SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
10 November, 2005
BT Group plc
(Translation of registrant's name into English)
BT Centre
81 Newgate Street
London
EC1A 7AJ
England
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F or Form 40-F.
Form 20-F..X... Form 40-F.....
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.
Yes ..... No ..X..
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- ________
Enclosures: 1. Interim Results announcement made on 10 November, 2005
November 10, 2005
SECOND QUARTER AND HALF YEAR RESULTS TO SEPTEMBER 30, 2005
SECOND QUARTER HIGHLIGHTS
- Revenue of GBP4,822 million, up 5 per cent
- New wave revenue of GBP1,439 million, up 39 per cent
- Profit before taxation, specific items(1) and leaver costs of GBP596 million,
up 7 per cent
- Earnings per share before specific items(1) of 5.0 pence, up 4 per cent
- Net debt(2) of GBP8,133 million, 3 per cent lower than previous year
- Broadband end users of 6.2 million at September 30, 2005, up 89 per cent
HALF YEAR HIGHLIGHTS
- Revenue of GBP9,605 million, up 5 per cent
- New wave revenue of GBP2,824 million, up 43 per cent
- Profit before taxation, specific items(1) and leaver costs of GBP1,113
million, up 3 per cent
- Earnings per share before specific items(1) of 9.5 pence, up 13 per cent
- Interim dividend of 4.3 pence per share, up 10 per cent
The income statement, cash flow statement and balance sheet, drawn up in
accordance with IFRS, from which this information is extracted are set out on
pages 13 to 19.
(1) Specific items are material one off or unusual items as defined in note 4 on
page 23.
(2) Net debt is defined in note 9 on page 26.
Chairman's statement
Sir Christopher Bland, Chairman, commenting on the half year results said:
"The half year results show that we have delivered another good set of financial
results and made further progress in transforming the business.
"I am pleased to report that we will be paying an interim dividend of 4.3 pence,
up 10 per cent on last year, showing our commitment to improving shareholder
returns and confidence about the future."
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the second quarter results, said:
"The transformation of BT is right on track with the delivery of another
successful quarter.
"Revenue has again grown by 5 per cent, with new wave revenues up 39 per cent.
Earnings per share* has now grown for fourteen consecutive quarters and we are
encouraged by the trend in underlying EBITDA. Our order book remains strong with
networked IT services contract wins again being over GBP8 billion for the last
twelve months. The settlement we have reached with Ofcom in the UK provides a
foundation for certainty and clarity which will deliver further benefits to our
retail and wholesale customers and shareholders.
"We are delivering value to our customers and shareholders through the
transformation of the business."
* Before leaver costs and specific items which are material one off or unusual
items as defined in note 4 on page 23.
RESULTS FOR THE SECOND QUARTER AND HALF YEAR
TO SEPTEMBER 30, 2005
Second quarter Half year
2005 2004 Better 2005 2004 Better (worse)
GBPm GBPm (worse) GBPm GBPm %
%
Revenue 4,822 4,602 5 9,605 9,169 5
EBITDA
- before specific
items and leaver
costs 1,385 1,418 (2) 2,748 2,807 (2)
- before specific
items 1,348 1,410 (4) 2,705 2,697 -
Profit before
taxation
- before specific
items and leaver
costs 596 557 7 1,113 1,084 3
- before specific
items 559 549 2 1,070 974 10
- after specific
items 489 571 (14) 988 982 1
Earnings per share
- before specific
items and leaver
costs 5.3p 4.8p 10 9.8p 9.3p 5
- before specific
items 5.0p 4.8p 4 9.5p 8.4p 13
- after specific
items 4.4p 5.0p (12) 8.8p 8.6p 2
Capital expenditure 694 803 14 1,410 1,497 6
Free cash flow 503 594 (15) 377 751 (50)
Interim dividend 4.3p 3.9p 10
Net debt 8,133 8,373 3
The commentary focuses on the results before specific items and leaver costs.
This is consistent with the way that financial performance is measured by
management and we believe allows a meaningful analysis to be made of the trading
results of the group. Specific items are defined in note 4 on page 23.
The comparative results have been restated to reflect the requirements of IFRS
which the group has adopted (see note 1).
The income statement, cash flow statement and balance sheet are provided on
pages 13 to 19. A reconciliation of EBITDA to group operating profit is provided
on page 28. A reconciliation of net debt is provided on page 27.
GROUP RESULTS
Revenue was 5 per cent higher at GBP4,822 million in the quarter with the
continued strong growth of new wave revenue more than offsetting the decline in
traditional revenue. Underlying revenue, adjusted for the acquisitions of
Albacom and Infonet and mobile termination rate reductions, was 2.5 per cent
higher than last year. Profit before taxation, specific items and leaver costs
increased by 7 per cent to GBP596 million. Earnings per share before specific
items increased by 4 per cent to 5.0 pence.
The strong growth in new wave revenue continued and at GBP1,439 million was 39
per cent higher than last year. New wave revenue accounted for 30 per cent of
the group's revenue compared to 22 per cent in the second quarter of last year.
New wave revenue is mainly generated from networked IT services, broadband and
mobility. Networked IT services revenue grew by 31 per cent to GBP918 million,
broadband revenue increased by 76 per cent to GBP350 million and mobility
revenue increased by 33 per cent to GBP65 million. Excluding Albacom and
Infonet, the organic growth in new wave revenue was 25 per cent.
Networked IT services contract wins were GBP0.8 billion in the second quarter.
Total orders achieved over the last twelve months were GBP8.2 billion. BT had
6.2 million wholesale broadband connections at September 30, 2005, an increase
of 89 per cent compared to last year. During the second quarter BT announced
commercial trials of higher speed services of up to 8Mbit/s which are set to
begin at the end of November at 25 exchanges initially with a view to product
launch in Spring 2006.
Revenue from the group's traditional businesses declined by 5 per cent
(4 per cent excluding the impact of reductions to mobile termination rates and
Albacom). This was a continuation of recent trends and reflects regulatory
intervention, competition, price reductions and also technological changes that
we are using to drive customers from traditional services to new wave services.
Consumer revenue in the second quarter was 5 per cent lower. New wave consumer
revenue increased by 76 per cent, driven by the continuing growth of broadband.
Traditional consumer revenue declined by 11 per cent year on year (10 per cent
lower excluding the impact of reductions to mobile termination rates) reflecting
the continued impact of Carrier Pre-Selection (CPS), wholesale line rental (WLR)
and broadband substitution.
The underlying 12 month rolling average revenue per consumer household (net of
mobile termination charges) of GBP253 declined by GBP1 compared to last quarter,
with increased broadband volumes almost offsetting lower call revenues.
Contracted revenues remained stable at 65 per cent compared to last quarter,
5 percentage points higher than last year.
