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
08 February, 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- ________
Enclosures: 1. 3rd Quarter Results announcement made on 8 February 2007
February 8, 2007
THIRD QUARTER AND NINE MONTHS RESULTS TO DECEMBER 31, 2006
THIRD QUARTER HIGHLIGHTS
* Revenue of GBP5,126 million, up 5 per cent
* New wave revenue of GBP1,880 million, up 17 per cent, representing 37 per
cent of total revenue
* EBITDA before specific items1 and leaver costs of GBP1,439 million, up 2
per cent
* Profit before taxation, specific items1 and leaver costs of GBP643 million,
up 13 per cent
* Earnings per share before specific items1 and leaver costs of 5.8 pence, up
14 per cent
* Specific items include a net credit of GBP1,067 million relating to the
settlement of ten open tax years
* Continued strong broadband net additions2 of 697,000 of which BT Retail's
share was 34 per cent
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 16 to 22.
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the third quarter results, said:
"This is another strong set of results; our strategy is delivering and the
positive trends are gathering momentum. The revenue growth of 5 per cent
reflects continued strong growth in new wave services and a robust defence of
our traditional business, underpinned by growth in active consumer customers for
the first time in four years.
"There are now more than 10 million wholesale broadband connections2 and the
market continues to grow strongly. In an intensely competitive market BT
Retail's share of the net additions2 in the quarter was 34 per cent. Openreach
has reached 1.5 million LLU connections this month. The sales orders won by BT
Global Services in the quarter were GBP2.5 billion.
"After nineteen consecutive quarters of earnings per share3 growth, our
expectations are to continue to grow our revenue, EBITDA3, earnings per share3
and dividends for this financial year and next."
1 Before specific items which are significant one off or unusual items as
defined in note 4 on pages 26 to 27.
2 DSL and LLU connections.
3 Before specific items and leaver costs.
RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
TO DECEMBER 31, 2006
Third quarter Nine months
------------------------ ------------------------------
2006 2005 Better 2006 2005 Better
GBPm GBPm (worse) GBPm GBPm (worse)
% %
Revenue 5,126 4,882 5 14,931 14,380 4
EBITDA
- before specific
items and leaver
costs 1,439 1,404 2 4,243 4,152 2
- before specific
items 1,412 1,381 2 4,159 4,086 2
Profit before
taxation
- before specific
items and leaver
costs 643 568 13 1,947 1,681 16
- before specific
items 616 545 13 1,863 1,615 15
- after specific
items 639 545 17 1,883 1,533 23
Earnings per share
- before specific
items and leaver
costs 5.8p 5.1p 14 17.6p 14.9p 18
- before specific
items 5.6p 4.9p 14 16.9p 14.4p 17
- after specific
items 17.6p 4.9p n/m 28.9p 13.7p n/m
Capital expenditure 815 759 (7) 2,342 2,169 (8)
Free cash flow (525)1 138 n/m (204)1 515 n/m
Net debt 8,796 8,113 (8)
===============================================================================
1 Includes payment of deficiency pension contributions of GBP500 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 pages 26 to 27.
The income statement, cash flow statement and balance sheet are provided on
pages 16 to 22. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 31. A definition and reconciliation of free
cash flow and net debt are provided on pages 28 to 30.
GROUP RESULTS
Revenue was 5 per cent higher at GBP5,126 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 2.5
per cent, the fourth consecutive quarter of growth. Earnings per share before
specific items and leaver costs increased by 14 per cent to 5.8 pence, the
nineteenth consecutive quarter of year on year growth.
The strong growth in new wave revenue continued and at GBP1,880 million was
17 per cent higher than last year. New wave revenue accounted for 37 per cent of
the group's revenue compared to 33 per cent in the third quarter of last year.
New wave revenue is mainly generated from networked IT services and broadband.
Networked IT services revenue grew by 8 per cent to GBP1,117 million, and
broadband revenue increased by 39 per cent to GBP520 million.
BT Global Services contract wins were GBP2.5 billion in the third quarter, with
GBP8.2 billion achieved over the last twelve months.
BT had 10 million wholesale broadband connections (DSL and LLU) at December 31,
2006, including 1.3 million local loop unbundled lines, an increase of 2.7
million connections year on year and 697,000 connections in the quarter. Over 50
per cent of all UK homes now subscribe to broadband services, comprising both
DSL and cable services1. BT Retail's share of the net additions in the quarter
was 34 per cent.
Revenue
Revenue from the group's traditional businesses declined by 1 per cent, an
improvement on recent trends. This strong performance reflects a robust defence
of the traditional business and is despite the regulatory intervention,
competition and migration of customers to new wave services.
Major corporate (UK and international) revenue showed growth of 6 per cent, with
8 per cent growth in new wave revenue and 3 per cent growth in traditional
services. Migration from traditional voice only services to networked IT
services continued with new wave revenue representing 61 per cent of all major
corporate revenue.
Revenue from smaller and medium sized (SME) UK businesses grew by 3 per cent
year on year. New wave revenue grew by 31 per cent driven by continued growth in
broadband and other new wave services. We continue to develop innovative pricing
plans and a focus on propositions that bring together IT, broadband and
communications to allow business people to concentrate on running their
business.
1 Source: Point-topic.com, December 2006.
Consumer revenue in the third quarter was 1 per cent lower, a significant
improvement on recent trends. Growth in new wave revenue of 31 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
rate of decline in the traditional business is significantly lower than last
quarter and for the first quarter in four years the number of active consumer
voice customers has grown. New wave revenue now represents 16 per cent of the
total consumer revenue.
The 12 month rolling average revenue per consumer household increased by GBP4 in
the quarter to GBP258. Increased penetration of broadband and the growth of
value added propositions have more than offset the lower call revenues.
Contracted revenues increased to 68 per cent, a year on year increase of 1
percentage point.
Wholesale (UK and Global Carrier) revenue increased by 11 per cent driven by
wholesale line rental (WLR) and LLU. Wholesale new wave revenue increased by 37
per cent to GBP364 million, mainly driven by broadband. New wave revenue now
accounts for 26 per cent of wholesale revenue.
