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
17 May 2007
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- ________
Enclosure: 1. Final Results announcement made on 17 May, 2007
May 17, 2007
PRELIMINARY RESULTS - YEAR TO MARCH 31, 2007
FOURTH QUARTER HIGHLIGHTS
- Revenue of GBP5,292 million, up 3 per cent
- New wave revenue of GBP2,117 million, up 14 per cent, represents 40 per
cent of total revenue
- EBITDA before specific items(1) and leaver costs of GBP1,537 million, up 3
per cent
- Profit before taxation, specific items(1) and leaver costs of
GBP695 million, up 10 per cent
- Earnings per share before specific items(1) and leaver costs of
6.3 pence, up 11 per cent, the twentieth consecutive quarter of year on year
growth
- Broadband net additions(2) of 0.8 million to 10.7 million at March 31,
2007. BT Retail's share of net additions was 32 per cent
FULL YEAR HIGHLIGHTS
- Revenue of GBP20,223 million, up 4 per cent
- Profit before taxation and specific items(1) of GBP2,495 million, up
15 per cent
- Earnings per share before specific items(1) of 22.7 pence, up
16 per cent
- Free cash flow of GBP1,354 million and net debt of GBP7.9 billion
- Full year proposed dividend of 15.1 pence per share, up 27 per cent
- GBP2.5 billion allocated to a new share buyback programme, which we expect
to be completed by March 31, 2009
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 17 to 23.
(1)Specific items are significant one off or unusual items as defined in note 4
on page 27.
(2)Includes DSL and LLU connections.
Chairman's statement
Sir Christopher Bland, Chairman, commenting on the full year results, said:
"BT has come a long way in the past five years. This is a very strong set of
results which demonstrates how much has been achieved. Revenue grew by 4 per
cent and earnings per share before specific items grew by 16 per cent.
"I am delighted to report that our proposed full year dividend is 15.1 pence per
share, 27 per cent higher than last year, moving to a two thirds payout ratio a
year earlier than we had previously announced. In addition, because of the
financial strength of the company, we are introducing a new GBP2.5 billion share
buyback programme which we expect to be completed by March 31, 2009.
"We have delivered on our commitments and are confident we will continue to grow
revenue, EBITDA, earnings per share and dividends over the coming year."
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the fourth quarter results, said:
"We have finished the year with a terrific all round performance. The figures
show BT in great shape - revenue, EBITDA, earnings per share and free cash flow
are all growing and new wave businesses now generate 40 per cent of our
revenues. I am particularly pleased that BT is now the UK's number one retail
broadband provider. BT Global Services had an excellent quarter securing orders
worth GBP3.4 billion and winning more than 200 new customers.
"We have announced a new structure to take us into the next phase of our
transformation as we seize the opportunity to deliver software driven services
over our broadband network; providing our customers with faster, more resilient
and cost effective services wherever in the world they are."
RESULTS FOR THE FOURTH QUARTER AND YEAR ENDED
MARCH 31, 2007
Fourth quarter Year
2007 2006 Better 2007 2006 Better
GBPm GBPm (worse) GBPm GBPm (worse)
% %
Revenue 5,292 5,134 3 20,223 19,514 4
EBITDA
- before specific
items and leaver
costs 1,537 1,498 3 5,780 5,650 2
- before specific
items 1,474 1,431 3 5,633 5,517 2
Profit before
taxation
- before specific
items and leaver
costs 695 629 10 2,642 2,310 14
- before specific
items 632 562 12 2,495 2,177 15
- after specific
items 601 507 19 2,484 2,040 22
Earnings per
share
- before specific
items and leaver
costs 6.3p 5.7p 11 23.9p 20.6p 16
- before specific
items 5.8p 5.1p 14 22.7p 19.5p 16
- after specific
items 5.5p 4.7p 17 34.4p 18.4p 87
Capital
expenditure 905 973 7 3,247 3,142 (3)
Free cash flow 1,558 1,097 42 1,354* 1,612* (16)
Net debt 7,914 7,534 (5)
*Includes payment of deficiency pension contributions of GBP520 million (2006:
GBP54 million)
The commentary 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 27.
The income statement, cash flow statement and balance sheet are provided on
pages 17 to 23. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 32. A definition and reconciliation of free
cash flow and net debt are provided on pages 29 to 31.
GROUP RESULTS
Fourth quarter ended March 31, 2007
Revenue was 3 per cent higher at GBP5,292 million in the quarter with continued
strong growth in new wave revenue more than offsetting the decline in
traditional revenue. EBITDA before specific items and leaver costs grew by 2.6
per cent, the fifth consecutive quarter of growth. Earnings per share before
specific items and leaver costs increased by 11 per cent to 6.3 pence, the
twentieth consecutive quarter of year on year growth.
The strong growth in new wave revenue continued and at GBP2,117 million was 14
per cent higher than last year. New wave revenue is mainly generated from
networked IT services and broadband and accounted for 40 per cent of the group's
revenue. Networked IT services revenue grew by 6 per cent to GBP1,287 million,
and broadband revenue increased by 32 per cent to GBP556 million.
Our strategy of focusing on convergence through embracing innovation and
offering global reach continues to deliver. Networked IT services contract wins
were GBP2.0 billion in the quarter taking the total BT Global Services contract
wins to GBP3.4 billion in the fourth quarter, with GBP9.3 billion achieved over
the last twelve months.
BT had 10.7 million wholesale broadband connections (DSL and LLU) at March 31,
2007, including 1.9 million local loop unbundled lines, an increase of 2.6
million connections year on year and 763,000 connections in the quarter. BT
Retail's share of the net additions in the quarter was 32 per cent and our
advanced VoIP services continued to grow strongly with 1.4 million registered
customers at March 31, 2007. BT is now the UK's number one retail broadband
provider.
Revenue
Revenue from the group's traditional businesses declined by 3 per cent,
continuing recent trends. This reflects the defence of the traditional business
despite regulatory intervention, competition and migration of customers to new
wave services.
Major corporate (UK and international) revenue showed growth of 5 per cent, with
8 per cent growth in new wave revenue more than offsetting the 1 per cent
decline in traditional services. Migration from traditional voice only services
to networked IT services continued with new wave revenue representing two thirds
of all major corporate revenue.
Revenue in the fourth quarter from smaller and medium sized (SME) UK businesses
was maintained year on year. New wave revenue grew by 19 per cent driven by
continued growth in broadband and other new wave services. We continue to focus
on innovative pricing plans and propositions that deliver value to our customer
base by bringing together IT, broadband and communication services.
Consumer revenue in the fourth quarter was 1 per cent lower, continuing the
improving trend of recent quarters. Growth in consumer new wave revenue of
29 per cent continues to reduce our dependence on traditional revenue which has
declined by 6 per cent with the strategic shift towards new wave products and
services.