Revenue from smaller and medium sized (SME) UK businesses declined by 7 per cent
(5 per cent excluding the impact of reductions to mobile termination rates). New
wave revenue grew by 13 per cent driven by continued growth in broadband and
networked IT services. The number of BT Business Plan locations increased by 57
per cent against last year to 507,000 by September 30, 2005, an increase of 4
per cent in the quarter. BT Business Plan continues to grow successfully
covering over 50 per cent of BT's SME call revenue.
Major corporate (UK and international) revenue showed strong growth of 15 per
cent compared to the second quarter of last year, with strong growth in new wave
revenue (34 per cent) more than offsetting the decline in traditional services.
Excluding the impact of Albacom and Infonet, new wave revenue grew by 12 per
cent. There is a continued migration from traditional voice only services to
networked IT services and an increase in mobility and broadband revenue. New
wave revenue now represents 55 per cent of all major corporate revenue.
Wholesale (UK and Global Carrier) revenue increased by 11 per cent (12 per cent
excluding the impact of reductions to mobile termination rates and Albacom). UK
Wholesale new wave revenue increased by 63 per cent to GBP240 million, mainly
driven by broadband and managed services.
Our estimate of market share by volume of fixed to fixed voice minutes is based
on our actual minutes, market data provided by Ofcom and an extrapolation of the
historical trends. BT's estimated UK consumer market share declined by 1.6
percentage points compared to last quarter to around 59 per cent whilst the
estimated business market share remained at around 41 per cent.
Group operating costs before specific items increased by 7 per cent year on year
to GBP4,219 million, including the costs from Albacom and Infonet. Net staff
costs before leaver costs increased by GBP143 million to GBP1,002 million due
mainly to the acquisitions of Albacom and Infonet and additional staff resulting
from growth in networked IT services and increased levels of activity in the
network. Leaver costs were GBP37 million in the quarter (GBP8 million last
year). Payments to other telecommunication operators declined by 3 per cent year
on year at GBP939 million with the reduction in mobile termination rates
partially offset by the impact of Albacom and Infonet. Other operating costs
before specific items increased by GBP130 million mainly due to increased costs
of sales from both organic and inorganic growth in networked IT services. These
were partly offset by cost savings from our efficiency programmes. Depreciation
and amortisation decreased by 2 per cent year on year to GBP692 million.
EBITDA before specific items and leaver costs decreased by 2 per cent. This
includes the effect of the GBP15 million profit on property disposals recognised
in the prior year. Group operating profit before specific items and leaver costs
decreased by 3 per cent to GBP693 million.
Net finance costs were GBP100 million, an improvement of GBP54 million against
last year. This includes the effect of a GBP31 million net gain arising from the
fair value movement in, and realised gain arising from, the early redemption of
the US dollar 2008 LG Telecom convertible bond. In addition, net finance income
associated with the group's defined benefit pension scheme was GBP15 million
higher than the prior year.
Profit before taxation and specific items increased by 2 per cent to
GBP559 million.
The effective tax rate on the profit before specific items was 24.9 per cent
(26.0 per cent last year). The effective tax rate reflects tax efficient
investment of surplus cash and continued improvements in the tax efficiency
within the group.
Earnings per share before specific items increased by 4 per cent to 5.0 pence,
and increased by 10 per cent before specific items and leaver costs.
Specific items
A provision of GBP70 million has been recognised in the quarter relating to the
incremental and directly attributable costs to create a new line of business,
called Openreach, required under the legal undertakings agreed with Ofcom. There
will also be capital expenditure required to deliver equivalent systems and
processes, a significant element of which will be absorbed within existing
capital programmes.
Earnings per share after specific items were 4.4 pence in the quarter (5.0 pence
last year). Specific items are defined in note 4 on page 23.
Cash flow and net debt
Net cash from operating activities in the second quarter amounted to
GBP1,263 million compared to GBP1,414 million last year. This reduction was
primarily a result of the normalisation of tax payments following low tax
payments in the prior year.
Cash flows from investing activities were a net cash inflow of GBP120 million in
the second quarter compared to an outflow of GBP373 million last year. This
reflects the cash inflow upon maturity of certain short term investments, the
majority of which was used to fund the dividend payment of GBP540 million made
in the quarter. The net cash outflow from capital expenditure, net of disposal
proceeds, amounted to GBP671 million in the quarter compared to GBP726 million
last year.
Cash flows from financing activities were a net outflow of GBP785 million in the
second quarter compared to GBP771 million last year.
Free cash flow was a net inflow of GBP503 million in the second quarter (GBP594
million last year). The share buyback programme continued with the repurchase of
45 million shares for GBP102 million in the quarter. Net debt was GBP8,133
million at September 30, 2005, GBP240 million below the level at September 30,
2004. Free cash flow and net debt are defined in notes 8 and 9 on pages 25 to
27.
Pensions
The IAS 19 pension obligation position at September 30, 2005 was a deficit of
GBP2.6 billion, net of tax, being a reduction of GBP0.8 billion since March 31,
2005.
21st Century Network
BT's work on preparing for the implementation of the 21st Century Network
progressed during the quarter. BT is working on concluding the contractual
agreements with eight preferred suppliers to build a converged core network. BT
is auditing sites nationally, and is working to put in place a world class
inventory management system to prepare for the installation of equipment from
preferred suppliers. This process has already been completed in the Cardiff
area, which will see the first live implementation of 21CN in the second half of
2006. The plan for national rollout is being discussed with industry through the
communication forum, Consult21, and agreement is expected around the end of the
current financial year. Trials for delivery of services over 21CN are continuing
using equipment from BT's preferred suppliers.
Telecommunications Strategic Review
During the second quarter a final settlement was reached with Ofcom following
the conclusion of the Telecommunications Strategic Review. Their acceptance of
legally binding undertakings offered by BT provides a foundation for certainty
and clarity which will deliver further benefits to retail and wholesale
customers and shareholders.
As part of the settlement BT has agreed to create a new line of business called
Openreach. This line of business will ensure all service providers have
transparent and equal access to the nationwide local BT network.
Shareholder distributions
An interim dividend of 4.3 pence per share, an increase of 10 per cent on last
year, will be paid on February 13, 2006 to shareholders on the register on
December 30, 2005. The ex dividend date is December 28, 2005. In the first half
year 55 million shares were repurchased for GBP123 million under the group's
share buyback programme.
Prospects
The strategy is working well and we continue to deliver our key strategic goals.
Our traditional business continues to operate in what remains a challenging
environment. Our new wave businesses show strong growth both in the UK and
internationally. We expect to continue to see the benefits from our investment
in new wave activities and cost transformation plans.
Line of business results
We reviewed our internal trading arrangements and with effect from April 1, 2005
have made changes to simplify our internal trading and drive synergies. We have
restated the comparative line of business results to assist readers in
understanding the year on year performance. There is no change to the overall
group reported results.