Operating results
Group operating costs before specific items increased by 6 per cent year on year
to GBP4,508 million. Staff costs before leaver costs increased by GBP56 million
to GBP1,282 million due mainly to the additional staff needed to support
networked IT services contracts, increased levels of activity in the network and
21CN activities (including capital work) as well as cost inflation. Leaver costs
were GBP27 million in the quarter (GBP23 million last year). Payments to other
telecommunication operators increased by GBP19 million to GBP1,051 million.
Other operating costs before specific items of GBP1,593 million increased by
GBP140 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 increased by 4 per cent
year on year to GBP741 million.
Group operating profit before specific items and leaver costs increased by 1 per
cent to GBP698 million.
Earnings
Net finance costs before specific items were GBP62 million, an improvement of
GBP67 million against last year. This includes net finance income associated
with the group's defined benefit pension scheme which was GBP105 million in the
third quarter, GBP41 million higher than last year, and the repayment of
maturing debt last year which have contributed to the reduction in net finance
costs.
Profit before taxation, specific items and leaver costs of GBP643 million
increased by 13 per cent.
The effective tax rate on the profit before specific items was 24.4 per cent
(24.6 per cent last year) reflecting the continued focus on tax efficiency
within the group. Our effective tax rate is expected to be 24.5 per cent for the
2006/07 full year and between 25 and 26 per cent in 2007/08.
Earnings per share before specific items and leaver costs increased by
14 per cent to 5.8 pence.
Specific items
Specific items are defined in note 4 on pages 26 to 27. There was a net credit
of GBP992 million in the quarter (GBPnil last year). This principally relates to
a net credit of GBP1,067 million arising as a result of the settlement of
substantially all open matters relating to tax years up to and including 2004/05
with HM Revenue and Customs. The credit represents those elements of the tax
charges previously recognised which were in excess of the final agreed
liability, plus interest income. The cash due to BT of approximately GBP1
billion is expected to be received during the fourth quarter of 2006/07 and the
first half of the next financial year.
There was a charge of GBP61 million as a result of a review of circuit inventory
and other working capital balances, a further charge of GBP30 million for
incremental costs associated with complying with the Undertakings, a further
charge of GBP17 million relating to the rationalisation of the group's office
portfolio and a GBP2 million profit on disposal of investments.
Earnings per share after specific items were 17.6 pence in the quarter (4.9
pence last year).
Cash flow and net debt
Net cash inflows from operating activities in the third quarter amounted to
GBP604 million compared to GBP1,218 million last year, with the reduction being
largely due to the payment of deficiency pension contributions of GBP500 million
in December 2006.
Free cash flow was a net outflow of GBP525 million in the third quarter compared
to an inflow of GBP138 million last year mainly reflecting the deficiency
pension contributions, higher working capital outflows and higher capital
expenditure. Capital expenditure is expected to be about GBP3.2 billion for
2006/07 and 2007/08 before trending down towards the end of the decade.
The share buyback programme continued with the repurchase of 33 million shares
for a total consideration of GBP94 million during the quarter, a net cash
outflow of GBP92 million. Net debt was GBP8,796 million at December 31, 2006.
Free cash flow and net debt are defined and reconciled in notes 7 and 8 on pages
28 to 30.
Pensions
The IAS 19 net pension obligation at December 31, 2006 was a deficit of GBP1.1
billion, net of tax, being GBP1.8 billion lower than the level at December 31,
2005. The BT Pension Scheme had assets of GBP37.8 billion at December 31, 2006.
The triennial funding valuation at December 31, 2005 was concluded in the
quarter. BT will make deficit payments equivalent to GBP280 million per annum
for 10 years with the first three years' instalments paid up front: GBP500
million in December 2006 and the remaining GBP340 million by April 30, 2007.
21st Century Network
BT successfully upgraded the first end user customers to its 21CN infrastructure
in the village of Wick in South Wales on November 28, 2006 as planned. The
upgrade, which took place without the need for an engineer visit, new telephone
or a new telephone number, is part of the first phase of the national roll-out
of 21CN.
To reach this important milestone BT had re-built around 10 per cent of the UK's
core national communications infrastructure, installed 21CN equipment at over
100 sites across the UK, and laid more than 2,300 kilometres of new fibre optic
cable in South Wales and invested more than 1,500 man years in developing new IT
systems to support the new network.
Reaching this major milestone has also been the result of pan-industry
collaboration through Consult21, a forum which provides a regular open platform
for all communications providers to understand and influence BT's plans for
21CN.
On January 15, 2007 BT signed frame contract agreements with both Nortel and
Siemens for the supply of carrier class Ethernet technology for implementation
in BT's 21CN infrastructure. The implementation of Ethernet complements BT's
existing 21CN strategy of deploying MPLS in its new network.
During this quarter, BT will continue the process of migrating customers to its
21CN infrastructure in South Wales.
Outlook
After nineteen consecutive quarters of growth in earning per share before
specific items and leaver costs, our expectations for 2006/07 and 2007/08 are to
continue to grow our revenue, EBITDA before specific items and leaver costs,
earning per share before specific items and leaver costs, and dividends.
_____________________________________________________________________________
The fourth quarter and full year results are expected to be announced on May
17, 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 30,000 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
=============================== =================
Third quarter ended December 31 Nine months
ended December 31
--------------------------------------- -----------------
2006 2005* Better (worse) 2006 2005*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,291 2,197 94 4 6,603 6,366
Gross profit 653 652 1 - 1,919 1,876
SG&A before
leaver costs 415 425 10 2 1,224 1,208
----- ----- ----- -----
EBITDA before
leaver costs 238 227 11 5 695 668
Leaver costs 6 4 (2) (50) 28 28
----- ----- ----- -----
EBITDA 232 223 9 4 667 640
Depreciation
and
amortisation 180 160 (20) (13) 485 470
----- ----- ----- -----
Operating
profit 52 63 (11) (17) 182 170
===== ===== ===== =====
Capital 186 169 (17) (10) 511 482
expenditure
=============== ===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
BT Global Services revenue grew in the third quarter by 4 per cent to GBP2,291
million. New wave revenue was GBP1,794 million, an increase of 8 per cent year
on year. UK traditional revenues decreased 6 per cent year on year, with
continuing falls experienced in voice related and dial IP revenues. MPLS revenue
rose by 20 per cent to GBP127 million.
