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
07 February, 2008
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 07 February, 2008
February 7, 2008
THIRD QUARTER AND NINE MONTHS RESULTS TO DECEMBER 31, 2007
THIRD QUARTER HIGHLIGHTS
. Revenue of GBP5,154 million, up 1 per cent
. New wave revenue of GBP2,014 million, up 7 per cent
. EBITDA before specific items (1) and leaver costs of GBP1,469 million, up 2
per cent
. Global Services EBITDA (2) margin increases to 10.9 per cent
. Profit before taxation, specific items1 and leaver costs of GBP601
million, down 7 per cent
. Profit after taxation, before specific items (1) and leaver costs of GBP475
million, down 2 per cent
. Earnings per share before specific items (1) and leaver costs of 5.9 pence,
up 2 per cent
. Continued strong broadband net additions (3) of 511,000 of which BT's
retail share was 35 per cent
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 17 to 23.
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the third quarter results, said:
"This has been another solid performance. We have delivered our twenty third
consecutive quarter of year on year earnings per share (2) growth.
BT Global Services has shifted up a gear, delivering real growth in
EBITDA (2) margins. We won total contracts worth GBP1.9 billion in the quarter,
and revenues outside of the UK grew by 22 per cent.
We remain the UK's number one retail broadband provider with 35 per cent of the
installed DSL and LLU base, and BT Vision customers more than doubled in the
quarter.
We expect continued growth in revenue, EBITDA (2), earnings per share (2) and
dividends, and a significant free cash inflow in the fourth quarter."
(1) Specific items are significant one off or unusual items as defined in
note 4 on pages 27 to 28.
(2) Before specific items and leaver costs.
(3) DSL and LLU connections.
RESULTS FOR THE THIRD QUARTER AND NINE MONTHS
TO DECEMBER 31, 2007
Third quarter Nine months
2007 2006 Better 2007 2006 Better(worse)
GBPm GBPm (worse) GBPm GBPm %
%
Revenue 5,154 5,126 1 15,282 14,931 2
EBITDA
- before specific
items and leaver
costs 1,469 1,439 2 4,342 4,243 2
- before specific
items 1,449 1,412 3 4,271 4,159 3
Operating profit
- before specific
items and leaver
costs 737 698 6 2,208 2,096 5
- before specific
items 717 671 7 2,137 2,012 6
- after specific
items 582 555 5 1,761 1,873 (6)
Profit before taxation
- before specific
items and leaver
costs 601 643 (7) 1,919 1,947 (1)
- before specific
items 581 616 (6) 1,848 1,863 (1)
- after specific
items 447 639 (30) 1,482 1,883 (21)
Earnings per share
- before specific
items and leaver
costs 5.9p 5.8p 2 18.0p 17.6p 2
- before specific
items 5.7p 5.6p 2 17.4p 16.9p 3
- after specific
items 4.5p 17.6p (74) 16.1p 28.9p (44)
Capital 863 815 (6) 2,565 2,342 (10)
expenditure
Free cash outflow (221) (525) (2) 58 (202) (1) (204) (2) 1
Net debt 10,175 8,796 (16)
(1) Includes payment of pension deficiency contributions of GBP320 million and
tax receipts of GBP504 million.
(2) Includes payment of pension deficiency 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 27 to 28.
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
Revenue was 1 per cent higher at GBP5,154 million in the quarter with continued
growth in new wave revenue. EBITDA before specific items and leaver costs grew
by 2 per cent, the eighth consecutive quarter of year on year growth. Earnings
per share before specific items and leaver costs increased by 2 per cent to 5.9
pence, the twenty third consecutive quarter of year on year growth.
New wave revenue at GBP2,014 million was 7 per cent higher than last year and
accounted for 39 per cent of the group's revenue. New wave revenue is mainly
generated from networked IT services and broadband.
BT Global Services contract wins were GBP1.9 billion in the third quarter, with
GBP8.6 billion achieved over the last twelve months.
BT had 12.2 million wholesale broadband connections (DSL and LLU) at
December 31, 2007, including 3.7 million local loop unbundled lines. This
represents an increase of 2.2 million wholesale broadband connections year on
year. There were 511,000 connections in the third quarter with BT's retail share
of those net additions at 177,000, being 35 per cent. BT Retail remains the UK's
number one retail broadband provider and its total broadband customer base was
4,251,000 at December 31, 2007.
Revenue
Revenue from the group's traditional businesses declined by 3 per cent. This
decline includes the impact of a reduction in low margin transit and premium
rate services volumes, which accounted for a 2 percentage point reduction. The
1 per cent underlying decline is consistent with recent quarters and reflects a
robust defence of the traditional business in a highly competitive market.
New wave revenue was 7 per cent higher than last year, driven by growth of
9 per cent in networked IT services revenue and 6 per cent in broadband revenue.
Revenue from our Major corporate (UK and international) customer segment grew by
5 per cent. Migration from traditional voice only services to networked IT
services continued with new wave revenue representing 64 per cent of all Major
corporate revenue.
Revenue from our Business customer segment (comprising smaller and medium sized
UK businesses) grew strongly by 7 per cent year on year, continuing the
improving trend. New wave revenue grew by 16 per cent.
Revenue from our Consumer customer segment was 1 per cent lower year on year,
continuing the improved performance of the last year. Growth in new wave
revenue of 24 per cent continues to demonstrate our success in reducing our
dependence on traditional revenue which declined by 6 per cent in the quarter.
The 12 month rolling average revenue per consumer household increased by GBP2 in
the quarter to GBP273, the eighth consecutive quarter of growth. This is a
reflection of more of our customers taking multiple services from BT. Increased
penetration of broadband and the growth of value added propositions have more
than offset the lower call revenues.
Wholesale (UK and Global Carrier) revenue decreased by 6 per cent as a result of
the impact of anticipated volume and price reductions on DSL broadband and the
reduction in low margin transit and premium rate services revenues, which were
only partially offset by migrations to local loop unbundling (LLU) arrangements.