The 12 month rolling average revenue per consumer household increased by GBP4
for the second consecutive quarter to GBP262. Increased penetration of broadband
and the growth of value added propositions have more than offset the lower call
revenues. Following a period of sustained growth, the proportion of contracted
revenues remained at 68 per cent as a result of the reductions in package prices
made during the year.
Wholesale (UK and Global Carrier) revenue increased by 6 per cent driven by
wholesale line rental (WLR) and local loop unbundling (LLU). Wholesale new wave
revenue increased by 31 per cent to GBP389 million, mainly driven by broadband.
New wave revenue now accounts for 28 per cent of wholesale revenue.
Operating results
Group operating costs before specific items increased by 3 per cent year on year
to GBP4,672 million. Staff costs before leaver costs increased by GBP23 million
to GBP1,264 million due mainly to the additional staff needed to support
networked IT services contracts, increased levels of activity in the network and
21CN activities. Leaver costs were GBP63 million in the quarter (GBP67 million
last year). Payments to other telecommunication operators increased by GBP56
million to GBP1,071 million. Other operating costs before specific items of
GBP1,687 million increased by GBP54 million mainly due to increased costs of
sales from growth in networked IT and other new wave services which were partly
offset by cost savings from our efficiency programmes. Depreciation and
amortisation was flat year on year at GBP773 million.
Group operating profit before specific items and leaver costs increased by 5 per
cent to GBP764 million.
Earnings
Net finance costs before specific items were GBP70 million, an improvement of
GBP31 million against last year. This includes net finance income associated
with the group's defined benefit pension scheme which was GBP105 million in the
fourth quarter, GBP42 million higher than last year, which more than offset the
increase in interest on the higher net debt for the quarter.
Profit before taxation, specific items and leaver costs of GBP695 million
increased by 10 per cent.
The effective tax rate on the profit before specific items was 24.5 per cent
(23.3 per cent last year) compared to the UK statutory tax rate of 30 per cent,
reflecting the continued focus on tax efficiency within the group.
Earnings per share before specific items and leaver costs increased by
11 per cent to 6.3 pence.
Specific items
Specific items are defined in note 4 on page 27. There was a net charge before
tax of GBP31 million in the quarter (GBP55 million last year). Costs of GBP24
million relating to the further rationalisation of the group's property
portfolio were incurred in the quarter (GBP56 million last year) and a GBP4
million write off of working capital balances. In addition, there was a loss of
GBP3 million arising from the group's disposal of businesses.
Earnings per share after specific items were 5.5 pence in the quarter (4.7 pence
last year).
Cash flow and net debt
Net cash inflow from operating activities in the fourth quarter amounted to
GBP2,413 million compared to GBP2,065 million last year. This included the
benefit of a net cash receipt of GBP376 million in the quarter from the
settlement of open tax years to 2004/05 agreed with HMRC last quarter. For the
full year the net cash inflow from operating activities of GBP5,210 million was
GBP177 million lower than last year. This was after pension deficiency
contributions of GBP520 million (GBP54 million last year).
Free cash flow was a net inflow of GBP1,558 million in the fourth quarter
compared to GBP1,097 million last year, mainly reflecting the net cash tax
receipt. The cash outflow from the purchase of fixed assets of GBP836 million
was GBP44 million higher than last year. Capital expenditure for the full year
amounted to GBP3.2 billion and is expected to remain at that level for 2007/08
before trending down towards the end of the decade.
The share buyback programme continued with the repurchase of 46 million shares
for a total consideration of GBP140 million during the quarter, taking the total
value of shares repurchased in the year to GBP401 million. Net debt was
GBP7,914 million at March 31, 2007. Free cash flow and net debt are defined and
reconciled in notes 7 and 8 on pages 29 to 31.
Dividends
The board recommends a final dividend of 10.0 pence per share to shareholders,
amounting to GBP825 million. This will be paid, subject to shareholder approval,
on September 17, 2007 to shareholders on the register on August 24, 2007. The
ex-dividend date is August 22, 2007.
The full year proposed dividend has increased by 27 per cent to 15.1 pence per
share, compared to 11.9 pence last year. This year's dividend pay out ratio is
two thirds of earnings before specific items.
Pensions
The IAS 19 net pension obligation at March 31, 2007 was a deficit of GBP0.3
billion, net of tax, being GBP1.5 billion lower than the level at March 31,
2006. The BT Pension Scheme had assets of GBP38.3 billion at March 31, 2007.
Full year ended March 31, 2007
Revenue increased 4 per cent in the year to GBP20,223 million. Strong growth in
new wave revenue continued and at GBP7,374 million new wave revenue was 17 per
cent higher than last year. This strong growth more than offset the decline in
traditional revenue of 3 per cent.
We remain focused on financial discipline and our cost efficiency programmes
achieved savings of over GBP500 million in the full year which has enabled us to
invest in further growth of our new wave activities.
EBITDA before specific items was GBP5,633 million, 2 per cent higher than last
year. Group operating profit before specific items was GBP2,713 million, 3 per
cent higher than the prior year.
Net finance costs before specific items were GBP233 million, an improvement of
GBP239 million against last year. This includes net finance income associated
with the group's defined benefit pension scheme which was GBP420 million, GBP166
million higher than last year, and the repayment of maturing debt last year
which have contributed to the reduction in net finance costs. This reduction was
offset by a GBP27 million net gain last year on the early redemption of the US
dollar 2008 LG Telecom convertible bond.
The group achieved a profit before taxation and specific items of
GBP2,495 million, a 15 per cent increase on last year.
The effective tax rate on the profit before specific items was 24.5 per cent
(24.5 per cent last year). Our effective tax rate is expected to be between 25
and 26 per cent in 2007/08.
Earnings per share before specific items increased by 16 per cent to 22.7 pence.
21st Century Network
During the quarter, BT continued the process of migrating customers to its 21st
Century Network (21CN) in South Wales and achieved further milestones.
The rebuild of BT's core national network is also continuing and we are on track
to launch next generation broadband services to many of our customers nationally
by Spring 2008.
We also continued the programme to roll out 21CN infrastructure outside the UK,
with 21CN nodes established across a number of European markets.
Dividend and buyback policy
We expect to increase the dividend taking into account our earnings growth, cash
generation and our ongoing investment needs.
In addition, taking into account the group's net debt level and the strong cash
flow generation, we have decided to introduce a new GBP2.5 billion share buyback
programme whilst increasing dividends and continuing to invest in the growth of
the business. This buyback programme is expected to be completed by March 31,
2009. BT seeks to maintain a solid investment grade credit rating whilst
continuing to invest for the future and with an efficient balance sheet further
enhance shareholder value.
Business transformation
During April BT announced a new structure that will deliver faster, more
resilient and cost effective services to customers wherever they are. The move
is designed to accelerate BT's transformation into a networked IT services
company, delivering software driven products over broadband. It will also allow
us to accelerate the achievement of cost savings.
