BT Preliminary Results - Year To March 31, 2006 Fourth Quarter Highlights
LONDON, May 18 /PRNewswire-FirstCall/ -- -- Revenue of 5,134 million Pounds Sterling, up 7 per cent (5 per cent excluding acquisitions) -- New wave revenue of 1,851 million pounds, up 28 per cent, represents 36 per cent of total revenue -- EBITDA before specific items(1) and leaver costs of 1,498 million pounds, up 1 per cent -- Profit before taxation, specific items(1) and leaver costs of 629 million pounds, up 4 per cent -- Earnings per share before specific items(1) and leaver costs of 5.7 pence, up 8 per cent, the sixteenth consecutive quarter of year on year growth -- Broadband net additions(2) of 0.8 million, of which BT Retail's share was 31 per cent FULL YEAR HIGHLIGHTS -- Revenue of 19,514 million pounds, up 6 per cent (3 per cent excluding the impact of reductions to mobile termination rates and acquisitions) -- New wave revenue of 6,282 million pounds, up 38 per cent, represents 32 per cent of total revenue -- Profit before taxation and specific items(1) of 2,177 million pounds, up 5 per cent -- Earnings per share before specific items(1) of 19.5 pence, up 8 per cent -- Free cash flow of 1,612 million pounds and net debt reduced to 7.5 billion pounds -- Full year dividend of 11.9 pence per share, up 14 per cent -- Broadband end users(2) of 7.9 million, at 31 March 2006, up 58 per cent The income statement, cash flow statement and balance sheet, drawn up in accordance with IFRS, from which this information is extracted are set out on pages 16 to 22. (PLEASE CONTACT BT FOR THE FULL VERSION OF THIS DOCUMENT). (1) Specific items are material one off or unusual items as defined in note 4 on page 26. (2) Includes DSL and LLU connections. Chairman's statement Sir Christopher Bland, Chairman, commenting on the full year results, said: "This is an excellent set of full year results delivered in a competitive and fast-changing environment. Revenues for the full year have grown by 6 per cent; new wave revenues, which grew by 38 per cent to 6.3 billion pounds, now represent around one third of the group's business. We have continued to transform the business at a fast pace whilst growing our earnings per share before specific items by 8 per cent to 19.5 pence. "I am pleased to announce a full year dividend of 11.9 pence per share, 14 per cent higher than last year. We are confident in our ability to improve shareholder returns and accelerate the strategic transformation of the business." Chief Executive's statement Ben Verwaayen, Chief Executive, commenting on the fourth quarter results, said: "This quarter's results are a terrific set of numbers. They show BT firing on all cylinders, with EBITDA*, revenue and earnings per share* all growing. These results provide further evidence that our strategy of embracing change is working. We have now delivered sixteen consecutive quarters of growth in earnings per share*. "BT is now a truly global company, delivering services to more than 170 countries with more than 20 per cent of our networked IT services contract wins outside the UK. BT lines now carry 8 million broadband connections and we have started rolling out speeds of up to 8 Mbit/s. "BT has changed very significantly from 4 years ago, and the transformation is accelerating." * before specific items and leaver costs RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED MARCH 31, 2006 Fourth quarter Year 2006 2005 Better 2006 2005 Better pounds m pounds m (worse) pounds m pounds m (worse) % % Revenue 5,134 4,820 7 19,514 18,429 6 EBITDA - before specific items and leaver costs 1,498 1,484 1 5,650 5,703 (1) - before specific items 1,431 1,440 (1) 5,517 5,537 - Profit before taxation - before specific items and leaver costs 629 604 4 2,310 2,246 3 - before specific items 562 560 - 2,177 2,080 5 - after specific items 507 577 (12) 2,040 2,354 (13) Earnings per share - before specific items and leaver costs 5.7p 5.3p 8 20.6p 19.4p 6 - before specific items 5.1p 4.9p 4 19.5p 18.1p 8 - after specific items 4.7p 5.2p (10) 18.4p 21.5p (14) Capital expenditure 973 744 (31) 3,142 3,011 (4) Free cash flow 1,097 1,144 (4) 1,612 2,282(i) (29) Net debt 7,534 7,893 5 (i) Includes disposal proceeds of 537 million pounds mainly from the sale of the Eutelsat, Intelsat and Starhub investments. The commentary on the fourth quarter results focuses on the results before specific items and leaver costs. This is consistent with the way that financial performance is measured by management and we believe allows a meaningful analysis to be made of the trading results of the group. Specific items are defined in note 4 on page 26. The comparative results have been restated to reflect the requirements of IFRS which the group has adopted (see note 1). The income statement, cash flow statement and balance sheet are provided on pages 16 to 22. A reconciliation of EBITDA before specific items to group operating profit is provided on page 30. A definition and reconciliation of free cash flow and net debt are provided on pages 27 to 29. GROUP RESULTS Fourth quarter ended March 31, 2006 Revenue was 7 per cent higher at 5,134 million pounds in the quarter with the continued strong growth of new wave revenue more than offsetting the decline in traditional revenue. Underlying revenue, adjusted for the acquisitions of Albacom and Infonet, was 5 per cent higher than last year. EBITDA before specific items and leaver costs showed growth of 0.9 per cent, compared to the decline of 0.6 per cent last quarter. This is the first quarter in the last eleven that has shown positive year on year growth and continues the improving trend of recent quarters. Earnings per share before specific items and leaver costs increased by 8 per cent to 5.7 pence, the sixteenth