Operating results
Group operating costs before specific items and leaver costs were held broadly
flat year on year at GBP4,500 million. Staff costs before leaver costs were
reduced by 1 per cent to GBP1,273 million, with the savings from the group's
efficiency programmes more than offsetting the impact of pay inflation, the cost
of additional staff needed to support networked IT services contracts, increased
network and 21st Century Network (21CN) activities, acquisitions and service
improvements. Leaver costs before specific items were GBP20 million in the
quarter (GBP27 million last year). Payments to other telecommunication operators
decreased by 3 per cent to GBP1,023 million mainly due to the reduction in
transit and premium rate services. Other operating costs before specific items
of GBP1,649 million increased by GBP56 million, principally due to increased
costs of sales from growth in networked IT and other new wave services and
increased levels of network and 21CN activities, which were largely offset by
cost savings from efficiency programmes. Efficiency savings in the quarter were
GBP193 million, GBP468 million in the year to date, and we remain on target to
achieve at least GBP600 million of savings in the full year. Depreciation and
amortisation decreased by 1 per cent year on year to GBP732 million as more
traditional assets become fully depreciated, the effect of which has been
partially offset by higher depreciation on 21CN related assets as they start to
be brought into use.
Group operating profit before specific items and leaver costs increased by 6 per
cent to GBP737 million. Group operating profit margin before specific items and
leaver costs increased to 14.3 per cent compared with 13.6 per cent last year,
the fourth consecutive quarter of year on year margin growth.
Earnings
Net finance expense before specific items was GBP134 million, an increase of
GBP72 million against last year. This includes net finance income associated
with the group's defined benefit pension scheme which was flat year on year at
GBP105 million. The increase in net finance expense primarily reflects the
higher net debt, higher interest on variable rate borrowings and fair value
movements on hedges that do not qualify for hedge accounting under IAS 39. The
fair value movements include a charge of GBP26 million on a low cost borrowing
transaction which is marginally earnings positive after tax in the year.
Profit before taxation, specific items and leaver costs of GBP601 million
decreased by 7 per cent, year on year.
The effective tax rate on the profit before specific items was 20.7 per cent
(24.4 per cent last year) reflecting a year to date rate of 23.5 per cent,
compared with the UK statutory rate of 30 per cent, reflecting the continued
focus on tax efficiency within the group.
Profit after taxation, before specific items and leaver costs of GBP475 million
decreased by 2 per cent, year on year.
Earnings per share before specific items and leaver costs increased by
2 per cent to 5.9 pence.
Specific items
Specific items are defined in note 4 on pages 27 to 28. There was a net
operating charge before tax of GBP134 million (GBP23 million credit last year)
and a net charge after tax of GBP96 million (GBP992 million credit last year).
Restructuring costs of GBP76 million (GBPnil last year) relating to the group's
transformation and reorganisation activities were incurred in the quarter and
mainly comprised manager leaver costs and transformation programme costs. There
was a GBP50 million (GBP61 million last year) charge as a result of the
completion of the review of circuit inventory and other working capital
balances. Losses on business disposals were GBP9 million (GBP2 million profit
last year).
Earnings per share after specific items were 4.5 pence in the quarter (17.6
pence last year), reflecting the impact of the current and prior year specific
items.
Cash flow and net debt
Net cash inflow from operating activities in the third quarter amounted to
GBP1,000 million compared with GBP604 million last year. The free cash outflow
of GBP221 million compared with an outflow of GBP525 million last year, which
included the payment of pension deficiency contributions of GBP500 million. The
free cash outflow is primarily the result of the cash outflow relating to
business transformation programme payments of GBP83 million (GBPnil last year)
together with the higher net working capital outflow of GBP294 million (GBP212
million last year). We expect a significant working capital inflow during the
fourth quarter. The cash outflow for the purchase of property, plant and
equipment amounted to GBP897 million (GBP794 million last year). We expect
capital expenditure for the full year to be at a similar level to last year.
The net cash outflow on acquisition of subsidiaries in the third quarter was
GBP42 million (GBP51 million last year) and related principally to the
acquisition of INS Group SA and the IT infrastructure division of CS
Communications and Systemes. During the quarter the group raised new long term
borrowings of GBP1,309 million at a combined annualised interest rate of 6.5 per
cent. The group repurchased 96 million shares (33 million last year) for a total
consideration of GBP281 million (GBP95 million last year), resulting in a net
cash outflow of GBP283 million (GBP105 million last year). Net debt was
GBP10,175 million at December 31, 2007 compared with GBP8,796 million at
December 31, 2006. Free cash flow and net debt are defined and reconciled in
notes 7 and 8 on pages 29 to 31.
Pensions
The IAS 19 net pension asset at December 31, 2007 was a surplus of GBP0.7
billion, net of tax (GBP0.9 billion gross of tax), compared with a deficit of
GBP1.1 billion at December 31, 2006 (GBP1.6 billion gross of tax), an
improvement of GBP1.8 billion, net of tax (GBP2.5 billion gross of tax). The BT
Pension Scheme had assets of GBP39.7 billion at December 31, 2007 (GBP37.8
billion at December 31, 2006).
The scheme's exposure to equities has been reduced through a continuing
de-risking strategy. This hedges the downside risks associated with the scheme's
equity exposure, from approximately 50 per cent to close to 40 per cent of the
scheme's assets.
21st Century Network
BT's 21CN will enable BT to deliver faster, more sophisticated and more
resilient services for our customers.
Responding to feedback, BT is focusing its activity on delivering tangible
customer benefits that will drive voluntary migration onto the new platform.
Only after a period of voluntary upgrades will BT implement a programme of
legacy platform and service decommissioning. This will not impact the overall
targets of 21CN.
The 21CN programme will deliver four new strategic next generation services
during the current calendar year.
Next Generation Ethernet will deliver carrier class, high speed data
connectivity to corporate customers and mobile operators. This service was
launched to Communication Providers (CPs) in February 2008.
Wholesale Broadband Connect, the next generation wholesale broadband service,
will provide customers with speeds up to 24Mb and more flexible broadband
capability. Beta trials of the new service are currently underway in the West
Midlands and the service will launch this spring.
A new open Innovation Platform that will enable BT, other CPs and thousands of
third party developers around the world to create software applications based on
BT's 21CN capabilities will launch this summer.
Next generation converged broadband and voice services, which give customers a
richer array of voice service capabilities, will launch from the end of 2008.
The rebuild of the core UK national infrastructure continues and over 35 per
cent of the infrastructure has now been renewed. Outside the UK, the BT Global
21CN platform is now available in 167 countries worldwide.
Line of business results
In April 2007, BT announced its plans to accelerate its transformation into a
communications services company delivering software driven services over
broadband. Key to this acceleration was the creation of a new organisational
structure that would enable the delivery of faster, more resilient and cost
effective services to customers. The new organisational structure is based
around two new internal operating divisions, namely BT Design and BT Operate,
which support the existing four customer-facing lines of business. BT Design is
responsible for the design and development of new services and BT Operate is
responsible for their deployment and operation. The divisions will help BT
deliver software driven products over next generation networks as well as drive
the achievement of cost savings.