BT is bringing together its world class people from design, operations, IT and
networks into two business units within a single reporting structure headed by
Andy Green, who has become Chief Executive of Group Strategy and Operations. BT
Design will be responsible for the design and development of the platforms,
systems and processes which will support our services while BT Operate will be
responsible for their deployment and operation. Approximately 20,000 BT
employees will move into these new units from other parts of the business.
Francois Barrault has become Chief Executive of BT Global Services and has
joined the BT Board.
It is estimated that the reorganisation and transformation activities will
result in restructuring costs of around GBP450 million which is expected to
generate a payback within 2 to 3 years. These activities will include developing
new processes and systems, re-skilling and leaver costs which will be
accommodated within existing policies and by voluntary means. We expect the
majority of the costs will be incurred in 2007/08 and be classified as a
specific item in our 2007/08 results.
Outlook
Our performance underpins our confidence that we can continue to grow revenue,
EBITDA before specific items and leaver costs, earnings per share before
specific items and leaver costs, and dividends over the coming year.
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 30, 2007. The
Annual General Meeting of BT Group plc will be held at The Sage Gateshead, St
Mary's Square, Gateshead Quays on July 19, 2007.
LINE OF BUSINESS RESULTS
Openreach, a new line of business created in accordance with the regulatory
framework agreed with Ofcom (the Undertakings), was launched on January 21,
2006. It is responsible for ensuring that all communications providers have
transparent and equivalent access to the BT local network, and comprises a work
force of approximately 33,000 people. Its primary products are wholesale line
rental (WLR) and local loop unbundling (LLU).
In order to assist readers in understanding the year on year performance, we
have restated the comparative line of business results. These restatements also
reflect the impact of the new internal trading arrangements that have been
implemented due to the creation of Openreach. There is no change to the overall
group reported results.
BT Global Services
========================= =============
Fourth quarter ended March 31 Year ended
March 31
-------------------------------------- -------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,503 2,406 97 4 9,106 8,772
Gross profit 754 757 (3) - 2,673 2,633
SG&A before
leaver costs 429 450 21 5 1,653 1,658
----- ----- ------ ------
EBITDA before
leaver costs 325 307 18 6 1,020 975
Leaver costs 24 21 (3) (14) 52 49
----- ----- ------ ------
EBITDA 301 286 15 5 968 926
Depreciation
and
amortisation 190 168 (22) (13) 675 638
----- ----- ------ ------
Operating
profit 111 118 (7) (6) 293 288
===== ===== ====== ======
Capital
expenditure 184 220 36 16 695 702
===== ===== ====== ======
*Restated to reflect changes in intra-group trading arrangements.
BT Global Services revenue grew in the fourth quarter by 4 per cent to GBP2,503
million. New wave and non-UK revenue surpassed GBP2 billion for the first time
at GBP2,055 million, an increase of 9 per cent year on year. MPLS revenue rose
by 37 per cent to GBP179 million.
Order intake for the quarter was strong with networked IT services contract
orders of GBP2.0 billion, up GBP0.9 billion from the prior year, taking contract
orders for the last twelve months to GBP5.2 billion. This included a 5 year,
GBP0.6 billion contract from Credit Suisse for the management of their global
networking function, taking advantage of the latest connectivity technologies,
and a contract for GBP0.3 billion over 15 years with Sandwell Metropolitan
District Council to improve its performance in the delivery of its services.
Total orders in the quarter amounted to GBP3.4 billion, the highest level for
two years and GBP1.1 billion higher than last year, taking the value of total
orders achieved over the last twelve months to GBP9.3 billion. This quarter 207
new corporate customers from around the world chose BT for the first time.
EBITDA before leaver costs increased year on year by GBP18 million to GBP325
million, representing growth of 6 per cent, continuing the acceleration of the
EBITDA growth seen in previous quarters. Gross profit was broadly flat while SG&
A costs were reduced by GBP21 million as cost reduction initiatives continued to
take effect in our drive to achieve a 15 per cent EBITDA margin before leaver
costs. During the year more than 2,500 roles either had been or were in the
process of being globally sourced. Depreciation and amortisation charges
increased by GBP22 million to GBP190 million, which included the impact of
bringing further NHS London assets into use. Leaver costs were GBP3 million
higher at GBP24 million. Overall, this brought operating profit to GBP111
million, a reduction of GBP7 million from last year.
Capital expenditure in the quarter was GBP184 million, a decrease of GBP36
million over last year, and 1 per cent lower for the full year.
BT Global Services has further strengthened its global position, capabilities
and skills in driving towards a new and truly global software based services
organisation with the acquisition during the fourth quarter of INS in the US, a
global provider of IT consulting and software solutions. In addition, the
recently announced agreements to purchase Comsat International, a leading
provider of data communications services in Latin America, and i2i in India, a
specialist in IP communications services, will further strengthen the global
capability.
BT Retail
======================================== =============
Fourth quarter ended March 31 Year ended
March 31
---------------------------------------- ---------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,138 2,135 3 - 8,414 8,507
------ ------ ------ ------
Gross profit 604 582 22 4 2,350 2,229
SG&A before
leaver costs 376 376 - - 1,481 1491
------ ------ ------ ------
EBITDA before
leaver costs 228 206 22 11 869 738
Leaver costs 10 9 (1) (11) 24 22
------ ------ ------ ------
EBITDA 218 197 21 11 845 716
Depreciation
and
amortisation 49 38 (11) (29) 171 147
------ ------ ------ ------
Operating
profit 169 159 10 6 674 569
====== ====== ====== ======
Capital 52 53 1 2 166 153
expenditure ======= ======= ======= =======
*Restated to reflect changes in intra-group trading arrangements.
In the quarter BT Retail's EBITDA before leaver costs was 11 per cent higher
than last year, continuing the recent trend of strong growth. The success in
growing new wave revenues and defending traditional revenues continued and
overall revenue grew for the second successive quarter. The gross margin
percentage increased by 1.0 percentage point reflecting improved margin
management and the impact of cost transformation programmes. SG&A costs before
leaver costs were maintained driven by improved efficiency offsetting additional
costs invested in new services. Operating profit improved by 6 per cent to
GBP169 million in the quarter and for the full year improved by 18 per cent.
EBITDA for the full year grew by 18 per cent, at the upper end of our strong
growth targets. This growth was despite significant price cuts particularly to
our key call packages and extra value incorporated into our broadband offerings.
Further growth is expected in 2007/08.
In the quarter, traditional revenue declined by 6 per cent whilst new wave
revenue grew by 28 per cent, driven primarily by broadband and other new wave
services. New wave revenue was 23 per cent of total revenue which is up from 18
per cent last year.