The main changes are firstly, the transfer of BT's UK Major Business operations
into BT Global Services from BT Retail. Secondly, Field Services have moved from
BT Retail to BT Wholesale, in anticipation of the creation of Openreach.
____________________________________________________________________________
The half year report, which contains the independent review report of the
auditors, will be advertised in The Times on November 11, 2005.
The third quarter results are expected to be announced on February 9, 2006.
BT Retail
Second quarter ended September 30 Half year
ended
September 30
-------------------------------------- ----------------
2005 2004* Better (worse) 2005 2004*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,136 2,221 (85) (4) 4,255 4,420
----- ----- ----- -----
Gross margin 586 579 7 1 1,149 1,161
Sales, general and
administration costs 380 388 8 2 770 787
----- ----- ----- -----
EBITDA 206 191 15 8 379 374
Depreciation and
amortisation 39 38 (1) (3) 73 76
Operating profit 167 153 14 9 306 298
===== ===== ===== =====
EBITDA before leaver
costs 208 193 15 8 384 382
Operating profit
before leaver costs 169 155 14 9 311 306
===== ===== ===== =====
Capital expenditure 33 41 8 20 68 72
===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
BT Retail's EBITDA was 8 per cent higher than last year, reversing the trend of
recent quarters. Gross margin increased by 1.3 percentage points, and coupled
with a reduction in SG&A costs, more than compensated for the 4 per cent decline
in revenues (3 per cent excluding the impact of reductions to mobile termination
rates).
New wave revenue grew by 41 per cent but was more than offset by the traditional
revenue decline of 9 per cent. New wave revenue accounted for 15 per cent of
total revenue in the quarter, up from 10 per cent last year.
Revenue from traditional services was 9 per cent lower than last year
(8 per cent excluding the impact of reductions to mobile termination rates). The
reduction includes the effects of continued high levels of migration to new wave
services such as broadband, which is reflected in a fall of over 40 per cent in
dial up internet minutes and a reduction in ISDN lines. In addition, there has
been an estimated 3 per cent decline in the overall fixed to fixed calls market
and a reduction in market share from competitive pressure.
BT Privacy, a service to address the problem of unwanted calls by giving
customers greater control over the calls they receive, was launched on 1st July
with more than 1.8 million customers already registered.
Broadband revenue grew by 57 per cent to GBP179 million. The growth of broadband
continues with 2,111,000 BT Retail connections at September 30, 2005, an
increase of 9 per cent in the quarter. Net additions of 171,000 resulted in a 27
per cent share of the BT Wholesale broadband DSL additions in the quarter. Our
programme to upgrade customers to high speed services at no extra cost continues
with a further 500,000 business and consumer customers upgraded to speeds of up
to 2Mbit/s in the quarter. BT Retail has now upgraded in excess of one million
customers in total.
Revenue from mobility services increased by 65 per cent year on year to GBP38
million. In June we launched BT Fusion, the world's first seamless combined
fixed and mobile communications service on a single handset. Over 20,000
registrations have been received on www.btfusion.bt.com and sales activity to
this group commenced at the end of September. We will shortly offer this service
to BT Broadband customers followed by a more general marketing campaign.
Additional handset choices will be available next year.
Revenue for BT Directories increased by 50 per cent to GBP24 million as the take
up of full colour adverts and Phonebook Online grows. BT Conferencing increased
revenues by over 20 per cent, and is Europe's number one conferencing business.
Overall the gross margin percentage increased by 1.3 percentage points due to
greater network efficiency and maturity of broadband products.
Cost transformation programmes contributed to SG&A savings of GBP8 million.
Overall these results led to an improvement in operating profit in the quarter
to GBP167 million which is 9 per cent higher than last year.
BT Wholesale
Second quarter ended September 30 Half year
ended
September 30
-------------------------------------- ----------------
2005 2004* Better (worse) 2005 2004*
GBPm GBPm GBPm % GBPm GBPm
External revenue 1,024 952 72 8 2,045 1,893
Internal revenue 1,254 1,311 (57) (4) 2,537 2,643
----- ----- ----- -----
Revenue 2,278 2,263 15 1 4,582 4,536
Variable cost of
sales 527 556 29 5 1,083 1,109
----- ----- ----- -----
Gross variable profit 1,751 1,707 44 3 3,499 3,427
Network and SG&A
costs 789 742 (47) (6) 1,544 1,531
----- ----- ----- -----
EBITDA 962 965 (3) - 1,955 1,896
Depreciation and
amortisation 462 477 15 3 919 956
----- ----- ----- -----
Operating profit 500 488 12 2 1,036 940
===== ===== ===== =====
EBITDA before leaver
costs 968 965 3 - 1,961 1,954
===== ===== ===== =====
Operating profit
before leaver costs 506 488 18 4 1,042 998
===== ===== ===== =====
Capital expenditure 444 548 104 19 931 1,025
===== ===== ===== =====
*Restated to reflect changes in intra-group trading arrangements.
BT Wholesale revenue of GBP2,278 million increased by 1 per cent driven by
external revenue growth of 8 per cent (14 per cent excluding the impact of
regulatory reductions to mobile termination rates). The growth continues to be
driven by new wave services, mainly broadband and managed services, increasing
by 63 per cent to GBP240 million. Revenue from new wave services now accounts
for more than 23 per cent of external revenue compared to 15 per cent last year.
Internal revenue has declined by 4 per cent to GBP1,254 million due to the
impact of lower volumes of calls and lines and lower regulatory prices being
reflected in internal charges. This was partially offset by strong growth from
internal broadband revenue.
Gross variable profit of GBP1,751 million is 3 per cent higher than last year
reflecting overall volume increases and a favourable change in sales mix with
broadband growth more than offsetting the decline in traditional products. This
has been offset by higher network and SG&A costs, reflecting benefits last year
from improved working capital management and increased broadband activity levels
this year, which has resulted in EBITDA remaining flat.
Lower depreciation, partially offset by higher leaver payments, has resulted in
an operating profit increase of 2 per cent.
Capital expenditure in the quarter was 19 per cent lower than last year. Capital
expenditure continues to be focused on supporting the growth in broadband and
the transformation of the network. Investment in legacy network technologies is
lower than last year.
BT Global Services
Second quarter ended September 30 Half year
ended
September 30
-------------------------------------- ----------------
2005 2004* Better (worse) 2005 2004*
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,108 1,823 285 16 4,180 3,583
EBITDA 215 228 (13) (6) 448 421
Operating profit 57 90 (33) (37) 138 152
EBITDA before leaver
costs 237 233 4 2 472 459
Operating profit
before 79 95 (16) (17) 162 190
leaver costs
Capital expenditure 171 161 (10) (6) 313 305
*Restated to reflect changes in intra-group trading arrangements.
