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
08 November 2007
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 08 November 2007
BT GROUP PLC
November 8, 2007
SECOND QUARTER AND HALF YEAR RESULTS TO SEPTEMBER 30, 2007
SECOND QUARTER HIGHLIGHTS
- Revenue of GBP5,095 million, up 3 per cent
- New wave revenue of GBP1,914 million, up 10 per cent
- EBITDA before specific items(1) and leaver costs of GBP1,448 million, up 2
per cent
- Net specific items charge before taxation of GBP182 million, principally
relating to the group's transformation programme
- Earnings per share before specific items(1) and leaver costs of 6.1 pence,
up 2 per cent
- Continued strong broadband net additions(2) of 479,000 of which BT's retail
share was 37 per cent
HALF YEAR HIGHLIGHTS
- Revenue of GBP10,128 million, up 3 per cent
- New wave revenue of GBP3,729 million, up 10 per cent
- EBITDA before specific items(1) of GBP2,822 million, up 3 per cent
- Earnings per share before specific items1 of 11.7 pence, up 4 per cent
- Interim dividend of 5.4 pence per share, up 6 per cent
- Broadband end users(2) of 11.7 million at September 30, 2007 of which BT
Retail now has over 4 million customers
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 19 to 25 .
(1) Before specific items which are significant one off or unusual items as
defined in note 4 on page 29 .
(2) DSL and LLU connections.
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the second quarter's results,
said:
"This is another solid set of results with revenue, EBITDA(1) and earnings per
share(1) all continuing to grow. This is the twenty second consecutive quarter
of year on year growth in earnings per share(1). We are achieving significant
transformation of our business which will deliver further efficiencies alongside
faster, better, smarter services for our customers. We continue to be the UK's
number one retail broadband provider.
"Total BT Global Services contract orders in the quarter amounted to GBP1.6
billion, bringing the value of total orders achieved over the last twelve months
to GBP9.2 billion.
"During the first half of the year we have made a number of acquisitions, both
in the UK and overseas, to increase the breadth and depth of the services we
offer our customers. These include Comsat International in Latin America, i2i in
India and Brightview, Basilica and Lynx Technologies in the UK.
"I am delighted to welcome Sir Michael Rake as our new chairman and look forward
to working closely with him. His dynamism and vision will help us succeed as we
move through BT's transformation.
"Our confidence in the future performance of our business is reflected in the
interim dividend of 5.4 pence per share, which is 6 per cent higher than last
year. This shows our ongoing commitment to improving shareholder returns".
(1) Before specific items and leaver costs
RESULTS FOR THE SECOND QUARTER AND HALF YEAR
TO SEPTEMBER 30, 2007
Second quarter Half year
---------------------------------------------------------------
2007 2006 Better 2007 2006 Better (worse)
GBPm GBPm (worse) GBPm GBPm %
%
Revenue 5,095 4,941 3 10,128 9,805 3
EBITDA
- before specific
tems and leaver
costs 1,448 1,418 2 2,873 2,804 2
- before specific
items 1,405 1,385 1 2,822 2,747 3
Profit before taxation
- before specific
items and leaver
costs 660 665 (1) 1,318 1,304 1
- before specific
items 617 632 (2) 1,267 1,247 2
- after specific
items 435 629 (31) 1,035 1,244 (17)
Earnings per share
- before specific
items and leaver
costs 6.1p 6.0p 2 12.1p 11.8p 3
- before specific
items 5.7p 5.7p - 11.7p 11.3p 4
- after specific
items 4.2p 5.7p (26) 11.6p 11.3p 3
Capital 799 812 2 1,702 1,527 (11)
expenditure
Free cash flow 171 338 (49) 19 321 (94)
Interim dividend 5.4p 5.1p 6
Net debt 9,618 8,079 (19)
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 29. Leaver
costs are shown in note 3 on page 29.
The income statement, cash flow statement and balance sheet are provided on
pages 19 to 25. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 34. A definition and reconciliation of free
cash flow and net debt are provided on pages 31 to 33.
INTERIM MANAGEMENT REPORT
GROUP RESULTS
Second quarter ended September 30, 2007
Revenue was 3 per cent higher at GBP5,095 million in the quarter with continued
strong growth in new wave revenue. EBITDA before specific items and leaver costs
grew by 2 per cent, the seventh consecutive quarter of year on year growth.