Broadband revenue grew by 28 per cent to GBP259 million. In the quarter BT added
another 245,000 connections, in addition to the 195,000 connections gained
through BT's recent acquisition of PlusNet, ending the quarter at 3.7 million
broadband connections making BT the leading broadband retailer, by market share,
in the UK. BT Retail's share of broadband net additions (DSL and LLU) was 32 per
cent in the fourth quarter. In addition more than half of our consumer customers
who order broadband choose the higher value packages. BT's share of the
installed base increased to 34 per cent as at March 31, 2007.
Our broadband propositions continue to build on our strong reputation for
service, reliability and value for money. The BT Hub enables many features
allowing customers to experience the full benefits of the internet. Inclusive
use of Openzone as part of the BT broadband package means that customers can
enjoy the broadband experience outside their home. As planned, BT Vision is
being rolled out gradually to ensure a great customer experience, adding further
partners with Home Box Office and Universal Music UK. Our download store,
www.downloadstore.bt.com, is available to all 14 million UK broadband users
regardless of which internet service provider they use.
Our BT Home IT Advisor service, launched a year ago, has proven a success with
customer orders of more than 2,000 a week and with 96 per cent satisfied with
the support they get. The service allows customers of any broadband supplier to
connect to a UK based advisor who will deal with their problem.
The advanced VoIP service grew strongly in the quarter. Registered consumer
customers for our VoIP services, Broadband Talk and BT Softphone at March 31,
2007 were 1.4 million, achieving the million customer milestone significantly
ahead of our June 2007 target.
In the SME market, the success of our strategy of using broadband as a core part
of a simple and complete communication and IT solution for our customers is
reflected in our strong market share. BT Business Total Broadband launched in
the quarter allowing customers to benefit from a free broadband voice additional
line offer and our latest suite of security software, and we already have an
installed base of 47,000. Options 2 and 3 customers also enjoy the freedom of
wireless internet. BT Workspace, our user-friendly web-based collaboration tool
for business is helping businesses transform their working environment and
improve customer relationships. With BT Business One Plan, the first triple play
for business, we further simplify the customer experience by combining fixed,
mobile and broadband communications, allowing businesses to get even more value
for money from their existing broadband line.
Our aim is not just to provide great services in the home or office but also to
our customers when they are out and about. BT Openzone, our public Wi-Fi
service, continues to expand in airports, hotels and other locations. We have
set up Wi-Fi zones in twelve UK city centres and are already seeing a
significant increase in local authority support to expand further. Wi-Fi Fusion
and Office Anywhere bring together the benefits of fixed and mobile convergence
on one mobile device, with lower cost calls and better connectivity where GSM is
not available.
The Enterprises division within BT Retail continues to be a major success,
growing both revenue and profit by delivering innovative packages and services.
In the full year, the Enterprises division grew revenue and EBITDA by more than
30 per cent. Conferencing revenue grew strongly by 22 per cent and further
growth is expected as we launch our new video conferencing technology and
services later in the year. Dabs.com, which was acquired in April 2006, grew
revenue by 18 per cent, outpacing a competitive PC market.
BT Wholesale
====================================== =============
Fourth quarter ended March 31 Year ended
March 31
-------------------------------------- -----------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
External
revenue 1,003 989 14 1 4,057 3,908
Internal
revenue 927 879 48 5 3,527 3,435
------ ------ ------- -------
Revenue 1,930 1,868 62 3 7,584 7,343
Variable cost
of sales 984 956 (28) (3) 3,848 3,720
------ ------ ------- -------
Gross variable
profit 946 912 34 4 3,736 3,623
Network and
SG&A before
leaver costs 450 440 (10) (2) 1,775 1,731
------ ------ ------- -------
EBITDA before
leaver costs 496 472 24 5 1,961 1,892
Leaver costs 17 24 7 29 39 31
------ ------ ------- -------
EBITDA 479 448 31 7 1,922 1,861
Depreciation
and
amortisation 329 286 (43) (15) 1,198 1,102
------ ------ ------- -------
Operating
profit 150 162 (12) (7) 724 759
====== ====== ======= =======
Capital
expenditure 314 326 12 4 1,017 975
====== ====== ======= =====
*Restated to reflect changes in intra-group trading arrangements.
BT Wholesale external revenue in the fourth quarter of GBP1,003 million
increased by 1 per cent. Revenue from new wave services, driven by broadband
growth, increased to GBP286 million and now accounts for 29 per cent of external
revenue.
Internal revenue increased by 5 per cent to GBP927 million due to strong growth
in broadband revenue from internal channels more than offsetting the impact of
lower call volumes and lower regulatory prices being reflected in internal
charges.
Gross variable profit increased by 4 per cent to GBP946 million. Network and
SG&A costs increased by 2 per cent as a result of cost savings made through
network efficiencies, offset by network costs on the roll-out of 21CN. Leaver
costs for the quarter were GBP17 million compared to GBP24 million last year.
EBITDA before leaver costs has increased by 5 per cent to GBP496 million. Higher
depreciation, due to the shortening of the useful economic lives of legacy
transmission assets to be replaced by 21CN assets, has resulted in a 7 per cent
decline in operating profit.
Capital expenditure was 4 per cent lower than last year as the increased
investment in 21CN was more than offset by successfully managing the legacy
infrastructure on a lower level of capital investment.
BT Wholesale launched a 'white label managed services' platform in the quarter
which enables customers to offer service bundles without the operational and
financial risk of running a network and developing new service offerings. The
platform incorporates customer call centre and managed billing capabilities.
BT Wholesale is underpinning Vodafone UK's recently announced 'Vodafone at Home'
fixed line voice and broadband service, which went live on January 8, 2007, as
part of a managed service.
The company also continued a foundation trial for next generation broadband
services based on ADSL2+ during the quarter in Cardiff. The trial is an
important step in the delivery of next generation broadband services at up to 24
Mbps to customers across the UK from 2008 as part of the company's rollout of
21CN.
Openreach
===================================== =============
Fourth quarter ended March 31 Year ended
March 31
------------------------------------- -------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
External
revenue 204 122 82 67 685 318
Revenue from
other BT lines
of business 1,121 1,177 (56) (5) 4,492 4,824
------- ------- ------- -------
Revenue 1,325 1,299 26 2 5,177 5,142
Operating costs
before
leaver costs 838 790 (48) (6) 3,289 3,156
------- ------- ------- -------
EBITDA before
leaver costs 487 509 (22) (4) 1,888 1,986
Leaver costs 1 2 1 50 4 3
------- ------- ------- -------
EBITDA 486 507 (21) (4) 1,884 1,983
Depreciation
and
amortisation 177 230 53 23 707 800
------- ------- ------- -------
Operating
profit 309 277 32 12 1,177 1,183
======= ======= ======= =======
Capital
expenditure 261 265 4 2 1,108 1,038
======= ======= ======= =======
*Restated to reflect changes in intra-group trading arrangements.
