In the 2004 financial year, the total net interest charge, including BT’s share of its ventures’ charges, at £941 million was £498 million lower than in the preceding year, which in turn was £183 million lower than in the 2002 financial year. Of the total net charge, £924 million arises in the BT group for the 2004 financial year, compared with £1,420 million and £1,540 million in the 2003 and 2002 financial years, respectively.
     The reduction in the net interest charge in the 2004 financial year reflects the continued reduction in the level of net debt and lower net exceptional charges in the current year. The net exceptional charge represents the premium on buying back €1.1 billion of 7.125% bonds due in 2011 and US$195 million of the group’s US dollar bonds, partially offset by a credit from the one off interest recognised on full repayment of loan notes received as part of the original consideration from the disposal of Yell.
     The reduction in the net interest charge in the 2003 financial year reflects the reduction in the level of net debt and is partly offset by the £293 million exceptional cost of terminating fixed interest rate swaps as a consequence of the receipt of the Cegetel sale proceeds.
     The substantially higher charge in the 2002 financial year is mainly due to the cost of funding the acquisition of mmO₂’s third-generation mobile licences, principally in the UK and Germany. In the 2002 financial year, the group’s net interest charge included the £162 million exceptional cost of novating interest swaps as a consequence of the property sale and leaseback transaction.
     Interest cover in the 2004 financial year represented 3.3 times total operating profit before goodwill amortisation and exceptional items, and compares with interest cover of 2.6 in the 2003 financial year and 1.9 for continuing activities in the 2002 financial year. The improvement in cover in the 2004 financial year is due to the reduction in the interest charge mainly arising from the reduction in net debt. The improvement in cover in the 2003 financial year is due to the reduction in the interest charge and improvement in the operating profit before goodwill amortisation and exceptional items. We expect the net interest charge to decrease and interest cover to continue to improve in the 2005 financial year following the continued reduction in net debt during the 2004 financial year.

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