Order intake for the quarter was strong with networked IT services contract
orders of GBP1.5 billion, up GBP0.3 billion from the prior year, which included
major contracts with the government, financial and IT service provider sectors.
Total orders in the quarter amounted to GBP2.5 billion, GBP0.1 billion higher
than last year and the highest since the first quarter of last year, taking the
value of total orders achieved over the last twelve months to GBP8.2 billion.
Over 25 per cent of the total order intake was generated outside the UK. This
quarter 231 corporate customers from around the world chose BT for the first
time.
These successes stem from BT's practical experience of working in collaboration
with existing customers to transform their businesses. This experience has
provided Philips, for the first time, with a one stop global support desk for
their networked IT services needs. Once fully operational it will provide
services to their employees in 40 different countries. We are on track to
migrate 80 per cent of voice and data traffic onto a single Internet Protocol
Virtual Private Network (IPVPN) for Fiat. When the migration is completed,
operations in 30 countries will share the benefits of MPLS technology. In South
America we implemented a 35 site VoIP solution for Unilever who makes
significant savings on call rates. In the UK we are in the fourth year of
working with Connecting for Health to transform the networked IT services needs
of the NHS. To date nearly 320,000 registered users have generated over 11
million prescriptions and 2.5 million "Choose & Book" appointments through one
of the largest transactional databases and messaging systems in the world, known
as the Spine. We have also connected over 18,000 sites to the N3 network ahead
of schedule and provided 50 per cent of Trusts in the London LSP area with IT
capabilities.
EBITDA before leaver costs increased year on year by GBP11 million to GBP238
million, growth of 5 per cent year on year. Gross profit improved by GBP1
million to GBP653 million, while SG&A costs fell by GBP10 million as cost
reduction initiatives gained momentum. Depreciation and amortisation charges
increased by GBP20 million to GBP180 million, which included the impact of
bringing the NHS London assets into use. Leaver costs were GBP2 million higher
at GBP6 million. Overall, this brought operating profit to GBP52 million, a
reduction of GBP11 million from last year.
Capital expenditure in the quarter was GBP186 million, an increase of GBP17
million over last year reflecting increased investment in overseas
infrastructure.
BT Retail
=============================== =================
Third quarter ended December 31 Nine months
ended December 31
--------------------------------------- -----------------
2006 2005* Better (worse) 2006 2005*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,131 2,116 15 1 6,276 6,372
----- ----- ----- -----
Gross profit 594 556 38 7 1,746 1,647
SG&A before
leaver costs 370 373 3 1 1,105 1,115
----- ----- ----- -----
EBITDA before
leaver costs 224 183 41 22 641 532
Leaver costs 5 8 3 38 14 13
----- ----- ----- -----
EBITDA 219 175 44 25 627 519
Depreciation
and
amortisation 43 36 (7) (19) 122 109
----- ----- ----- -----
Operating
profit 176 139 37 27 505 410
===== ===== ===== =====
Capital
expenditure 34 32 (2) (6) 114 100
=============== ===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
BT Retail's revenue showed a growth of 1 per cent, this is the first quarter in
nearly 4 years that has shown positive growth, reflecting the success of BT
Retail's strategy of defending traditional and growing new wave revenues. Gross
margin percentage increased by almost 2 percentage points reflecting an improved
customer and product mix and the impact of cost transformation programmes. SG&A
costs before leaver costs fell by 1 per cent reflecting our continued drive for
improved efficiency. EBITDA before leaver costs was 22 per cent higher than last
year, continuing the recent trend of growth. We continue to be on target for a
full year EBITDA percentage growth in the teens. We also expect EBITDA growth in
2007/08. Operating profit improved by 27 per cent to GBP176 million.
Traditional revenue declined by 5 per cent whilst new wave revenue grew by 31
per cent, driven primarily by broadband and other new wave services. New wave
revenue was 21 per cent of total revenue in the quarter, up from 16 per cent
last year.
In the consumer market, the significant price cuts to inclusive call packages
introduced last quarter have improved the product mix, with more customers
moving towards higher value packages. After four years of decline, the number of
active consumer voice customers grew by 37,000 in the quarter as customers
recognised the all round value offered by BT.
Broadband revenue grew by 24 per cent to GBP233 million with BT Retail
connections exceeding 3.2 million by the end of the quarter, an increase in
connections of 239,000 in the quarter. BT Retail's share of broadband net
additions (DSL and LLU) in the fiercely competitive marketplace was 34 per cent
in the quarter, the highest for over two years. Our share of the installed base
was 32 per cent as at December 31, 2006. The proportion of customers opting for
higher value Options 2 and 3 packages have been maintained at nearly 60 per cent
in the quarter.
We continue to add value to our broadband proposition with new services such as
BT Vision, which combines the appeal of TV with the interactivity of broadband.
Viewers will be able to watch programmes on demand without the need for a
regular monthly subscription. The already compelling Vision content was further
enriched with new deals in the quarter with Warner Bros, Walt Disney, Channel 4
and EMI Music (UK). From next season, in partnership with Setanta, Vision Sport
will give customers access to three quarters of all FA Premiership games. As
announced at launch, we will build up the customer base steadily to ensure an
excellent customer experience.
The advanced VoIP service with High-Definition sound grew strongly in the
quarter. At the end of the quarter, registered consumer customers for our VoIP
services, Broadband Talk and BT Softphone, exceeded 1 million, more than
doubling in the quarter and representing more than a third of the consumer
broadband base. We have reached this milestone more than 6 months earlier than
targeted.
In the SME market, we are using broadband as a core part of a simple and
complete communication and IT solution for our customers. We recently launched
BT Business Total Broadband, our most complete broadband package specifically
designed for small businesses. Our SME customers now benefit from a free
Broadband Voice additional line offer and our latest suite of security software.
Options 2 and 3 customers will also enjoy the freedom of wireless internet with
250 free BT Openzone minutes per month. We have also launched BT Workspace, a
new user-friendly, but powerful, web-based collaboration tool for business.