Earnings per share before specific items and leaver costs increased by 2 per
cent to 6.1 pence, the twenty second consecutive quarter of year on year growth.
The strong growth in new wave revenue continued and, at GBP1,914 million, was 10
per cent higher than last year. New wave revenue is mainly generated from
networked IT services and broadband and accounted for 38 per cent of the group's
revenue. Networked IT services revenue grew by 12 per cent to GBP1,120 million
and broadband revenue increased by 12 per cent to GBP543 million.
Continuing the drive towards becoming the global leader in networked IT
services, BT Global Services secured total contract wins of GBP1.6 billion in
the second quarter, with GBP9.2 billion achieved over the last twelve months.
BT had 11.7 million wholesale broadband connections (DSL and LLU) at September
30, 2007, including 3.2 million local loop unbundled lines, an increase of 2.4
million connections year on year. There were 479,000 connections in the second
quarter with BT's retail share of those net additions at 178,000, being 37 per
cent. BT Retail has strengthened its position as the UK's number one retail
broadband provider and its total broadband customer base was 4,074,000 at
September 30, 2007. This accounts for 35 per cent of the DSL and LLU total
customer base.
Revenue
Revenue from the group's traditional businesses declined by 1 per cent year on
year, compared to a decline of 4 per cent in the second quarter of last year.
This is consistent with the recent trend of a slowing rate of decline in the
traditional business and reflects the robust defence of our traditional business
in a highly competitive market.
Major corporate (UK and international) revenue grew by 7 per cent. Migration
from traditional voice only services to networked IT services continued with new
wave revenue now representing 62 per cent of all major corporate revenue.
Revenue from smaller and medium sized UK businesses grew 3 per cent year on
year, continuing the recent improving trend. New wave revenue increased by 16
per cent driven by growth in broadband and networked IT services. We continue to
focus on innovative pricing plans and propositions that deliver value to our
customer base by bringing together IT, broadband and communication services.
Consumer revenue was 3 per cent higher year on year, the first quarter of year
on year growth in four years. Consistent with the group's strategy, growth in
new wave revenue of 21 per cent continues to reduce our dependence on
traditional revenue, which has declined by 1 per cent.
The 12 month rolling average revenue per consumer household increased by GBP5 in
the quarter to GBP271, the seventh consecutive quarter of growth. This is a
reflection of our customers' desire to use BT as their supplier of choice in the
communications and IT market, with an increasing number taking multiple services
from BT. Increased penetration of broadband and the growth of value added
propositions have more than offset the lower call revenues. The proportion of
contracted revenues remained consistent at 68 per cent.
Wholesale (UK and Global Carrier) revenue decreased by 2 per cent as the impact
of volume and price reductions on DSL broadband revenue and the reduction in
transit revenue was only partially offset by migrations to local loop unbundling
arrangements (LLU). BT is providing the Post Office with its national consumer
broadband and telephony service, which has now gone live, and active marketing
of the service has begun at over 13,000 post offices across the UK.
Operating results
Group operating costs before specific items and leaver costs increased by 3 per
cent year on year to GBP4,413 million. Staff costs before leaver costs increased
by 2 per cent to GBP1,297 million, due to pay inflation as well as the cost of
additional staff needed to support networked IT services contracts, increased
network and 21CN activities and service improvements, the impact of which has
been largely offset by savings from the group's efficiency programmes. Leaver
costs before specific items were GBP43 million in the quarter (GBP33 million
last year). Payments to other telecommunication operators increased by 2 per
cent to GBP1,054 million. Other operating costs before specific items of
GBP1,561 million increased by GBP119 million mainly due to increased cost of
sales from growth in networked IT and other new wave services and increased
levels of network and 21CN activities, which were partly offset by cost savings
from our efficiency programmes. Depreciation and amortisation decreased by 1 per
cent to GBP693 million as more traditional assets become fully depreciated, the
effect of which has been only partially offset by higher depreciation on 21CN
related assets as they start to be brought into use.
Group operating profit before specific items and leaver costs increased by 6 per
cent to GBP755 million. Group operating profit margin before specific items and
leaver costs increased to 14.8 per cent compared to 14.5 per cent in the prior
year.