BT moved to this new structure with effect from October 1, 2007 and, as a
result, has changed the presentation of its third quarter line of business
results to reflect the impact of the transformation. On January 23, 2008, BT
provided historical results for the lines of business for the 2006/07 financial
year and for the first half of the 2007/08 financial year on a quarterly basis
under the new structure. The main effects are that a significant amount of
intra-group trading is removed and there is more clarity of the end to end
profitability of the lines of business, downstream of Openreach. Trading between
Openreach and the other parts of the group is broadly unchanged. Comparatives
have been restated on the same basis to assist in understanding the year on year
performance. Overall group results are not affected by the change.
Outlook
We expect continued growth in revenue, EBITDA before specific items and leaver
costs, earnings per share before specific items and leaver costs, and dividends
and a significant free cash inflow in the fourth quarter. This underpins our
confidence in delivering our previously stated outlook of continued growth in
revenue, EBITDA before specific items and leaver costs, earnings per share
before specific items and leaver costs, and dividends for the year.
_____________________________________________________________________________
The fourth quarter and full year results are expected to be announced on May
15, 2008.
LINE OF BUSINESS RESULTS
BT Global Services
Third quarter ended December 31 Nine months
ended December 31
------------------------- -------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
Revenue 1,965 1,848 117 6 5,663 5,287
Gross profit 695 660 35 5 2,020 1,969
SG&A before
leaver costs 480 485 5 1 1,441 1,463
--- --- ----- -----
EBITDA before
leaver costs 215 175 40 23 579 506
Depreciation and
amortisation 193 172 (21) (12) 543 474
--- ---- --- ---
Operating profit
before leaver costs 22 3 19 n/m 36 32
=== === === ===
*Restated to reflect changes to the group's organisational structure and
internal trading arrangements
BT Global Services revenue grew by 6 per cent in the quarter to GBP1,965 million
and EBITDA before leaver costs grew by 23 per cent to GBP215 million, resulting
in an increase in EBITDA margin to 10.9 per cent compared with 9.5 per cent last
year.
The strong EBITDA growth was driven by higher margins on maturing contracts and
continued cost reduction activity, with gross profit up by 5 per cent to GBP695
million and SG&A costs GBP5 million lower at GBP480 million. Depreciation and
amortisation charges increased by GBP21 million to GBP193 million, due to
customer related capital expenditure last year and recent business acquisitions.
Overall, this took operating profit before leaver costs to GBP22 million, an
increase of GBP19 million from the previous year.
New wave revenue rose by GBP138 million to GBP1,628 million, an increase of 9
per cent. Outside the UK, the trend of strong international performance
continued with revenue growing by 22 per cent. Total MPLS revenue rose by 29 per
cent to GBP213 million.
Total orders in the quarter amounted to GBP1.9 billion, bringing the value of
orders achieved over the last twelve months to GBP8.6 billion. Networked IT
services contract orders were GBP1.3 billion in the quarter, bringing contract
orders for the last twelve months to GBP5.1 billion. These included a five year
contract with international oil services company, Aibel Group, to provide a
global service desk for end users and a global IP converged network and
messaging infrastructure supporting collaborative applications; and a three year
contract to supply a global MPLS network to Wolseley plc, a leading supplier of
construction products, materials and services, connecting their operations
across 19 locations around the world. The Federal State of Saxony has become the
third German state to source communications services from BT on a large scale.
In total, 136 new corporate customers outside the UK signed orders with BT in
the quarter.
Expansion within Europe continued with the acquisition of both INS Group SA
(INS) and the IT infrastructure division of CS Communications and Systemes (CS).
The acquisition of INS, a Belgium based network and systems integrator, will
strengthen BT's operations in the Benelux region and enhance BT's global
position in the LAN and IP telephony services market. CS is a French IT systems
and network services provider. The acquisition of its critical infrastructure
division will improve BT's ability to provide clients with a full range of
offerings for building and managing IT infrastructures, including consulting,
network integration, insourcing services and outsourcing, while growing its
customer base in France and beyond. In December, BT announced the proposed
acquisition of Frontline, one of the leading providers of end to end IT services
within the Asia Pacific region. Based in Singapore and with operations
throughout the region, Frontline strongly complements BT's existing networked IT
services capabilities and expands BT's global footprint.
BT continued to make strong progress in the delivery of its three contracts for
the NHS National Programme for IT (NPfIT). In London, where BT is working with
the NHS to modernise IT systems and services across the capital, it installed a
further 12 systems. Additionally, 50 trusts in London will benefit from
significantly reduced call charges after signing up to connect their voice
networks to N3, the national broadband network that BT has rolled out as part of
the NPfIT.
The first set of patient NHS Summary Care Records have been created on the Spine
- the secure database and messaging system BT has built and is managing for the
NHS - and a further two software releases have also been delivered on the Spine,
to improve its scalability and safeguard future performance.
BT Retail
Third quarter ended December 31 Nine months
ended December 31
------------------------- -------------
2007 2006* Better(worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,146 2,108 38 2 6,319 6,223
----- ----- ----- -----
Gross profit 802 751 51 7 2,329 2,182
SG&A before
leaver costs 400 391 (9) (2) 1,209 1,164
----- ----- ------- -------
EBITDA before
leaver costs 402 360 42 12 1,120 1,018
Depreciation and
amortisation 111 115 4 3 326 324
----- ----- ----- -----
Operating profit
before leaver costs 291 245 46 19 794 694
===== ===== ===== =====
*Restated to reflect changes to the group's organisational structure and
internal trading arrangements
BT Retail revenue increased by 2 per cent year on year, the second successive
quarter of growth, reflecting the success of the group's strategy to grow new
wave revenue whilst defending traditional revenue streams. Gross profit margin
improved by 1.8 percentage points as a result of an improved product mix, higher
added value sales and cost of sales efficiencies. SG&A costs have increased year
on year reflecting increased expenditure in marketing and customer service.
EBITDA before leaver costs has grown by 12 per cent, the tenth consecutive
quarter of growth, and operating profit before leaver costs increased by 19 per
cent.
New wave revenue grew by 18 per cent, driven mainly by broadband and networked
IT services, and was partially offset by a decline in traditional revenue of 3
per cent. New wave revenue was 24 per cent of total revenue representing an
increase of 3 percentage points year on year.
