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 Home >> Consolidated financial statements>> Notes to the financial statements

5. Operating costs

2003 2002 2001
Total Group £m £m £m






Staff costs:
   Wages and salaries 3,621 4,013 3,954
   Social security costs 275 304 313
   Pension costsa (note 31) 322 382 326
   Employee share ownershipb 36 25 32






Total staff costs 4,254 4,724 4,625
Own work capitalised (583 ) (659 ) (693 )
Depreciation (note 21) 3,011 3,680 3,045
Amortisation and impairment of goodwill and other intangibles (note 20) 24 2,321 3,386
Payments to telecommunications operators 3,846 4,299 3,802
Other operating costs 5,818 7,035 6,594






Total operating costs 16,370 21,400 20,759






Operating costs included the following:
Early leaver costsc 276 252 118
Research and development 380 362 364
Rental costs relating to operating leases, including plant and equipment hire
   of £34 million (2002 – £51 million, 2001 – £15 million) 395 283 166
Foreign currency gains (12 ) (1 ) (50 )






Amortisation of goodwill and exceptional items comprising:
   Property rationalisation provision 198
   Goodwill impairment in subsidiary undertakings 1,955 3,000
   Asset impairments 324
   Costs relating to the Concert unwind 172
   Costs relating to the demerger of mmO2 109
   BT Retail call centre rationalisation costs 68
   BT Wholesale bad debt costs 79
   Credit for rates refunds, relating to prior years (193 )
   Write off of subscriber acquisition costsd 7
   Write off of Viag Interkom IT systems 43






Total exceptional items 198 2,707 2,857
Goodwill amortisation 20 352 373






Total amortisation of goodwill and exceptional items 218 3,059 3,230






a No charge for the cost of providing incremental pension benefits for employees taking early retirement was made in the year ended 31 March 2001 in view of the combined surplus in the BT Pension Scheme and the amount provided for pension costs within provisions for liabilities and charges.
b Amount set aside for the year for allocation of ordinary shares in the company to eligible employees.
c Includes £61 million of leaver costs associated with the rationalisation of the BT Retail call centres in the year ended 31 March 2002.
d The accounting of all the mmO2 operating units was aligned; this resulted in a write off of previously capitalised costs in certain non-UK operations.

The directors believe that the nature of the group’s business is such that the analysis of operating costs required by the Companies Act 1985 is not appropriate. As required by the Act, the directors have therefore adapted the prescribed format so that operating costs are disclosed in a manner appropriate to the group’s principal activity.

2003 2002 2001
Continuing activities £m £m £m






Staff costs:
   Wages and salaries 3,621 3,659 3,465
   Social security costs 275 270 273
   Pension costsa (note 31) 322 367 299
   Employee share ownershipb 36 25 32






Total staff costs 4,254 4,321 4,069
Own work capitalised (583 ) (623 ) (642 )
Depreciation (note 21) 3,011 3,266 2,689
Amortisation and impairment of goodwill and other intangibles (note 20) 24 2,079 291
Payments to telecommunications operators 3,846 4,289 3,736
Other operating costs 5,818 5,522 4,357






Total operating costs 16,370 18,854 14,500






Operating costs included the following:
Early leaver costsc 276 247 109
Research and development 380 362 361
Rental costs relating to operating leases, including plant and equipment hire
   of £34 million (2002 – £51 million, 2001 – £13 million) 395 277 156
Foreign currency gains (12 ) (1 ) (50 )






Amortisation of goodwill and exceptional items comprising:
   Property rationalisation provision 198
   Goodwill impairment in subsidiary undertakings 1,955 200
   Asset impairments 324
   Costs relating to the Concert unwind 172
   Costs relating to the demerger of mmO2 98
   BT Retail call centre rationalisation costs 68
   BT Wholesale bad debt costs 79
   Credit for rates refunds, relating to prior years (193 )






Total exceptional items 198 2,696 7
Goodwill amortisation 20 121 88






Total amortisation of goodwill and exceptional items 218 2,817 95






a No charge for the cost of providing incremental pension benefits for employees taking early retirement was made in the year ended 31 March 2001 in view of the combined surplus in the BT Pension Scheme and the amount provided for pension costs within provisions for liabilities and charges.
b Amount set aside for the year for allocation of ordinary shares in the company to eligible employees.
c Includes £61 million of leaver costs associated with the rationalisation of the BT Retail call centres in the year ended 31 March 2002.

2003 2002 2001
Discontinued activities £m £m £m






Staff costs:
   Wages and salaries 354 489
   Social security costs 34 40
   Pension costsa (note 31) 15 27






Total staff costs 403 556
Own work capitalised (36 ) (51 )
Depreciation (note 21) 414 356
Amortisation and impairment of goodwill and other intangibles (note 20) 242 3,095
Payments to telecommunications operators 10 66
Other operating costs 1,513 2,237






Total operating costs 2,546 6,259






Operating costs included the following:
Early leaver costs 5 9
Research and development 3
Rental costs relating to operating leases, including plant and equipment hire of £nil
   (2002 – £nil million, 2001 – £2 million) 6 10






Amortisation of goodwill and exceptional items comprising:
   Goodwill impairment in subsidiary undertakings 2,800
   Costs relating to the demerger of mmO2 11
   Write off of subscriber acquisition costsb 7
   Write off of Viag Interkom IT systems 43






Total exceptional items 11 2,850
Goodwill amortisation 231 285






Total amortisation of goodwill and exceptional items 242 3,135






a No charge for the cost of providing incremental pension benefits for employees taking early retirement was made in the year ended 31 March 2001 in view of the combined surplus in the BT Pension Scheme and the amount provided for pension costs within provisions for liabilities and charges. b The accounting of all the mmO2 operating units was aligned; this resulted in a write off of previously capitalised costs in certain non-UK operations.

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