Earnings
Net finance costs were GBP92 million, an increase of GBP37 million against last
year. This includes net finance income associated with the group's defined
benefit pension scheme which was flat year on year at GBP105 million. The
increase in net finance costs primarily reflects the higher net debt, higher
interest on variable rate borrowings and fair value movements on hedges that do
not qualify for hedge accounting under IAS 39.
Profit before taxation, specific items and leaver costs of GBP660 million
decreased 1 per cent year on year.
The effective tax rate on the profit before specific items was 24.8 per cent
(24.5 per cent last year) compared to the UK statutory corporation tax rate of
30 per cent, reflecting the continued focus on tax efficiency within the group.
Earnings per share before specific items and leaver costs increased by 2 per
cent to 6.1 pence.
Specific items
Specific items are defined in note 4 on page 29. There was a total net charge
after tax of GBP125 million (GBP2 million last year). There was a net operating
charge before tax of GBP191 million in the quarter (GBP23 million last year).
Restructuring costs of GBP167 million (GBPnil last year) relating to the group's
transformation and reorganisation activities were incurred in the quarter,
together with a GBP24 million (GBPnil last year) charge as a result of the
review of circuit inventory and other working capital balances. Restructuring
costs mainly comprised manager leaver costs and transformation programme costs.
These were partly offset by a GBP9 million gain realised on business disposals.
Earnings per share after specific items were 4.2 pence in the quarter (5.7 pence
last year).
Cash flow and net debt
Net cash inflow from operating activities in the second quarter amounted to
GBP1,030 million compared to GBP1,191 million last year. This was reflected in
free cash flow which was a net inflow of GBP171 million in the second quarter
compared to GBP338 million last year. The lower free cash flow is primarily the
result of the cash outflow relating to business transformation programme
payments of GBP94 million together with the higher net working capital outflow
of GBP234 million (GBP196 million last year) most of which is expected to
reverse by the end of the financial year. The cash outflow for the purchase of
property, plant and equipment amounted to GBP813 million, flat year on year.
Capital expenditure includes an adjustment of GBP48 million to the value of
software additions in the first quarter, which has no impact in the half year.
The net cash outflow on acquisition of subsidiaries in the second quarter was
GBP69 million, compared to GBP10 million last year, and related principally to
the acquisition of Basilica Group Limited, Brightview plc and Lynx Technology
Limited. During the quarter the group raised new borrowings of GBP1,100 million.
Dividend payments of GBP784 million were made in the quarter. The group
repurchased 116 million shares for a total consideration of GBP362 million
(GBP118 million last year) during the quarter, which is reflected in a cash
outflow of GBP353 million (GBP101 million last year). Net debt was GBP9,618
million at September 30, 2007 compared to GBP8,079 million at September 30,
2006. This increase is largely due to the share buy back programme and pension
deficiency payments, partly offset by cash receipts from HMRC in relation to the
settlement of open tax years. Free cash flow and net debt are defined and
reconciled in notes 8 and 9 on pages 31 to 33.
GROUP RESULTS
Half year ended September 30, 2007
Revenue and operating results
Revenue increased 3 per cent in the half year to GBP10,128 million. Strong
growth in new wave revenue continued and at GBP3,729 million, was 10 per cent
higher year on year. The increase in new wave revenue was driven by growth from
broadband, which increased 15 per cent to GBP1,083 million, and networked IT
services, which increased 10 per cent to GBP2,181 million. Traditional revenue
remained broadly flat year on year, reflecting the group's robust defence of the
traditional business and the success of the strategy to slow the rate of decline
in traditional revenue.
Operating costs before specific items were GBP8,848 million, 3 per cent higher
than last year. The growth in operating costs was driven primarily by increased
cost of sales from growth in networked IT and other new wave services and
increased levels of network and 21CN activities, which were partly offset by
cost savings from our efficiency programmes. We remain focused on financial
discipline and our cost efficiency programmes achieved savings of GBP275 million
in the half year which has enabled us to invest in further growth of our new
wave activities. Leaver costs before specific items were GBP51 million in the
half year (GBP57 million last year).
EBITDA before specific items was GBP2,822 million, 3 per cent higher than last
year. Group operating profit before specific items was GBP1,420 million, 6 per
cent higher than the prior year.
Earnings
Net finance costs were GBP147 million in the half year, an increase of 46 per
cent year on year. The increase in finance costs reflects higher net debt in the
period, higher interest rates on variable rate borrowings and fair value
movements on hedges that do not qualify for hedge accounting under IAS 39. Net
finance income associated with the group's defined benefit pension schemes was
flat year on year at GBP210 million.