Revenue from our Consumer business unit declined by 1 per cent, continuing the
improved performance of the last year. We remain committed to continually
offering better value to our customers. The Ofcom annual review showed,
against an environment in which other utility sectors have seen price rises
significantly above inflation, the cost of fixed line services has actually
fallen 30 per cent between 2002 and 2006. We have focussed on significantly
reducing the prices of BT packages to give customers value and certainty.
We recently announced that the price of our 'unlimited anytime' call package
would be reduced to GBP5.95 per month or just 20p per day, representing a
reduction of almost 60 per cent in just two years. All of our customers can also
now have unlimited evening and weekend calls to fixed line numbers for no
extra charge and we believe these moves will further enhanceour competitive
position.
Broadband revenue grew by 25 per cent and net additions were 177,000, taking BT
to 4.3 million customers, retaining its status as the UK's most popular
broadband supplier. BT's retail market share of net adds of DSL and LLU in the
quarter was 35 per cent, the fifth consecutive quarter over 30 per cent, despite
the highly competitive broadband market. We continue to offer customers more
than just an access product, with a wide range of additional services. During
the quarter we launched a new Home Hub, offering improved functionality and a
smaller sleek design, and BT Fon. BT Fon provides a facility for every BT Total
Broadband customer who agrees to share a small secure section of their home
broadband connection, to benefit outside the home from sharing the connection of
another Fon member, using BT Openzone and using Fon WiFi around the world. BT
Fon is complementary to our already successful Openzone programme which gives
our broadband customers free Openzone minutes so they can use their broadband
outside the home or office.
Openzone usage continued to grow significantly with usage reaching almost one
million minutes per day. BT also completed the acquisition of Square Mile Marina
Limited, with contracts to offer public WiFi in 39 UK and Jersey Marinas, and
launched the Openzone 500 Americas and Europe international vouchers, offering
WiFi access across WiFi roaming partners and Openzone access to hotels, airports
and other travel hubs for an all inclusive rate.
The roll out of our next generation television service, BT Vision, accelerated
in line with plans. During the quarter the number of customers more than doubled
to 120,000, and is now more than 150,000. We also agreed additional content with
Paramount, giving access to an additional library of over 150 new films, and in
January with Disney, giving access to major US television series such as
"Desperate Housewives" and "Lost". We also announced a partnership deal with
Microsoft to bring together BT Vision and Microsoft's Xbox 360 games and
entertainment system which will allow our broadband customers to receive the
best in high definition gaming, television and movies through an Xbox 360.
Our Small Medium Enterprise (SME) business unit achieved revenue growth of
7 per cent in the quarter and again delivered strong EBITDA growth. SME
customers continue to opt for our all inclusive packages with One Plan which
combines calls and lines, broadband and mobile, for small businesses. One Plan
achieved 20,000 additions in the quarter, a growth of over 60 per cent on last
quarter, and now over 38 per cent of our SME customers choose some form of value
added package from BT.
During the quarter our SME advertising campaign has helped position BT as a key
provider of services to UK SMEs. Customer numbers on Tradespace grew to 39,000
and the expansion of the BT Business suite of web based tools for small
businesses has continued, with the launch of BT Web Expenses.
The integration of BT Basilica and BT Lynx has enhanced BT's capabilities in the
unified communications field, adding IT consulting, design, configuration and
implementation services to BT's existing portfolio and broadening our
addressable market with some significant wins in the quarter.
The Enterprises business unit delivered strong EBITDA growth, up 14 per cent
over the prior year. Within the division, Conferencing continues to deliver
strong growth and a number of major contracts were secured including a worldwide
contract with EMC. BT Expedite revenue increased 47 per cent and the recently
announced acquisition of Fresca Limited will enhance the product set and open
new market opportunities. Dabs.com revenue for the Christmas trading period grew
by 14 per cent compared with the same period last year.
BT Ireland recorded a strong performance boosted by broadband growth and
enhanced efficiencies, resulting in an increase to EBITDA of 20 per cent.
BT Wholesale
Nine months
Third quarter ended December 31 ended December 31
-------------------------- -------------
2007 2006* Better(worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
External revenue 890 1,041 (151) (15) 2,847 3,093
Internal revenue 315 320 (5) (2) 932 958
----- ----- ----- -----
Revenue 1,205 1,361 (156) (11) 3,779 4,051
------- ------- ------- -------
Gross profit 409 451 (42) (9) 1,270 1,357
SG&A before leaver
costs 65 72 7 10 189 219
---- ---- ----- -----
EBITDA before
leaver costs 344 379 (35) (9) 1,081 1,138
Depreciation and
amortisation 224 229 5 2 643 676
----- ----- ----- -----
Operating profit
before leaver costs 120 150 (30) (20) 438 462
===== ===== ===== =====
*Restated to reflect changes to the group's organisational structure and
internal trading arrangements
BT Wholesale external revenue in the third quarter decreased by GBP151 million
to GBP890 million. This was mainly due to a decline of GBP68 million in low
margin transit and premium rate services revenues as well as a reduction in
broadband revenue of GBP51 million as a result of the anticipated price
reductions in broadband (GBP16 million) and volume decreases as a result of LLU
migrations (GBP35 million). It is expected that low margin transit revenues will
continue to decline for a few more quarters as other CPs increasingly
interconnect directly. Internal revenue decreased by 2 per cent to GBP315
million, driven by lower line card and access electronics sales volumes to
Openreach.
Gross profit decreased by 9 per cent to GBP409 million, which principally
reflects the effect of lower broadband revenues. SG&A costs were reduced by 10
per cent as a result of headcount driven efficiency activities.
EBITDA before leaver costs decreased by 9 per cent to GBP344 million.
Depreciation decreased by 2 per cent year on year to GBP224 million. Operating
profit before leaver costs decreased by GBP30 million year on year to GBP120
million.
The wholesale communications industry is in transition, reflecting the ongoing
migration from traditional to next generation communications services. BT
Wholesale's strategy is to support customers through this transition, generating
future growth from the delivery of long term managed network solutions contracts
to other CPs. The strategy took another step forward when, during the quarter, a
new managed services contract was signed with Virgin Media to manage its
traditional voice services in the UK. Under the terms of the five year, GBP98
million contract, BT will manage around 55 billion voice minutes annually for
Virgin Media, or some 20 per cent of all voice calls made in the UK. BT
Wholesale also signed contracts with both Jersey Telecom and Faroese Telecom
during the quarter to supply managed submarine fibre connections from Jersey and
the Faroe Islands to the UK mainland. These are the latest of a number of major
managed network solution contracts signed this financial year.
