SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
23 May 2003
BT Group plc
(Translation of registrant's name into English)
BT Centre
81 Newgate Street
London
EC1A 7AJ
England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F..X... Form 40-F.....
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ..... No ..X..
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b): 82- ________
Enclosures: 1. Preliminary Results 31/03/03 announcement made on 23 May 2003.
PRELIMINARY RESULTS - YEAR TO MARCH 31, 2003
FOURTH QUARTER HIGHLIGHTS
Earnings per share* of 3.9 pence, up 50 per cent
Profit before taxation* of GBP490 million, up 32 per cent
Group turnover* of GBP4,778 million, up 1 per cent
Net debt reduced by GBP3.3 billion to GBP9.6 billion
Record broadband sales in March, in excess of 25,000 per week; end users of over
936,000 at May 16, 2003
Pension valuation results in line with our expectations
FULL YEAR HIGHLIGHTS
Earnings per share* of 14.2 pence, up 61 per cent
Profit before taxation* of GBP1,829 million, up 44 per cent
Group turnover* of GBP18,727 million, up 2 per cent
Full year dividend of 6.5 pence per share, up from 2.0 pence per share
Free cash flow** of GBP1.7 billion
Net debt reduced from GBP13.7 billion to GBP9.6 billion
Significant improvements in customer satisfaction
*From continuing activities before goodwill amortisation and exceptional items.
The full profit and loss account is presented below.
**Before acquisitions, disposals and dividends.
Chairman's statement
Sir Christopher Bland, Chairman, said:
"This has been a really good year for BT. Earnings per share* have increased by
61 per cent. The group generated free cash of GBP1.7 billion, and net debt
reduced by over GBP4 billion to around one third of its peak. The full year
dividend of 6.5 pence reflects the group's financial performance, operational
strength and confidence.
We believe the company is well placed - financially, operationally and
managerially - to meet new challenges and seize new opportunities."
Chief Executive's statement
Ben Verwaayen, Chief Executive, said:
"This represents another quarter of strong and sustainable progress for BT. The
substantial growth in earnings and cash flow reflects the improved operational
efficiency of the business. We achieved significant improvement in customer
satisfaction. With 936,000 users, broadband is now firmly at the heart of BT.
We are well ahead of schedule in meeting 13 out of the 14 stretching targets set
at the beginning of the year. In particular, the three year cash and net debt
targets have been met in the first year, strengthening our financial position.
Our new wave businesses are growing rapidly and our order book is at record
levels. Our efficiency programmes are delivering significant savings and we
continue to invest in the future of the group.
Our strong financial performance demonstrates our ongoing ability to reduce
debt, reward our shareholders and invest for the future."
*From continuing activities before goodwill amortisation and exceptional items.
RESULTS FOR THE FOURTH QUARTER AND
YEAR ENDED MARCH 31, 2003
BT Group's results from continuing activities before goodwill amortisation and
exceptional items
Fourth quarter Year
2003 2002 Better 2003 2002 Better
GBPm GBPm % GBPm GBPm %
Group turnover 4,778 4,735 1 18,727 18,447 2
Group operating profit 733 650 13 2,790 2,771 1
Net interest charge 266 301 12 1,146 1,417 19
Profit before taxation 490 371 32 1,829 1,273 44
Profit after taxation 331 236 40 1,231 745 65
Earnings per share 3.9p 2.6p 50 14.2p 8.8p 61
Capital expenditure 724 982 26 2,445 3,100 21
Net debt 9,573 13,701 30
Total earnings per share and profit before tax, after goodwill amortisation and
exceptional items, for the fourth quarter are 19.1 pence (2002 - loss of 30.2
pence) and GBP1,717 million (2002 - loss of GBP2,545 million). For the full year
they are 31.2 pence (2002 - 12.0 pence) and GBP3,157 million (2002 - GBP1,461
million). The full year comparatives include the results of discontinued
activities.
The results in the table above and the commentary focus on the results from
continuing activities before goodwill amortisation and exceptional items. This
is because the total reported results do not provide a meaningful comparison of
the trading results of the ongoing group, being significantly impacted by the
demerger of mmO2 and other discontinued activities, exceptional items and
goodwill impairment charges in the previous year.
The full profit and loss account, cash flow statement and balance sheet are
provided below.
GROUP RESULTS
Fourth quarter
Group turnover increased year on year by 1 per cent to GBP4,778 million in the
fourth quarter. The core business has continued to perform well and new wave
businesses have grown strongly. The momentum gained in the third quarter in the
corporate and ICT sectors has continued to build with sales orders taken in
Global Solutions of GBP1.4 billion in the quarter.
Group operating profit before goodwill amortisation and exceptional items at
GBP733 million for the quarter was GBP83 million higher than the fourth quarter
of last year. This increase was principally due to cost efficiencies. Leaver
costs were GBP64 million lower than the fourth quarter of last year, although
this was largely offset by the negative operating profit effects of unwinding
the Concert global venture.
BT's share of associates and joint ventures operating profits before goodwill
amortisation and exceptional items was GBP19 million (GBP17 million last year)
in the quarter. The improvement from the unwind of the loss-making Concert
global venture on April 1, 2002 was offset by the disposal of our stake in
Cegetel in January 2003.
Net interest payable before exceptional items was GBP266 million for the
quarter, an improvement of GBP35 million against last year as a result of the
reduction in the level of net debt.
The above factors resulted in the group achieving a profit before taxation,
goodwill amortisation and exceptional items of GBP490 million in the quarter, an
increase of 32 per cent.
The taxation charge for the quarter was GBP159 million on the profit before
goodwill amortisation and exceptional items, an effective rate of 32.4 per cent
(36.4 per cent last year). Last year's high effective rate was mainly due to the
impact of loss making subsidiaries outside the UK for which tax relief was not
available.
Earnings per share before goodwill amortisation and exceptional items were 3.9
pence for the fourth quarter (2.6 pence last year), an increase of 50 per cent.
Net exceptional items contributed GBP1,321 million to profit after taxation,
principally being the net profit on disposal of our stake in Cegetel. Goodwill
amortisation at GBP6 million for the quarter was GBP27 million lower than last
year due to the disposals and goodwill impairment charges made last year.
Earnings per share after goodwill amortisation and exceptional items were 19.1
pence compared to a loss of 30.2 pence last year. In the fourth quarter of last
year we recognised net exceptional losses after tax of GBP2,790 million,
relating principally to the impairment of BT's European activities and other
investments.
Full year
All references in this section to the prior year results or performance against
the prior year are in relation to the results from continuing activities.
Group turnover increased by 2 per cent to GBP18,727 million in the year. The
strength in the group's new wave businesses and a strong defence of the group's
market share in its existing businesses was offset by price deflation.
Group operating profit before goodwill amortisation and exceptional items at
GBP2,790 million for the year was GBP19 million higher than the prior year. The
cost efficiencies achieved during the year were offset by a GBP90 million
increase in leaver costs, the negative operating profit effects of unwinding the
Concert global venture and the Telereal property sale and leaseback transaction.
In total, these effects reduced operating profits by over GBP400 million
although this was compensated for at the profit before tax level by a
corresponding improvement in our share of the operating profits of associates
and joint ventures and net interest payable.
BT's share of associates and joint ventures operating profits before goodwill
amortisation and exceptional items was GBP181 million (GBP108 million loss last
year) for the year, mainly reflecting the benefit of the unwind of the Concert
global venture.
Net interest payable before exceptional items was GBP1,146 million for the year,
an improvement of GBP271 million against last year as a result of the reduction
in the level of net debt.
The above factors resulted in the group achieving a profit before taxation,
goodwill amortisation and exceptional items of GBP1,829 million, a 44 per cent
increase, reflecting the underlying operating performance of the group and lower
net interest costs.
The taxation charge for the year was GBP598 million on the profit before
goodwill amortisation and exceptional items, an effective rate of 32.7 per cent
(41.5 per cent last year). Last year's high effective rate was mainly due to the
impact of loss making subsidiaries outside the UK for which tax relief was not
available.