The recommended offer for the acquisition of PlusNet plc was declared
unconditional on January 24, 2007 and will be recognised during the fourth
quarter. PlusNet has a strong reputation for both customer service and
innovation; this fits perfectly with BT Retail's strategy of providing customers
with the most broadband can offer.
BT Business One Plan, designed for SMEs, brings together mobile, fixed and
broadband communications and simplifies the customer experience, allowing
businesses to squeeze more value from their existing broadband line. Our IT
Manager Service provides support and expertise, allowing business managers to
focus on their core business. The success of this approach has been reflected in
strong market share and more than half of new business broadband customers have
chosen to contract with us for more than one year.
Wi-Fi Fusion for SMEs was launched in December, bringing together the benefits
of fixed and mobile convergence on one mobile device, with seamless two-way
handover between Wi-Fi and GSM. This brings a range of benefits to SMEs helping
them to increase their productivity and performance. Wi-Fi Fusion for the
consumer market was launched in January.
The Enterprises segment achieved strong revenue and profit growth. Within this
division, Conferencing continues to grow strongly with a 25 per cent year on
year revenue increase. Dabs.com, which was acquired in April 2006, grew by 25
per cent year on year outpacing a competitive PC market. Among its service
enhancement, Dabs.com launched a new 'virtual video library' showing its most
popular computing and consumer electronic products in action.
BT Wholesale
=============================== =================
Third quarter ended December 31 Nine months
ended December 31
--------------------------------------- -----------------
2006 2005* Better (worse) 2006 2005*
GBPm GBPm GBPm % GBPm GBPm
----- ----- ----- -----
External
revenue 1,027 987 40 4 3,054 2,919
Internal
revenue 895 861 34 4 2,600 2,556
----- ----- ----- -----
Revenue 1,922 1,848 74 4 5,654 5,475
Variable cost
of sales 981 932 (49) (5) 2,864 2,764
----- ----- ----- -----
Gross variable
profit 941 916 25 3 2,790 2,711
Network and SG&
A before
leaver costs 438 434 (4) (1) 1,325 1,291
----- ----- ----- -----
EBITDA before
leaver costs 503 482 21 4 1,465 1,420
Leaver costs 6 1 (5) n/m 22 7
----- ----- ----- -----
EBITDA 497 481 16 3 1,443 1,413
Depreciation
and
amortisation 293 271 (22) (8) 869 816
----- ----- ----- -----
Operating
profit 204 210 (6) (3) 574 597
===== ===== ===== =====
Capital
expenditure 237 221 (16) (7) 703 649
=============== ===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
BT Wholesale external revenue in the third quarter of GBP1,027 million increased
by 4 per cent with revenue from new wave services increasing to GBP278 million,
now accounting for 27 per cent of external revenue, driven by broadband growth.
Internal revenue increased by 4 per cent to GBP895 million due to strong growth
in internal broadband revenue more than offsetting the impact of lower call
volumes and lower regulatory prices being reflected in internal charges.
Gross variable profit increased by 3 per cent to GBP941 million. Despite greater
21CN expenditure, network and SG&A costs have only increased marginally as a
result of savings through network efficiencies. Efficiencies through headcount
reductions have continued and leaver costs for the quarter were GBP6 million.
EBITDA before leaver costs has increased by 4 per cent to GBP503 million. Higher
depreciation, due to the shortening of the useful economic lives of legacy
transmission assets to be replaced by 21CN assets, and higher leaver costs, has
resulted in a 3 per cent decline in operating profit.
Capital expenditure was 7 per cent higher than last year due to increased
investment in 21CN whilst successfully managing the legacy infrastructure on a
lower level of capital investment.
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.
BT Wholesale also launched advanced broadband services allowing its services
provider customers the ability to offer guaranteed bandwidth over the broadband
network. 'BT IP Stream Advanced Services' have been designed to create new
business opportunities for service providers in markets such as the delivery of
IP television and content distribution which require consistent and guaranteed
bandwidth throughout a user 'session'. An early customer for the service is BT
Vision.
A foundation trial for next generation broadband services based on ADSL2+ was
launched during the quarter in Cardiff. The trial is an important step in the
delivery of next generation broadband services at up to 24 Mbit/s to customers
across the UK from 2008 as part of the rollout of 21CN. As part of the trial,
editions of the BBC drama, Torchwood, which is filmed on location in Cardiff, is
being broadcast in high definition at up to 24 Mbit/s.
BT Wholesale has also announced that it has extended its 'renewables and green
energy' contract, one of the largest in the world, with British Gas and npower
for a further three years through to 2010. The contract, part of BT's strategy
to continue to reduce carbon emissions, will see the company saving the
equivalent carbon as that resulting from the electricity consumption of more
than 300,000 households - roughly the population of Liverpool and Cardiff
combined - every year.
Openreach
=============================== =================
Third quarter ended December 31 Nine months
ended December 31
--------------------------------------- -----------------
2006 2005* Better (worse) 2006 2005*
GBPm GBPm GBPm % GBPm GBPm
----- ----- ----- -----
External
revenue 189 83 106 n/m 481 196
Revenue from
other BT lines
of business 1,125 1,195 (70) (6) 3,371 3,647
----- ----- ----- -----
Revenue 1,314 1,278 36 3 3,852 3,843
Operating costs
before
leaver costs 845 790 (55) (7) 2,451 2,366
----- ----- ----- -----
EBITDA before
leaver costs 469 488 (19) (4) 1,401 1,477
Leaver costs 1 1 - - 3 1
----- ----- ----- -----
EBITDA 468 487 (19) (4) 1,398 1,476
Depreciation
and
amortisation 177 196 19 10 530 570
----- ----- ----- -----
Operating
profit 291 291 - - 868 906
===== ===== ===== =====
Capital
expenditure 297 270 (27) (10) 847 773
=============== ===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
Openreach's revenue in the third quarter was GBP1,314 million, a 3 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 GBP106
million due to volume growth on all products, including broadband related
connections. Revenues from other BT lines of business decreased by 6 per cent to
GBP1,125 million reflecting the volume shift to external revenues and the
regulatory price reductions made in prior periods.
Operating costs increased by 7 per cent to GBP845 million due to increased
volumes, inflationary pressures and investment in service levels. However, these
increases have been partially offset by cost savings from efficiency programmes
across the business.
