BT Retail, the UK’s largest communications service provider, by market share, to the residential and business markets, supplies a wide range of communication products and services, including voice, data, internet and multimedia services, and offers a comprehensive range of managed and packaged communications solutions.

The 2003 financial year saw revenue growth in the residential market for the first time in a number of years, driven by stable market share, stable customer numbers and growth in national calls.

From 1 June 2003, our BT Together pricing package will be streamlined and ten million BT Together customers will have the chance to benefit from the abolition of per-minute charging for evening and weekend calls and the creation of a single UK rate.

During the year, BT Retail’s revenues from new-wave activities grew by 46%.

In the major business market, during the 2003 financial year, year-on-year growth of 8% was achieved in the outsourcing business; 58% in IP infrastructure and 416% in broadband.

As at 31 March 2003, BT Openworld, our mass market internet business, had approximately 1.75 million UK consumer and business ISP customers, making it one of the leading internet access providers in the UK.

BT Wholesale provides network services and solutions within the UK, serving over 500 communication companies, fixed and mobile network operators, and service providers. Its network consists of 885 local and trunk processor units, 119 million kilometres of copper wire and six million kilometres of optical fibre.

As at 31 March 2003, BT Wholesale’s installed base of ADSL lines was around 800,000 - growth of 380% on a year ago and on target to reach one million broadband connections by the summer of 2003. 67% of UK consumers were connected to a broadband-enabled exchange area.

BT Wholesale is committed to building a 21st century network which meets customers’ needs now and anticipates their future needs as well. This network should lead to longer-term structural cost savings for the business.

BT Global Services (formerly BT Ignite) is our managed services and solutions business, serving multi-site organisations worldwide. Its core target market is the top 10,000 global multi-site organisations with European operations. Building on our existing relationships with large multi-site organisations in the UK and internationally, BT Global Services provides global reach and a complete range of ICT solutions and services.

Our extensive communications network and strong strategic partnerships enable us to serve customers in all key commercial centres of Europe, North America and Asia Pacific. In Europe, this network links more than 250 towns and cities across 16 countries back into our UK network, and beyond into the Americas and Asia Pacific.

BT Global Services won a number of major contracts in the 2003 financial year, including a seven-year contract worth around one billion euros to manage and develop Unilever’s global communications infrastructure.

BT Exact
BT Exact is BT’s centre of excellence in IT and networking technologies. The work undertaken by BT Exact is part of an investment of £380 million in research and development that BT made in the 2003 financial year.

Customer satisfaction
Customer satisfaction is at the heart of our strategy and we have set ourselves a company-wide target of reducing customer dissatisfaction levels by 25% a year. During the 2003 financial year, we beat that target by delivering a 37% reduction in overall customer dissatisfaction.

Our people
At 31 March 2003, BT employed 104,700 people throughout the world, with 96,300 in the UK.

During the financial year, we invested around £70 million on the training and development of our employees, and achieved a 21% reduction in workplace injuries.

For the 2003 financial year, we allocated £36 million to provide free shares for our employees under the BT Group Employee Share Investment Plan.

Corporate social responsibility (CSR)
In our view, a well-managed CSR programme supports the delivery of strategy. We normally commit 0.5% of our UK pre-tax profits to direct activities in support of society. Contributions totalled £8.2 million in the 2003 financial year, including £1.2 million to charities.

Statement of business practice
BT’s policy is to achieve best practice in our standards of business integrity in all our operations, in line with our published statement of business practice - The Way We Work.

Profit and loss account
Group turnover from continuing activities increased by 2% to £18.7 billion. This reflects strong growth in new-wave businesses and our defence of revenues in the core traditional voice businesses. Total operating profit from continuing activities before goodwill amortisation and exceptional items increased by 12% to £3.0 billion, reflecting cost efficiencies offset by increased leaver costs. Net interest payable before exceptional items was £1.1 billion for the year, an improvement of £0.3 billion, reflecting the reduction in net debt. Earnings per share from continuing activities before goodwill amortisation and exceptional items were 14.2 pence, an increase of 61%.

Balance sheet
The strength of the group balance sheet provides confidence to our customers. Net debt of £9.6 billion is now a third of its peak level of two years ago. Fixed assets totalled £16.7 billion, of which £15.9 billion were tangible fixed assets, principally the UK fixed network. The return on capital employed before goodwill amortisation and exceptional items on the average capital employed was maintained at 16%.

Cash flow
Cash inflow from continuing operating activities increased by 20% to £6.0 billion. Capital expenditure of £2.4 billion from continuing activities reduced by 21%, reflecting the continued management focus and tight control. Free cash flow (before acquisitions, disposals and dividends) of £1.7 billion was generated.

Dividend
The Board recommends a final dividend of 4.25 pence per share, amounting to £366 million, taking the full year dividend to 6.5 pence per share. This dividend is covered 2.2 times by earnings. In view of our strong cash generation and success in reducing net debt, in the 2004 financial year we expect dividend cover to reduce further towards the 2 times target that we set last year.