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  Financial review: Earnings (loss) and dividends

The basic earnings per share of 12.0 pence per share for the 2002 financial year compares with a loss of 25.7 pence for the 2001 financial year and earnings of 27.6 pence for the 2000 financial year. These results include those of mmO2 and the group's other discontinued activities up to the date of demerger or sale, as well as significant exceptional items and goodwill amortisation. The following table illustrates the impact of these factors on the earnings per share for the past three financial years:

2002
   pence
2001
   pence
2000
   pence
Earnings per share from continuing activities before goodwill amortisation and exceptional items 8.8) 19.3) 29.5)
Exceptional items and goodwill amortisation from continuing activities (43.6) 1.4) (0.3)
Earnings (loss) per share from continuing activities (34.8) 20.7) 29.2)
Earnings (loss) per share from discontinued activities 46.8) (46.4) (1.6)
Total earnings (loss) per share 12.0) (25.7) 27.6)

Basic earnings per share before goodwill amortisation and exceptional items, from BT's continuing activities of 8.8 pence for the 2002 financial year compares with an equivalent 19.3 pence and 29.5 pence for the 2001 and 2000 financial years, respectively. The results for both the 2002 and 2001 financial years reflect the higher interest charges, losses incurred by newly acquired businesses and the adverse effect which competitive pressures have continued to have on our operating margins in the UK fixed-voice telephony market.

Diluted earnings per share are not materially different.

A final dividend for the 2002 financial year of 2.0 pence per share has been recommended. If approved at the annual general meeting, this dividend will be paid on 9 September 2002 to shareholders on the register on 9 August 2002. This dividend will absorb 173 million. BT's future dividend policy will be progressive, reflecting the growth in earnings per share and an improving balance sheet. It is likely dividend cover during the next three years will be in the range of 2.5 to 2.0 times, reducing within the range as the group's cash position improves.

As part of BT's debt reduction and restructuring plans, the Board decided in May 2001 that there was to be no interim dividend for the 2002 financial year, nor any final dividend in respect of the 2001 financial year. The dividend for the 2001 financial year of 7.8 pence per share therefore solely comprised the interim dividend paid in February 2001 which absorbed 571 million.

Interim and final dividends totalled 19.6 pence per share for the 2000 financial year and absorbed 1,426 million.

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