BT Global Services revenue for the quarter rose by 16 per cent to GBP2,108
million. Underlying growth, excluding Albacom and Infonet, was 5 per cent.
Corporate revenues grew by 15 per cent supported by Multi Protocol Label
Switching (MPLS) with a year on year increase of 35 per cent. Carrier revenue in
underlying terms was flat but was boosted by additional revenues from Albacom.
Order intake remained strong with networked IT services contract orders of
GBP0.8 billion taken in the quarter resulting in orders of GBP8.2 billion over
the last twelve months.
Progress towards BT Global Services' goal of becoming the international business
partner and supplier of choice was evidenced by the award of Best Global Carrier
at the recent World Communications Awards, while the first of a new generation
of products developed by BT Infonet, MobileXpress, came on line.
EBITDA before leaver costs improved by 2 per cent year on year. Growth in new
wave profitability, including the effect of acquisitions, more than offset a
decline of approximately GBP20 million in UK traditional products, including
migration to IPVPNs sold to UK corporates and reductions in dial IP due to
broadband substitution. Higher depreciation costs in the acquisitions and higher
leaver costs of GBP17 million, following the acceleration of the early leaver
programme, led to a fall in operating profit of GBP33 million.
Capital expenditure in the quarter at GBP171 million increased by GBP10 million
due to the increased spend from Albacom and Infonet.
GROUP INCOME STATEMENT
for the three months ended September 30, 2005
Specific
Before specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------- ------ ---------- ----------- ---------
Revenue 2 4,822 - 4,822
Other operating income 53 - 53
Operating costs 3 (4,219) (70) (4,289)
------ ----- ------
Operating profit (loss) 2 656 (70) 586
Finance costs (676) - (676)
Finance income 576 - 576
------ ----- ------
Net finance costs 5 (100) - (100)
Share of post tax profits
of associates and joint
ventures 3 - 3
------ ----- ------
Profit (loss) before
taxation 559 (70) 489
Taxation (139) 21 (118)
------ ----- ------
Profit (loss) for the
period 420 (49) 371
====== ===== ======
Attributable to:
Equity shareholders 420 (49) 371
Minority interests - - -
====== ===== ======
Earnings per share 7
- basic 5.0p 4.4p
====== ===== ======
- diluted 4.9p 4.3p
====== ===== ======
GROUP INCOME STATEMENT
for the three months ended September 30, 2004
Specific
Before specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------- ------ ---------- ----------- ---------
Revenue 2 4,602 - 4,602
Other operating income 58 - 58
Operating costs 3 (3,954) (3) (3,957)
Profit on sale of non
current asset investments - 25 25
------ ----- ------
Operating profit 2 706 22 728
Finance costs (700) - (700)
Finance income 546 - 546
------ ----- ------
Net finance costs 5 (154) - (154)
Share of post tax losses
of associates and joint
ventures (3) - (3)
------ ----- ------
Profit before taxation 549 22 571
Taxation (143) 1 (142)
------ ----- ------
Profit for the period 406 23 429
====== ===== ======
Attributable to:
Equity shareholders 407 23 430
Minority interests (1) - (1)
====== ===== ======
Earnings per share 7
- basic 4.8p 5.0p
====== ===== ======
- diluted 4.7p 5.0p
====== ===== ======
GROUP INCOME STATEMENT
for the six months ended September 30, 2005
Specific
Before specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------ ------ ----------- ----------- ---------
Revenue 2 9,605 - 9,605
Other operating income 95 - 95
Operating costs 3 (8,396) (82) (8,478)
------ ----- ------
Operating profit (loss) 2 1,304 (82) 1,222
Finance costs (1,392) - (1,392)
Finance income 1,150 - 1,150
------ ----- ------
Net finance costs 5 (242) - (242)
Share of post tax
profits
of associates and joint
ventures 8 - 8
------ ----- ------
Profit (loss) before
taxation 1,070 (82) 988
Taxation (268) 25 (243)
------ ----- ------
Profit (loss) for the
period 802 (57) 745
====== ===== ======
Attributable to:
Equity shareholders 802 (57) 745
Minority interests - - -
====== ===== ======
Earnings per share 7
- basic 9.5p 8.8p
====== ===== ======
- diluted 9.3p 8.7p
====== ===== ======
GROUP INCOME STATEMENT
for the six months ended September 30, 2004
Specific
Before specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
------------------------ ------ ---------- ----------- ---------
Revenue 2 9,169 - 9,169
Other operating income 99 - 99
Operating costs 3 (7,975) (20) (7,995)
Profit on sale of non
current asset
investments - 28 28
------ ----- ------
Operating profit 2 1,293 8 1,301
Finance costs (1,392) - (1,392)
Finance income 1,083 - 1,083
------ ----- ------
Net finance costs 5 (309) - (309)
Share of post tax losses
of associates and joint
ventures (10) - (10)
------ ----- ------
Profit before taxation 974 8 982
Taxation (256) 5 (251)
------ ----- ------
Profit for the period 718 13 731
====== ===== ======
Attributable to:
Equity shareholders 719 13 732
Minority interests (1) - (1)
====== ===== ======
Earnings per share 7
- basic 8.4p 8.6p
====== ===== ======
- diluted 8.4p 8.5p
====== ===== ======
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the six months ended September 30, 2005
Half year
ended September 30
2005 2004
(unaudited) GBPm GBPm
------------------------------------ -------- ---------
Profit for the period 745 731
===== =====
Actuarial gains (losses) on defined benefit pension
schemes 1,090 (198)
Net gains on revaluation of available-for-sale 1 -
investments
Net losses on cash flow hedges (7) -
Exchange differences on translation of foreign (4) 16
operations
Tax on items taken directly to equity (325) 59
----- -----
Net gains (losses) recognised directly in equity 755 (123)
Total recognised income for the period 1,500 608
===== =====
Effect of adoption of IAS 32 and IAS 39 (337) -
----- -----
Total recognised income 1,163 608
===== =====
Attributable to:
Equity shareholders 1,163 608
Minority interests - -
===== =====
GROUP CASH FLOW STATEMENT
for the three months and six months ended September 30, 2005
Second quarter Half year
ended September 30 ended September 30
2005 2004 2005 2004
(unaudited) GBPm GBPm GBPm GBPm
-------------------------- ------- -------- --------- -------
Cash flow from operating
activities
Cash generated from operations
(note 8 (a)) 1,374 1,415 2,346 2,623
Income taxes paid (111) (1) (242) (42)
----- ----- ----- -----
Net cash inflow from operating
activities 1,263 1,414 2,104 2,581
Cash flow from investing
activities
Net sale (acquisition) of
subsidiaries, associates and
joint ventures - 13 (88) 11
Net purchase of property,
plant, equipment and software (671) (726) (1,357) (1,455)
Interest received 59 48 96 103
Net sale of short term
investments and non
current asset investments 732 292 582 278
----- ----- ----- -----
Net cash received (used) in