consecutive quarter of year on year growth. The strong growth in new wave business has continued and at 1,851 million pounds new wave revenue was 28 per cent higher than last year. New wave revenue is mainly generated from networked IT services, broadband and mobility. Networked IT services revenue grew by 22 per cent to 1,214 million pounds, broadband revenue increased by 44 per cent to 421 million pounds and mobility revenue increased by 41 per cent to 82 million pounds. Excluding Albacom and Infonet, the organic growth in new wave revenue was 23 per cent. Networked IT services contract wins were 1.1 billion pounds in the fourth quarter and the value of total orders achieved over the last twelve months was 5.4 billion pounds. Of this total more than 20 per cent of the order value was achieved outside the UK. BT had 7.9 million wholesale broadband connections at March 31, 2006, including 356,000 local loop unbundled lines, an increase of 2.9 million connections year on year, with these connections available at up to 2Mbit/s. Continuing BT's commitment to delivering higher speed broadband, DSL Max, which offers speeds of up to 8Mbit/s across the UK, was launched on 31 March. BT is offering its wholesale customers DSL Max at no extra cost to the existing 2Mbit/s service. In upgrading more than 5,300 exchanges to support this service, BT is providing the UK market with the highest stable speed broadband service across the widest national footprint in the world. Revenue from the group's traditional businesses declined by 3 per cent, continuing recent trends. This reflects regulatory intervention, competition, price reductions and also technological changes that we are using to drive customers from traditional services to new wave services. Major corporate (UK and international) revenue showed continued strong growth of 14 per cent, with growth in new wave revenue of 24 per cent more than offsetting the decline in traditional services. Excluding the impact of Albacom and Infonet, revenue grew by 9 per cent. There is a continued migration from traditional voice only services to networked IT services and an increase in mobility and broadband revenue. New wave revenue now represents 63 per cent of major corporate revenues. Revenue from smaller and medium sized (SME) UK businesses declined by 2 per cent. New wave revenue grew by 12 per cent driven by continued growth in broadband and networked IT services. The number of BT Business Plan locations increased by 15 per cent to 513,000 by March 31, 2006. BT Business Plan now covers over 57 per cent of SME call revenues. Consumer revenue in the fourth quarter was 4 per cent lower, although traditional consumer revenue declined by 10 per cent year on year. This demonstrates a strategic shift towards new wave products with an increase in revenue of 45 per cent in the quarter. New wave revenue now represents 15 per cent of the total. The underlying 12 month rolling average revenue per consumer household (net of mobile termination charges) of 251 pounds increased by 1 pound compared to last quarter, with increased broadband volumes more than offsetting lower call revenues. Contracted revenues were 67 per cent of the total, which is 4 percentage points higher than last year. Wholesale (UK and Global Carrier) revenue increased by 14 per cent. UK Wholesale new wave revenue increased by 44 per cent to 298 million pounds, mainly driven by broadband and managed services. Group operating costs before specific items increased by 9 per cent year on year to 4,554 pounds million, including the costs from Albacom and Infonet. Net staff costs before leaver costs, and net of own work capitalised, increased by 6 million pounds to 986 million pounds, reflecting higher capital expenditure in the quarter. Leaver costs were 67 million pounds in the quarter (44 million pounds last year). Payments to other telecommunication operators increased by 14 per cent year on year at 1,015 million pounds mainly due to the impact of Albacom and Infonet. Other operating costs before specific items increased by 211 million pounds mainly due to increased costs of sales from both organic and inorganic growth in networked IT services, partly offset by cost savings from our efficiency programmes. Depreciation and amortisation increased by 4 per cent year on year to 773 million pounds. EBITDA before specific items and leaver costs increased by 0.9 per cent, compared to the decline of 0.6 per cent last quarter, continuing the improving trend seen during the year. Group operating profit before specific items and leaver costs decreased by 2 per cent to 725 million pounds mainly as a result of the higher depreciation and amortisation. Net finance costs were 101 million pounds, an improvement of 40 million pounds against last year. The net finance income associated with the group's defined benefit pension obligation of 63 million pounds was 14 million pounds higher than last year, which along with the reduction in the level of net debt and the lower implied interest rate as a result of the bond repayments in December and February have all contributed to the decrease in net finance costs. Profit before taxation, specific items and leaver costs increased by 4 per cent to 629 million pounds with the reduction in net finance costs and an increase in the share of profits of associates and joint ventures offsetting the reduction in group operating profit. The effective tax rate on the profit before specific items was 23.3 per cent (25.9 per cent last year). The effective tax rate reflects the continued focus on tax efficiency within the group. Specific items Specific items are defined in note 4 on page 26. There was a net charge before taxation of 55 million pounds in the quarter (17 million pounds credit last