Earnings per share before goodwill amortisation and exceptional items were 14.2
pence for the year (8.8 pence last year), an increase of 61 per cent.
Net exceptional items contributed GBP1,489 million to profit after taxation.
Goodwill amortisation at GBP22 million for the year was GBP140 million lower
than last year. This reduction reflects the disposals and goodwill impairment
charges made last year. Earnings per share from continuing activities after
goodwill amortisation and exceptional items were 31.2 pence compared to a loss
of 34.8 pence last year.
Customer satisfaction
BT has an extensive programme conducted by external agencies which focuses on
the level and causes of customer dissatisfaction.
The group achieved a 37 per cent improvement in the level of customer
dissatisfaction over the year, beating the target of a 25 per cent improvement.
All areas improved satisfaction levels, including significant improvement among
the group's international and wholesale customers. Although in most areas
customer satisfaction is well ahead of its competitors, BT will strive to make
further significant improvements. A programme has been put in place that focuses
on key areas of customer dissatisfaction, which is already yielding good results
in customer service and satisfaction.
Underlying performance
In the line of business commentaries that follow, references to "underlying
performance" are to trading performance before exceptional items and after
adjusting for the estimated impact of the Concert unwind and business
acquisitions and disposals on the line of business results. Trends in the
results of the lines of business are described by reference to the underlying
performance.
The group results have not been adjusted for the pro forma impact of the Concert
unwind and business acquisitions and disposals.
With effect from January 1, 2003 the operations of BT Openworld have been
transferred under the management control of BT Retail. The prior periods have
been restated to report BT Openworld's results as part of BT Retail for all
periods under review.
BT Global Services is the line of business formerly known as BT Ignite. The
change of name more accurately describes the products and services that BT
provides to multi-site organisations with European operations.
The line of business commentaries refer to EBITDA before exceptional items,
which is defined as group operating profit before depreciation, amortisation and
exceptional items. In addition reference is made to operating free cash flow
before exceptional items, which is defined as EBITDA before exceptional items
less capital expenditure.
OPERATING PERFORMANCE BY LINE OF BUSINESS
Fourth quarter ended Group Group operating profit EBITDA (iii) Capital expenditure
March 31, 2003 (i) turnover (loss) (iii)
GBPm GBPm GBPm GBPm
BT Retail 3,368 342 393 42
BT Wholesale 2,820 513 998 478
BT Global Services 1,482 (92) 73 150
Other 4 (30) 47 54
Intra-group items (ii) (2,896) - - -
Total 4,778 733 1,511 724
Year ended Group Group operating profit EBITDA (iii) Capital expenditure
March 31, 2003 (i) turnover (loss) (iii)
GBPm GBPm GBPm GBPm
BT Retail 13,301 1,425 1,634 115
BT Wholesale 11,260 1,924 3,847 1,652
BT Global Services 5,251 (427) 178 439
Other 41 (132) 146 239
Intra-group items (ii) (11,126) - - -
Total 18,727 2,790 5,805 2,445
i See note 2 on pages 23 to 25 for prior year figures.
ii Elimination of intra-group turnover between businesses, which is included in
the turnover of the originating business.
iii Before goodwill amortisation and exceptional items.
BT Retail
Fourth quarter ended March 31 Year ended March 31
Better (worse)
2003 2002 Actual Underlying 2003 2002
(b)
GBPm GBPm % % GBPm GBPm
Group turnover 3,368 3,214 (a) 5 3 13,301 12,811 (a)
Gross margin 976 838 16 12 3,874 3,460
Sales, general and 583 561 (4) 2 2,240 2,260
administration costs
EBITDA 393 277 42 42 1,634 1,200
Depreciation 51 64 20 20 209 216
Operating profit 342 213 61 61 1,425 984
Capital expenditure 42 54 22 22 115 153
Operating free 351 223 57 57 1,519 1,047
cash flow
BT Retail increased turnover by GBP94 million (3 per cent), operating profit by
GBP129 million (61 per cent) and operating free cash flow by GBP128 million (57
per cent) compared to the fourth quarter of last year. The operating profit
improvement is driven by improved gross margin and cost control activities.
These results demonstrate the effect of the continued focus on defending core
revenues, margin improvements, cost efficiencies and growing new wave
initiatives. Fourth quarter ended March 31 Year ended March 31
Better (worse)
BT Retail turnover 2003 2002 Actual Underlying 2003 2002
(a) (b) (a)
GBPm GBPm % % GBPm GBPm
Voice Services 2,363 2,381 (1) (2) 9,378 9,561
Intermediate Products 729 670 9 3 2,873 2,668
Core 3,092 3,051 1 (1) 12,451 12,229
New Wave 276 163 69 69 850 582
Total 3,368 3,214 5 3 13,301 12,811
Sales to other BT 565 533 6 14 1,968 2,087
businesses incl. above
(a) Internal turnover restated to reflect changes in intra-group trading
arrangements.
(b) Adjusting for the effect of the Concert unwind and the transfer of major
accounts to BT Wholesale.
Turnover from voice services was 2 per cent lower than the fourth quarter of
last year driven primarily by lower revenues from fixed network calls reflecting
a reduction in call volumes, partly offset by higher revenues from other voice
services.
In the residential voice market BT Retail has maintained market share at around
73 per cent and in the business voice market, BT Retail's market share is lower
at around 43 per cent, 1 per cent lower than the third quarter.
Geographic call volumes declined year on year in the quarter by 5 per cent, the
rate of decline increasing from 3 per cent in the third quarter. Total measured
call volumes declined slightly more reflecting the switch from measured internet
related calls to a mixture of flat rate internet access based products and
broadband. This reflects the continued trend of revenues towards being based on
fixed price packages rather than measured call volumes.
Residential geographic call volumes declined slightly compared to the fourth
quarter of last year. National call volumes were held following the continued
success of the BT Together packages. However, during the quarter the historical
decline in residential international call volumes was stemmed as a result of the
new BT Together international packages launched in the third quarter, which
included the option of five pence per minute international calls. By March 31,
2003 over 140,000 customers had signed up for the international packages.
Business geographic call volumes fell, driven by a combination of customers
switching out of traditional telephony and competitive pressure from the
implementation of Carrier Pre-Selection. In response, BT Business Plan was
launched in January 2003 and this highly competitive package places a ceiling of
10 pence on national and local business calls, rewards loyalty and provides a
single BT customer contact. By the middle of May 2003, BT Business Plan had more
than 30,000 customers.
Turnover from analogue exchange lines of GBP758 million remained flat compared
to the fourth quarter of last year. The total number of BT Retail voice lines
declined by 0.1 per cent to 25.5 million since March 31, 2002. The number of
residential voice lines has grown, up 1 per cent, partly driven by conversion to
ADSL lines.
Turnover from intermediate products of GBP729 million increased by 3 per cent
compared to the fourth quarter of last year. ISDN lines continue to grow and at
3.8 million are 6 per cent higher than last year.
The total number of BT Retail lines therefore increased by 1 per cent, to 29.3
million, since March 31, 2002.
New wave revenue growth increased to 69 per cent in the quarter with the
continued focus on the information, communications and technology ("ICT"),
broadband and mobility products.
During the quarter further momentum was gained in the ICT order book with
contract wins with Abbey National and Honeywell. The revenues from these ICT
contracts will also be recognised within Global Services' Solutions division.
BT Retail's BT Broadband product continues to perform strongly with weekly sales
orders now exceeding 5,000. Total connections in the fourth quarter were 41,000
and the total number of connections since launch in September 2002 were 171,000
at May 16, 2003. BT Openworld broadband and BT Broadband connections at May 16,
2003 total 490,000, representing 52 per cent of BT Wholesale's 936,000 ADSL
connections.
Gross margin increased by GBP104 million (2.3 percentage points to 29.0 per
cent) compared to the fourth quarter of last year. This was driven by the
success of the BT Together packages, improved product mix and lower wholesale
prices which more than offset the impact of lower call revenues.