investing activities 120 (373) (767) (1,063)
Cash flows from financing
activities
Repurchase of ordinary share
capital (88) (68) (109) (99)
Net repayments of borrowings (10) (104) (24) (276)
Interest paid (147) (145) (465) (504)
Equity dividends paid (540) (454) (540) (454)
----- ----- ----- -----
Net cash used in financing
activities (785) (771) (1,138) (1,333)
Effects of exchange rate
changes (6) 28 23 2
----- ----- ----- -----
Net increase in cash and cash
equivalents 592 298 222 187
===== ===== ===== =====
Cash and cash equivalents at
beginning of period 940 894 1,310 1,005
Cash and cash equivalents, net
of bank overdrafts, at end of
period (note 8 (c)) 1,532 1,192 1,532 1,192
===== ===== ===== =====
Free cash flow (note 8 (b)) 503 594 377 751
===== ===== ===== =====
Increase (decrease) in net debt
from cash flows (note 9 (b)) 125 (85) 360 (209)
----- ----- ----- -----
GROUP BALANCE SHEET
at September 30, 2005
September 30 September 30 March 31
2005 2004 2005
(unaudited) GBPm GBPm GBPm
------------------------- ----------- ----------- ---------
Non current assets
Goodwill and other
intangible assets 1,385 726 1,259
Property, plant and
equipment 15,386 15,126 15,386
Other non current assets 101 542 133
Deferred tax assets 1,105 1,604 1,434
------ ------ ------
17,977 17,998 18,212
------ ------ ------
Current assets
Inventories 126 118 106
Trade and other receivables 4,060 4,261 4,269
Other financial assets 3,217 3,972 3,634
Cash and cash equivalents 1,727 1,193 1,312
------ ------ ------
9,130 9,544 9,321
------ ------ ------
Total assets 27,107 27,542 27,533
Current liabilities
Loans and other borrowings 4,667 972 4,261
Trade and other payables 5,552 6,379 6,772
Other current liabilities 1,377 747 1,080
------ ------ ------
11,596 8,098 12,113
------ ------ ------
Total assets less current
liabilities 15,511 19,444 15,420
====== ====== ======
Non current liabilities
Loans and other borrowings 8,171 11,934 7,744
Deferred tax liabilities 1,581 1,749 1,715
Retirement benefit
obligations 3,682 5,345 4,781
Other non current
liabilities 1,449 1,349 1,085
------ ------ ------
14,883 20,377 15,325
------ ------ ------
Capital and reserves
Called up share capital 432 432 432
Reserves 147 (1,413) (387)
------ ------ ------
Total equity shareholders'
funds (deficit) 579 (981) 45
Minority interests 49 48 50
------ ------ ------
Total equity 628 (933) 95
------ ------ ------
15,511 19,444 15,420
====== ====== ======
NOTES (unaudited)
1 Accounting policies and basis of preparation
These primary statements and selected notes comprise the unaudited interim
consolidated financial results of BT Group plc ("the group") for the quarter and
six months ended September 30, 2005 and 2004, respectively. These interim
financial results do not comprise statutory accounts within the meaning of
Section 240 of the Companies Act 1985. Statutory accounts for the year ended
March 31, 2005 were approved by the Board of Directors on May 18, 2005 and
published on June 1, 2005. The auditor's report on those accounts was
unqualified and did not contain any statement under Section 237 of the Companies
Act 1985.
Previously the group prepared its audited annual financial statements and
unaudited quarterly results under UK Generally Accepted Accounting Principles
(UK GAAP). From April 1, 2005 the group is required to present its annual
consolidated financial statements in accordance with International Financial
Reporting Standards (IFRS) as adopted for use in the European Union (EU). On
July 28, 2005, the group issued its first quarter results which also contained
information on the impact of IFRS on comparative periods in advance of the
publication of the group's annual results under IFRS. Details of the group's
principal accounting policies under IFRS were also included. The financial
information set out in this interim statement has been prepared in accordance
with those accounting policies and the directors intend to apply those policies
in the preparation of the consolidated financial statements for the year ended
March 31, 2006.
Standards currently in issue and adopted by the EU are subject to interpretation
issued from time to time, by the International Financial Reporting
Interpretations Committee (IFRIC). Further standards may be issued by the
International Accounting Standards Board that will be adopted for financial
years beginning on April 1, 2005. Furthermore, due to a number of new and
revised Standards included within the body of the Standards that comprise IFRS,
there is not yet a significant body of established practice on which to draw in
forming opinions regarding interpretation and application. Accordingly, practice
is continuing to evolve. At this preliminary stage, therefore, the full
financial effect of reporting under IFRS as it will be applied and reported on
in the group's first IFRS financial statements for the year ended March 31, 2006
may be subject to change.
These interim financial results have been prepared under the historical cost
convention, except in respect of certain financial assets and liabilities. As
permitted, the group has chosen not to adopt IAS 34 "Interim Financial
Statements", and therefore these interim financial results are not in full
compliance with IFRS.
2 Results of businesses
(a) Operating results
External Internal Group Group operating
revenue revenue revenue profit (loss) EBITDA
(ii) (ii)
GBPm GBPm GBPm GBPm GBPm
Second quarter
ended
September 30, 2005
BT Retail 2,054 82 2,136 167 206
BT Wholesale 1,024 1,254 2,278 500 962
BT Global Services 1,740 368 2,108 57 215
Other 4 - 4 (68) (35)
Intra-group items(i) - (1,704) (1,704) - -
------ ------ ------ ------ ------
Total 4,822 - 4,822 656 1,348
====== ====== ====== ====== ======
Second quarter
ended
September 30, 2004
(restated - see
below)
BT Retail 2,153 68 2,221 153 191
BT Wholesale 952 1,311 2,263 488 965
BT Global Services 1,491 332 1,823 90 228
Other 6 - 6 (25) 26
Intra-group items(i) - (1,711) (1,711) - -
------ ------ ------ ------ ------
Total 4,602 - 4,602 706 1,410
====== ====== ====== ====== ======
Half year ended
September 30, 2005
BT Retail 4,094 161 4,255 306 379
BT Wholesale 2,045 2,537 4,582 1,036 1,955
BT Global Services 3,456 724 4,180 138 448
Other 10 - 10 (176) (77)
Intra-group items(i) - (3,422) (3,422) - -
------ ------ ------ ------ ------
Total 9,605 - 9,605 1,304 2,705
====== ====== ====== ====== ======
Half year ended
September 30, 2004
(restated - see
below)
BT Retail 4,299 121 4,420 298 374
BT Wholesale 1,893 2,643 4,536 940 1,896
BT Global Services 2,964 619 3,583 152 421
Other 13 - 13 (97) 6
Intra-group items(i) - (3,383) (3,383) - -
------ ------ ------ ------ ------
Total 9,169 - 9,169 1,293 2,697
====== ====== ====== ====== ======
(i) Elimination of intra-group revenue between businesses, which is included in
the total revenue of the originating business.
