material increase in
 overtime, staff or other costs; developments in the convergence of
 technologies; the anticipated benefits and advantages of new technologies,
 products and services, including broadband and other new wave initiatives, not
 being realised; the timing of entry and profitability of BT and its lines of
 business in certain communication markets; significant changes in market
 shares for BT and its principal products and services; to the extent that BT
 chooses to sell assets or minority interests in its subsidiaries, prevailing
 market levels for such sales; general financial market conditions affecting
 BT's performance.  BT undertakes no obligation to update any forward-looking
 statements whether as a result of new information, future events or otherwise.
 
 

SOURCE  BT Group PLC