year). Costs of 56 million pounds relating to the rationalisation of the group's provincial office portfolio were incurred in the quarter (29 million pounds last year). This rationalisation programme is expected to continue throughout the next financial year giving rise to additional rationalisation costs. Also included in prior year specific items was a 46 million pounds profit on disposal of the non current asset investment in Intelsat. Specific items in the full year were a net charge before taxation of 137 million pounds (274 million pounds net credit last year). This includes a 70 million pound provision relating to the incremental and directly attributable costs to create the new line of business, Openreach, required under the Undertakings agreed with Ofcom. Openreach will be reported as a separate line of business from the first quarter of next year. Property rationalisation costs for the full year were 68 million pounds (59 million pounds last year). Also included in prior year specific items was a 358 million pound profit on disposal, mainly in respect of the sale of the non current asset investments in Eutelsat, Starhub and Intelsat. Earnings per share after specific items were 4.7 pence in the quarter (5.2 pence last year) and 18.4 pence for the full year (21.5 pence last year). Full year ended March 31, 2006 Revenue increased by 6 per cent in the year to 19,514 million pounds (up 3 per cent excluding the impact of reductions in mobile termination rates and the acquisitions of Albacom and Infonet). The strong growth in new wave business has continued and at 6,282 million pounds new wave revenue was 38 per cent higher than last year. This strong growth more than offset the decline in traditional revenue of 5 per cent. We remain focused on financial discipline and our cost efficiency programmes achieved savings of over 400 million pounds in the full year. This has enabled us to invest in further growing our new wave activities. We aim to deliver savings of at least 400 million pounds in each of the next three years. EBITDA before specific items was 5,517 million pounds, which was flat compared to the prior year. Group operating profit before specific items at 2,633 million pounds was 2 per cent lower than the prior year as a result of higher depreciation and amortisation. Our share of profits of associates and joint ventures before specific items was 16 million pounds (14 million pounds of losses last year). Net finance costs were 472 million pounds, an improvement of 127 million pounds against last year. The net finance income associated with the group's defined benefit pension obligation of 254 million pounds was 56 million pounds higher than last year. Also included in the current year is a 27 million pounds net gain arising from the fair value movements in, and realised gain arising from the early redemption of the US dollar 2008 LG Telecom convertible bond. The reduction in the level of debt compared to the prior year has also contributed to the decrease in net finance costs. The group achieved a profit before taxation and specific items of 2,177 million pounds, a 5 per cent increase, reflecting lower net finance costs and an increased share of profits from joint ventures and associates. Earnings per share before specific items increased by 4 per cent to 5.1 pence. The taxation charge for the year was 533 million pounds on the profit before specific items, an effective tax rate of 24.5 per cent (26.0 per cent last year). Earnings per share before specific items were 8 per cent higher at 19.5 pence for the year. Cash flow and net debt Net cash from operating activities in the fourth quarter amounted to 2,065 million pounds, an increase of 146 million pounds primarily as a result of a strong working capital performance and lower tax payments in the quarter. Free cash flow was a net inflow of 1,097 million pounds in the fourth quarter compared to 1,144 million pounds last year which included disposal proceeds of 62 million pounds relating to the sale of the non current asset investment in Intelsat. The free cash flow for the full year amounted to 1,612 million pounds compared to 2,282 million pounds last year which included 537 million pounds proceeds from the disposal of investments, mainly being Eutelsat, Intelsat and Starhub. Working capital improved by a further 120 million pounds in the year following last years strong performance. Cash flows from investing activities were a net cash inflow of 105 million pounds in the fourth quarter compared to an outflow of 387 million pounds last year. Net cash outflow relating to the acquisition of subsidiaries in the quarter was 55 million pounds principally relating to the acquisition of Atlanet. This compares to an outflow of 418 million pounds in the prior year which included the acquisitions of Infonet and Albacom. Interest received was 220 million pounds lower principally due to the impact of swap restructuring in the prior year. The net proceeds of 933 million pounds arising on the sale of investments was used to fund partly the repayment of maturing debt and the interim dividend. The net cash outflow from capital expenditure, net of disposal proceeds, amounted to 792 million pounds in the quarter compared to 735 million pounds last year. Cash flows from financing activities were a net outflow of 1,399 million pounds in the fourth quarter compared to 856 million pounds last year. Interest paid was 147 million pounds lower than last year due to the impact of swap restructuring in the prior year. In addition there was an increase of 619 million pounds in net repayments of borrowings compared to the prior year. This is due to the repayment of maturing debt offset by the issue of an additional 1 billion pounds of debt in the quarter. The