All references in this section to the 2002 financial year results or performance against the 2002 financial year are in relation to the results from continuing activities.
     Whilst driving a significant transformation in the business, the group continued to make further progress with earnings per share before goodwill amortisation and exceptional items at 16.9 pence which were 19% ahead of the 2003 financial year and 92% ahead of the 2002 financial year.
     The acceleration of our transformation is demonstrated by the 30% growth of new wave turnover to £3,387 million compared to an increase of 20% in the 2003 financial year. New wave turnover represented 18% of group turnover in the 2004 financial year compared to 14% and 12% in the 2003 and 2002 financial years, respectively. New wave turnover is mainly generated from ICT solutions, broadband, mobility and managed services.

In the 2004 financial year, performance was driven by particularly strong growth in the ICT solutions business and broadband. However, this growth was more than offset by a 6% decline in turnover from the group’s traditional businesses. The decline reflects regulatory intervention, price reductions and competitive and technological changes that are being used to drive customers from traditional services to better value and more flexible new wave services, such as broadband and IPVPN’s. Mobile operators were required to reduce their fees for terminating calls and these regulatory reductions were passed on to BT customers resulting in lower revenues but are profit neutral as payments to mobile operators were reduced by the same amount. Group turnover was maintained after excluding the £219 million impact of these regulatory reductions to mobile termination rates.
     In the 2003 financial year performance in new wave services was also driven by strong growth in ICT solutions and broadband. This growth was partly offset by the 1% decline in traditional revenues.
     The table below analyses the group turnover by customer segment. Consumer includes the external turnover of BT Retail from consumer customers. Business includes the external turnover of BT Retail from smaller and medium sized enterprise (SME) customers. Major Corporate includes the external turnover of BT Retail Major Corporate customers, and the external turnover of BT Global Services, excluding global carrier. Wholesale includes the external turnover of BT Wholesale and BT Global Services’ global carrier business.