Openreach's revenue in the fourth quarter was GBP1,325 million, a 2 per cent
increase, driven by strong market volume growth which has more than offset WLR
price reductions made in prior periods. External revenue increased by GBP82
million due to volume growth on all products, including broadband related
connections. Revenues from other BT lines of business decreased by 5 per cent to
GBP1,121 million reflecting the volume shift to external revenues and the
regulatory price reductions made in prior periods.
Operating costs increased by GBP48 million to GBP838 million. Operational
volumes have increased as a result of high broadband connection activity and the
continued investment in service levels. These volume increases and the effects
of inflationary pressures have been partly offset by efficiency programme
savings across the business to keep the overall increase to 6 per cent.
Overall this has resulted in a GBP22 million decrease in EBITDA before leaver
costs.
However, this has been offset by the decrease in depreciation and amortisation
costs of GBP53 million. This is primarily due to the lengthening of the useful
economic life of copper and duct, consistent with Ofcom's review. Operating
profit improved by GBP32 million to GBP309 million.
Capital expenditure in the quarter was 2 per cent lower. Increased spend to meet
LLU demand and systems development to ensure compliance with the Undertakings
have been partly mitigated by the strong capital cost controls and lower
business as usual systems spend.
At March 31, 2007 Openreach had 1.9 million external LLU lines with net
additions of 615,000 LLU connections in the quarter. Openreach has 4.2 million
external WLR lines and channels.
On March 31, 2007, Openreach achieved IBMC (Installed Base Migration Complete)
on the retail Ethernet based area network services, except for Local Area
Network Extension Service products which are subject to an exemption and will be
migrated later this year. Openreach continues to progress with the commitment
to achieve Equivalence of Input for WLR and the separation of Operational
Support Systems both due at the end of June 2007.
GROUP INCOME STATEMENT
for the three months ended March 31, 2007
------------------------- ------ ---------- ----------- ---------
Before Specific items
specific items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------- ------ ---------- ----------- ---------
Revenue 2 5,292 - 5,292
Other operating income 81 (5) 76
Operating costs 3 (4,672) (28) (4,700)
------- ------- -------
Operating profit 2 701 (33) 668
Finance costs (655) - (655)
Finance income 585 - 585
------- ------- -------
Net finance costs 5 (70) - (70)
Share of post tax profits
of associates and joint
ventures 1 - 1
Profit on disposal of
associate - 2 2
------- ------- -------
Profit before taxation 632 (31) 601
Taxation (155) 9 (146)
------- ------- -------
Profit for the period 477 (22) 455
======= ======= =======
Attributable to:
Equity shareholders 476 (22) 454
Minority interest 1 - 1
======= ======= =======
Earnings per share 6
- basic 5.8p 5.5p
======= =======
- diluted 5.6p 5.3p
======= =======
GROUP INCOME STATEMENT
for the three months ended March 31, 2006
------------------------- ------ ---------- ----------- ---------
Before Specific items
specific items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------- ------ ---------- ----------- ---------
Revenue 2 5,134 - 5,134
Other operating income 78 - 78
Operating costs 3 (4,554) (56) (4,610)
------- ------- -------
Operating profit 2 658 (56) 602
Finance costs (640) - (640)
Finance income 539 - 539
------- ------- -------
Net finance costs 5 (101) - (101)
Share of post tax profits
of associates and joint
ventures 5 - 5
Profit on disposal of
joint venture - 1 1
------- ------- -------
Profit before taxation 562 (55) 507
Taxation (131) 16 (115)
------- ------- -------
Profit for the period 431 (39) 392
======= ======= =======
Attributable to:
Equity shareholders 430 (39) 391
Minority interest 1 - 1
======= ======= =======
Earnings per share 6
- basic 5.1p 4.7p
======= =======
- diluted 5.1p 4.6p
======= =======
GROUP INCOME STATEMENT
for the year ended March 31, 2007
------------------------ ------ ----------- ----------- ---------
Before specific Specific items
items (note 4) Total
Notes GBPm GBPm GBPm
------------------------ ------ ----------- ----------- ---------
Revenue 2 20,223 - 20,223
Other operating income 236 (3) 233
Operating costs 3 (17,746) (169) (17,915)
---------- ---------- ----------
Operating profit 2 2,713 (172) 2,541
Finance costs (2,604) - (2,604)
Finance income 2,371 139 2,510
---------- ---------- ----------
Net finance (costs) income 5 (233) 139 (94)
Share of post tax profits
of associates and joint
ventures 15 - 15
Profit on disposal of
associate - 22 22
---------- ---------- ----------
Profit before taxation 2,495 (11) 2,484
Taxation (611) 979 368
---------- ---------- ----------
Profit for the period 1,884 968 2,852
========== ========== ==========
Attributable to:
Equity shareholders 1,882 968 2,850
Minority interest 2 - 2
========== ========== ==========
Earnings per share 6
- basic 22.7p 34.4p
========== ==========
- diluted 22.2p 33.6p
========== ==========
GROUP INCOME STATEMENT
for the year ended March 31, 2006
------------------------ ------ ----------- ----------- ---------
Before specific Specific items
items (note 4) Total
Notes GBPm GBPm GBPm
------------------------ ------ ----------- ----------- ---------
Revenue 2 19,514 - 19,514
Other operating income 227 - 227
Operating costs 3 (17,108) (138) (17,246)
----------- ----------- ---------
Operating profit 2 2,633 (138) 2,495
Finance costs (2,740) - (2,740)
Finance income 2,268 - 2,268
----------- ----------- ---------
Net finance costs 5 (472) - (472)
Share of post tax profits
of associates and joint
ventures 16 - 16
Profit on disposal of
joint venture - 1 1
----------- ----------- ---------
Profit before taxation 2,177 (137) 2,040
Taxation (533) 41 (492)
----------- ----------- ---------
Profit for the period 1,644 (96) 1,548
=========== =========== =========
Attributable to:
Equity shareholders 1,643 (96) 1,547
Minority interest 1 - 1
=========== =========== =========
Earnings per share 6
- basic 19.5p 18.4p
=========== =========
- diluted 19.2p 18.1p
=========== =========
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended March 31, 2007
------------------------------------------------- ------------------
Year ended
March 31
2007 2006
GBPm GBPm
------------------------------------------------- -------- ---------
Profit for the period 2,852 1,548
======== ========
Actuarial gains on defined benefit pension schemes 1,409 2,122
Net gains (losses) on cash flow hedges 163 (200)
Exchange differences on translation of foreign
operations (95) 24
Tax on items taken directly to equity (486) (593)
-------- --------
Net gains recognised directly in equity 991 1,353
-------- --------
Total recognised income for the period 3,843 2,901
======== ========
Attributable to:
Equity shareholders 3,843 2,900
Minority interest - 1
-------- --------
3,843 2,901