Overall this has resulted in a GBP19 million decrease in EBITDA before leaver
costs.
However, this has been offset by the decrease in depreciation and amortisation
costs of GBP19 million. This is due to the lengthening of the useful economic
life of copper, consistent with Ofcom's review, partially offset by increased
LLU and dropwire depreciation. Operating profit was flat at GBP291 million.
Capital expenditure in the quarter was 10 per cent higher than last year
reflecting increased investment in new systems to ensure compliance with the
Undertakings and increased network infrastructure spend to meet LLU demand.
At December 31, 2006 Openreach had 1.3 million external LLU lines and 4.2
million external WLR lines and channels. These have grown significantly with net
additions in the quarter of 457,000 LLU connections and 190,000 WLR connections.
Openreach has reached 1.5 million LLU connections this month.
On December 22, 2006, Openreach achieved a significant milestone by placing the
first live order of Wholesale Line Rental Analogue (WLR3) on an equivalent basis
through the Equivalence Management Platform (EMP). From January 2, 2007, WLR3 is
available for Communications Provider product establishment and order
processing.
GROUP INCOME STATEMENT
for the three months ended December 31, 2006
---------------------- ------ -------------- ------------- -------
Before Specific Total
specific items items (note 4)
(unaudited) Notes GBPm GBPm GBPm
---------------------- ------ -------------- ------------- -------
Revenue 2 5,126 - 5,126
Other operating income 53 2 55
Operating costs 3 (4,508) (118) (4,626)
------- ------- -------
Operating profit 2 671 (116) 555
Finance costs (656) - (656)
Finance income 594 139 733
------- ------- -------
Net finance (costs)
income 5 (62) 139 77
Share of post tax
profits of associates
and joint ventures 7 - 7
------- ------- -------
Profit before taxation 616 23 639
Taxation (150) 969 819
------- ------- -------
Profit for the period 466 992 1,458
======= ======= =======
Attributable to:
Equity shareholders 465 992 1,457
Minority interest 1 - 1
======= ======= =======
Earnings per share 6
- basic 5.6p 17.6p
======= =======
- diluted 5.5p 17.1p
======= =======
GROUP INCOME STATEMENT
for the three months ended December 31, 2005
---------------------- ------ -------------- ------------- -------
Before Specific Total
specific items items (note 4)
(unaudited) Notes GBPm GBPm GBPm
---------------------- ------ -------------- ------------- -------
Revenue 2 4,882 - 4,882
Other operating income 54 - 54
Operating costs 3 (4,265) - (4,265)
------- ------- -------
Operating profit 2 671 - 671
Finance costs (693) - (693)
Finance income 564 - 564
------- ------- -------
Net finance costs 5 (129) - (129)
Share of post tax profits
of associates and joint
ventures 3 - 3
------- ------- -------
Profit before taxation 545 - 545
Taxation (134) - (134)
------- ------- -------
Profit for the period
attributable to equity
shareholders 411 - 411
======= ======= =======
Earnings per share 6
- basic 4.9p 4.9p
======= =======
- diluted 4.8p 4.8p
======= =======
GROUP INCOME STATEMENT
for the nine months ended December 31, 2006
---------------------- ------ -------------- ------------- -------
Before Specific Total
specific items items (note 4)
(unaudited) Notes GBPm GBPm GBPm
---------------------- ------ -------------- ------------- -------
Revenue 2 14,931 - 14,931
Other operating income 155 2 157
Operating costs 3 (13,074) (141) (13,215)
------- ------- -------
Operating profit 2 2,012 (139) 1,873
Finance costs (1,949) - (1,949)
Finance income 1,786 139 1,925
------- ------- -------
Net finance costs 5 (163) 139 (24)
Share of post tax profits
of associates and joint
ventures 14 - 14
Profit on disposal of
associate - 20 20
------- ------- -------
Profit before taxation 1,863 20 1,883
Taxation (456) 970 514
------- ------- -------
Profit for the period 1,407 990 2,397
======= ======= =======
Attributable to:
Equity shareholders 1,406 990 2,396
Minority interest 1 - 1
======= ======= =======
Earnings per share 6
- basic 16.9p 28.9p
======= =======
- diluted 16.6p 28.2p
======= =======
GROUP INCOME STATEMENT
for the nine months ended December 31, 2005
---------------------- ------ -------------- ------------- -------
Before Specific Total
specific items items (note 4)
(unaudited) Notes GBPm GBPm GBPm
---------------------- ------ -------------- ------------- -------
Revenue 2 14,380 - 14,380
Other operating income 149 - 149
Operating costs 3 (12,554) (82) (12,636)
------- ------- -------
Operating profit 2 1,975 (82) 1,893
Finance costs (2,085) - (2,085)
Finance income 1,714 - 1,714
------- ------- -------
Net finance costs 5 (371) - (371)
Share of post tax profits
of associates and joint
ventures 11 - 11
------- ------- -------
Profit before taxation 1,615 (82) 1,533
Taxation (402) 25 (377)
------- ------- -------
Profit for the period
attributable to equity
shareholders 1,213 (57) 1,156
======= ======= =======
Earnings per share 6
- basic 14.4p 13.7p
======= =======
- diluted 14.2p 13.5p
======= =======
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the nine months ended December 31, 2006
------------------------------------------------- ---------------------------
Nine months
ended December 31
2006 2005
(unaudited) GBPm GBPm
------------------------------------------------- ------- -------
Profit for the period 2,397 1,156
======= =======
Actuarial gains on defined benefit pension schemes 360 625
Net gains (losses) on cash flow hedges 70 (117)
Exchange differences on translation of foreign
operations (102) 23
Tax on items taken directly to equity (150) (153)
------- -------
Net gains recognised directly in equity 178 378
Total recognised income for the period 2,575 1,534
======= =======
Attributable to:
Equity shareholders 2,576 1,534
Minority interest (1) -
------- -------
2,575 1,534
------- -------
GROUP CASH FLOW STATEMENT
for the three months and nine months ended December 31, 2006
-------------------------- --------------------- ----------------------
Third quarter Nine months
ended December 31 ended December 31
2006 2005 2006 2005
(unaudited) GBPm GBPm GBPm GBPm