(ii) Before specific items.
We have reviewed our internal trading arrangements and with effect from April 1,
2005 have made changes to simplify our internal trading and drive synergies. We
have restated the comparative line of business results to assist readers in
understanding the year on year performance. There is no change to the overall
group reported results.
2 Results of businesses continued
(b) Revenue analysis
Second quarter ended Half year ended
September 30 September 30
--------------------------------- ------------------------
2005 2004 Better (worse) 2005 2004
GBPm GBPm GBPm % GBPm GBPm
Traditional 3,383 3,569 (186) (5) 6,781 7,200
New wave 1,439 1,033 406 39 2,824 1,969
----- ----- ----- -----
4,822 4,602 220 5 9,605 9,169
===== ===== ===== =====
Consumer 1,345 1,421 (76) (5) 2,679 2,846
Business 588 629 (41) (7) 1,179 1,252
Major Corporate 1,666 1,444 222 15 3,296 2,868
Wholesale/ 1,219 1,102 117 11 2,441 2,190
Carrier
Other 4 6 (2) (33) 10 13
----- ----- ----- -----
4,822 4,602 220 5 9,605 9,169
===== ===== ===== =====
(c) New wave revenue analysis
Second quarter ended Half year ended
September 30 September 30
--------------------------------- ------------------------
2005 2004 Better (worse) 2005 2004
GBPm GBPm GBPm % GBPm GBPm
Networked IT 918 699 219 31 1,822 1,333
services
Broadband 350 199 151 76 664 385
Mobility 65 49 16 33 126 92
Other 106 86 20 23 212 159
----- ----- ----- -----
1,439 1,033 406 39 2,824 1,969
===== ===== ===== =====
(d) Capital expenditure(1) on property, plant, equipment, software and motor
vehicles:
Second quarter ended Half year ended
September 30 September 30
--------------------------------- ------------------------
2005 2004 Better (worse) 2005 2004
GBPm GBPm GBPm % GBPm GBPm
BT Retail 33 41 8 20 68 72
BT Wholesale
Access 228 274 46 17 485 543
Switch 8 25 17 68 18 55
Transmission 52 50 (2) (4) 98 95
Products/systems
support 156 199 43 22 330 332
----- ----- ----- -----
444 548 104 19 931 1,025
BT Global 171 161 (10) (6) 313 305
Services
Other (including
fleet vehicles
and 46 53 7 13 98 95
property)
----- ----- ----- -----
Total 694 803 109 14 1,410 1,497
===== ===== ===== =====
(1)Capital expenditure, which is recognised on an accruals basis, includes
computer software which is classified within intangible assets.
3 Operating costs
Second quarter ended Half year ended
September 30 September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Net staff costs before leaver
costs 1,002 859 1,967 1,757
Leaver costs 37 8 43 110
----- ----- ------ ------
Net staff costs 1,039 867 2,010 1,867
Depreciation and amortisation 692 704 1,401 1,404
Payments to telecommunication
operators 939 964 1,910 1,952
Other operating costs 1,549 1,419 3,075 2,752
----- ----- ------ ------
Total before specific items 4,219 3,954 8,396 7,975
Specific items (note 4) 70 3 82 20
----- ----- ------ ------
Total 4,289 3,957 8,478 7,995
===== ===== ====== ======
4 Specific items
BT will continue to separately identify and disclose any material one off or
unusual items (termed "specific items"). This is consistent with the way that
financial performance is measured by management and we believe assists in
providing a meaningful analysis of the trading results of the group. "Specific
items" may not be comparable to similarly titled measures used by other
companies. In the comparative period the specific items were previously referred
to as exceptional items under UK GAAP.
Second quarter ended Half year ended
September 30 September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Operating costs (income)
Creation of Openreach(1) 70 - 70 -
Property rationalisation costs - 3 12 20
Profit on sale of non current
asset investments - (25) - (28)
----- ----- ------ ------
Total specific items 70 (22) 82 (8)
===== ===== ====== ======
(1) A provision of GBP70 million has been recognised in the second quarter,
relating to the incremental and directly attributable costs to create Openreach
arising from the legal undertakings agreed with Ofcom.
5 Net finance costs
Second quarter ended Half year ended
September 30 September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Finance costs(1) before pension
interest 222 270 484 532
Interest on pension scheme
liabilities 454 430 908 860
----- ----- ------ ------
Finance costs 676 700 1,392 1,392
----- ----- ------ ------
Finance income before pension
income (58) (67) (115) (124)
Expected return on pension scheme
assets (518) (479) (1,035) (959)
----- ----- ------ ------
Finance income (576) (546) (1,150) (1,083)
----- ----- ------ ------
Net finance costs 100 154 242 309
===== ===== ====== ======
(1) Finance costs in the second quarter and half year ended September 30, 2005
include a GBP19 million and GBP7 million net credit, respectively, arising from
the re-measurement of financial instruments which are not in hedging
relationships on a fair value basis. A component of these net credits is the
fair value movement in, and realised gain arising from, the early redemption of
the US dollar 2008 LG Telecom convertible bond amounting to GBP31 million for
the second quarter and GBP27 million for the half year.
6 Dividends
Half year Half year
ended September 30 ended September 30
2005 2004 2005 2004
Pence per share GBPm GBPm
Amounts recognised as
distributions to equity holders
in the period 6.5 5.3 551 454
---- ---- ---- ----
The directors have declared an interim dividend of 4.3 pence per share (3.9
pence last year), payable on February 13, 2006 to the shareholders on the
register at the close of business on December 30, 2005. This interim dividend,
amounting to GBP362 million, has not been included as a liability as at
September 30, 2005 (GBP332 million as at September 30, 2004). The final dividend
for the year ended March 31, 2005 of 6.5 pence per share was approved on July
13, 2005.
7 Earnings per share
Basic earnings per share is calculated by dividing the profit attributable to
shareholders by the average number of shares in issue after deducting the
company's shares held by employee share ownership trusts and treasury shares. In
calculating the diluted earnings per share, share options outstanding and other
potential ordinary shares have been taken into account.