BT Wholesale also remains focused on ensuring its product portfolio remains
competitive. It has launched and taken orders for next generation wholesale
ethernet. Subsequent upgrades will enhance both the functionality and footprint
of the new service, which will be delivered over BT's 21CN.
Trials of the next generation broadband service, Wholesale Broadband Connect are
progressing with 10 CPs actively involved in trials. BT Wholesale plans
to launch the new service commercially from the spring of 2008, with a planned
footprint rising to around 50 per cent of the addressable UK market within the
year following the launch.
Openreach
Third quarter ended December 31 Nine months
ended December 31
------------------------- -------------
2007 2006* Better(worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
External revenue 218 189 29 15 637 481
Revenue from other
BT lines of business 1,100 1,137 (37) (3) 3,309 3,406
------- ------- ------- -------
Revenue 1,318 1,326 (8) (1) 3,946 3,887
Operating costs
before leaver costs 829 846 17 2 2,504 2,453
----- ----- ------- -------
EBITDA before
leaver costs 489 480 9 2 1,442 1,434
Depreciation and
amortisation 166 177 11 6 517 530
----- ----- ----- -----
Operating profit
before leaver costs 323 303 20 7 925 904
===== ===== ===== =====
*Restated to reflect changes to the group's organisational structure and
internal trading arrangements
Openreach revenue in the third quarter decreased by 1 per cent to GBP1,318
million, with the growth of the broadband base being offset by lower connections
activity across all products compared to the much higher market activity in the
prior year and also the continued gradual decline of WLR rentals.
External revenue increased by GBP29 million due to the growth of external lines.
At December 31, 2007 Openreach had 3.7 million external LLU lines (net additions
of 0.5 million in the quarter) and over 4.5 million WLR lines and channels with
445 external CPs. The increased rentals have been partially offset by lower
co-mingling connections from the much higher unbundling activity within the
exchanges undertaken in the prior year.
Revenue from other BT lines of business decreased 3 per cent mainly driven by
the volume shift to external revenues and also lower broadband related
connections. At December 31, 2007 Openreach had 8.5 million LLU lines, and 22.3
million WLR lines and channels with other BT lines of business.
Operating costs decreased by GBP17 million to GBP829 million in the quarter.
Investment in service over prior quarters and the resulting improvement in
service levels, combined with the focus on delivering efficiency programme
savings, have more than offset the effects of pay inflation, higher activity
levels and increased maintenance and support costs of new systems, resulting in
a 2 per cent reduction in operating costs. Headcount has increased by 1,400
since December 31, 2006 as Openreach has invested in service improvements which
has helped continue to deliver the improved service lead times. Openreach has
also delivered a 50 per cent year on year improvement in average provision and
repair lead times.
Overall EBITDA before leaver costs increased by GBP9 million to GBP489 million.
Depreciation and amortisation costs of GBP166 million have decreased by GBP11
million with the impact of increased depreciation on LLU assets from the large
capital investment in prior periods being more than offset by lower depreciation
from a number of access network assets reaching the end of their useful economic
life. Operating profit before leaver costs increased by GBP20 million to GBP323
million.
Openreach has announced plans to install fibre optic cable instead of
traditional copper to connect houses on a 1,000-acre new-build project at
Ebbsfleet Valley in Kent. At this site Openreach will offer all of its products
on a wholesale basis to all UK CPs. From August 2008, CPs at Ebbsfleet will be
able to support data at speeds of up to 100Mb, the fastest headline speed
available to residential customers in the UK, allowing high-definition
television (HDTV) channels to be watched simultaneously and enabling HDTV gaming
and near-instant music downloads.
Openreach continues to work towards achieving the key milestones of the
Undertakings; actively working with CPs so that they utilise the new WLR 3
product and systems. At the end of January, Openreach retired the legacy LLU
provisioning system following the introduction of the Equivalence Management
Platform (EMP) and the successful transition of all CPs onto EMP. This is a
significant milestone in terms of all CPs using the same platform and also in
terms of moving the industry forward.
GROUP INCOME STATEMENT
for the three months ended December 31, 2007
Before Specific items Total
specific items (note 4)
Notes GBPm GBPm GBPm
------ ---------- ----------- ---------
Revenue 2 5,154 - 5,154
Other operating income 83 (9) 74
Operating costs 3 (4,520) (126) (4,646)
------- ----- -------
Operating profit 717 (135) 582
Finance expense (768) - (768)
Finance income 634 - 634
----- --- -----
Net finance expense 5 (134) - (134)
Share of post tax losses
of associates and joint
ventures (2) - (2)
Profit on disposal of
associate - 1 1
--- --- ---
Profit before taxation 581 (134) 447
Taxation (120) 38 (82)
------- --- ----
Profit for the period 461 (96) 365
===== ==== ====
Attributable to:
Equity shareholders 461 (96) 365
Minority interest - - -
=== === ===
Earnings per share 6
- basic 5.7p 4.5p
====== ======
- diluted 5.6p 4.4p
====== ======
GROUP INCOME STATEMENT
for the three months ended December 31, 2006
Before Specific items Total
specific items (note 4)
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 671 (116) 555
Finance expense (656) - (656)
Finance income 594 139 733
----- ----- -----
Net finance (expense) 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 nine months ended December 31, 2007
Before specific Specific items Total
items (note 4)
Notes GBPm GBPm GBPm
------ ----------- ----------- ---------
Revenue 2 15,282 - 15,282
Other operating income 223 (10) 213
Operating costs 3 (13,368) (366) (13,734)
---------- ------- ----------
Operating profit 2,137 (376) 1,761
Finance expense (2,167) - (2,167)
Finance income 1,886 - 1,886
------- --- -------
Net finance expense 5 (281) - (281)
Share of post tax profits
of associates and joint ventures (8) - (8)
Profit on disposal of associate - 10 10
--- ---- ----
Profit before taxation 1,848 (366) 1,482
Taxation (434) 264 (170)