-------------------------- ------ ------ ------- ------
Cash flow from operating
activities
Cash generated from
operations (note 7 (a)) 704 1,293 3,077 3,639
Income taxes paid (100) (75) (280) (317)
------ ------ ------- ------
Net cash inflow from
operating activities 604 1,218 2,797 3,322
Cash flow from investing
activities
Net acquisition of
subsidiaries, associates
and joint ventures (49) (24) (74) (112)
Net purchase of property,
plant, equipment
and software (777) (725) (2,373) (2,082)
Interest received 26 70 63 166
Dividends received from
associates and joint
ventures 1 1 6 1
Net sale of short term
investments and non current
asset investments 547 1,705 67 2,287
------ ------ ------- ------
Net cash (used) received in
investing activities (252) 1,027 (2,311) 260
Cash flows from financing
activities
Net repurchase of ordinary
share capital (92) (124) (206) (233)
Net repayments of
borrowings (759) (2,182) (921) (2,206)
Net movement on commercial
paper 805 - 1,032 -
Interest paid (362) (426) (680) (891)
Equity dividends paid (8) (9) (638) (549)
------ ------ ------- ------
Net cash used in financing
activities (416) (2,741) (1,413) (3,879)
Effects of exchange rate
changes (28) (23) (28) -
------ ------ ------- ------
Net decrease in cash and
cash equivalents (92) (519) (955) (297)
====== ====== ======= ======
Cash and cash equivalents
at beginning of period 921 1,532 1,784 1,310
Cash and cash equivalents,
net of bank overdrafts, at
end of period (note 7 (c)) 829 1,013 829 1,013
====== ====== ======= ======
Free cash flow 1
(note 7 (b)) (525) 138 (204) 515
====== ====== ======= ======
Increase in net debt from
cash flows (note 8 (b)) 674 19 1,122 379
====== ====== ======= ======
----------------------------------------------------------------------------------
1 Net of deficiency pension
contributions (500) - (500) -
GROUP BALANCE SHEET
at December 31, 2006
------------------------------------- ----------- ----------- ----------
December 31 December 31 March 31
2006 2005 2006
(unaudited) GBPm GBPm GBPm
------------------------------------- ----------- ----------- ----------
Non current assets
Goodwill and other intangible assets 1,983 1,518 1,641
Property, plant and equipment 15,288 15,347 15,489
Other non current assets 123 116 84
Deferred tax assets 467 1,222 764
-------- -------- --------
17,861 18,203 17,978
-------- -------- --------
Current assets
Inventories 127 125 124
Trade and other receivables 6,013 4,640 4,199
Other financial assets 208 1,548 434
Cash and cash equivalents 946 1,247 1,965
-------- -------- --------
7,294 7,560 6,722
-------- -------- --------
Total assets 25,155 25,763 24,700
Current liabilities
Loans and other borrowings 3,014 3,471 1,940
Trade and other payables 6,431 6,102 6,540
Other current liabilities 869 1,137 1,000
-------- -------- --------
10,314 10,710 9,480
-------- -------- --------
Total assets less current liabilities 14,841 15,053 15,220
======== ======== ========
Non current liabilities
Loans and other borrowings 6,451 7,493 7,995
Deferred tax liabilities 1,544 1,392 1,505
Retirement benefit obligations 1,558 4,074 2,547
Other non current liabilities 1,872 1,404 1,566
-------- -------- --------
11,425 14,363 13,613
-------- -------- --------
Capital and reserves
Called up share capital 432 432 432
Reserves 2,937 208 1,123
-------- -------- --------
Total equity shareholders' funds 3,369 640 1,555
Minority interest 47 50 52
-------- -------- --------
Total equity 3,416 690 1,607
-------- -------- --------
14,841 15,053 15,220
======== ======== ========
NOTES (unaudited)
1 Basis of preparation and accounting policies
These primary statements and selected notes comprise the unaudited interim
consolidated financial results of BT Group plc for the quarter and nine months
ended December 31, 2006 and 2005, together with the audited results for the year
ended March 31, 2006. These interim financial results do not comprise statutory
accounts within the meaning of Section 240 of the Companies Act 1985. Statutory
accounts for the year ended March 31, 2006 were approved by the Board of
Directors on May 17, 2006, published on May 31, 2006 and delivered to the
Registrar of Companies. The report of the auditors on those accounts was
unqualified and did not contain any statement under Section 237 of the Companies
Act 1985.
The accounting policies which have been applied to prepare the interim financial
results are the same as those used for the preparation of the consolidated
financial statements for the year ended March 31, 2006.
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
Third quarter ended
December 31, 2006
BT Global Services 1,885 406 2,291 232 52
BT Retail 2,023 108 2,131 219 176
BT Wholesale 1,027 895 1,922 497 204
Openreach 189 1,125 1,314 468 291
Other 2 - 2 (4) (52)
Intra-group
items (i) - (2,534) (2,534) - -
------- ------- ------- ------- -------
Total 5,126 - 5,126 1,412 671
======= ======= ======= ======= =======
Third quarter ended
December 31, 2005
(restated - note 1)
BT Global Services 1,792 405 2,197 223 63
BT Retail 2,017 99 2,116 175 139
BT Wholesale 987 861 1,848 481 210
Openreach 83 1,195 1,278 487 291
Other 3 - 3 15 (32)
Intra-group
items (i) - (2,560) (2,560) - -
------- ------- ------- ------- -------
Total 4,882 - 4,882 1,381 671
======= ======= ======= ======= =======
Nine months ended
December 31, 2006
BT Global Services 5,402 1,201 6,603 667 182
BT Retail 5,982 294 6,276 627 505
BT Wholesale 3,054 2,600 5,654 1,443 574
Openreach 481 3,371 3,852 1,398 868
Other 12 - 12 24 (117)
Intra-group
items (i) - (7,466) (7,466) - -
------- ------- ------- ------- -------
Total 14,931 - 14,931 4,159 2,012
======= ======= ======= ======= =======
Nine months ended
December 31, 2005
(restated - see note
1)
BT Global Services 5,176 1190 6,366 640 170
BT Retail 6,076 296 6,372 519 410
BT Wholesale 2,919 2,556 5,475 1,413 597
Openreach 196 3,647 3,843 1,476 906
Other 13 - 13 38 (108)
Intra-group
items (i) - (7,689) (7,689) - -
------- ------- ------- ------- -------
Total 14,380 - 14,380 4,086 1,975
======= ======= ======= ======= =======
(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. These intra-group trading arrangements are subject to periodic
review.