The average number of shares in the periods were:
Second quarter Half year
ended September 30 ended September 30
2005 2004 2005 2004
millions of shares millions of shares
Basic 8,456 8,535 8,463 8,546
Diluted 8,589 8,596 8,579 8,597
8 (a) Reconciliation of profit to cash generated from operations
Second quarter Half year
ended September 30 ended September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Profit before tax 489 571 988 982
Depreciation and amortisation 692 704 1,401 1,404
Associates and joint ventures (3) 3 (8) 10
Employee share scheme costs 25 8 37 12
Net finance costs 100 154 242 309
Profit on disposal of property
assets and non - (40) - (43)
current asset investments
Changes in working capital (8) (14) (461) (151)
Provisions movements, pensions
and other 79 29 147 100
----- ----- ----- -----
Cash generated from operations 1,374 1,415 2,346 2,623
===== ===== ===== =====
(b) Free cash flow
Second quarter Half year
ended September 30 ended September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Cash generated from operations 1,374 1,415 2,346 2,623
Income taxes paid (111) (1) (242) (42)
----- ----- ----- -----
Net cash inflow from operating
activities 1,263 1,414 2,104 2,581
Included in cash flows from
investing activities
Net purchase of property, plant,
equipment and software (671) (726) (1,357) (1,455)
Net (purchase) sale of non
current asset investments (1) 2 (1) 25
Dividends received from
associates - 1 - 1
Interest received 59 48 96 103
Included in cash flows from
financing activities
Interest paid (147) (145) (465) (504)
----- ----- ----- -----
Free cash flow 503 594 377 751
===== ===== ===== =====
8 (b) Free cash flow continued
Free cash flow is defined as the net increase in cash and cash equivalents less
cash flows from financing activities (except interest paid) and less the
acquisition or disposal of group undertakings. It is not a measure recognised
under IFRS but is a key indicator used by management in order to assess
operational performance.
(c) Cash and cash equivalents
At September 30 At March 31
2005 2004 2005
GBPm GBPm GBPm
Cash at bank and in hand 475 117 206
Short term deposits 1,252 1,076 1,106
----- ----- -----
Cash and cash equivalents 1,727 1,193 1,312
Bank overdrafts (195) (1) (2)
----- ----- -----
1,532 1,192 1,310
===== ===== =====
9 Net debt
Net debt at September 30, 2005 was GBP8,133 million (September 30, 2004 -
GBP8,373 million, March 31, 2005 - GBP7,893 million).
Net debt consists of borrowings less financial assets and cash and cash
equivalents. Borrowings are measured at the net proceeds raised, adjusted to
amortise any discount over the term of the debt. Financial assets and cash and
cash equivalents are measured at the lower of cost and net realisable value.
Currency denominated balances within net debt are translated to sterling at
swapped rates where hedged.
This definition of net debt reflects the future cash flows due to arise on
maturity of financial instruments and removes the balance sheet volatility
arising from the re-measurement of hedged risks under fair value hedges and the
use of the amortised cost method that is required by IAS 39. It is not a measure
recognised under IFRS but is used by management to measure and monitor
performance.
9 Net debt continued
(a) Analysis
At September 30 At March 31
2005 2004 2005
GBPm GBPm GBPm
Loans and other borrowings 12,838 12,906 12,005
Cash and cash equivalents (1,727) (1,193) (1,312)
Other current financial assets(1) (2,996) (3,972) (3,491)
------ ------ -------
8,115 7,741 7,202
Adjustments:
To retranslate currency denominated balances at
swapped rates where hedged 399 632 691
To recognise investments and borrowings at net
proceeds and unamortised discount (383) - -
Other 2 - -
------ ------ -------
Net debt 8,133 8,373 7,893
====== ====== =======
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at September 30, 2005 was GBP12,586 million (September
30, 2004 - GBP13,536 million, March 31, 2005 - GBP12,696 million).
(1) Excluding derivative financial instruments of GBP221 million, GBPnil and
GBP143 million at September 30, 2005 and 2004 and March 31, 2005, respectively.
(b) Reconciliation of net cash flow to movement in net debt
Second quarter ended Half year
September 30 ended September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Net debt at beginning of period 8,121 8,422 7,893 8,530
Increase (decrease) in net debt
resulting from cash flows 125 (85) 360 (209)
Net debt assumed or issued on
acquisitions - - 1 -
Currency movements (10) 30 (24) 41
Other non-cash movements (103) 6 (97) 11
----- ------ ------ ------
Net debt at end of period 8,133 8,373 8,133 8,373
===== ====== ====== ======
10 Changes in equity
Half year ended
September 30
2005 2004
GBPm GBPm
Shareholders' funds (deficit) 45 (1,085)
Minority interests 50 46
------ -------
95 (1,039)
Effect of adoption of IAS 32 and IAS 39 (337) -
------ -------
Deficit at beginning of period (242) (1,039)
Total recognised income and expense for the period 1,500 608
Employee share schemes 26 27
Issues of shares 4 -
Net movement in treasury shares (108) (80)
Dividends on ordinary shares (551) (454)
Other (1) 5
------ -------
Net changes in equity for the financial period 870 106
Equity at end of period
Shareholders' funds (deficit) 579 (981)
Minority interests 49 48
------ -------
628 (933)
====== =======
11 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Second quarter Half year
ended ended
September 30 September 30
2005 2004 2005 2004
GBPm GBPm GBPm GBPm
Operating profit 586 728 1,222 1,301
Specific items (note 4) 70 (22) 82 (8)
Depreciation and amortisation
(note 3) 692 704 1,401 1,404
----- ----- ------ -----
EBITDA before specific items 1,348 1,410 2,705 2,697
===== ===== ====== ======
Earnings before interest, taxation, depreciation and amortisation (EBITDA)
before specific items is not a measure recognised under IFRS, but it is a key
indicator used by management in order to
assess operational performance.
12 United States Generally Accepted Accounting Principles (US GAAP)
The results set out above have been prepared in accordance with the basis of
preparation as set out in note 1. The table below sets out the results
calculated in accordance with US GAAP.
Second quarter ended Half year
September 30 ended September 30
2005 2004 2005 2004
Net income attributable to
shareholders (GBPm) 191 407 583 480
Earnings per ADS (GBP)
- basic 0.23 0.48 0.69 0.56
- diluted 0.22 0.47 0.68 0.56
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with US GAAP, is a GBP615 million
deficit at September 30, 2005 (September 30, 2004 - GBP1,442 million deficit,
March 31, 2005 - GBP584 million deficit).
13 Reconciliation of UK GAAP to IFRS for comparative periods
On July 28, 2005 the group issued its first quarter results which also included
appendices presenting and explaining the consolidated results of the group
restated from UK GAAP onto an IFRS basis for the year ended March 31, 2005, the
three months ended June 30, 2004 and the balance sheet as at April 1, 2004 and
June 30, 2004. The group has adopted IAS 39 and IAS 32 prospectively from April
1, 2005 and a reconciliation of the group's IFRS balance sheet from March 31,
2005 to April 1, 2005 was also included in the IFRS information presented with
the first quarter results. The first quarter results are available on the
group's website at www.btplc.com/Sharesandperformance
In this interim statement the group is also presenting a reconciliation from UK
GAAP to IFRS of the profit for the comparable financial period (the quarter and
six months ended September 30, 2004), together with the equity at the end of the
comparable period (September 30, 2004).