Cost transformation programmes generated further saving in sales, general and
administration costs. These savings have been driven by a reduction in people
related expenses such as travel, accommodation and communications, lower service
costs resulting from improvements in service quality, billing initiatives and
other similar cost transformation programmes. On a full year basis these
programmes delivered savings in the core business comfortably in excess of our
target of GBP200 million.
Operating profit in the fourth quarter was GBP129 million (61 per cent) higher
than the prior year which combined with lower capital expenditure enabled BT
Retail to contribute an operating free cash flow (EBITDA less capital
expenditure) of GBP351 million in the quarter; GBP128 million better than the
fourth quarter of last year.
BT Wholesale
Fourth quarter ended March 31 Year ended March 31
Better (worse)
2003 2002 Actual Underlying* 2003 2002
GBPm GBPm % % GBPm GBPm
External turnover 889 1,043 (15) (1) 3,472 3,911
Internal turnover 1,931 2,124 (9) (7) 7,788 8,345
Group turnover 2,820 3,167 (11) (5) 11,260 12,256
Total operating costs 1,853 2,099 12 1 7,538 8,355
before depreciation
Other operating income 31 73 (58) (23) 125 255
EBITDA 998 1,141 (13) (13) 3,847 4,156
Depreciation 485 499 3 3 1,923 1,914
Operating profit 513 642 (20) (20) 1,924 2,242
Capital expenditure 478 637 25 25 1,652 1,974
Operating free 520 504 3 3 2,195 2,182
cash flow
*Adjusting for the effect of the Concert unwind and transfer of major accounts
from other BT businesses.
BT Wholesale's turnover for the quarter of GBP2,820 million, was 5 per cent
lower and operating profit of GBP513 million, was 20 per cent lower than the
fourth quarter of last year. The comparative period last year included a GBP27
million out of period revenue benefit, resulting in a year on year decrease in
external turnover of 1 per cent in the quarter.
Within traditional products, the impact of price reductions - due to flat rate
price packages and Network Charge Control (NCC) pricing formulae - coupled with
unfavourable market conditions have continued to stem turnover growth. FRIACO
revenue decreased as a result of the draft Oftel pricing determination which
includes a retrospective impact. Revenues from retail private circuits have
continued to reduce, due to the migration of customers to lower priced partial
private circuits.
New wave external revenues at GBP52 million showed strong growth. The 58 per
cent increase over the fourth quarter of last year reflected gains being made in
ADSL, network facilities management and equipment sales.
Wholesale ADSL lines had an installed base of 936,000 at May 16, 2003, and in
March achieved weekly orders in excess of 25,000 compared to 8,000 at the end of
the fourth quarter last year.
Internal turnover in the quarter of GBP1,931 million showed a decrease of GBP152
million (7 per cent) due principally to price reductions.
Despite an increase in network volumes, BT Wholesale's operating costs,
excluding depreciation, of GBP1,853 million, decreased by GBP24 million (1 per
cent) against the fourth quarter of last year. Full time equivalent staff
numbers at March 31, 2003 have reduced by 7 per cent since last year, reflecting
the continued drive towards improved operational efficiencies.
Depreciation at GBP485 million decreased by GBP14 million (3 per cent) mainly
due to certain accelerated charges in the prior year partly offset by the impact
of shorter asset lives.
Operating profit decreased by GBP130 million (20 per cent) reflecting the lower
revenues only being partly offset by efficiency gains. The operating profit
margin of 18 per cent has been maintained at a stable level since the second
quarter of this year.
Capital expenditure at GBP478 million decreased by GBP159 million (25 per cent)
reflecting continued cost control, tight governance, alignment of capital spend
with the development of the future network strategy and the more even phasing of
the capital expenditure programme through the current year. BT Wholesale has
maintained its focus on managed cash costs (defined as operating costs excluding
payments to other network operators and depreciation, plus capital expenditure).
Managed cash costs at GBP1,637 million decreased by 3 per cent despite the 6 per
cent increase in network volumes. Managed cash cost savings were GBP237 million
for the full year, exceeding the target savings of GBP200 million after allowing
for price and volume effects.
BT Global Services (formerly BT Ignite)
Fourth quarter ended March 31 Year ended March 31
Better
2003 2002 Actual Underlying* 2003 2002
GBPm GBPm % % GBPm GBPm
Group turnover 1,482 1,212 22 4 5,251 4,472
EBITDA 73 30 143 n/m 178 146
Group operating loss (92) (108) 15 45 (427) (353)
Capital expenditure 150 214 30 42 439 609
Operating free cash flow (77) (184) 58 71 (261) (463)
*Adjusting for the effect of the Concert unwind, acquisitions and disposals and
the transfer of a major account to BT Wholesale.
BT Global Services produced a strong quarter's results with a substantial
improvement in underlying profitability and cash flow despite market conditions
remaining difficult. Underlying operating losses for the quarter were reduced by
GBP74 million (45 per cent).
Turnover for the quarter rose by 4 per cent to GBP1,482 million despite a 7 per
cent fall in Global Carrier from the declining trade with AT&T and Worldcom
following the unwind of the Concert global venture. Excluding Global Carrier,
turnover in the rest of BT Global Services increased by 7 per cent. Solutions
grew by 14 per cent and Global Products grew by 12 per cent. Syntegra performed
strongly in the quarter benefiting from the phasing of delivery against specific
contracts in the government sector, achieving growth of 10 per cent in what
remains a difficult market. European connectivity turnover of GBP281 million
rose by 4 per cent, up from 2 per cent in the third quarter, and by 8 per cent
after excluding the impact of exiting non profitable lines of business.
Solutions continued its strong momentum in the corporate sector by signing sales
orders to the value of GBP1.4 billion in the quarter. Nearly all of the full
year orders of GBP3.6 billion have come in the second half of the year and
provide a solid base of contracted revenue for the future. This was a strong
quarter for Solutions but the operating profits have been impacted by up-front
contract costs that are recognised as incurred in accordance with the group's
accounting policies.
Continued cost reductions, both in network costs and selling, general and
administration costs, helped generate an EBITDA improvement over the fourth
quarter of last year.
All major European operations are now EBITDA positive with Germany and Belgium
becoming EBITDA positive this quarter. European connectivity as a whole
generated an EBITDA of GBP5 million, compared to an EBITDA loss of GBP12 million
in the fourth quarter last year. EBITDA is considered to be one of the important
measures used by management in assessing the operating performance of BT Global
Services because it is one of the strategic targets that were set in April 2002.
Capital expenditure of GBP150 million was GBP110 million lower than the fourth
quarter of last year. Operating free cash outflow (EBITDA less capital
expenditure) was consequently GBP188 million better than the fourth quarter of
last year.
EXCEPTIONAL ITEMS
Net exceptional items in the quarter increased profit before tax by GBP1,233
million. This was principally the net profit on sale of our stake in Cegetel,
amounting to GBP1,216 million. This net profit was after the write back of
GBP862 million of goodwill taken directly to reserves on acquisition and an
exceptional interest charge of GBP293 million on closing out GBP2.6 billion of
fixed interest rate swaps following receipt of the Cegetel sale proceeds.
Closing out the fixed interest rate swaps will reduce the 2003/4 net interest
charge by about GBP50 million.
Other exceptional items in the full year include:
- profit on sale of fixed asset investments and group undertakings of GBP182
million;
- charge of GBP198 million relating to the rationalisation of the group's London
office portfolio;
- the release of provisions for exit related costs of GBP150 million as Blu was
exited on more favourable terms than anticipated.
DIVIDENDS
The board recommends a final dividend of 4.25 pence per share to shareholders,
amounting to GBP366 million. This will be paid, subject to shareholder approval,
on September 8, 2003 to shareholders on the register on August 8, 2003. This
takes the dividend for the full year to 6.50 pence per share, compared to 2.0
pence in 2001/2. This year's dividend is covered 2.2 times by the profit before
goodwill amortisation and exceptional items. BT remains committed to a
progressive dividend policy, reflecting growth in earnings per share and an
improving balance sheet. In view of our strong cash generation and success in
reducing net debt, in 2003/4 we expect dividend cover to reduce further towards
the 2 times target that we set out last year.