share buyback programme continued with the repurchase of 53 million shares in the quarter, taking the total value of shares repurchased in the year to 348 million pounds. Net debt was 7,534 million pounds at March 31, 2006, a reduction of 579 million pounds in the quarter. Free cash flow and net debt are defined and reconciled in notes 7 and 8 on pages 27 to 29. Dividends The board recommends a final dividend of 7.6 pence per share to shareholders, amounting to 632 million pounds. This will be paid, subject to shareholder approval, on September 11, 2006 to shareholders on the register on August 18, 2006. The ex-dividend date is August 16, 2006. The full year proposed dividend has increased by 14 per cent to 11.9 pence per share, compared to 10.4 pence last year. This year's dividend pay out ratio is 61 per cent of earnings before specific items, compared to 57 per cent last year. We continue with our progressive dividend policy. We expect our payout ratio to rise to around two thirds of underlying earnings in 2007/08. Pensions The IAS 19 net pension obligation at March 31, 2006 was a deficit of 1.8 billion pounds, net of tax, being half the level at March 31, 2005. This reflects strong asset growth offset by the impact of longer life expectancy and lower discount rates. The BT Pension Scheme had assets of 36 billion pounds at March 31, 2006. Detailed IAS 19 disclosures are provided in note 13 on pages 32 to 36. The triennial funding valuation at December 31, 2005 is currently being performed and reviewed in the context of recent regulatory developments and the impact of the Crown Guarantee granted on privatisation in 1984. 21st Century Network Contracts have been signed with the eight 21CN preferred suppliers and the first equipment orders have been placed against these contracts. Building on the successful conclusion to the second phase of 21CN voice transformation trials on strategic equipment in December 2005, the next phase, the trial of telephone services over the IP network is scheduled to start before the end of May 2006. Operational planning to migrate customers to the 21CN in Cardiff, which will see the first live operation of 21CN in November 2006, is well advanced. Following successful implementation in Cardiff, and following a comprehensive industry review, BT will proceed to a national migration programme. Through the communication forum Consult 21, BT, in close consultation with industry and Ofcom, is agreeing detailed migration plans for the entirety of the migration period. Line of business results We reviewed our internal trading arrangements and with effect from April 1, 2005 have made changes to simplify our internal trading and drive synergies. We have restated the comparative line of business results to assist readers in understanding the year on year performance. There is no change to the overall group reported results. The main changes are the transfer of BT's UK Major Business operations into BT Global Services from BT Retail and Field Services being moved from BT Retail to BT Wholesale, in anticipation of the creation of Openreach. Openreach Openreach was launched on January 21, 2006. We will have completed the separation, configuration and implementation of financial reporting and operational systems to facilitate the reporting of the results of Openreach by the first quarter of the year ending March 31, 2007. This is in accordance with the timetable specified by the Undertakings. On May 31, 2006 the Equality of Access Board, a board committee established by BT as required by the undertakings to Ofcom, will publish its first annual report on BT's compliance with and delivery of its Undertakings. Outlook Our performance underpins our confidence that we can continue to grow revenue, EBITDA, earnings per share and dividends over the coming year. Revenue growth will continue to be fuelled by new wave services; the EBITDA improvement will be driven by the continued growth in BT Retail's profitability and an acceleration through the year of the EBITDA growth in BT Global Services. We are confident in our ability to improve shareholder returns and accelerate the strategic transformation of the business. The Annual Report and Form 20-F is expected to be published on May 31, 2006. The Annual General Meeting of BT Group plc will be held at Barbican Centre, London on July 12, 2006. 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: continued growth in earnings per share and dividends; growth in new wave revenue, mainly from networked IT services, broadband and mobility growth; EBITDA improvement, and acceleration of EBITDA growth in BT Global Services; implementation of BT's 21st Century Network and the national migration programme; expectations regarding progressive dividend policy, dividend payout ratio and cost savings; improving shareholder returns; and accelerating transformation of the business. Although BT believes that the expectations reflected in these forward- looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences between actual results and those implied by the forward-looking statements include, but are not limited to: material adverse changes in economic conditions in the markets served by BT; future regulatory actions and conditions in BT's operating areas, including competition from others; selection by BT and its lines of business of the appropriate trading and marketing models for its products and services; fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing new products, networks and solutions 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; and general financial market conditions affecting BT's performance. BT undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
SOURCE BT Group plc
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