The group achieved a profit before taxation and specific items of GBP1,267
million, a 2 per cent increase on last year.
The effective tax rate on the profit before specific items was 24.8 per cent
(24.5 per cent last year).
Earnings per share before specific items were 11.7 pence in the half year (11.3
pence last year).
Specific items
Specific items are defined in note 4 on page 29. There was a net operating
charge before tax of GBP240 million (GBP23 million last year), including
restructuring costs of GBP216 million (GBPnil last year) and a charge of GBP24
million (GBPnil last year) as a result of the review of circuit inventory and
other working capital balances. Restructuring costs mainly comprise manager
leaver, transformation programme and property exit costs. The net operating
charge was offset by a tax credit of GBP226 million, relating to the tax effect
of other specific items of GBP72 million (GBP1 million last year) and a tax
credit of GBP154 million (GBPnil last year) for the re-measurement of deferred
tax balances for the change in the UK statutory corporation tax rate to 28 per
cent, which becomes effective in 2008/ 9.
Cash flow and net debt
Net cash inflow from operating activities in the half year amounted to GBP1,878
million compared to GBP2,193 million last year. This was reflected in free cash
flow which was a net inflow of GBP19 million in the half year compared to GBP321
million last year. The lower free cash flow is primarily the result of the cash
outflow relating to business transformation programme payments of GBP101 million
(GBPnil last year) together with the higher net working capital outflow of
GBP925 million (GBP553 million last year), most of which is expected to reverse
by the end of the financial year. Pension deficiency payments of GBP320 million
were paid, being the final deficiency payment until the next triennial funding
valuation at December 31, 2008. Free cash flow also includes the final receipt
of GBP504 million in relation to the settlement of open tax years up to 2004/5
agreed with HMRC last year. The cash outflow for the purchase of property, plant
and equipment amounted to GBP1,644 million, which is broadly flat year on year.
The net cash outflow on acquisition of subsidiaries, principally Comsat
International Inc, in the half year amounted to GBP233 million, compared to
GBP45 million last year. During the half year the group raised new borrowings of
GBP2,603 million. Dividend payments were GBP786 million, compared to GBP627
million in the prior year. The share buyback programme continued with the
purchase of 229 million shares for a total consideration of GBP727 million
(GBP168 million last year) during the half year, which is reflected in a cash
outflow of GBP735 million (GBP166 million last year).
Pensions
The IAS 19 net pension asset at September 30, 2007 was a surplus of GBP1.5
billion, net of tax (GBP2.1 billion gross of tax), compared with a deficit of
GBP2.0 billion at September 30, 2006 (GBP2.8 billion gross of tax), an
improvement of GBP3.5 billion, net of tax (GBP4.9 billion gross of tax). The
market value of pension scheme assets was GBP39.7 billion at September 30, 2007
(GBP35.9 billion at September 30, 2006).
The improvement in the position compared to the prior year is the result of a
combination of factors, including the payment of deficiency contributions of
GBP840 million, increases to the market value of scheme investments and an
increase to the AA bond rate used to determine the present value of scheme
liabilities.
21st Century Network
BT will launch next generation broadband services, offering end users broadband
at speeds of up to 24Mb during 2008. End user trials of the new service began in
the West Midlands with the participation of three communications providers on
November 1, 2007. The trials will extend further, leading to a roll out
beginning in spring 2008.
Next generation Ethernet services, offering cost-efficient and enhanced high
speed data connectivity, will launch later this financial year.
In-life service evaluation of 21CN voice services among end users continues in
South Wales, part of BT's preparation to bring 21CN capability to all customers
across the UK over the coming years.
The rollout of 21CN globally has also gathered pace. The 21CN global platform is
now available in 130 countries across the world, growing to 170 countries by the
end of 2007, with 21CN I-Nodes now available in 31 locations across 26 countries
supporting corporate VoIP.
Business transformation
On October 1, 2007, BT moved to its new organisational structure with the launch
of BT Design and BT Operate. The move will accelerate BT's transformation to a
services company, delivering software driven services over broadband and will
accelerate the achievement of cost savings. BT Design is responsible for the
design and development of the platforms, systems and processes which support our
services; BT Operate is responsible for their deployment and operation.