PENSIONS
The triennial BT Pension Scheme funding valuation ("Funding Valuation") exercise
has been completed by the pension scheme's actuary as at December 31, 2002. The
results are in line with the group's expectations.
The Funding Valuation shows that there was a deficit in the scheme of GBP2.1
billion at December 31, 2002, which compares to a deficit of GBP1.0 billion at
December 31, 1999. The annual deficiency payments will be increased by GBP32
million to GBP232 million with effect from December 2003. The valuation under
the prescribed Minimum Funding Requirement approach showed the assets to cover
101 per cent of the liabilities at December 31, 2002.
The company's actuary has performed a SSAP 24 valuation for accounting purposes
which determines the profit and loss charge to be applied from April 1, 2003.
The SSAP 24 valuation shows a deficit of GBP1.4 billion at March 31, 2003 and
the deficit will be amortised over the average remaining working lives of
members. As expected, this will result in an increase in the pension charge of
around GBP120 million in the 2003/4 year.
The FRS 17 position at March 31, 2003 showed a deficit of GBP6.3 billion, net of
tax. As the implementation of FRS 17 has been delayed this will not affect the
profit and loss charge or balance sheet position for the 2003/4 financial year.
The FRS 17 position at May 16, 2003 showed a reduced deficit of GBP5.7 billion,
net of tax.
Further details regarding pension costs are included in note 16.
CASH FLOW AND NET DEBT
Cash inflow from operating activities amounted to GBP2,247 million in the fourth
quarter, bringing the total for the year to GBP6,023 million.
The cash outflow on fixed asset purchases was GBP676 million in the fourth
quarter, giving a total for the year of GBP2,580 million. This compares to
GBP881 million in the fourth quarter and GBP3,202 million for the full year from
the continuing activities last year, reflecting the continued management focus
and tight control over capital expenditure. Capital expenditure is expected to
rise next year, but remain within its GBP3 billion annual target, as the group
invests in its 21st century network programme. This will yield significant
long-term cost savings and customer benefits.
Free cash flow (before acquisitions, disposals and dividends) was GBP931 million
in the quarter and GBP1,708 million for the full year ended March 31, 2003. This
represents a significant improvement in the cash generation capability of the
group.
Net debt at March 31, 2003 was GBP9.6 billion, a reduction of GBP3.3 billion in
the fourth quarter and GBP4.1 billion in the full year.
___________________________________________________________________________
The Annual Report and Form 20-F is expected to be published on June 4, 2003.
The Annual General Meeting of BT Group plc will be held in London on July 16,
2003.
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended March 31, 2003
Continuing activities
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 8)
(unaudited) Notes GBPm GBPm GBPm
Total turnover 4,966 - 4,966
Group's share of associates and joint ventures (188) - (188)
turnover
Group turnover 2 4,778 - 4,778
Other operating income 3 67 - 67
Operating costs 4 (4,112) (4) (4,116)
Group operating profit (loss) 2 733 (4) 729
Group's share of operating profits (losses) of 5 19 (2) 17
associates and joint ventures
Total operating profit (loss) 752 (6) 746
Profit on sale of fixed asset investments and 6 - 1,526 1,526
group undertakings
Profit on sale of property fixed assets 4 - 4
Net interest payable 7 (266) (293) (559)
Profit before taxation 490 1,227 1,717
Taxation (159) 88 (71)
Profit after taxation 331 1,315 1,646
Minority interests 5 - 5
Profit attributable to shareholders 336 1,315 1,651
Earnings per share 10
- basic 3.9p 19.1p
- diluted 3.9p 19.0p
GROUP PROFIT AND LOSS ACCOUNT
for the three months ended March 31, 2002
Continuing activities
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 8)
(unaudited) Notes GBPm GBPm GBPm
Total turnover 5,511 - 5,511
Group's share of associates and joint ventures (932) - (932)
turnover
Trading between group and principal joint 156 - 156
venture
Group turnover 2 4,735 - 4,735
Other operating income 3 103 - 103
Operating costs 4 (4,188) (2,573) (6,761)
Group operating profit (loss) 2 650 (2,573) (1,923)
Group's share of operating profits (losses) of 5 17 (400) (383)
associates and joint ventures
Total operating profit (loss) 667 (2,973) (2,306)
Profit on sale of fixed asset investments and - 57 57
group undertakings
Profit on sale of property fixed assets 5 - 5
Net interest payable 7 (301) - (301)
Profit (loss) before taxation 371 (2,916) (2,545)
Taxation (135) 93 (42)
Profit (loss) after taxation 236 (2,823) (2,587)
Minority interests (9) - (9)
Profit (loss) attributable to shareholders 227 (2,823) (2,596)
Earnings (loss) per share 10
- basic 2.6p (30.2)p
- diluted 2.6p (30.2)p
GROUP PROFIT AND LOSS ACCOUNT
for the year ended March 31, 2003
Continuing activities
Before goodwill Goodwill Total
amortisation and amortisation and
exceptional items exceptional items
(note 8)
Notes GBPm GBPm GBPm
Total turnover 20,182 - 20,182
Group's share of associates and joint ventures (1,455) - (1,455)
turnover
Group turnover 2 18,727 - 18,727
Other operating income 3 215 - 215
Operating costs 4 (16,152) (218) (16,370)
Group operating profit (loss) 2 2,790 (218) 2,572
Group's share of operating profits of 5 181 148 329
associates and joint ventures
Total operating profit (loss) 2,971 (70) 2,901
Profit on sale of fixed asset investments and 6 - 1,691 1,691
group undertakings
Profit on sale of property fixed assets 11 - 11
Amounts written off investments (7) - (7)
Net interest payable 7 (1,146) (293) (1,439)
Profit before taxation 1,829 1,328 3,157
Taxation (598) 139 (459)
Profit after taxation 1,231 1,467 2,698
Minority interests (5) (7) (12)
Profit attributable to shareholders 1,226 1,460 2,686
Dividends (560)
Retained profit for the period 2,126
Earnings per share 10
- basic 14.2p 31.2p
- diluted 14.1p 31.0p
GROUP PROFIT AND LOSS ACCOUNT
for the year ended March 31, 2002
Continuing activities
Before goodwill Goodwill Discontinued Total
amortisation and amortisation and activities and
exceptional items except-ional eliminations
items
(note 8) (note 1)
Notes GBPm GBPm GBPm GBPm
Total turnover 21,815 - 2,827 24,642
Group's share of associates and joint (4,049) - (715) (4,764)
ventures turnover
Trading between group and principal 681 - - 681
joint venture
Group turnover 2 18,447 - 2,112 20,559
Other operating income 3 361 - 1 362
Operating costs 4 (16,037) (2,817) (2,546) (21,400)
Group operating profit (loss) 2 2,771 (2,817) (433) (479)
Group's share of operating profits 5 (108) (1,335) 62 (1,381)
(losses) of associates and joint
ventures
Total operating profit (loss) 2,663 (4,152) (371) (1,860)
Profit on sale of fixed asset - 21 4,368 4,389
investments and group undertakings
Profit on sale of property fixed assets 27 1,062 - 1,089
Amounts written off investments - (535) - (535)
Net interest payable 7 (1,417) (162) (43) (1,622)
Profit (loss) before taxation 1,273 (3,766) 3,954 1,461
Taxation (528) 143 (58) (443)
Profit (loss) after taxation 745 (3,623) 3,896 1,018
Minority interests (10) - (13) (23)
Profit (loss) attributable to 735 (3,623) 3,883 995
shareholders
Dividends (see note below) (173)
Retained profit for the financial year 822
Earnings per share 10
- basic 8.8p 12.0p
- diluted 8.8p 11.9p
In addition to the final dividend for the year of GBP173m there was a demerger
distribution of GBP19,490m, representing the net assets of mmO2 (including
purchased goodwill) as at the date of demerger.