------- ----- -------
Profit for the period 1,414 (102) 1,312
======= ======= =======
Attributable to:
Equity shareholders 1,413 (102) 1,311
Minority interest 1 - 1
===== === =====
Earnings per share 6
- basic 17.4p 16.1p
===== =====
- diluted 17.0p 15.7p
===== =====
GROUP INCOME STATEMENT
for the nine months ended December 31, 2006
Before specific Specific items Total
items (note 4)
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 2,012 (139) 1,873
Finance expense (1,949) - (1,949)
Finance income 1,786 139 1,925
------- ----- -------
Net finance (expense) income 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 STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the nine months ended December 31, 2007
Nine months
ended December 31
2007 2006
GBPm GBPm
------------------------------------ -------- --- --- -----
Profit for the period 1,312 2,397
======= ======
Actuarial gains on defined benefit pension schemes 753 360
Net (losses) gains on cash flow hedges (2) 70
Exchange differences on translation of foreign
operations 96 (102)
Tax on items taken directly to equity (361) (150)
----- -----
Net gains recognised directly in equity 486 178
----- -----
Total recognised income for the period 1,798 2,575
===== =====
Attributable to:
Equity shareholders 1,793 2,574
Minority interest 5 1
--- ---
1,798 2,575
======= =======
GROUP CASH FLOW STATEMENT
for the three months and nine months ended December 31, 2007
Third quarter Nine months
ended December 31 ended December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
-------------------------- -------- --- -------- --- --------- ------
Cash flow from operating
activities
Cash generated from
operations (note 7 (a)) 1,070 704 2,564 3,077
Income taxes (paid) received (70) (100) 314 (280)
------ ----- ----- -------
Net cash inflow from
operating activities 1,000 604 2,878 2,797
Cash flow from investing
activities
Interest received 15 26 101 63
Dividends received from
associates and joint ventures 1 1 2 6
Proceeds on disposal of
subsidiaries - 2 - 2
Proceeds on disposal of
property, plant and equipment 20 17 47 74
Proceeds on disposal of
associates and joint ventures 2 - 13 27
Proceeds on disposal of non
current financial assets - 2 1 3
Proceeds on disposal of
current financial assets 443 1,583 443 3,464
Acquisition of subsidiaries
net of cash acquired (42) (51) (275) (96)
Purchases of property,
plant and equipment and
computer software (897) (794) (2,541) (2,447)
Investments in associates
and joint ventures - - - (7)
Purchases of non current
financial assets (1) (19) (2) (20)
Purchases of current financial
assets - (1,019) (435) (3,380)
--- --------- ------- ---------
Net cash used in investing
activities (459) (252) (2,646) (2,311)
Cash flows from financing
activities
Equity dividends paid (23) (8) (809) (635)
Dividends paid to minority
interests - - - (3)
Interest paid (359) (362) (688) (680)
Repayments of borrowings (441) (471) (1,177) (624)
Repayment of finance lease
liabilities (279) (288) (291) (297)
New bank loans and bonds 1,309 - 3,912 -
Net (repayment) proceeds on
issue of commercial paper (444) 805 (20) 1,032
Repurchase of ordinary shares (283) (105) (1,018) (271)
Proceeds on issue of treasury
shares 8 13 76 65
--- --- --- ----
Net cash used in financing (512) (416) (15) (1,413)
activities
Effects of exchange rate
changes 10 (28) 13 (28)
--- --- --- ----
Net increase (decrease) in
cash and cash equivalents 39 (92) 230 (955)
==== ==== === ======
Cash and cash equivalents at
beginning of period 1,215 921 1,024 1,784
Cash and cash equivalents,
net of bank overdrafts,
at end of period
(note 7 (c)) 1,254 829 1,254 829
===== ==== ===== =====
Free cash flow (note 7 (b)) (221) (525) (202) (204)
====== ===== ===== =====
Increase in net debt from
cash flows (note 8 (b)) 559 674 2,215 1,122
===== === ====== ======
GROUP BALANCE SHEET
at December 31, 2007
December 31 December 31 March 31
2007 2006 2007
GBPm GBPm GBPm
----------- ----------- ----------
Non current assets
Intangible assets 3,124 2,374 2,584
Property, plant and equipment 15,278 14,897 14,997
Derivative financial instruments 66 24 25
Investments 29 39 27
Associates and joint ventures 75 60 67
Trade and other receivables 732 449 523
Retirement benefit assets of the BT
Pension Scheme 942 - -
Deferred tax assets 27 467 117
------ ------ ------
20,273 18,310 18,340
------ ------ ------
Current assets
Inventories 143 127 133
Trade and other receivables 4,721 5,564 4,073
Current tax receivables - - 504
Derivative financial instruments 102 25 27
Investments - 183 3
Cash and cash equivalents 1,672 946 1,075
------ ------ ------
6,638 6,845 5,815
------ ------ ------
Total assets 26,911 25,155 24,155
Current liabilities
Loans and other borrowings 2,223 3,014 2,203
Derivative financial instruments 266 317 318
Trade and other payables 6,513 6,431 6,719
Current tax liabilities 404 479 277
Provisions 65 73 100
------- ------- ------
9,471 10,314 9,617
------- ------- -------
Total assets less current liabilities 17,440 14,841 14,538
======= ======= =======
Non current liabilities
Loans and other borrowings 9,388 6,451 6,387
Derivative financial instruments 920 1,077 992
Other payables 646 546 590
Deferred tax liabilities 1,800 1,544 1,683
Retirement benefit obligations 96 1,558 389
Provisions 214 249 225
------- ------- -------
13,064 11,425 10,266
------- ------- -------
Capital and reserves
Called up share capital 432 432 432
Reserves 3,915 2,937 3,806
------- ------- -------
Total equity shareholders' funds 4,347 3,369 4,238
Minority interests 29 47 34
------- ------- -------
Total equity 4,376 3,416 4,272
------- ------- -------
17,440 14,841 14,538
======= ======= =======
NOTES
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, 2007 and 2006, together with the audited balance sheet for
the year ended March 31, 2007. 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, 2007 were approved by the Board
of Directors on May 16, 2007, published on May 31, 2007 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, 2007.
In order to assist readers in understanding the year on year performance, we
have restated the comparative line of business results to reflect changes to the
group's organisational structure and new internal trading arrangements. There is
no change to the overall group reported results.
Certain comparative balance sheet amounts have been reclassified as at
December 31, 2006 to conform with the presentation adopted as at March 31, 2007
and December 31, 2007.
