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
-- 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,
"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
Group Finance Director's statement
Ian Livingston, Group Finance Director, commenting on the third quarter
"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
"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
*After adjusting for the impact of regulatory reductions to mobile
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
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
leaver costs 1,500 1,525 (2) 4,457 4,499 (1)
profit 743 758 (2) 2,221 2,057 8
charge 223 285 22 664 880 25
taxation 526 521 1 1,557 1,339 16
taxation 382 354 8 1,112 900 24
share 4.4p 4.1p 7 13.0p 10.3p 26
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.
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
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.
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.
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