======== ========
GROUP CASH FLOW STATEMENT
for the three months and year ended March 31, 2007
--------------------------- ----------------------- ---------------------
Fourth quarter Year ended
ended March 31 March 31
(unaudited)
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
--------------------------- -------- -------- --------- -------
Cash flow from operating
activities
Cash generated from
operations (note 7 (a)) 2,168 2,138 5,245 5,777
Income taxes received (paid) 245 (73) (35) (390)
------- ------- ------- -------
Net cash inflow from
operating activities 2,413 2,065 5,210 5,387
Cash flow from investing
activities
Net acquisition of
subsidiaries, associates and
joint ventures (163) (55) (237) (167)
Net purchase of property,
plant, equipment
and software (836) (792) (3,209) (2,874)
Interest received 84 19 147 185
Dividends received from
associates and joint ventures - - 6 1
Net sale of short term
investments and non current
asset investments 191 933 258 3,220
------- ------- ------- -------
Net cash (used) received in
investing activities (724) 105 (3,035) 365
Cash flows from financing
activities
Net repurchase of ordinary
share capital (73) (106) (279) (339)
Net repayments of borrowings (153) (1,204) (1,074) (3,410)
Net movement on commercial
paper (723) 464 309 464
Interest paid (117) (195) (797) (1,086)
Equity dividends paid (419) (358) (1,057) (907)
------- ------- --------- -------
Net cash used in financing
activities (1,485) (1,399) (2,898) (5,278)
Effects of exchange rate
changes (9) - (37) -
------- ------- --------- -------
Net increase (decrease) in
cash and cash equivalents 195 771 (760) 474
======= ======= ========= =======
Cash and cash equivalents at
beginning of period 829 1,013 1,784 1,310
Cash and cash equivalents,
net of bank overdrafts, at
end of period (note 7 (c)) 1,024 1,784 1,024 1,784
======= ======= ======= =======
Free cash flow(1)note 7 (b)) 1,558 1,097 1,354 1,612
======= ======= ======= =======
Decrease (increase) in net
debt from cash flows
(note 8 (b)) 903 578 (219) 199
======= ======= ======= =======
(1) Net of pension deficiency
contributions (20) - (520) (54)
GROUP BALANCE SHEET
at March 31, 2007
---------------------------------------- ------------ ------------
March 31 March 31
2007 2006
GBPm GBPm
---------------------------------------- ------------ ------------
Non current assets
Goodwill and other intangible assets 2,584 1,908
Property, plant and equipment 14,997 15,222
Trade and other receivables 523 305
Other non current assets 119 84
Deferred tax assets 117 764
---------- ---------
18,340 18,283
---------- ---------
Current assets
Inventories 133 124
Trade and other receivables 4,073 3,894
Current tax receivables 504 -
Other financial assets 30 434
Cash and cash equivalents 1,075 1,965
---------- ---------
5,815 6,417
---------- ---------
Total assets 24,155 24,700
========== =========
Current liabilities
Loans and other borrowings 2,203 1,940
Trade and other payables 6,719 6,540
Other current liabilities 695 1,000
---------- ---------
9,617 9,480
---------- ---------
Total assets less current liabilities 14,538 15,220
========== =========
Non current liabilities
Loans and other borrowings 6,387 7,995
Deferred tax liabilities 1,683 1,505
Retirement benefit obligations 389 2,547
Other non current liabilities 1,807 1,566
---------- ---------
10,266 13,613
---------- ---------
Capital and reserves
Called up share capital 432 432
Reserves 3,806 1,123
---------- ---------
Total equity shareholders' funds 4,238 1,555
Minority interest 34 52
---------- ---------
Total equity 4,272 1,607
---------- ---------
14,538 15,220
========== =========
NOTES
1 Basis of preparation and accounting policies
The preliminary results for the year ended March 31, 2007 have been extracted
from the audited consolidated financial statements which have not yet been
delivered to the Registrar of Companies but are expected to be published on May
30, 2007.
The financial information set out in this announcement does not constitute
statutory accounts for the year ended March 31, 2007 or 2006. The financial
information for the year ended March 31, 2006 is derived from the statutory
accounts for that year. The report of the auditors on the statutory accounts for
the year ended March 31, 2006 was unqualified and did not contain a statement
under section 237 of the Companies Act 1985.
Certain comparative balance sheet amounts as at March 31, 2006 have been
reclassified to conform with the presentation adopted as at March 31, 2007.
These include GBP305 million which has been reclassified from prepayments to non
current assets at March 31, 2006 in respect of costs relating to the initial set
up, transition or transformation phase of long term networked IT services
contracts. In addition, GBP267 million has been reclassified from property,
plant and equipment to intangible assets at March 31, 2006 in respect of IT
software application assets.
In order to assist readers in understanding the year on year performance, we
have restated the comparative line of business results to reflect the creation
of Openreach which is now reported as a separate line of business. These
restatements also reflect the impact of the new internal trading arrangements
that have been implemented. There is no change to the overall group reported
results.
2 Results of businesses
(a) Operating results
External Internal Group EBITDA Group operating
revenue revenue revenue (ii) profit (loss)
(ii)
GBPm GBPm GBPm GBPm GBPm
Fourth quarter ended
March 31, 2007
BT Global Services 2,065 438 2,503 301 111
BT Retail 2,015 123 2,138 218 169
BT Wholesale 1,003 927 1,930 479 150
Openreach 204 1,121 1,325 486 309
Other 5 - 5 (10) (38)
Intra-group items(i) - (2,609) (2,609) - -
------- ------- ------- ------- -------
Total 5,292 - 5,292 1,474 701
======= ======= ======= ======= =======
Fourth quarter ended
March 31, 2006
(restated - note 1)
BT Global Services 1,992 414 2,406 286 118
BT Retail 2,026 109 2,135 197 159
BT Wholesale 989 879 1,868 448 162
Openreach 122 1,177 1,299 507 277
Other 5 - 5 (7) (58)
Intra-group items(i) - (2,579) (2,579) - -
------- ------- ------- ------- -------
Total 5,134 - 5,134 1,431 658
======= ======= ======= ======= =======
Year ended
March 31, 2007
BT Global Services 7,467 1,639 9,106 968 293
BT Retail 7,997 417 8,414 845 674
BT Wholesale 4,057 3,527 7,584 1,922 724
Openreach 685 4,492 5,177 1,884 1,177
Other 17 - 17 14 (155)
Intra-group items(i) - (10,075) (10,075) - -
------- ------- ------- ------- -------
Total 20,223 - 20,223 5,633 2,713
======= ======= ======= ======= =======
Year ended
March 31, 2006
(restated - see
note 1)
BT Global Services 7,168 1,604 8,772 926 288
BT Retail 8,102 405 8,507 716 569
BT Wholesale 3,908 3,435 7,343 1,861 759
Openreach 318 4,824 5,142 1,983 1,183
Other 18 - 18 31 (166)
Intra-group items(i) - (10,268) (10,268) - -
------- ------- ------- ------- -------
Total 19,514 - 19,514 5,517 2,633
======= ======= ======= ======= =======
(i) Elimination of intra-group revenue between businesses, which is included
in the total revenue of the originating business.