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, 2007
BT Global Services 1,965 - 1,965 215 22
BT Retail 2,074 72 2,146 402 291
BT Wholesale 890 315 1,205 344 120
Openreach 218 1,100 1,318 489 323
Other 7 - 7 19 (19)
Intra-group items (i) - (1,487) (1,487) - -
------ ------- ------- --- ---
Total 5,154 - 5,154 1,469 737
====== ====== ====== ===== ====
Third quarter ended
December 31, 2006*
BT Global Services 1,848 - 1,848 175 3
BT Retail 2,046 62 2,108 360 245
BT Wholesale 1,041 320 1,361 379 150
Openreach 189 1,137 1,326 480 303
Other 2 - 2 45 (3)
Intra-group items (i) - (1,519) (1,519) - -
------ ------- ------- --- ---
Total 5,126 - 5,126 1,439 698
====== ====== ======= ====== ====
Nine months ended
December 31, 2007
BT Global Services 5,663 - 5,663 579 36
BT Retail 6,116 203 6,319 1,120 794
BT Wholesale 2,847 932 3,779 1,081 438
Openreach 637 3,309 3,946 1,442 925
Other 19 - 19 120 15
Intra-group items (i) - (4,444) (4,444) - -
------ ------- ------- ----- -----
Total 15,282 - 15,282 4,342 2,208
====== ====== ======= ===== ======
Nine months ended
December 31, 2006*
BT Global Services 5,287 - 5,287 506 32
BT Retail 6,058 165 6,223 1,018 694
BT Wholesale 3,093 958 4,051 1,138 462
Openreach 481 3,406 3,887 1,434 904
Other 12 - 12 147 4
Intra-group items (i) - (4,529) (4,529) - -
------ ------- ------- ---- -----
Total 14,931 - 14,931 4,243 2,096
====== ======= ======= ===== =====
* Restated to reflect changes to the group's organisational structure and
internal trading arrangements
(i) Elimination of intra-group revenue between businesses, which is included in
the total revenue of the originating business.
(ii) Before specific items and leaver costs.
(b) Revenue analysis
Third quarter ended Nine months ended
December 31 December 31
------------------------ --------------------
2007 2006* Better (worse) 2007 2006*
GBPm GBPm GBPm % GBPm GBPm
Traditional 3,140 3,246 (106) (3) 9,539 9,674
New wave 2,014 1,880 134 7 5,743 5,257
----- ----- ----- -----
5,154 5,126 28 1 15,282 14,931
===== ===== ====== ======
Major corporate 1,882 1,796 86 5 5,422 5,120
Business 647 607 40 7 1,914 1,841
Consumer 1,292 1,310 (18) (1) 3,812 3,819
Wholesale/Carrier 1,326 1,411 (85) (6) 4,115 4,139
Other 7 2 5 n/m 19 12
--- --- ---- ----
5,154 5,126 28 1 15,282 14,931
===== ===== ====== ======
* Restated for customer account transfers
(c) New wave revenue analysis
Third quarter ended Nine months ended
December 31 December 31
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Networked IT services 1,222 1,117 105 9 3,403 3,099
Broadband 550 520 30 6 1,633 1,460
Mobility 89 73 16 22 257 216
Other 153 170 (17) (10) 450 482
----- ----- ----- -----
2,014 1,880 134 7 5,743 5,257
====== ====== ====== ======
(d) Capital expenditure on property, plant, equipment, software and motor vehicles
Third quarter ended Nine months ended
December 31 December 31
------------------------ ----------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Transmission equipment 267 303 36 12 835 897
Exchange equipment 13 24 11 46 68 77
Other network equipment 304 214 (90) (42) 870 603
Computers and
office equipment 71 30 (41) (137) 126 80
Software 196 219 23 11 606 601
Motor vehicles
and other 5 8 3 38 30 35
Land and buildings 7 17 10 59 30 49
--- ---- ---- ----
863 815 (48) (6) 2,565 2,342
==== ==== ===== =====
3 (a) Operating costs
Third quarter ended Nine months ended
December 31 December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Staff costs before leaver costs 1,273 1,282 3,869 3,812
Leaver costs 20 27 71 84
---- ---- ---- ----
Staff costs 1,293 1,309 3,940 3,896
Own work capitalised (177) (186) (556) (532)
------- ------- ------- -------
Net staff costs 1,116 1,123 3,384 3,364
Depreciation and amortisation 732 741 2,134 2,147
Payments to telecommunication
operators 1,023 1,051 3,139 3,091
Other operating costs 1,649 1,593 4,711 4,472
------- ------- ------- -------
Total before specific items 4,520 4,508 13,368 13,074
Specific items (note 4) 126 118 366 141
----- ----- ----- -----
Total 4,646 4,626 13,734 13,215
======= ======= ======== ========
(b) Leaver costs
Third quarter ended Nine months ended
December 31 December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
BT Global Services 1 3 11 20
BT Retail 2 5 7 14
BT Wholesale - 2 1 6
Openreach 3 1 11 3
Other 14 16 41 41
---- ---- ---- ----
Total 20 27 71 84
==== ==== ==== ====
4 Specific items
BT separately identifies and discloses any significant one off or unusual items
(termed "specific items"). 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.
Third quarter ended Nine months ended
December 31 December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Creation of Openreach - 30 - 30
Restructuring costs 76 - 292 -
Write off of circuit inventory
and working capital balances 50 61 74 61
Property rationalisation costs - 17 - 40
Cost associated with settlement
of open tax years - 10 - 10
--- --- --- ---
Specific operating costs 126 118 366 141
Loss (profit) on sale of non
current asset investments 9 (2) 10 (2)
Profit on disposal of associate (1) - (10) (20)
--- --- ---- ----
Net specific items charge before
interest and tax 134 116 366 119
Interest on settlement of open
tax years - (139) - (139)
Tax credit on specific items (38) (34) (110) (35)
Tax credit in respect of
settlement of open tax years - (935) - (935)
Tax credit on re-measurement of
deferred tax - - (154) -
--- --- ----- ----
Net specific items charge
(income) after tax 96 (992) 102 (990)
==== ===== === =====
5 Net finance expense
Third quarter ended Nine months ended
December 31 December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Finance expense (1) before pension
interest 261 188 646 545
Interest on pension scheme
liabilities 507 468 1,521 1,404
---- --- ----- -----
Finance expense 768 656 2,167 1,949
----- ----- ------- -------
Finance income (2) before pension
income (22) (160) (50) (206)
Expected return on pension scheme
assets (612) (573) (1,836) (1,719)
----- ----- ------- -------
Finance income (634) (733) (1,886) (1,925)
----- ----- ------- -------
Net finance expense (income) 134 (77) 281 24
==== ===== ==== ====
Net finance expense before pensions 239 28 596 339
Interest associated with pensions (105) (105) (315) (315)
Net finance expense (income) 134 (77) 281 24
===== ===== ===== ====
(1) Finance expense in the third quarter and nine months ended December 31, 2007
includes GBP36 million and GBP39 million 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. This includes a charge in the third
quarter of GBP26 million on a low cost borrowing transaction which is marginally
earnings positive after tax in the year. Finance expense in the third quarter
and nine months ended December 31, 2006 included GBPnil and a GBP1 million net
charge, respectively, arising from the re-measurement of financial instruments
which were not in hedging relationships on a fair value basis.
