goodwill amortisation and exceptional items
the adoption of UITF17 and UITF38 see note (c) Summary
BT Retail is the UKs largest
communications service provider, by market share, to the residential and business
markets, supplying over 20 million customers 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.
1 July 2004, we abolished the standard rate for residential customers and
switched all existing standard rate customers to BT Together Option 1,
offering them better value for money and making it easier for to them to
compare BTs prices with those of our competitors. We also introduced
a number of enhancements to our BT Business Plan, which had over 440,000
locations at the end of the 2005 financial
In the 2005 financial year, we launched BT Mobile as an MVNO (mobile virtual network operator) in the business and consumer markets. This is a major step towards
building a mobility customer base and developing and delivering one converged customer experience.
is the UKs leading service provider of broadband with 1.75 million
consumer and business broadband connections. We transformed our retail
broadband offering by transferring our broadband customers to a high speed
(up to 2Mbit/s) connection, beginning February 2005.
BT Business Broadband remained the leading ISP (internet service provider) for SMEs (typically companies with up to 500 employees) with over 340,000 customers.
BT Wholesale provides network services and solutions to over 600 communications companies including fixed and mobile network operators, ISPs and service providers. Interconnecting with over 180 other
operators, it also carries transit traffic between telecommunications operators. Its UK network consists of 684 local and 135 trunk processor units, 121 million kilometres of copper wire and over seven million kilometres of optical fibre. BT
Wholesale has the most extensive IP backbone network in the UK.
early April 2005, we provided our five millionth broadband connection,
more than one year ahead of target. 4,419 exchanges had been upgraded for
broadband at the end of the 2005 financial year, and almost 97% of the
UKs homes and businesses were connected to a broadband-enabled exchange.
BTs 21CN programme is at the heart of our transformation strategy, underpinning broadband, networked IT services and convergent mobility services. During the 2005
financial year, we took steps toward the 21CNs three broad objectives:
to enhance the service experience, flexibility and value we provide all our customers;
to accelerate the delivery of innovative new products and services; and to reduce
Technical fibre and voice trials began in the 2005 financial year.
On 28 April 2005, we announced the preferred suppliers that we expect will help build and implement the 21CN.
BT Global Services
BT Global Services is BTs managed
services and solutions provider. Its core target market is 10,000 multi-site
organisations including major companies with significant global requirements
and large organisations in target local markets. BT Global Services provides
global reach and a complete range of networked IT services.
Our extensive communications network and strong strategic partnerships enable us to serve customers in the key commercial centres of Europe, North America and the Asia
acquisition of Infonet one of the worlds leading providers of international managed voice and data network services was a major step forward in
addressing the global networked IT services needs of our core customers, significantly extending our global reach. We also acquired the 74% that we did not already own of Albacom, which provides data transmission, voice and internet services in the
Italian business communications market. In April 2005, we also completed the acquisition of Radianz the
leading financial services extranet provider.
most high-profile success of the year in the global market was winning
the contract to become Reuters supplier of network services. The contract is expected to
be worth up to £1.5 billion over its lifetime.
April 2005, we won an extension to July 2012 of a contract to deliver essential
telecommunications services to the Ministry of Defence and the UKs armed forces.
The total value of the contract is more than £2.7 billion.
Research and development and IT support
Our IT division, BT Exact, offers
the services of IT professionals with knowledge of leading-edge network design
and IT systems and application development. In the 2005 financial year, we
invested £257 million in research and development.
The group balance sheet continued
to strengthen during the year and provides confidence to our customers and
suppliers. Net debt was reduced by a further £0.6 billion to £7.8 billion and
is now £20 billion lower than in 2001. 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 16%.
Cash inflow from operating activities
was £5.9 billion. Capital expenditure of £3.1 billion increased by 14%, reflecting the rising investment in our network transformation. Free cash
flow of £2.3 billion was generated, an increase of 10%.
The Board recommends a final dividend
of 6.5 pence per share to shareholders, amounting to £551 million, taking the full year dividend to 10.4 pence per share, an increase of 22% on the
previous year. This years dividend pay out ratio is 57% of earnings before
goodwill amortisation and exceptional items compared to 50% last year.
continue with our progressive dividend policy. The dividend for the 2006
financial year will be at least 60% of underlying earnings: subject to
overall financial position, we expect our pay out ratio to rise to around two-thirds
of underlying earnings by the 2008 financial year.
Driving up customer satisfaction is at the heart of our strategy. In the 2005 financial year, for the third year in a row, all lines of business reduced dissatisfaction levels. In the past three
years, we have achieved a group wide reduction of 23% on a compound annual basis.
As at 31 March 2005, we employed 102,100 people throughout the world.
Our core people engagement initiative is the my customer programme which aims to enable BT people to deliver an excellent customer experience through teamwork. More than 3,000 issues have now been resolved.
the 2005 financial year, we allocated £11 million to provide free
shares to our employees under the BT Employee Share Investment Plan (employees
outside the UK receive a cash payment equivalent to the value of the shares).
The amount allocated was linked to the achievement of corporate targets
determined by the Board.
Corporate social responsibility
Our aim is to manage social, ethical
and environmental issues in ways that grow shareholder value and help BT and
our customers to be more sustainable. In the 2005 financial year, BT was ranked
as the top telecommunications company in the Dow Jones Sustainability Index
for the fourth year running. We commit a minimum of 0.5% of our UK pre-tax
profits directly to activities which support society. Our contribution in the
2005 financial year was
over £9 million. In addition, we made charitable donations of £2
details of our social and environmental performance are available at www.bt.com/betterworld
Statement of business practice
BTs 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,
which is available at www.btplc.com/society/values
The companys financial statements
for the year ended 31 March 2005 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.
Adoption of International Financial Reporting Standards
BT continues to report under UK Generally Accepted Accounting Principles (UK GAAP) for the 2005 financial year, but, as required by EU regulations, will present financial information in accordance
with IFRS for the 2006 financial year.
some of the changes required by IFRS will impact BTs reported profits and net assets, this has no impact on the cash flows generated by the business or the
cash resources available for investment or distribution to shareholders. Furthermore, the adoption of IFRS does not affect BTs
strategy or underlying business performance.
main areas of change relate to pensions, share-based payments, intangible assets,
leases and financial instruments. We estimate the unaudited pro forma impact
of adopting IFRS on the 2005 financial year reported UK GAAP results will be
negligible on the underlying profit before tax and underlying earnings per share.
However, due to the inherent volatilities introduced by IFRS, no such statement
can be made
in respect of future years. This estimate excludes the fair value effects on
financial instruments which we are not required to apply until 1 April