OUR CUSTOMERS

Revenue by customer segment year ended 31 March 2006

GROUP RESULTS
The financial results reflect the continuing strong growth in new wave services as we drive value from transforming the business. We have continued to make progress in growing earnings per share before specific items which at 19.5 pence were 8% higher than last year. Revenue for the full year has grown by 6% to £19,514 million. New wave revenue grew by 38% to £6,282 million and now represents around one-third of the group’s business.
     Profit before tax and specific items was £2,177 million, up 5% from the prior year. Capital expenditure of £3.1 billion increased by 4% reflecting the cost of investing in our network transformation.

BALANCE SHEET
The group’s balance sheet continued to strengthen and provides confidence to our customers and suppliers. Net debt was reduced by a further £0.4 billion to £7.5 billion during the year. Total assets were £24.7 billion of which £15.5 billion were property, plant and equipment. The return on capital employed, before specific items, was 16.8%.

CASH FLOW
Net cash inflow from operating activities was £5.4 billion. Free cash flow of £1.6 billion was generated in the year.

DIVIDENDS
The Board recommends a final dividend of 7.6 pence per share, amounting to £632 million. This will be paid, subject to shareholder approval, on 11 September 2006 to shareholders on the register on 18 August 2006. This takes the proposed dividend for the full year to 11.9 pence per share, compared to 10.4 pence in the 2005 financial year, an increase of 14%.

OUR PEOPLE
Our commitment to meeting our customers’ needs presents the 104,400 people employed by BT at 31 March 2006 with opportunities to develop innovative solutions, generate new business, drive efficiencies and experience personal growth.

CORPORATE SOCIAL RESPONSIBILITY
Managing social, ethical and environmental issues in a way that grows shareholder value and helps BT and our customers be more sustainable is very important to us.
     The Dow Jones Sustainability Indexes rank companies for their success in managing social, ethical and environmental factors for competitive advantage. During the 2006 financial year, BT was ranked as the top telecommunications company in the Dow Jones Sustainability Index for the fifth year in a row.
     We also hold the Queen’s Award for Enterprise in recognition of our contribution to sustainable development.
     The Board reviews our CSR strategy, performance and risks annually and is kept informed of new developments that might impact on its duties. We have 12 CSR key performance indicators which cover our relationships with our stakeholders, as well as our environmental performance and our contribution to digital inclusion and business integrity. See our online social and environmental report at www.bt.com/betterworld for more details.

BT’s share price (pence) over the financial year ended 31 March 2006
Source: Bloomberg

HOW BT OPERATES
BT consists principally of four lines of business: BT Global Services, Openreach, BT Retail and BT Wholesale.
     Openreach was established on 21 January 2006 in response to Ofcom’s strategic review of telecommunications. It operates the physical (as opposed to the electronic) assets of the local access and backhaul networks and provides the services which use these networks to communications providers, both internally and externally, in an equivalent and transparent way.
     For financial reporting purposes, Openreach remained part of BT Wholesale until the end of the 2006 financial year. It will be reported as a separate line of business in the 2007 financial year.
     Openreach, BT Retail and BT Wholesale operate almost entirely within the UK, where BT is the UK’s largest communications service provider, by market share. BT supplies the residential and business markets with a wide range of communications products and services, including voice, data, internet and multimedia services, and offering a comprehensive range of managed and packaged communications solutions.
     BT Global Services addresses the networked IT services needs of multi-site organisations both in the UK and internationally.

LINES OF BUSINESS
The following table sets out the revenue and operating profit (loss), before specific items, for each of our lines of business.

BT Retail

BT Retail is the UK’s largest communications service provider, by market share, to the residential and business markets. It trades under one of the UK’s leading brands – BT – and is the prime channel to market in the UK for other businesses in the BT Group. It 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 portfolio includes traditional telephony products such as calls, analogue/digital lines and private circuits. New wave revenue generation is focused on broadband, mobility and networked IT services. Its strategy is to improve the customer experience, control costs and increase cash flow, defend traditional revenues and build new revenue streams.
     The results demonstrated a continued strategic shift towards new wave products with growth in broadband, networked IT services and mobility revenues. Despite the substitution by new wave products, traditional revenue was defended by changes in pricing structure and packages to benefit frequent users and marketing campaigns focusing on key customer service promises.
     Revenue decreased by 3% in the 2006 financial year to £8,452 million. The growth in new wave revenue of 38% in the 2006 financial year continued to reduce our dependence on traditional revenue.

BT Wholesale

BT Wholesale provides network services and solutions within the UK. Its customers include communications companies, fixed and mobile network operators, internet and other service providers. The customer base also includes BT Retail and BT Global Services. The majority of BT Wholesale’s revenue is internal (2006 – 54%, 2005 – 58%) and mainly represents trading with BT Retail. External revenue is derived from providing wholesale products and solutions to other operators interconnecting with BT’s UK fixed network.
     In the 2006 financial year, revenue totalled £9,232 million, an increase of 2% over the 2005 financial year, reflecting the strong growth in new wave revenues, mainly broadband.

BT Global Services

BT Global Services supplies managed services and solutions to multi-site organisations worldwide – its core target market is 10,000 multi-site organisations including major companies with significant global requirements, together with large organisations in target local markets. It provides them with networked IT services and a complete range of managed solutions.
      In the 2006 financial year BT Global Services’ revenue was 15% higher at £8,632 million, including £795 million from the Albacom and Infonet businesses acquired in the final quarter of the 2005 financial year. This represents an underlying increase of 5% compared to the 2005 financial year. Revenues outside the UK have grown strongly as BT Global Services builds on its global capabilities.

GOING CONCERN
The company’s financial statements for the year ended 31 March 2006 have been prepared on a going concern basis as, after making appropriate enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future.

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