13 Reconciliation of UK GAAP to IFRS for comparative periods continued
(a) Reconciliation of profit between UK GAAP and IFRS
Notes Second quarter ended Half year ended
September 30 September 30
2004 2004
GBPm GBPm
Profit attributable to
shareholders under UK GAAP 427 732
Effect of transition to IFRS
(net of tax)
Pensions i 20 42
Goodwill ii 4 8
Share based payments iii (6) (9)
Leases iv (18) (37)
Other 2 (5)
Profit attributable --- ---
to shareholders under IFRS 429 731
=== ===
(b) Reconciliation of equity between UK GAAP and IFRS
Notes At September 30
2004
GBPm
Total equity under UK GAAP 3,462
Effect of transition to IFRS (net of tax)
Pensions i (4,486)
Goodwill ii 8
Share based payments iii 3
Leases iv (252)
Dividends v 332
---
Total equity under IFRS (933)
===
Notes
i Pensions
Cumulative actuarial gains and losses in respect of the group's defined benefit
pension schemes have been recognised in full on transition to IFRS (April 1,
2004). Actuarial gains and losses arising from the transition date are being
recognised immediately in reserves, in accordance with the amended version of
IAS 19 "Employee benefits". An actuarial loss of GBP139 million (net of tax)
arose in the six months ended September 30, 2004. The income statement charge is
split between an operating charge and a net finance charge. The charge to
operating costs in respect of pensions has increased by GBP20 million for the
second quarter ended September 30, 2004 (GBP39 million for the six months ended
September 30, 2004) and net finance income has increased by GBP49 million for
the second quarter ended September 30, 2004 (GBP99 million for the six months
ended September 30, 2004), giving rise to an overall increase in earnings of
GBP29 million for the quarter ended September 30, 2004 (GBP60 million for the
six months ended September 30, 2004). The associated deferred tax benefit
recognised in the income statement for the quarter ended September 30, 2004 was
GBP9 million (GBP18 million for the six months ended September 30, 2004).
A pension liability was recognised at September 30, 2004 of GBP5,345 million and
associated deferred tax asset of GBP1,604 million. This was offset by the
reversal of provisions and other creditors of GBP37 million. The pension
prepayment of GBP1,113 million on the UK GAAP balance sheet has also been
reversed including the associated deferred tax liability of GBP331 million. The
net effect has been a reduction in shareholders' funds of GBP4,486 million.
ii Goodwill
The group has used the exemption available under IFRS 1 for not restating
business combinations. IFRS 3 "Business Combinations" requires that goodwill
arising from business combinations should not be amortised. Accordingly, the UK
GAAP goodwill amortisation charge of GBP4 million for the quarter ended
September 30, 2004 (GBP8 million for the six months ended 30 September 2004) has
been reversed. There is no tax impact.
iii Share based payments
Under IFRS 2 "Share based payment", an expense must be recognised in the income
statement for all share based payments. This expense is based on the fair value
at the date of the award, using an option pricing model, and is charged to the
income statement over the related performance period. This has resulted in an
increased operating charge for the quarter ended September 30, 2004 of GBP8
million (GBP12 million for the six months ended September 30, 2004). The credit
entry for the share based payments is recognised directly in reserves as the
awards are equity settled, therefore there is no overall impact on shareholders'
equity.
iv Leases
Under IAS 17 "Leases" the buildings element of a small number of properties have
been reclassified from operating leases under UK GAAP to finance leases under
IFRS, and lease rentals under BT's sale and leaseback transactions are
recognised on a straight line basis. For those properties reclassified as
finance leases, profit before tax for the quarter ended September 30, 2004 has
been reduced by GBP1 million (GBP2 million for the six months ended September
30, 2004) as a result of the recognition of depreciation and finance lease
interest charges and the removal of the UK GAAP operating lease charges.
Recognising the operating lease charges on a straight line basis has further
reduced profit before tax for the quarter ended September 30, 2004 by GBP26
million (GBP52 million for the six months ended September 30, 2004). The
associated deferred tax benefit recognised in the income statement for the
quarter ended September 30, 2004 was GBP9 million (GBP17 million for the six
months ended September 30, 2004).
v Dividends
Under UK GAAP the dividend charge was recognised in the profit and loss account
in the period to which it related. Under IAS 10 "Events after the balance sheet
date", dividends are not recognised in the income statement but directly within
reserves, when they have been declared. In addition, the final dividend is
recognised only when it has been declared and approved by the company in general
meeting. The final dividend for the year ended March 31, 2004 of GBP454 million
was approved by the company on July 14, 2004 and has therefore been recognised
in reserves, however the interim dividend of GBP332 million has been reversed
since it was declared after September 30, 2004.
Forward-looking statements - caution advised
Certain statements in this results release are forward-looking and are made in
reliance on the safe harbour provisions of the US Private Securities Litigation
Reform Act of 1995. These statements include, without limitation, those
concerning: continued growth in new wave revenue, mainly from broadband,
networked IT services and mobility growth; implementation of BT's 21st Century
Network; expectations regarding revenue growth, cost transformation and savings;
and delivering value through transformation of the business.
Although BT believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations will
prove to have been correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.
Factors that could cause differences between actual results and those implied by
the forward-looking statements include, but are not limited to: material adverse
changes in economic conditions in the markets served by BT; future regulatory
actions and conditions in BT's operating areas, including competition from
others; selection by BT and its lines of business of the appropriate trading and
marketing models for its products and services; fluctuations in foreign currency
exchange rates and interest rates; technological innovations, including the cost
of developing new products, networks and solutions and the need to increase
expenditures for improving the quality of service; prolonged adverse weather
conditions resulting in a material increase in overtime, staff or other costs;
developments in the convergence of technologies; the anticipated benefits and
advantages of new technologies, products and services, including broadband and
other new wave initiatives, not being realised; and general financial market
conditions affecting BT's performance. BT undertakes no obligation to update any
forward-looking statements whether as a result of new information, future events
or otherwise.
The IFRS position as stated is BT's current view, based on the Standards
currently in issue, and changes may arise as new accounting pronouncements are
developed and issued. Due to a number of new and revised Standards, included
within the body of Standards that comprise IFRS, there is not yet a significant
body of established best practice on which to draw in forming opinions regarding
interpretation and application. Accordingly, practice is continuing to evolve.
At this stage, therefore, the full financial effect of reporting under IFRS, as
it will be applied and reported in the group's first full IFRS financial
statements, cannot be determined with certainty and may be subject to change.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BT Group PLC
(Registrant)
By: /s/ Patricia Day
--------------------
Patricia Day, Assistant Secretary.
Date 10 November, 2005