GROUP CASH FLOW STATEMENT
for the three months and year ended March 31, 2003
Fourth quarter Year ended
ended March 31 ended March 31
2003 2002 2003 2002
(unaudited)
GBPm GBPm GBPm GBPm
Net cash inflow from operating 2,247 1,496 6,023 5,257
activities* (note 11)
Dividends from associates and joint 2 - 6 2
ventures
Net cash outflow for returns on (528) (367) (1,506) (1,695)
investments and servicing of finance
Taxation paid (158) (279) (434) (562)
Purchase of tangible fixed assets (676) (881) (2,580) (4,069)
Net sale of fixed asset investments 17 - 105 70
Sale of tangible fixed assets 27 19 94 2,645
Net cash outflow for capital expenditure (632) (862) (2,381) (1,354)
and financial investments
Free cash flow before acquisitions, 931 (12) 1,708 1,648
disposals and dividends
Acquisitions (63) (110) (77) (1,131)
Disposals 2,706 53 2,919 6,916
Net cash inflow (outflow) for 2,643 (57) 2,842 5,785
acquisitions and disposals
Equity dividends paid (194) - (367) -
Cash inflow (outflow) before use of 3,380 (69) 4,183 7,433
liquid resources and financing
Management of liquid resources (2,379) 1,387 (1,729) (1,864)
Issue of ordinary share capital - 16 42 6,057
Inflow on demerger of mmO2 - - - 440
New loans - 24 20 30
Repayment of loans (958) (863) (2,471) (1,851)
Net movement on short-term borrowings - (622) (64) (10,155)
Net cash outflow from financing (958) (1,445) (2,473) (5,479)
Increase (decrease) in cash 43 (127) (19) 90
Decrease (increase) in net debt from 3,380 (53) 4,225 13,930
cash flows (note 12)
*Net of deficiency and special pension - - 329 600
contributions
GROUP BALANCE SHEET
at March 31, 2003
March 31 March 31
2003 2002
(note 1)
GBPm GBPm
Fixed assets
Intangible assets 218 252
Tangible assets 15,888 16,078
Investments 555 1,221
16,661 17,551
Current assets
Stocks 82 111
Debtors 5,043 5,272
Investments 6,340 4,581
Cash at bank and in hand 91 158
11,556 10,122
Creditors: amounts falling due within one year
Loans and other borrowings 2,548 2,195
Other creditors 7,132 7,195
9,680 9,390
Net current assets 1,876 732
Total assets less current liabilities 18,537 18,283
Creditors: amounts falling due after more than one year
Loans and other borrowings 13,456 16,245
Provisions for liabilities and charges (note 13) 2,376 2,324
Minority interests 63 72
Capital and reserves (note 14)
Called up share capital 434 434
Reserves 2,208 (792)
Total equity shareholders' funds (deficiency) 2,642 (358)
18,537 18,283
NOTES
1 Basis of preparation
The preliminary results of BT Group, which are not statutory accounts, have been
prepared on the basis of the accounting policies as set out in the report and
accounts of BT Group plc for the year ended March 31, 2002. Figures for the
years ended March 31, 2003 and 2002 are extracts from the group accounts for
those years.
The group accounts for the year ended March 31, 2003, on which the auditors
issued an unqualified report which did not contain a statement under Section 237
(2) or (3) of the Companies Act 1985, were approved by the board of directors on
May 21, 2003 and have not yet been delivered to the Registrar of Companies but
are expected to be published on June 4, 2003.
The activities of mmO2, Japan Telecom, J-Phone Communications, Airtel and Yell
were disposed of in the year ended March 31, 2002, and are shown as discontinued
operations in the profit and loss account for the comparative periods.
2 Results of businesses
The tables below show the results of BT's lines of business. There is extensive
trading between many of the business units and profitability is dependent on the
transfer price levels. These intra-group trading arrangements are subject to
review and have changed in certain instances. Comparative figures have been
restated for these changes. The eliminations are intra-group eliminations.
With effect from January 1, 2003 the operations of BT Openworld were transferred
under the management control of BT Retail. The comparative figures have been
restated to report BT Openworld as part of BT Retail for all the periods under
review.
2 Results of businesses continued
(a) Operating results
Group turnover Group operating profit EBITDA
(loss) (iii) (iii)
GBPm GBPm GBPm
Fourth quarter ended March 31, 2003
BT Retail 3,368 342 393
BT Wholesale 2,820 513 998
BT Global Services 1,482 (92) 73
Other 4 (30) 47
Intra-group items (ii) (2,896) - -
Total before exceptional items 4,778 733 1,511
Fourth quarter ended March 31, 2002 (i)
BT Retail 3,214 213 277
BT Wholesale 3,167 642 1,141
BT Global Services 1,212 (108) 30
Other 17 (97) (17)
Intra-group items (ii) (2,875) - -
Total before exceptional items 4,735 650 1,431
Year ended March 31, 2003
BT Retail 13,301 1,425 1,634
BT Wholesale 11,260 1,924 3,847
BT Global Services 5,251 (427) 178
Other 41 (132) 146
Intra-group items (ii) (11,126) - -
Total before exceptional items 18,727 2,790 5,805
Year ended March 31, 2002 (i)
BT Retail 12,811 984 1,200
BT Wholesale 12,256 2,242 4,156
BT Global Services 4,472 (353) 146
Other 70 (102) 246
Intra-group items (ii) (11,162) - -
Total continuing activities before exceptional items 18,447 2,771 5,748
Discontinued activities 2,836 (191) 234
Intra-group items (ii) (724) - -
Total before exceptional items 20,559 2,580 5,982
i The results of the lines of business for the quarter and year ended March 31,
2002 have been restated to reflect changes to intra-group trading arrangements.
ii Elimination of intra-group turnover between businesses, which is included in
the total turnover of the originating business.
iii Before goodwill amortisation and exceptional items.
2 Results of businesses continued
BT Global Services analysis
Fourth quarter Year ended
ended March 31 March 31
Better (worse)
Before goodwill amortisation 2003 2002 Actual Underlying (i) 2003 2002
and exceptional items GBPm GBPm % % GBPm GBPm
Group turnover
Solutions 619 542 14 14 2,042 1,840
Syntegra 192 175 10 10 623 609
Global Products 505 378 34 12 1,883 1,541
Global Carrier 276 66 318 (7) 1,007 263
Other and eliminations (110) 51 (304) 219
1,482 1,212 22 4 5,251 4,472
European connectivity included 281 273 3 4 1,021 998
above
EBITDA
Solutions 42 48 172 158
Syntegra 15 16 34 31
Global Products 10 25 (73) 21
Global Carrier 52 16 157 22
Other (ii) (46) (75) (112) (86)
73 30 143 n/m 178 146
European connectivity included 5 (12) n/m n/m (15) (106)
above
Group operating profit (loss)
Solutions 19 25 95 77
Syntegra 12 11 24 18
Global Products (91) (64) (461) (256)
Global Carrier 27 15 66 (18)
Other (ii) (59) (95) (151) (174)
(92) (108) 15 45 (427) (353)
European connectivity included (29) (56) 48 48 (172) (276)
above
Capital expenditure 150 214 30 42 439 609
Operating free cash flow (77) (184) 58 71 (261) (463)
i. Adjusted for the effect of the Concert unwind, acquisitions and disposals and
the transfer of a major account to BT Wholesale.
ii. Other is after charging leaver costs of GBP19m in the fourth quarter (GBP39m
last year) and GBP65m (GBP55m last year) in the year ended March 31, 2003.
BT Global Services' comparative figures for the segmental results have been
reclassified to reflect the new internal financial reporting lines that were
introduced with effect from March 31, 2002.
2 Results of businesses continued
b. Capital expenditure on plant, equipment and motor vehicle additions
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
BT Retail 42 54 115 153
BT Wholesale 478 637 1,652 1,974
BT Global Services 150 214 439 609
Other 54 77 239 364
Total continuing activities 724 982 2,445 3,100
Discontinued activities - - - 808
Total 724 982 2,445 3,908
(c) Net operating assets (liabilities)
March 31
2003 2002
GBPm GBPm
BT Retail (430) (215)
BT Wholesale 12,041 12,163
BT Global Services 1,912 1,907
Other 217 479
Total 13,740 14,334
Note: Net operating assets (liabilities) comprise tangible and intangible fixed
assets, stocks, debtors less creditors (excluding loans and other borrowings)
and provisions for liabilities and charges (excluding deferred tax). The March
31, 2002 comparatives have been restated to reflect changes to the method of
allocating central balances to the lines of business.