The group's results will be reported under the new organisational structure for
the third quarter onwards. It is estimated that the reorganisation and
transformation activities will result in restructuring costs of around GBP450
million, which is expected to generate a payback within 2 to 3 years.
Principal risks
BT has processes for identifying, evaluating and managing the principal risks
faced by the group. This risk assessment process is updated at least annually
and the group has a detailed risk management process which identifies the key
risks it faces. Details of the key risks particular to the group can be found in
the 2007 Annual Report & Form 20-F. There have been no significant changes to
those principal risks in the six months ended September 30, 2007, some or all of
which have the potential to impact our results or financial position during the
remaining six months of the financial year.
Related party transactions
Transactions with related parties during the six months ended September 30, 2007
are disclosed in note 14 on page 36. These transactions have not had a material
impact on the financial position or the results of the group.
Dividends
An interim dividend of 5.4 pence per share, an increase of 6 per cent on last
year, will be paid on February 11, 2008 to shareholders on the register on
December 28, 2007. The ex dividend date is December 24, 2007. The election date
for participation in BT's Dividend Investment Plan in respect of this dividend
is December 28, 2007.
Prospects
Our performance underpins our confidence that we can continue to grow revenue,
EBITDA before specific items and leaver costs, earnings per share before
specific items and leaver costs, and dividends for the year.
We are confident in our ability to improve shareholder returns and accelerate
the strategic transformation of the business.
_____________________________________________________________________________
The third quarter results are expected to be announced on February 7, 2008.
LINE OF BUSINESS RESULTS - SECOND QUARTER ENDED SEPTEMBER 30, 2007
BT Global Services
Half year
Second quarter ended September 30 ended September 30
--------------------------------------------------------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,280 2,157 123 6 4,536 4,312
----- ------ ----- -----
Gross profit 651 638 13 2 1,294 1,266
SG&A before leaver
costs 411 409 (2) - 815 809
----- ----- ----- -----
EBITDA before leaver
costs 240 229 11 5 479 457
Depreciation and
amortisation 175 157 (18) (11) 339 305
----- ----- ----- -----
Operating profit
before
leaver costs 65 72 (7) (10) 140 152
===== ===== ===== =====
Capital expenditure 181 176 (5) (3) 367 325
===== ===== ===== =====
BT Global Services revenue grew by 6 per cent in the second quarter to GBP2,280
million. New wave revenue rose by GBP161 million to GBP1,822 million, an
increase of 10 per cent, while traditional UK revenue fell by 8 per cent to
GBP458 million. MPLS revenue rose by 34 per cent to GBP179 million. External
revenue rose by 19 per cent outside of the UK.
Total orders in the quarter amounted to GBP1.6 billion, bringing the value of
total orders achieved over the last twelve months to GBP9.2 billion. Networked
IT services contract orders were GBP0.9 billion in the quarter, an increase of
GBP0.2 billion compared to prior year, taking contract orders for the last
twelve months to GBP5.3 billion. These included a global contract with Schenker
AG to connect around 1,000 sites in 57 countries to our MPLS data network, and a
global network services contract with Standard Chartered Bank (SCB) designed to
guarantee the quality and availability of critical systems in SCB's global data
and shared service centres. A contract with ArcelorMittal to provide wide area
network services across more than 700 sites in Europe, the Americas, Africa and
Asia further demonstrates our global reach and depth. An additional 128 new
corporate customers outside the UK signed orders with BT in the quarter.
Gross profit grew by GBP13 million to GBP651 million driven by new wave revenue
but still impacted by declines in traditional revenue, while SG&A costs
increased by GBP2 million. EBITDA before leaver costs increased year on year by
GBP11 million to GBP240 million, representing growth of 5 per cent. Depreciation
and amortisation charges increased by GBP18 million to GBP175 million, the
result of a combination of customer related capital expenditure in the course of
last year and business acquisitions. Overall, this took operating profit before
leaver costs to GBP65 million, a reduction of GBP7 million from the previous
year.
Capital expenditure in the quarter was GBP181 million, an increase of GBP5
million driven by customer contracts outside of the UK.