2 Results of businesses continued
(b) Revenue analysis
Third quarter ended Nine months ended
December 31 December 31
------------------------------- ---------------------
2006 2005 Better (worse) 2006 2005
GBPm GBPm GBPm % GBPm GBPm
Traditional 3,246 3,275 (29) (1) 9,674 9,949
New wave 1,880 1,607 273 17 5,257 4,431
------ ------ ------ ------ ------ ------
5,126 4,882 244 5 14,931 14,380
====== ====== ====== ====== ====== ======
Major corporate 1,833 1,732 101 6 5,235 4,958
Business 584 568 16 3 1,765 1,737
Consumer 1,310 1,324 (14) (1) 3,819 3,984
Wholesale/
Carrier 1,397 1,255 142 11 4,100 3,688
Other 2 3 (1) (33) 12 13
------ ------ ------ ------ ------ ------
5,126 4,882 244 5 14,931 14,380
------ ------ ------ ------ ------ ------
(c) New wave revenue analysis
Third quarter ended Nine months ended
December 31 December 31
------------------------------- --------------------
2006 2005 Better (worse) 2006 2005
GBPm GBPm GBPm % GBPm GBPm
Networked IT
services 1,117 1,038 79 8 3,099 2,851
Broadband 520 374 146 39 1,460 1,038
Mobility 73 75 (2) (3) 216 210
Other 170 120 50 42 482 332
------ ------ ------ ------ ------ ------
1,880 1,607 273 17 5,257 4,431
------ ------ ------ ------ ------ ------
(d) Capital expenditure on property, plant, equipment, software
and motor vehicles
Third quarter ended Nine months ended
December 31 December 31
------------------------------- ---------------------
2006 2005 Better (worse) 2006 2005
GBPm GBPm GBPm % GBPm GBPm
BT Global
Services 186 169 (17) (10) 511 482
BT Retail 34 32 (2) (6) 114 100
BT Wholesale 237 221 (16) (7) 703 649
Openreach 297 270 (27) (10) 847 773
Other (including
fleet vehicles
and property) 61 67 6 9 167 165
------ ------ ------ ------ ------ ------
815 759 (56) (7) 2,342 2,169
====== ====== ====== ====== ====== ======
Transmission
equipment 303 356 53 15 897 1,076
Exchange
equipment 24 21 (3) (14) 77 57
Other network
equipment 214 134 (80) (60) 603 444
Computers and
office
equipment 70 64 (6) (9) 204 174
Software 179 136 (43) (32) 477 302
Motor vehicles
and other 8 29 21 72 35 74
Land and
buildings 17 19 2 11 49 42
------ ------ ------ ------ ------ ------
815 759 (56) (7) 2,342 2,169
------ ------ ------ ------ ------ ------
3 (a) Operating costs
Third quarter ended Nine months ended
December 31 December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Staff costs before leaver costs 1,282 1,226 3,812 3,592
Leaver costs 27 23 84 66
------- ------- ------- -------
Staff costs 1,309 1,249 3,896 3,658
Own work capitalised1 (186) (179) (532) (499)
------- ------- ------- -------
Net staff costs 1,123 1,070 3,364 3,159
Depreciation and amortisation 741 710 2,147 2,111
Payments to telecommunication
operators 1,051 1,032 3,091 3,030
Other operating costs 1,593 1,453 4,472 4,254
------- ------- ------- -------
Total before specific items 4,508 4,265 13,074 12,554
Specific items (note 4) 118 - 141 82
------- ------- ------- -------
Total 4,626 4,265 13,215 12,636
------- ------- ------- -------
1 Own work capitalised has been restated to exclude third party costs. This has
no effect on the total costs.
(b) Leaver costs
Third quarter ended Nine months ended
December 31 December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
BT Global Services 6 4 28 28
BT Retail 5 8 14 13
BT Wholesale 6 1 22 7
Openreach 1 1 3 1
Other 9 9 17 17
------- ------- ------- -------
Total 27 23 84 66
------- ------- ------- -------
4 Specific items
BT separately identifies and discloses any significant one off or unusual items
(termed "specific items"). This includes profits 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.