3 Other operating income
In the quarter and year ended March 31, 2002, other operating income included
income from the provision of administration services to the Concert global
venture of GBP33m and GBP135m, respectively.
4 Other operating costs
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Before goodwill amortisation
and exceptional items
Net staff costs 906 976 3,671 3,637
Depreciation 777 779 3,011 2,974
Payments to telecommunication operators 894 1,082 3,846 4,289
Other operating costs 1,535 1,351 5,624 5,137
Total continuing activities* 4,112 4,188 16,152 16,037
Goodwill amortisation 4 30 20 121
Exceptional items - 2,543 198 2,696
Discontinued activities - - - 2,546
Total 4,116 6,761 16,370 21,400
*Includes leaver costs of 71 135 276 186
5. Group's share of profits (losses) of associates and joint ventures
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Share of operating profits (losses) before 19 17 181 (108)
goodwill amortisation and exceptional items
Provision for impairment of Concert - (26) - (887)
tangible fixed assets and goodwill, and
share of redundancy and unwind costs
Impairment of other associates and joint - (371) 150 (407)
ventures and (charge) release for exit
related costs
Amortisation of goodwill (2) (3) (2) (41)
Share of operating profits (losses) of 17 (383) 329 (1,443)
continuing associates and joint ventures
Discontinued activities - - - 62
Total share of operating profits (losses) 17 (383) 329 (1,381)
of associates and joint ventures
6 Profit on sale of fixed asset investments and group undertakings
The profit in the three months ended March 31, 2003 of GBP1,526m is mainly
attributable to the profit on sale of our stake in Cegetel of GBP1,509m,
including a write back of GBP862m of goodwill taken directly to reserves before
April 1998. After recognition of the exceptional interest charge of GBP293m on
closing out GBP2.6bn of fixed interest rate swaps, following receipt of the
Cegetel sale proceeds of GBP2.6bn, the net profit on sale was GBP1,216m. The
profit for the year ended March 31, 2003 of GBP1,691m also includes the profit
on sale of BSkyB shares of GBP131m and the profit on disposals of our
shareholdings in Blu, Mediaset and SmarTone.
7 Net interest payable
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Group 609 358 1,609 1,879
Joint ventures and associates 4 13 25 103
Total interest payable 613 371 1,634 1,982
Interest receivable (54) (70) (195) (360)
Net interest payable 559 301 1,439 1,622
Analysed:
Continuing activities, before exceptional 266 301 1,146 1,417
items
Exceptional items 293 - 293 162
Discontinued activities - - - 43
559 301 1,439 1,622
8. Exceptional items and goodwill amortisation
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Attributable to continuing activities:
Impairment of goodwill and tangible fixed assets - (2,202) - (2,202)
in BT Global Services' European activities
Property rationalisation costs - - (198) -
Impairment of Concert and AT&T Canada - - - (1,153)
investments
Concert unwind transaction costs - (195) - (253)
Impairment of other investments and assets and - (396) 150 (672)
(charge) release for exit related costs
Call centre rationalisation - (68) - (68)
Provision for bad and doubtful debts - (79) - (79)
Costs related to mmO2 demerger - - - (98)
Profit on sale of group undertakings and fixed 1,233 57 1,398 21
asset investments
Profit on sale of property fixed assets - - - 900
Goodwill amortisation (6) (33) (22) (162)
Net credit (charge) before tax and minority 1,227 (2,916) 1,328 (3,766)
interests
Attributable to discontinued activities:
Profit on sale of group undertakings and fixed - - - 4,368
asset investments
mmO2 demerger costs - - - (11)
Goodwill amortisation - - - (243)
Net credit before tax and minority interests - - - 4,114
Total exceptional items and goodwill 1,227 (2,916) 1,328 348
amortisation before tax and minority interests
9 Dividends
Year ended Year ended
March 31 March 31
2003 2002 2003 2002
pence per share GBPm GBPm
Interim dividend 2.25 - 194 -
Proposed final dividend 4.25 2.00 366 173
6.50 2.00 560 173
10 Earnings per share
The basic earnings per share are calculated by dividing the profit 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 average number of shares in the periods was:
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
million of shares million of shares
Basic 8,623 8,598 8,616 8,307
Diluted 8,671 8,652 8,668 8,377
11 Reconciliation of operating profit (loss) to operating cash flow
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Group operating profit (loss) 729 (1,923) 2,572 (479)
Depreciation and amortisation 782 3,013 3,035 6,001
Changes in working capital 814 341 501 301
Provision, pension movements and other (78) 65 (85) (566)
Net cash inflow from operating activities 2,247 1,496 6,023 5,257
12 Net debt
a. Analysis
At March 31
2003 2002
GBPm GBPm
Long-term loans and other borrowings falling due after more than 13,456 16,245
one year
Short-term borrowings and long-term loans and other borrowings 2,548 2,195
falling due within one year
Total debt 16,004 18,440
Short-term investments (6,340) (4,581)
Cash at bank (91) (158)
Net debt at end of period 9,573 13,701
b. Reconciliation of net cash flow to movement in net debt
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Net debt at beginning of period 12,917 13,636 13,701 27,942
(Decrease) increase in net debt resulting (3,380) 53 (4,225) (13,930)
from cash flows
Debt assumed by demerger and disposal of - - (13) (75)
undertakings
Currency and other movements 35 (5) 67 32
Other non-cash movements 1 17 43 (268)
Net debt at end of period 9,573 13,701 9,573 13,701
13 Provisions for liabilities and charges
At March 31
2003 2002
GBPm GBPm
Deferred taxation 2,017 2,140
Pension provisions (a) 33 29
Other provisions 326 155
2,376 2,324
(a) The pension prepayment relating to the BT Pension Scheme of GBP630m at March
31, 2003 (GBP231m last year) is included in debtors and falls due after more
than one year.
14 Share capital and reserves
Share capital Reserves Total
GBPm GBPm GBPm
Balances at April 1, 2002 434 (792) (358)
Profit for the financial year - 2,686 2,686
Dividend - (560) (560)
Goodwill written back on disposals (a) - 869 869
Currency movements (b) - 5 5
Balances at March 31, 2003 434 2,208 2,642
(a) Includes GBP862m written back on disposal of our stake in Cegetel.
(b) Includes GBP106m movement on the retranslation of foreign borrowings and
other hedging instruments in the quarter and year ended March 31, 2003.
(c) The reserves of the parent company, BT Group plc, were GBP9.5bn at March 31,
2003.
15 Earnings before interest, taxation, depreciation and amortisation
(EBITDA) before exceptional items
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
GBPm GBPm GBPm GBPm
Group operating profit (loss) 729 (1,923) 2,572 (479)
Exceptional items - 2,543 198 2,707
Depreciation and amortisation of intangible 778 781 3,015 3,402
assets
Goodwill amortisation 4 30 20 352
EBITDA before exceptional items 1,511 1,431 5,805 5,982
Analysed:
Continuing activities 1,511 1,431 5,805 5,748
Discontinued activities - - - 234
Total before exceptional items 1,511 1,431 5,805 5,982
16 Pension costs
Background
The group continues to account for pensions costs in accordance with UK
Statement of Standard Accounting Practice No. 24 "Pensions Costs" (SSAP 24). In
addition, disclosures have been presented in accordance with Financial Reporting
Standard No. 17 "Retirement Benefits" (FRS 17).
The group offers retirement plans to its employees. The group's main scheme, the
BT Pension Scheme (BTPS), is a defined benefit scheme where the benefits are
based on employees' length of service and final pensionable pay. The BTPS is
funded through a legally separate trustee administered fund. This scheme has
been closed to new entrants since March 31, 2001 and replaced by a defined
contribution scheme. Under this defined contribution scheme the profit and loss
charge represents the contribution paid by the group based upon a fixed
percentage of employees' pay.
