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 Your
company has continued to make good progress this year
– delivering strong financial results while continuing
to transform the business. New wave revenues grew by 30%
to £3,387 million.
Earnings per share,
before goodwill amortisation and exceptional items, grew
by 19% to 16.9 pence – almost doubling in two years.
While continuing to invest for the future, we generated
free cash flow of over £2 billion and reduced net debt
to £8.4 billion – a reduction of two thirds on the
level of three years ago.
Our
business
Your company continues to make progress by innovating in
our traditional markets and by growing revenues in all
the new wave markets – ICT (information and
communications technology), broadband, mobility and
managed services – in which we operate. We continue to
invest where we believe it will make the greatest
difference, while achieving rigorous standards of cost
efficiency and smarter working practices.
Returns
to shareholders
Although long-term shareholder return remains the key
measure of our success, our share price performance this
year has not been strong. Earnings per share before
goodwill amortisation and exceptional items have risen
well, but this has yet to be reflected in our share
price. However, total shareholder return also includes
the dividend, and here the news for shareholders is
positive.
We are recommending a
full year dividend of 8.5 pence per share. Reflecting BT’s
commitment to a progressive dividend policy, the
dividend pay out ratio for the 2004 financial year was
around 50% of earnings before goodwill amortisation and
exceptional items. The full year dividend is 31% up on
last year, and over four times higher than two years
ago. We are targeting a 60% pay out ratio in 2005/06.
The strong cash flow
generated by the group also enabled us to begin a share
buy back programme in the 2004 financial year. This is
being funded from cash generated over and above that
required to meet our debt target of £7 billion in
2006/07, after paying dividends and taking into account
any acquisitions or disposals.
Regulation
The recently announced strategic review of
telecommunications by the UK regulator, Ofcom, is
important and welcome to BT.
The review will cover,
within the 21 key strategic questions to be addressed,
the possibility of the structural separation of BT. Your
company believes this is not in the interests of
shareholders, customers or employees, and will argue in
favour of a strong and integrated BT.
Wider
responsibilities
It is important that companies such as BT live up to
their responsibilities in the wider communities in which
we operate. I’m proud to report that in the 2004
financial year, we were the highest placed
telecommunications company in the Dow Jones
Sustainability Index for the third year in a row.
Our goal is to help
everyone benefit from improved communications and to
spread the benefits of new technology as widely as
possible. This is demonstrated, for example, by our wide
deployment of broadband technology throughout the UK,
and by the BT Education Programme, which has enabled
more than two million young people to participate in a
drama-based campaign designed to help them improve their
communications skills.
Strategic
progress and outlook
The strong growth in new wave turnover, our ICT order
book and broadband shows that our strategy is working.
We remain committed to that strategy and are confident
in our ability to deliver our key strategic goals.
We’ve come a long way
since May 2001, when your Board announced a radical plan
to reduce debts, manage costs and improve customer
satisfaction. We’ve established a solid platform for
future growth and success.
None of this could have
happened without the loyalty and support of our
shareholders, customers, suppliers and employees. Given
the continued support of all our stakeholders, we will
build on this success and accelerate the transformation
of our business.
Sir Christopher
Bland
Chairman
19 May 2004
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