BT's work as part of the NHS National Programme for IT (NPfIT) continues to gain
momentum. In London, where it is rolling out new IT systems to hospitals,
clinics and GP surgeries, BT has now delivered significant capability to 75 per
cent of Trusts. It has now installed two Acute Cerner Millennium Patient
Administration Systems at Barnet and Chase Farm Hospitals NHS Trust and most
recently at Queen Mary's Sidcup NHS Trust. On N3 - the broadband network that
underpins the NPfIT - the Heart of Birmingham Teaching Primary Care Trust became
one of the first NHS organisations to sign up to the new N3 Hosted Voice
Service, following a major upgrade of the N3 network to allow it to carry phone
calls using voice over internet protocol technology (VoIP). BT has also
delivered a further three software releases on the Spine, the central database
and messaging service it is building and managing for the NHS. This has further
built on BT's record of reliability, delivering major enhancement releases to
the Spine.
BT Retail
Second quarter ended September 30 Half year
ended September 30
---------------------------------------------------------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Revenue 2,136 2,077 59 3 4,195 4,145
----- ----- ----- -----
Gross margin 631 592 39 7 1,218 1,152
SG&A before leaver
costs 374 357 (17) (5) 763 735
----- ----- ----- -----
EBITDA before leaver
costs 257 235 22 9 455 417
Depreciation and
amortisation 40 39 (1) (3) 82 79
---- ---- ---- ----
Operating profit
before leaver costs 217 196 21 11 373 338
==== ==== ==== ====
Capital expenditure 46 40 (6) (15) 92 80
==== ==== ==== ====
BT Retail's revenue increased by 3 per cent year on year reflecting the success
of our strategy to grow new wave revenue whilst defending traditional revenue
streams. Gross margin improved by 1 percentage point as a result of better
product mix and cost efficiencies. SG&A costs have increased year on year
reflecting increased expenditure in marketing, customer service and systems
alignment. EBITDA before leaver costs has grown by 9 per cent year on year, the
ninth consecutive quarter of growth, with all business units contributing to the
growth.
In the quarter new wave revenue grew by 18 per cent, driven mainly by broadband
and networked IT services, partially offset by a decline in traditional revenue
of 2 per cent. New wave revenue accounts for 24 per cent of total revenue,
representing an increase of 3 percentage points from the prior year.
The Consumer business has achieved revenue growth of 3 per cent in the quarter,
the first quarter of year on year growth in four years and strong EBITDA growth.
This reflects, in part, the significant price cuts made in the prior year. The
consumer market remains highly competitive; despite this BT has maintained its
market leading position by launching further product enhancements and package
price reductions. During this quarter we further reduced the price of the Option
2 and 3 call packages, almost halving the price of the Option 3 package since
last year.
Broadband is at the centre of BT Retail's strategy. Revenue grew by 23 per cent
and net additions were 178,000, contributing to BT being the UK's first
broadband supplier to have more than four million customers and continuing our
position as the UK's most popular broadband supplier. BT's retail share of net
market additions of DSL and LLU in the quarter was 37 per cent, the fourth
consecutive quarter over 30 per cent.
Our broadband strategy is built on broadband being more than just an access
product. We offer our customers a wide range of additional services, for example
over 300,000 customers are now benefiting from Broadband digital vault, the
secure online digital storage service. To enhance and simplify the broadband
experience for our customers we also launched BT Broadband Talk Auto Activation,
enabling zero touch configuration with the BT Home Hub and there are now over
1.9 million registered BT Broadband Talk customers.
The roll out of our next generation television service, BT Vision, steadily
accelerated in line with our plans. We launched BT Vision Sport, which offers
premiership football subscriptions from less than GBP1 per week and up to 288
Barclays Premiership League games, PGA Golf and Scottish Premier league games
for just GBP12 per month. This has helped achieve a tripling in customer
numbers. As at the end of October we had more than 60,000 customers. Further
growth will be aided by the recent launch of our self install option, offering
customers the choice to install BT Vision without the need for an engineer
visit.
Our SME business achieved revenue growth of 3 per cent in the quarter and again
delivered strong EBITDA growth. More SME customers are choosing our all
inclusive call packages with One Plan, which brings together calls and lines,
broadband and mobile, for small businesses with 18,000 additions in the quarter.
One third of the SME customer base now take some form of value package from BT.