(ii) Before specific items.
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. For regulated
products and services those transfer prices are market based, whilst for other
products and services, the transfer prices are agreed between the relevant lines
of business on an arm's length basis. These intra-group trading arrangements are
subject to periodic review.
2 Results of businesses continued
(b) Revenue analysis
------------------------ -------------
Fourth quarter ended Year ended
March 31 March 31
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Traditional 3,175 3,283 (108) (3) 12,849 13,232
New wave 2,117 1,851 266 14 7,374 6,282
------- ------- ------- -------
5,292 5,134 158 3 20,223 19,514
======= ======= ======= =======
Major corporate 2,009 1,922 87 5 7,244 6,880
Business 588 587 1 - 2,353 2,324
Consumer 1,305 1,312 (7) (1) 5,124 5,296
Wholesale/Carrier 1,385 1,308 77 6 5,485 4,996
Other 5 5 - - 17 18
------- ------- ------- -------
5,292 5,134 158 3 20,223 19,514
======= ======= ======= =======
(c) New wave revenue analysis
------------------------ -------------
Fourth quarter ended Year ended
March 31 March 31
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Networked IT services 1,287 1,214 73 6 4,386 4,065
Broadband 556 421 135 32 2,016 1,459
Mobility 78 82 (4) (5) 294 292
Other 196 134 62 46 678 466
------- ------- ------- -------
2,117 1,851 266 14 7,374 6,282
======= ======= ======= =======
(d) Capital expenditure on property, plant, equipment, software and motor
vehicles
------------------------ -------------
Fourth quarter ended Year ended
March 31 March 31
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
BT Global Services 184 220 36 16 695 702
BT Retail 52 53 1 2 166 153
BT Wholesale 314 326 12 4 1,017 975
Openreach 261 265 4 2 1,108 1,038
Other (including fleet
vehicles and property) 94 109 15 14 261 274
----- ----- ------- -------
905 973 68 7 3,247 3,142
===== ===== ======= =======
Transmission equipment 312 353 41 12 1,209 1,429
Exchange equipment 41 23 (18) (78) 118 80
Other network equipment 251 283 32 11 854 727
Computers and office 69 72 3 4 149 138
equipment
Software 206 182 (24) (13) 807 592
Motor vehicles and other 14 34 20 59 49 108
Land and buildings 12 26 14 54 61 68
----- ----- ------- -------
905 973 68 7 3,247 3,142
===== ===== ======= =======
3 (a) Operating costs
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Staff costs before leaver costs 1,264 1,241 5,076 4,833
Leaver costs 63 67 147 133
------- ------- ------- -------
Staff costs 1,327 1,308 5,223 4,966
Own work capitalised(1) (186) (175) (718) (674)
------- ------- ------- -------
Net staff costs 1,141 1,133 4,505 4,292
Depreciation and amortisation 773 773 2,920 2,884
Payments to telecommunication 1,071 1,015 4,162 4,045
operators
Other operating costs 1,687 1,633 6,159 5,887
------- ------- ------- -------
Total before specific items 4,672 4,554 17,746 17,108
Specific items (note 4) 28 56 169 138
------- ------- ------- -------
Total 4,700 4,610 17,915 17,246
======= ======= ======= =======
(1)Own work capitalised has been restated to exclude third party costs. This has
no effect on the total costs.
(b) Leaver costs
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
BT Global Services 24 21 52 49
BT Retail 10 9 24 22
BT Wholesale 17 24 39 31
Openreach 1 2 4 3
Other 11 11 28 28
---- ---- ---- ----
Total 63 67 147 133
==== ==== ===== =====
4 Specific items
BT separately identifies and discloses any significant one off or unusual items
(termed "specific items"). This includes profit and losses on the disposal of
investments and businesses, and asset impairment charges. This is consistent
with the way that financial performance is measured by management and we believe
assists in providing a meaningful analysis of the trading results of the group.
Specific items may not be comparable to similarly titled measures used by other
companies.
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Creation of Openreach - - 30 70
Property rationalisation costs 24 56 64 68
Write off of circuit inventory and
working capital balances 4 - 65 -
Cost associated with settlement of
open tax years - - 10 -
------ ------ ------ ------
Specific operating costs 28 56 169 138
Loss (profit) on sale of non current
asset investments 3 (1) (19) (1)
Interest on settlement of open tax
years - - (139) -
Tax credit (9) (16) (979) (41)
------ ------ ------ ------
Total specific items loss (profit) (22) 39 (968) 96
====== ====== ====== ======
5 Net finance costs
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Finance costs(1) before pension
interest 187 186 732 924
Interest on pension scheme
liabilities 468 454 1,872 1,816
------- ------- ------- -------
Finance costs 655 640 2,604 2,740
------- ------- ------- -------
Finance income(2) before pension
income (12) (22) (218) (198)
Expected return on pension scheme
assets (573) (517) (2,292) (2,070)
------- ------- ------- -------
Finance income (585) (539) (2,510) (2,268)
------- ------- ------- -------
Net finance costs 70 101 94 472
======= ======= ======= =======
Net finance costs before pensions 175 164 514 726
Interest associated with pensions (105) (63) (420) (254)
------- ------- ------- -------
Net finance costs 70 101 94 472
======= ======= ======= =======
(1) Finance costs in the fourth quarter and year ended March 31, 2007 include a
net charge of GBP3 million and GBP4 million, respectively, arising from the
re-measurement of financial instruments on a fair value basis which under IAS 39
are not in hedging relationships (fourth quarter and year ended March 31, 2006
included a GBP4 million net credit and GBP8 million net charge respectively). A
component of the net credits for the year ended March 31, 2006 was the fair
value movement in, and realised gain arising from, the early redemption of the
US dollar 2008 LG Telecom convertible bond amounting to GBP27 million.
(2)Finance income in the year ended March 31, 2007 includes of GBP139 million of
interest on settlement of open tax years.