The total pension costs of the group expensed within staff costs in the year was
GBP322m (2002 - GBP382m including discontinued activities), of which GBP314m
(2002 - GBP373m) related to the group's main defined benefit pension scheme, the
BTPS. The decline in the pension cost reflects the reduction in the number of
active members of the BTPS and the interest credit relating to the balance sheet
prepayment. This total pension cost includes the cost of providing enhanced
pension benefits to leavers, which amounted to GBP60m (2002 - GBP46m).
The pension cost applicable to defined contribution schemes in the year ended
March 31, 2003 was GBP4m (2002 - GBP5m), and GBP0.4m (2002 - GBP0.3m) of
contributions to the schemes were outstanding at March 31, 2003.
The group occupies seven properties owned by the BTPS on which an annual rental
of GBP3m is payable. The BTPS assets are invested in UK and overseas equities,
UK and overseas properties, fixed interest and index linked securities, deposits
and short-term investments. At March 31, 2003, the UK equities included 37m
(2002 - 55m) ordinary shares of the company with a market value of GBP58m (2002
- GBP154m).
BT Pension Scheme
Funding valuation
A triennial valuation is carried out for the independent scheme trustees by a
professionally qualified independent actuary, using the projected unit method.
The purpose of the valuation is to design a funding plan to ensure that present
and future contributions should be sufficient to meet future liabilities. The
triennial valuation as at December 31, 2002 forms the basis of determining the
group's pension fund contributions for the year ending March 31, 2004 and future
periods until the next valuation is completed. The funding valuation is
performed at December 31 because this is the financial year end of the BTPS.
The valuation basis for funding purposes is broadly as follows:
- Scheme assets are valued at market value at the valuation date; and
- Scheme liabilities are measured using a projected unit method and discounted
at the estimated rate of return reflecting the assets of the scheme.
The last three triennial valuations were determined using the following
long-term assumptions:
Real rates (per annum) Nominal rates (per annum)
2002 1999 1996 2002 1999 1996
valuation valuation valuation valuation valuation valuation
% % % % % %
Return on existing assets, 4.52 2.38 3.80 7.13 5.45 7.95
relative to market values
(after allowing for an 1.00 1.00 0.75 3.53 4.03 4.78
annual increase in dividends
of)
Return on future investments 4.00 4.00 4.25 6.60 7.12 8.42
Average increase in retail - - - 2.50 3.00 4.00
price index
Average future increases in 1.50* 1.75 1.75 4.40* 4.80 5.82
wages and salaries
Average increase in pensions - - - 2.50 3.00 3.75-4.00
*There is a short-term reduction in the real salary growth assumption to 1.25%
for the first three years.
The mortality assumption reflects improvements in life expectancy since the 1999
valuation and incorporates further future improvements.
The assumed rate of investment return, salary increases and mortality all have a
significant effect on the funding valuation. A 0.25 percentage point change in
these assumptions would have the following effects on the funding deficit:
Impact on funding deficit
Increase Decrease
0.25 percentage point change in: GBPbn GBPbn
Investment return (0.9) 0.9
Wage and salary increases 0.2 (0.2)
An additional year of life expectancy would result in a GBP0.7bn increase in the
deficit.
At December 31, 2002, the assets of the BTPS had a market value of GBP22.8bn
(1999 - GBP29.7bn) and were sufficient to cover 91.6 per cent (1999 - 96.8 per
cent) of the benefits accrued by that date, after allowing for expected future
increases in wages and salaries but not taking into account the costs of
providing incremental pension benefits for employees taking early retirement
under release schemes since that date. This represents a funding deficit of
GBP2.1bn compared to GBP1.0bn at December 31, 1999.
The funding valuation uses conservative assumptions whereas, had the valuation
been based on the actuary's view of the median estimate basis, the funding
deficit would have been reduced to GBP0.4bn.
Although the current market value of equity investments has fallen, the
investment income and contributions received by the scheme exceeded the benefits
paid by GBP0.3bn in the year ended December 31, 2002.
As a result of the triennial funding valuation the group has agreed to make
employer's contributions at a rate of 12.2 per cent of pensionable pay from
April 2003 and annual deficiency payments of GBP232m. This compares to the
employer's contribution rate of 11.6 per cent and annual deficiency payments of
GBP200m that were determined under the 1999 funding valuation. In the year ended
March 31, 2003, the group made regular contributions of GBP278m (2002 - GBP303m)
and additional special contributions for enhanced pension benefits to leavers in
the year ended December 31, 2001 of GBP129m in December 2002 (2002 - GBP400m)
and deficiency contributions of GBP200m (2002 - GBP200m). The group will also
pay a special contribution in December 2003, which is expected to amount to
approximately GBP100m in respect of early leavers in the year ended December 31,
2002, which has already been reflected in the profit and loss account.
Under the terms of the trust deed that governs the BTPS the group is required to
have a funding plan that should address the deficit over a maximum period of 20
years whilst the agreed funding plan addresses the deficit over a period of 15
years. The group will continue to make annual deficiency payments until the
deficit is made good.
The BTPS was closed to new entrants on March 31, 2001 and the age profile of
active members will consequently increase. Under the projected unit method, the
current service cost, as a proportion of the active members' pensionable
salaries, is expected to increase as the members of the scheme approach
retirement. Despite the scheme being closed to new entrants, the projected
payment profile extends over more than 60 years.
SSAP 24 accounting valuation
The SSAP 24 valuation is broadly on the following basis:
- Scheme assets are valued at market value; and
- Scheme liabilities are measured using the projected unit method and discounted
at the estimated rate of return reflecting the assets of the scheme.
For the purpose of determining the group's pension expenses under SSAP 24 in the
years ended March 31, 2003, 2002 and 2001, the same assumptions were used as set
out above for the December 1999 funding valuation, with the exception that, over
the long term, it has been assumed that the return on the existing assets of the
scheme, relative to market values, would be a nominal 5.6 per cent per annum
(allowing for real equity dividend growth of 1.25 per cent per annum). This
equates to a real return of 2.5 per cent per annum rather than the more
conservative funding valuation, which used a real return of 2.4 per cent per
annum.
At March 31, 2000 there was a SSAP 24 deficit of GBP0.2bn and the regular cost
for the 2003 and 2002 financial years was 11.6 per cent of pensionable salaries
based on the March 31, 2000 SSAP 24 valuation.
The pension cost for the 2004 financial year will be based upon the March 31,
2003 SSAP 24 valuation. At March 31, 2003 there was a SSAP 24 deficit of
GBP1.4bn, before taking account of the balance sheet prepayment, and the regular
cost will be 11.3 per cent of pensionable salaries. The SSAP 24 valuation at
March 31, 2003 is based on the December 31, 2002 funding valuation rolled
forward, and uses the same assumptions as set out above, with the following
exceptions:
- Return of existing assets is assumed to be a nominal 7.1 per cent per annum,
which equates to a real return of 4.7 per cent;
- Average increase in retail price index is assumed to be 2.25 per cent per
annum; and
- The average future increases in wages and salaries is assumed to include a
short term reduction in the real salary growth assumption to 0.75 per cent for
the first three years, before returning to 1.5 per cent.
The cumulative difference since the adoption of SSAP 24 between the cash
contributions paid by the group to the pension scheme and the profit and loss
charge is reflected on the balance sheet. The cumulative cash contributions
exceed the profit and loss charge and the resulting difference is shown as a
prepayment on the balance sheet. At March 31, 2003 the prepayment was GBP630m
(2002 - GBP231m) with the increase being principally due to the additional
special and deficiency contributions in the year.
The pension charge to the profit and loss account will also include the
amortisation of the combined pension fund position and pension prepayment over
the average remaining service lives of scheme members, which amounts to 13
years, and the cost of enhanced pension benefits provided to leavers.