Group turnover by customer segment

Consumer turnover in 2004 was 2% lower (1% excluding the impact of regulatory reductions in mobile termination rates) at £5,974 million when compared to the 2003 financial year. In the consumer fixed voice market, Carrier Pre Selection (CPS) had some impact with BT’s estimated residential market share, as measured by the volume of fixed to fixed voice minutes, declining by 3 percentage points to 70% compared to the 2003 financial year. The estimated market share, as measured by the volume of fixed to fixed voice minutes, is based on our actual minutes, market data provided by Ofcom and an extrapolation of the historical market trends.
     The proportion of contracted revenues has been increasing, now approaching 60% of total revenues, with the success of the BT Together packages and broadband. The underlying 12 months rolling average revenue per customer household (net of mobile termination charges) of £268 in the 2004 financial year was 1% lower than the 2003 financial year. Consumer turnover in the 2003 financial year was 3% higher at £6,067 million when compared to the 2002 financial year. The number of BT Together packages increased by 304,000 packages during the 2003 financial year.
     The aggregate Business and Major Corporate turnover in the 2004 financial year was maintained when compared to the 2003 financial year after an increase of 10% from the 2002 financial year. BT’s estimated business market share of fixed to fixed voice minutes declined to an estimated 42% in the 2004 financial year compared to an estimated 45% and 49% in the 2003 and 2002 financial years, respectively.
     Turnover from smaller and medium sized enterprise customers in the 2004 financial year reduced by 4% to £2,600 million compared to the 2003 financial year, reflecting the continued penetration of CPS and the impact of customers switching from traditional telephony services to new wave services such as broadband. However, BT Business Plan, launched in January 2003, had successfully attracted more than 267,000 business locations (175,000 customers) by 31 March 2004, helping to mitigate the rate of market share decline. Revenues from smaller and medium sized businesses in the 2003 financial year decreased by 1% compared to the 2002 financial year.
      Major Corporate turnover increased by 2% to £5,909 million in the 2004 financial year with the growing new wave turnover offsetting the decline in traditional UK services. This reflects the continued migration of traditional voice only services to managed ICT contracts from which turnover grew by 19% to £2,564 million in the 2004 financial year confirming BT’s status as a major ICT provider in this market. Contract wins from ICT solutions amounted to more than £7 billion in the 2004 financial year. The highest profile of these were three NHS contracts expected to be worth more than £2.1 billion and forming an integral part of the National Programme for Information Technology in the NHS. In the 2003 financial year Major Corporate revenues increased by 17% to £5,794 million with part of this increase reflecting the re-integration of Concert. Contract wins from ICT solutions in the 2003 financial year amounted to more than £4.4 billion compared to more than £3.3 billion in the 2002 financial year.
     Wholesale (UK and Global Carrier) turnover in the 2004 financial year fell by 3% (maintained excluding the impact of regulatory reductions to mobile termination rates) to £4,002 million when compared to the 2003 financial year. New wave turnover in the UK Wholesale business increased by 54% driven by broadband and managed services after growing by 110% in the 2003 financial year. The Global Carrier business turnover declined by 5% in the 2004 financial year. In the 2003 financial year, Wholesale (UK and Global Carrier) turnover decreased by 7% when compared to the 2002 financial year partly reflecting the re-integration of Concert.
     Group operating costs before goodwill amortisation and exceptional items reduced by 2% to £15,804 million in the 2004 financial year when compared to the prior year. The group continued to focus on operational efficiency and effectiveness initiatives which were offset by investment in new wave activities and the adverse impact of currency movements of £80 million. Group operating costs before goodwill amortisation and exceptional items in the 2003 financial year of £16,152 million increased by 1% compared to the 2002 financial year. Net staff costs in the 2004 financial year, excluding leaver costs of £202 million, increased by £138 million to £3,533 million due to the impact of increased pay and national insurance rates and the higher SSAP 24 pension charge, offset by improved efficiency. In the 2003 financial year, net staff costs excluding leaver costs of £276 million declined by 2%. Payments to other telecommunications operators were £3,963 million, an increase of 1% on the 2003 financial year as both UK and overseas payments increased. In the 2003 financial year payments to other telecommunication operators reduced by 8% to £3,940 million. The payments in the 2002 financial year include those made to the Concert global venture for the delivery of BT’s outgoing international calls, which accounts for most of the reduction in the 2003 financial year. Other operating costs before goodwill amortisation and exceptional items reduced by 6% in the 2004 financial year largely due to efficiency cost savings offset by the adverse impact of currency movements. Other operating costs in the 2003 financial year include the costs associated with the re-integrated activities of the former Concert global venture.
     Group operating profit before goodwill amortisation and exceptional items at £2,892 million for the 2004 financial year was 4% higher than the prior year. This reflects cost efficiencies achieved during the year, the improved performance of BT Global Services and a £74 million decrease in leaver costs offset by the decline in turnover. In the 2003 financial year, group operating profit before goodwill amortisation and exceptional items at £2,790 million was £19 million higher than the prior year. The cost efficiencies achieved during the year were offset by a £90 million increase in leaver costs, the negative group operating profit effects of unwinding the Concert global venture and the Telereal property sale and leaseback transaction. In total, these effects reduced group operating profits by over £400 million, although this was compensated for at the profit before tax level by a corresponding improvement in our share of the operating profits of associates and joint ventures and net interest payable.
     BT’s share of associates’ and joint ventures’ operating losses before goodwill amortisation and exceptional items was £8 million in the 2004 financial year, compared to a £181 million profit in the 2003 financial year and a £108 million loss in the 2002 financial year. The 2003 financial year includes the results of our interest in Cegetel which was sold in January 2003. The improvement in the 2003 financial year mainly reflected the benefit of the unwind of the Concert global venture.
     Net interest payable before exceptional items was £886 million for the 2004 financial year, an improvement of £260 million against the 2003 financial year following an improvement of £271 million in the 2003 financial year. This reflects the reduction in net debt in both years.
     The above factors resulted in the group achieving a profit before taxation, goodwill amortisation and exceptional items of £2,016 million in the 2004 financial year, an increase of 10% compared to the 2003 financial year, reflecting the underlying operating performance of the group and lower net interest costs. In the 2003 financial year the profit before taxation, goodwill amortisation and exceptional items of £1,829 million was £556 million higher than the 2002 financial year. The improvement in the 2003 financial year was principally due to the exit from loss making businesses, improved operating profits and lower interest charges.
     The taxation charge for the 2004 financial year was £568 million on the profit before goodwill amortisation and exceptional items, an effective rate of 28.2% compared to 32.7% and 41.5% in the 2003 and 2002 financial years, respectively. The high effective rate in the 2002 financial year was mainly due to the impact of loss making subsidiaries outside the UK for which tax relief was not available.
     Basic earnings per share before goodwill amortisation and exceptional items were 16.9 pence for the 2004 financial year, an increase of 19% from 14.2 pence in the 2003 financial year, and were 8.8 pence in the 2002 financial year. The 2002 financial year reflected the higher operating costs and net interest payable which have continued to improve during the 2004 and 2003 financial years.

Line of business summary (Opens new window)

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