BT Retail’s results have demonstrated the strategic focus of defending traditional turnover and gross margins, cost reductions through a series of cost transformation programmes and focusing on turnover growth through new wave initiatives in the ICT, broadband and mobility markets. In the 2004 and 2003 financial years, the results include those of the re-integrated Concert business relating to UK multinational customer accounts, including the associated sales force and account management functions.
     BT Retail’s turnover decreased by 3% in the 2004 financial year to £13,534 million after rising by 5% in the 2003 financial year. The growth in new wave turnover of 29% in the 2004 financial year was more than offset by the decline in traditional turnover driven by the increased impact of regulation and competition. After adjusting for the regulatory impact of the reduction in mobile termination rates, turnover declined by 2% compared to the 2003 financial year. The increase in the 2003 financial year included turnover from the UK multinational customers re-integrated into BT Retail from the Concert global venture. Turnover for the three years is summarised as follows:

Voice services comprise calls made by customers on the BT fixed line network in the UK, analogue lines, equipment sales and rentals and other business voice products. Overall turnover from voice services was 7% lower in the 2004 financial year after an increase of 1% in the 2003 financial year.
      The overall market for fixed to fixed voice call minutes in the 2004 financial year was estimated to have declined by 2%, partly reflecting the migration to new wave products and services such as IPVPN’s and substitution by e-mail, instant messaging and mobile services. In the 2003 financial year, the estimated overall market for fixed to fixed voice call minutes declined by 3%.
      BT Retail’s total originating measured call volumes declined by 10% in the 2004 financial year (2003 – 5%) with geographic (local, national and international) calls declining by 8% (2003 – 4%), reflecting the decline in the market and some loss of market share due to CPS. Fixed to mobile call volumes were flat in the 2004 financial year after a 6% increase in the 2003 financial year. BT Retail’s internet and data related call volumes declined by 16% reflecting the move to wholesale flat rate internet access products in the 2004 financial year. Total BT Group internet and data related call volumes increased by 1% (2003 – 30%), with the decline in the year on year rate of growth driven by the migration to broadband which is not measured in minutes and a slow down in the growth of flat rate internet access minutes. As a result, BT Group’s total originating measured call volumes declined by 2% in the 2004 financial year (2003 – 13% increase).
      The directory services market was deregulated following an announcement in September 2001 which resulted in the introduction of the new 118 XXX number range in December 2002 and the termination of the 192 and 153 services in August 2003. BT’s market share of the deregulated directory enquiries market through the 118 500 service has increased during the year as the benefits and awareness of the quality of service and pricing, supported by a marketing campaign became apparent. However, revenues reduced significantly year on year due to a contraction in the market.
      Turnover from intermediate products in the 2004 financial year of £2,356 million decreased by 7% in the 2004 financial year after increasing by 11% in the 2003 financial year. In the 2004 financial year, the change was mainly driven by a decline in retail private circuits and ISDN as customers migrate to cheaper partial private circuits and new wave products such as broadband and IPVPN. In the 2003 financial year growth was achieved, which included the benefit of the re-integration of Concert, despite the migration of customers from retail private circuits to partial private circuits. As a result of changes required by Ofcom, partial private circuits used by UK fixed network operators are no longer provided by BT Retail, but are provided as a BT Wholesale product. Private circuit revenues declined by £228 million in the 2004 financial year and by £109 million in the 2003 financial year.
      The total number of BT Retail lines, which includes voice, digital and broadband, were flat at 29.6 million at 31 March 2004 following an increase of 1% in the 2003 financial year, reflecting the continued growth in broadband offset by the declining PSTN lines. The movement in the 2003 financial year mainly reflected the growth of high speed ISDN lines and broadband.
      New wave turnover grew by 29% to £2,166 million in the 2004 financial year compared to growth of 19% in the 2003 financial year. ICT turnover increased by 15% in the 2004 financial year to £1,734 million after an increase of 9% in the 2003 financial year reflecting the growth in new IP based services and solutions contracts, offset by the decline in business telephony equipment. Broadband turnover grew by 134% to £307 million in the 2004 financial year after an increase of 322% in the 2003 financial year. This reflects the increased take up of broadband, with 928,000 BT Retail customers at 31 March 2004 and 429,000 customers at 31 March 2003, reflecting increases of 116% and 298% on the respective prior years. In November 2003, BT entered the consumer mobile market with the launch of BT Mobile Home Plan through on-line, voice and retail store outlets. BT now has a consumer and corporate mobile customer base of 144,000. Total turnover from mobile services increased by 100% in the 2004 financial year to £84 million.
      The gross margin percentage decreased by 1 percentage point in the 2004 financial year after an increase of 1 percentage point in the 2003 financial year. The decline in the 2004 financial year reflects lower prices and changes in the revenue mix, partly offset by lower charges from BT Wholesale, in line with market and regulatory prices. The improvements in the 2003 financial year were driven by the success of BT Together packages, improved product mix and lower wholesale prices which more than offset the impact of the decline in call volumes.
      Gross margin is turnover less costs directly attributable to the provision of the products and services reflected in turnover in the period. Selling, general and administration costs are those costs that are ancillary to the business processes of providing products and services and are the general business operating costs. BT Retail analyses its costs in this manner for management purposes in common with other retail organisations and it has set target savings for selling, general and administration costs.
      Cost transformation programmes in the 2004 financial year generated selling, general and administration cost savings of £228 million before leaver costs in the traditional business compared to the 2003 financial year (£154 million net of new wave investment). The savings in the year were driven by a reduction in people related expenses such as travel, accommodation and communications, lower service costs resulting from improvements in service quality, billing initiatives and cost reduction programmes focusing on customer contact centres, improving the billing platform, and optimising processes across BT Retail.
      Excluding leaver costs and investment in new wave activities, BT Retail has achieved its target of £800 million savings almost a year early in the traditional business, achieving savings of £228 million, £275 million and £290 million in the 2004, 2003 and 2002 financial years, respectively.
      The number of employees in BT Retail at 31 March 2004 and 31 March 2003 was 41,500 and 50,400, respectively.
      BT Retail’s EBITDA before exceptional items and goodwill amortisation declined by 8% to £1,596 million in the 2004 financial year after showing strong growth in the 2003 financial year of 42% to £1,729 million. In the 2004 financial year, cost savings were more than offset by the decline in turnover and the impact on margins of the product mix. In the 2003 financial year, the cost savings and improved gross margins contributed towards BT Retail’s strong EBITDA growth before exceptional items.

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