4 Specific items continued
Third quarter ended Nine months ended
December 31 December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Creation of Openreach 30 - 30 70
Property rationalisation costs 17 - 40 12
Write off of circuit inventory
and working capital balances 61 - 61 -
Cost associated with settlement
of open tax years 10 - 10 -
------ ------ ------ ------
Specific operating costs 118 - 141 82
Profit on sale of non current
asset investments (2) - (22) -
Interest on settlement of open
tax years (139) - (139) -
Tax credit (969) - (970) (25)
------ ------ ------ ------
Total specific (income) costs (992) - (990) 57
------ ------ ------ ------
5 Net finance costs
Third quarter ended Nine months ended
December 31 December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Finance costs1 before pension
interest 188 239 545 723
Interest on pension scheme
liabilities 468 454 1,404 1,362
------- ------- ------- -------
Finance costs 656 693 1,949 2,085
------- ------- ------- -------
Finance income2 before pension
income (160) (46) (206) (161)
Expected return on pension scheme
assets (573) (518) (1,719) (1,553)
------- ------- ------- -------
Finance income (733) (564) (1,925) (1,714)
------- ------- ------- -------
Net finance (income) costs (77) 129 24 371
======= ======= ======= =======
Net finance costs before pensions 28 193 339 562
Interest associated with pensions (105) (64) (315) (191)
------- ------- ------- -------
Net finance (income) costs (77) 129 24 371
------- ------- ------- -------
1 Finance costs in the third quarter and nine months ended December 31, 2006
include GBPnil and GBP1million net charge, respectively, arising from the
re-measurement of financial instruments which under IAS 39 are not in hedging
relationships on a fair value basis. Finance costs in the third quarter and
nine months ended December 31, 2005 included a GBP1 million charge and GBP6
million net credit respectively, arising from the re-measurement of financial
instruments which were not in hedging relationships on a fair value basis. A
component of these net credits 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 third quarter and nine months ended December 31, 2006
include 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:
Third quarter Nine months
ended December 31 ended December 31
2006 2005 2006 2005
millions of shares millions of shares
Basic 8,284 8,407 8,302 8,444
Diluted 8,512 8,523 8,488 8,560
7 (a) Reconciliation of profit before tax to cash generated from operations
Third quarter Nine months
ended December 31 ended December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Profit before tax 639 545 1,883 1,533
Depreciation and amortisation 741 710 2,147 2,111
Associates and joint ventures (7) (3) (14) (11)
Employee share scheme costs 23 22 70 59
Net finance (income) costs (77) 129 24 371
Profit on disposal of property
assets and non current asset
investments (2) - (22) -
Changes in working capital (212) (124) (765) (585)
Provisions movements, pensions and
other (401) 14 (246) 161
------- ------- ------- -------
Cash generated from operations 704 1,293 3,077 3,639
------- ------- ------- -------
(b) Free cash flow
Third quarter Nine months
ended December 31 ended December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Cash generated from operations 704 1,293 3,077 3,639
Income taxes paid (100) (75) (280) (317)
------- ------- ------- -------
Net cash inflow from operating
activities 604 1,218 2,797 3,322
Included in cash flows from investing
activities
Net purchase of property, plant,
equipment and software (777) (725) (2,373) (2,082)
Net purchase of non current asset
investments (17) - (17) (1)
Dividends received from associates 1 1 6 1
Interest received 26 70 63 166
Included in cash flows from financing
activities
Interest paid (362) (426) (680) (891)
------- ------- ------- -------
Free cash flow (525) 138 (204) 515
------- ------- ------- -------
(b) Free cash flow continued
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 December 31 At March 31
2006 2005 2006
GBPm GBPm GBPm
Cash at bank and in hand 387 502 511
Short term deposits 559 745 1,454
------ ------ ------
Cash and cash equivalents 946 1,247 1,965
Bank overdrafts (117) (234) (181)
------ ------ ------
829 1,013 1,784
------ ------ ------
8 Net debt
Net debt at December 31, 2006 was GBP8,796 million (December 31, 2005 - GBP8,113
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 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
GBP114 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 December 31 At March 31
2006 2005 2006
GBPm GBPm GBPm
Loans and other borrowings 9,465 10,964 9,935
Cash and cash equivalents (946) (1,247) (1,965)
Other current financial assets1 (183) (1,289) (365)
------- ------- -------
8,336 8,428 7,605
Adjustments:
To retranslate currency denominated balances at
swapped rates where hedged 594 (40) 121
To recognise borrowings at net proceeds and
unamortised discount (134) (287) (192)
Other - 12 -
------- ------- -------
Net debt 8,796 8,113 7,534
------- ------- -------
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at December 31, 2006 was GBP9,809 million (December 31,
2005 - GBP10,420 million, March 31, 2006 - GBP9,686 million).
1 Excluding derivative financial instruments of GBP25 million, GBP259 million
and GBP69 million at December 31, 2006 and 2005 and March 31, 2006,
respectively.
8 (b) Reconciliation of net cash flow to movement in net debt
Third quarter ended Nine months
December 31 ended December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Net debt at beginning of period 8,079 8,133 7,534 7,893
Increase in net debt resulting from
cash flows 674 19 1,122 379
Net debt assumed or issued on - - 9 1
acquisitions
Currency movements 15 (41) 114 (65)
Other non-cash movements 28 2 17 (95)
------- ------- ------- -------
Net debt at end of period 8,796 8,113 8,796 8,113
------- ------- ------- -------
9 Statement of changes in equity
Nine months Year ended
ended December 31 March 31
2006 2005 2006
GBPm GBPm GBPm
Shareholders' funds 1,555 45 45
Minority interest 52 50 50
------- ------- -------
1,607 95 95
Effect of adoption of IAS 32 and IAS 39 - (209) (209)
------- ------- -------
Fund (deficit) at beginning of period 1,607 (114) (114)
Total recognised income for the
period 2,575 1,534 2,906
Share based payment 47 48 65
Issues of shares 16 4 4
Net purchase of treasury shares (194) (231) (344)
Dividends on ordinary shares (631) (551) (912)
Minority interest (4) - 2
------- ------- -------
Net changes in equity for the
financial period 1,809 804 1,721
Equity at end of period
Shareholders' funds 3,369 640 1,555
Minority interest 47 50 52
------- ------- -------
Total equity 3,416 690 1,607
------- ------- -------
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Third quarter ended Nine months
December 31 ended December 31
2006 2005 2006 2005
GBPm GBPm GBPm GBPm
Operating profit 555 671 1,873 1,893
Specific items (note 4) 116 - 139 82
Depreciation and amortisation (note
3) 741 710 2,147 2,111
------- ------- ------- -------
EBITDA before specific items 1,412 1,381 4,159 4,086
------- ------- ------- -------
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 declared an interim dividend of 5.1 pence per share (4.3 pence
last year) on November 9, 2006. This will be paid on February 12, 2007 to the
shareholders on the register at the close of business on December 29, 2006. This
interim dividend, amounting to GBP423 million, has not been included as a
liability as at December 31, 2006. It will be recognised as an appropriation of
retained earnings within shareholders' equity in the quarter ended March 31,
2007.
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.
Third quarter ended Nine months
December 31 ended December 31
2006 2005 2006 2005
Net income attributable to 1,448 253 2,371 836
shareholders (GBPm)
Earnings per ADS (GBP)
- basic 1.75 0.30 2.86 0.99
- diluted 1.70 0.30 2.79 0.98
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with US GAAP, is GBP897 million
at December 31, 2006 (December 31, 2005 - GBP652 million deficit, March 31,
2006 - GBP158 million deficit).
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: continuing growth in revenue, EBITDA, earnings per share and
dividends; growth in new wave revenue, mainly from networked IT services and
broadband; continued growth in the broadband market; implementation of BT's 21st
Century Network; the introduction of next generation services; and adding value
to BT's broadband proposition.
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 08 February, 2007