(2) Finance income in the third quarter and nine months ended December 31, 2006
included 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
2007 2006 2007 2006
millions of shares millions of shares
Basic 8,037 8,284 8,120 8,302
Diluted 8,241 8,512 8,332 8,488
7 (a) Reconciliation of profit before tax to cash generated from operations
Third quarter Nine months
ended December 31 ended December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Profit before tax 447 639 1,482 1,883
Depreciation and amortisation 732 741 2,134 2,147
Associates and joint ventures 2 (7) 8 (14)
Employee share scheme costs 19 23 55 70
Net finance expense (income) 134 (77) 281 24
Loss (profit) on disposal of associates
and non current asset investments 8 (2) - (22)
Changes in working capital (294) (212) (1,219) (765)
Provisions movements, pensions and other 22 (401) (177) (246)
---- ----- ------ -----
Cash generated from operations 1,070 704 2,564 3,077
===== ==== ====== =====
(b) Free cash flow
Third quarter Nine months
ended December 31 ended December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Cash generated from operations 1,070 704 2,564 3,077
Income taxes paid (70) (100) 314 (280)
------ ----- ----- ------
Net cash inflow from operating activities 1,000 604 2,878 2,797
Included in cash flows from investing
activities
Net purchase of property, plant,
equipment and software (877) (777) (2,494) (2,373)
Net purchase of non current asset
investments (1) (17) (1) (17)
Dividends received from associates 1 1 2 6
Interest received 15 26 101 63
Included in cash flows from financing
activities
Interest paid (359) (362) (688) (680)
----- ----- ------ -----
Free cash flow (221) (525) (202) (204)
===== ===== ====== =====
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
2007 2006 2007
GBPm GBPm GBPm
Cash at bank and in hand 783 387 568
Short term deposits 889 559 507
----- ----- ------
Cash and cash equivalents 1,672 946 1,075
Bank overdrafts (418) (117) (51)
------ ------ -------
1,254 829 1,024
====== ====== =======
8 Net debt
Net debt at December 31, 2007 was GBP10,175 million (December 31, 2006 -
GBP8,796 million, March 31, 2007 - GBP7,914 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
GBP416 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
2007 2006 2007
GBPm GBPm GBPm
Loans and other borrowings 11,611 9,465 8,590
Cash and cash equivalents (1,672) (946) (1,075)
Other current financial assets - (183) (3)
------- ------- -------
9,939 8,336 7,512
Adjustments:
To retranslate currency denominated
balances at swapped rates where hedged 404 594 577
To recognise borrowings at net proceeds
and unamortised discount (168) (134) (175)
-------- ------- -------
Net debt 10,175 8,796 7,914
========= ======= =======
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at December 31, 2007 was GBP11,427 million (December 31,
2006 - GBP9,809 million, March 31, 2007 - GBP8,943 million).
(b) Reconciliation of net cash flow to movement in net debt
Third quarter ended Nine months
December 31 ended December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Net debt at beginning of period 9,618 8,079 7,914 7,534
Increase in net debt resulting from
cash flows 559 674 2,215 1,122
Net debt assumed or issued on
acquisitions - - 31 9
Currency movements (1) 15 - 114
Other non-cash movements (1) 28 15 17
------ ------ ------ -----
Net debt at end of period 10,175 8,796 10,175 8,796
====== ====== ====== =====
9 Statement of changes in equity
Nine months Year ended
ended December 31 March 31
2007 2006 2007
GBPm GBPm GBPm
Shareholders'funds 4,238 1,555 1,555
Minority interest 34 52 52
------ ------ ------
Equity at beginning of period 4,272 1,607 1,607
Total recognised income
for the period 1,798 2,575 3,843
Share based payment 38 47 71
Issue of shares 10 16 24
Net purchase of treasury shares (922) (194) (284)
Dividends on ordinary shares (810) (631) (1,053)
Tax on items taken directly to equity - - 82
Minority interest (10) (4) (18)
------ ------ -------
Net changes in equity for the
financial period 104 1,809 2,665
Equity at end of period
Shareholders' funds 4,347 3,369 4,238
Minority interest 29 47 34
------ ------- ------
Total equity 4,376 3,416 4,272
======= ======= ======
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Third quarter ended Nine months
December 31 ended December 31
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Operating profit 582 555 1,761 1,873
Specific items (note 4) 135 116 376 139
Depreciation and amortisation 732 741 2,134 2,147
---- --- ----- -----
EBITDA before specific items 1,449 1,412 4,271 4,159
===== ===== ===== =====
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 5.4 pence per share (5.1 pence
last year) on November 8, 2007. This will be paid on February 11, 2008 to the
shareholders on the register at the close of business on December 28, 2007. This
interim dividend, amounting to GBP431 million, has not been included as a
liability as at December 31, 2007. It will be recognised as an appropriation of
retained earnings within shareholders' equity in the quarter ended March 31,
2008.
Independent review report to BT Group plc on the interim financial information
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the interim financial report for the three and nine months ended
December 31, 2007, which comprises the group income statement, group statement
of recognised income and expense, group cash flow statement and group balance
sheet and related notes. We have read the other information contained in the
interim financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information in the
condensed set of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the interim financial
report in accordance with note 1, Basis of preparation and accounting policies.
The annual financial statements of the group are prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
The accounting policies which have been applied to prepare the condensed set of
financial statements, included in this interim financial report, are the same as
those used for the preparation of the consolidated financial statements for the
year ended March 31, 2007.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the interim financial report based on our review.
This report, including the conclusion, has been prepared for and only for the
company and for no other purpose. We do not, in producing this report, accept or
assume responsibility for any other purpose or to any other person to whom this
report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the interim financial report
for the three and nine months ended December 31, 2007 is not prepared, in all
material respects, in accordance with note 1, Basis of preparation and
accounting policies.
PricewaterhouseCoopers LLP, Chartered Accountants
London
6 February 2008
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; continued growth in Global Services' revenue and EBITDA margins;
growth in new wave revenue, mainly from networked IT services and broadband;
continued growth in the broadband market and adding value to BT's broadband
proposition; and the delivery and benefits of BT's 21st Century Network and next
generation services.
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 and ability to raise finance.
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 07 February, 2008