6 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 and treasury shares. 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 were:
Fourth quarter Year ended
ended March 31 March 31
2007 2006 2007 2006
millions of shares millions of shares
Basic 8,265 8,354 8,293 8,422
Diluted 8,487 8,473 8,479 8,537
7 (a) Reconciliation of profit before tax to cash generated from operations
Fourth quarter Year ended
ended March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Profit before tax 601 507 2,484 2,040
Depreciation and amortisation 773 773 2,920 2,884
Associates and joint ventures (1) (5) (15) (16)
Employee share scheme costs 23 17 93 76
Net finance (income) costs 70 101 94 472
Profit on disposal of property assets
and non current asset investments 3 - (19) -
Changes in working capital 713 705 (52) 120
Provisions movements, pensions and
other (14) 40 (260) 201
------ ------- ------- -------
Cash generated from operations 2,168 2,138 5,245 5,777
======= ======= ======= =======
(b) Free cash flow
Fourth quarter Year ended
ended March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Cash generated from operations 2,168 2,138 5,245 5,777
Income taxes received (paid) 245 (73) (35) (390)
------- ------- ------- -------
Net cash inflow from operating
activities 2,413 2,065 5,210 5,387
Included in cash flows from
investing activities
Net purchase of property, plant,
equipment and software (836) (792) (3,209) (2,874)
Net purchase of non current asset
investments 14 - (3) (1)
Dividends received from associates - - 6 1
Interest received 84 19 147 185
Included in cash flows from
financing activities
Interest paid (117) (195) (797) (1,086)
------- ------- ------- -------
Free cash flow 1,558 1,097 1,354 1,612
======= ======= ======= =======
Free cash flow is defined as the net increase in cash and cash equivalents less
cash flows from financing activities (except interest paid), less the
acquisition or disposal of group undertakings and less the net sale of short
term investments. It is not a measure recognised under IFRS but is a key
indicator used by management in order to assess operational performance.
(c) Cash and cash equivalents
At March 31
2007 2006
GBPm GBPm
Cash at bank and in hand 568 511
Short term deposits 507 1,454
-------- -------
Cash and cash equivalents 1,075 1,965
Bank overdrafts (51) (181)
-------- -------
1,024 1,784
======== =======
8 Net debt
Net debt at March 31, 2007 was GBP7,914 million (March 31, 2006 - GBP7,534
million).
Net debt consists of loans and other borrowings less current asset investments
and cash and cash equivalents. Loans and other borrowings are measured at the
net proceeds raised, adjusted to amortise any discount over the term of the
debt. For the purpose of this analysis current asset investments, cash and cash
equivalents are measured at the lower of cost and net realisable value. Currency
denominated balances within net debt are translated to sterling at swapped rates
where hedged.
This definition of net debt measures balances at the expected value of future
cash flows due to arise on maturity of financial instruments and removes the
balance sheet adjustments made for the re-measurement of hedged risks under fair
value hedges and the use of the amortised cost method as required by IAS 39. In
addition, the gross balances are adjusted to take account of netting
arrangements amounting to GBP49 million. Net debt is a non GAAP measure since it
is not defined in IFRS but it is a key indicator used by management in order to
assess operational performance.
8 (a) Analysis
At March 31
2007 2006
GBPm GBPm
Loans and other borrowings 8,590 9,935
Cash and cash equivalents (1,075) (1,965)
Other current financial assets(1) (3) (365)
--------- --------
7,512 7,605
Adjustments:
To retranslate currency denominated balances at swapped
rates where hedged 577 121
To recognise borrowings and investments at net proceeds
and unamortised discount (175) (192)
--------- --------
Net debt 7,914 7,534
========= ========
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at March 31, 2007 was GBP8,943 million (March 31, 2006 -
GBP9,685 million).
(1)Excluding derivative financial instruments of GBP27 million and GBP69 million
at March 31, 2007 and 2006, respectively.
8 (b) Reconciliation of movement in net debt
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Net debt at beginning of period 8,796 8,113 7,534 7,893
(Decrease) increase in net debt
resulting from cash flows (903) (578) 219 (199)
Net debt assumed or issued on
acquisitions 2 (1) 11 -
Currency movements 10 (10) 124 (75)
Other non-cash movements 9 10 26 (85)
------- ------- ------- -------
Net debt at end of period 7,914 7,534 7,914 7,534
======= ======= ======= =======
9 Statement of changes in equity
Year ended
March 31
2007 2006
GBPm GBPm
Shareholders' funds 1,555 45
Minority interest 52 50
-------- ---------
1,607 95
Effect of adoption of IAS 32 and IAS 39 - (209)
-------- ---------
Fund (deficit) at beginning of year 1,607 (114)
Total recognised income for the year 3,843 2,901
Share based payments 71 65
Issues of shares 24 4
Tax on items taken directly to equity 82 5
Net purchase of treasury shares (284) (344)
Dividends on ordinary shares (1,053) (912)
Minority interest (18) 2
-------- ---------
Net changes in equity for the financial year 2,665 1,721
Equity at end of year
Shareholders' funds 4,238 1,555
Minority interest 34 52
-------- ---------
Total equity 4,272 1,607
======== =========
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Fourth quarter Year ended
ended
March 31 March 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Operating profit 668 602 2,541 2,495
Specific items (note 4) 33 56 172 138
Depreciation and amortisation (note 773 773 2,920 2,884
3) ------- ------- ------- -------
EBITDA before specific items 1,474 1,431 5,633 5,517
======= ======= ======= =======
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
before specific items is not a measure recognised under IFRS, but it is a key
indicator used by management in order to assess operational performance.
11 Dividends
The directors recommend a final dividend of 10.0 pence per share (7.6 pence last
year). This will be paid, subject to shareholder approval, on September 17, 2007
to shareholders who were on the register at August 24, 2007. This final
dividend, amounting to GBP825 million (GBP631 million last year) has not been
included as a liability as at March 31, 2007. It will be recognised as an
appropriation of retained earnings within shareholders' equity in the quarter
ended September 30, 2007. This takes the total proposed dividend in relation to
the year to 15.1 pence per share (11.9 pence last year).
12 United States Generally Accepted Accounting Principles (US GAAP)
The results set out above have been prepared in accordance with the basis of
preparation as set out in note 1. The table below sets out the results
calculated in accordance with US GAAP.
Fourth quarter ended Year ended
March 31 March 31
2007 2006 2007 2006
Net income attributable to
shareholders (GBPm) 422 227 2,792 1,063
Earnings per ADS (GBP)
- basic 0.51 0.27 3.37 1.26
- diluted 0.50 0.27 3.29 1.25
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with US GAAP, is GBP3,586 million
at March 31, 2007 (March 31, 2006 - GBP162 million (restated)*).
*Shareholders' equity at March 31, 2006 has been restated, resulting in an
increase of GBP320 million, to correct a deferred tax valuation allowance.
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 revenue, EBITDA, earnings per share and
dividends, growing free cash flow and improved shareholder returns; growth in
new wave revenue, mainly from networked IT services and broadband;
implementation of BT's 21st Century Network; the introduction of next generation
services; and BT's accelerated strategic transformation and achievement of cost
savings.
Although BT believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations will
prove to have been correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.
Factors that could cause differences between actual results and those implied by
the forward-looking statements include, but are not limited to; material adverse
changes in economic conditions in the markets served by BT; 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.
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.
Date 17 May, 2007