FRS 17 - Retirement benefits
The group continues to account for pensions in accordance with SSAP 24. Full
implementation of FRS 17 has been deferred by the Accounting Standards Board
until accounting periods commencing on or after January 1, 2005. The
requirements for disclosure under FRS 17 remain in force between its issue and
full implementation, and the required information is set out below. FRS 17
specifies how key assumptions should be derived and applied. These assumptions
are often different to the assumptions adopted by the pension scheme actuary and
trustees in determining the funding position of pension schemes. The accounting
requirements under FRS 17 are broadly as follows:
- Scheme assets are valued at market value at the balance sheet date;
- Scheme liabilities are measured using a projected unit method and discounted
at the current rate of return on high quality corporate bonds of equivalent
term to the liability; and
- Movement in the scheme surplus/deficit is split between operating charges and
financing items in the profit and loss account and, in the statement of total
recognised gains and losses, actuarial gains and losses.
The financial assumptions used to calculate the BTPS liabilities under FRS 17 at
March 31, 2003 are:
Real rates (per annum) Nominal rates (per annum)
2003 2002 2003 2002
% % % %
Average future increases in wages and 1.50* 1.50 3.78* 4.04
salaries
Average increase in pensions in payment and - - 2.25 2.50
deferred pensions
Rate used to discount scheme liabilities 3.08 3.41 5.40 6.00
Inflation - average increase in retail - - 2.25 2.50
price index
*There is a short term reduction in the real salary growth assumption to 0.75%
for the first three years.
The expected nominal rate of return and fair values of the assets of the BTPS at
March 31, 2003 were:
At 31 March
2003 2002
Expected long-term Expected long-term
rate of return rate of return
(per annum) Asset fair value (per annum) Asset fair value
% GBPb % % GBPb %
UK equities 8.20 7.4 34 8.00 11.1 41
Non-UK equities 8.20 6.4 30 8.00 8.1 30
Fixed-interest 5.20 3.1 14 5.60 3.0 11
securities
Index-linked securities 4.30 1.7 8 4.80 1.9 7
Property 7.00 3.3 15 7.00 2.8 10
Cash and other 4.00 (0.4) (1) 4.50 0.2 1
Total 7.35 21.5 100 7.38 27.1 100
The long-term expected rate of return on investments does not affect the level
of the deficit but does affect the level of the expected return on assets within
the net finance cost charged to the profit and loss account under FRS 17.
The net pension deficit set out below under FRS 17 is as if this standard was
fully applied. The fair value of the BTPS assets, the present value of the BTPS
liabilities based on the financial assumptions set out above, and the resulting
deficit, together with those of unfunded pension liabilities at March 31, 2003
are shown below. The fair value of the BTPS assets is not intended to be
realised in the short term and may be subject to significant change before it is
realised. The present value of the liabilities is derived from long-term cash
flow projections and is thus inherently uncertain.
March 31, 2003 March 31, 2002
Assets Present value Deficit Assets Present value Deficit
of of
liabilities liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
BTPS 21,500 30,500 9,000 27,100 28,900 1,800
Other liabilities - 33 33 - 30 30
Total deficit 9,033 1,830
Deferred tax asset at 30 (2,710) (549)
per cent
Net pension liability 6,323 1,281
If the above amounts had been recognised in the financial statements, the
group's net assets and profit and loss reserve at March 31, 2003 would be as
follows:
March 31 March 31
2003 2002
GBPm GBPm
Net assets (deficiency)
Net assets (deficiency), as reported 2,642 (358)
SSAP 24 pension prepayment (net of deferred tax) (441) (162)
SSAP 24 pension provision (net of deferred tax) 23 20
Net pension liability under FRS 17 (6,323) (1,281)
Net deficiency including net pension liability (4,099) (1,781)
Profit and loss reserve
Profit and loss reserve, as reported 1,208 (1,819)
SSAP 24 pension prepayment (net of deferred tax) (441) (162)
SSAP 24 pension provision (net of deferred tax) 23 20
Net pension liability under FRS 17 (6,323) (1,281)
Profit and loss reserve including net pension liability (5,533) (3,242)
On the basis of the above assumptions and in compliance with FRS 17 the
amounts that would have been charged to the consolidated profit and loss account
and the statement of total recognised gains and losses for the year ended March
31, 2003 would be as follows:
2003
GBPm
Analysis of amount that would be charged to operating profit on an FRS 17 basis
Current service cost 444
Past service cost 60
Total operating charge 504
Amount that would be charged (credited) to net interest payable on an FRS 17 basis
Expected return on pension scheme assets (1,983)
Interest on pension scheme liabilities 1,694
Net finance expense (return) (289)
Amount that would be charged to profit before taxation on an FRS 17 basis 215
Analysis of the amount that would be recognised in the consolidated statement of total recognised
gains and losses on an FRS 17 basis
Expected return less actual return on pension scheme assets 6,995
Experience (gains) losses arising on pension scheme liabilities (1,056)
Changes in assumptions underlying the present value of the pension scheme liabilities 1,660
Actuarial loss recognised 7,599
The net pension cost of GBP215m for the year ended March 31, 2003 under FRS17 is
GBP107m lower than the profit and loss charge recorded under SSAP 24.
The movements in the net pension liability, on an FRS 17 basis, during the year
ended March 31, 2003 were:
2003
GBPm
Deficit at April 1, 2002 1,830
Current service cost 444
Contributions (611)
Past service costs 60
Other finance income (289)
Actuarial loss recognised 7,599
Deficit at March 31, 2003 9,033
Net pension liability, post tax, at March 31, 2003 6,323
The history of experience gains (losses) which would have been recognised under
FRS 17 were:
Difference between expected and actual return on scheme assets:
Amount (GBPm) (6,995)
Percentage of scheme assets 32.5%
Experience gains and losses on scheme liabilities:
Amount (GBPm) 1,056
Percentage of the present value of scheme liabilities 3.5%
Total amount recognised in statement of total recognised gains and losses:
Amount (GBPm) (7,599)
Percentage of the present value of scheme liabilities 24.9%
17 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.
Fourth quarter Year ended
ended March 31 March 31
2003 2002 2003 2002
Net income (loss) attributable to 2,987 (2,874) 4,134 (732)
shareholders (GBP m) including discontinued
activities and exceptional items
Earnings (loss) per ADS (GBP)
- basic 3.46 (3.34) 4.80 (0.88)
- diluted 3.45 (3.34) 4.77 (0.88)
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with United States Generally
Accepted Accounting Principles, is GBP2,258m deficit at March 31, 2003 (March
31, 2002 - GBP4,247m deficit).
Non-financial statistics
March 31, 2003 March 31, 2002
BT Group
Exchange lines:
Business, including wholesale (000s) 9,062 9,030
Residential, including service providers (000s) 20,291 20,083
BT Retail (includes BT Openworld)
Narrowband PAYG (000s) 633 638
Narrowband unmetered (000s) 886 1,009
BT Openworld Broadband 292 108
BT Broadband Direct 137 -
Total customer base (000s) 1,948 1,755
BT Wholesale
Optical fibre in network (km millions) 6.4 5.9
SDH nodes 2,123 2,123
Next generation trunk switches 71 70
ADSL enabled exchanges 1,167 1,010
ADSL lines provided (000s) 800 167
BT Global Services
Inter-city fibre network (kms) (a) 48,000 56,000
Large towns/cities with Metropolitan Area Networks 18 21
Web hosting centres 22 21
Dial access ports (000s) 606 636
(a) Of which over 45,000 route kilometres are held through our wholly owned
businesses in Europe.
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 broadband growth and the benefits of other
new wave initiatives; the possible or assumed future results of operations of BT
and/or its lines of business; expectations regarding revenue growth, capital
expenditure, investment plans, cost reductions, return on capital employed,
dividend policy and future dividend cover, and pension funding.
Although BT Group 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; and the reintegration of Concert.
BT Group undertakes no obligation to update any forward-looking statements
whether as a result of new information, future events or otherwise.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BT Group PLC
(Registrant)
By: /s/ Patricia Day
--------------------
Patricia Day, Assistant Secretary. Head of Shareholder Services
Date 23 May 2003