During the quarter we launched the second phase of our successful marketing
campaign featuring Gordon Ramsay, which has helped substantially increase
awareness of BT as an IT and communications service provider for SMEs. Our
ability to offer an end to end simple and complete solution has been enhanced
through the acquisitions of Basilica Computing and Lynx Technologies. The
integration of these leading UK IT suppliers into the BT portfolio will help us
work in partnership with our customers to deliver IT solutions to their
problems.
BT Business Builder and BT Web Clicks, launched in the quarter, will assist
small businesses in driving efficiency and reaching new customers. The
enhancement of BT Tradespace, our social networking site for businesses, joining
forces with Paypal, will enable our customers to buy and sell products and
services online.
Our success in providing services to our customers in the home, office and on
the move is highlighted by BT Openzone usage which almost doubled year on year.
Our WiFi services will be further enhanced by the launch of BT FON in the third
quarter, accelerating the further expansion of our WiFi network into airports,
hotels and other prime locations, transforming the UK's market for wireless
broadband and creating the worlds largest WiFi community.
The Enterprises division revenues grew 4 per cent and EBITDA was up 14 per cent
year on year. Within the division, BT Expedite, our retail solutions provider,
grew strongly with a 41 per cent revenue increase compared to last year,
supported by major contract wins with Dolcis and Morrisons. Dabs.com our online
sales channel has increased revenues by 10 per cent compared to last year
underpinned by strong growth in the business to business market. Conferencing
also continues to grow supported by major contract wins across the globe
including Deloitte and Yahoo.
BT Ireland recorded a strong performance with revenue increasing by 7 per cent
and EBITDA by 13 per cent. BT Ireland continued to perform strongly in the IT
services sector with new wave business fuelling revenue growth and representing
29 per cent of total revenue for the quarter. A number of key contracts were
secured this quarter including the Bank of Ireland and Northern Ireland Civil
Service.
BT Wholesale
Half year
Second quarter ended September 30 ended September 30
--------------------------------------------------------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
External revenue 937 1,030 (93) (9) 1,936 2,027
Internal revenue 875 855 20 2 1,742 1,705
----- ----- ------- -------
Revenue 1,812 1,885 (73) (4) 3,678 3,732
Variable cost of
sales 902 963 61 6 1,852 1,883
----- ----- ------- -------
Gross variable
profit 910 922 (12) (1) 1,826 1,849
Network and SG&A
before
leaver costs 444 438 (6) (1) 874 887
----- ----- ----- -----
EBITDA before leaver
costs 466 484 (18) (4) 952 962
Depreciation and
amortisation 250 291 41 14 535 576
----- ----- ----- -----
Operating profit
before
leaver costs 216 193 23 12 417 386
===== ===== ===== =====
Capital expenditure 316 266 (50) (19) 588 466
===== ===== ===== =====
BT Wholesale external revenue in the second quarter decreased by GBP93 million
to GBP937 million. This was driven primarily by price and volume reductions in
broadband due to LLU migrations, as well as declines in low margin transit,
conveyance traffic and other traditional products. Revenue from new wave
services was GBP217 million. Internal revenue increased by 2 per cent to GBP875
million due to strong growth in broadband revenue from internal channels more
than offsetting the impact of lower call volumes and lower regulatory prices
being reflected in internal charges.
Gross variable profit decreased by 1 per cent to GBP910 million, reflecting the
lower broadband revenues. Network and SG&A costs increased by 1 per cent with
network costs on the roll-out of 21CN being partially offset by network
consolidation efficiencies and SG&A cost savings.
EBITDA before leaver costs decreased by 4 per cent to GBP466 million.
Depreciation has fallen by 14 per cent year on year due to a reduction in
depreciation on traditional technologies as assets become fully depreciated
which was only partially offset by higher depreciation on 21CN related assets as
they are brought into use. Operating profit before leaver costs increased by 12
per cent year on year.
Capital expenditure was 19 per cent higher than last year driven by an increase
in 21CN related investment. This is driven by accelerated investment in
exchanges to build, commission and implement the 21CN infrastructure. This
essential work ensures that vendor equipment is ready for integration into the
live networks.
BT Wholesale's strategy to generate future growth from the delivery of long
term, managed network solutions contracts to other communications providers
continued to show early success. This includes a strategic agreement signed
during the quarter with Orange, under which BT will provide wholesale landline
services to Orange's residential customers. The agreement represents the first
time Orange has offered fixed line services to its UK consumer customers.
The level of contracted revenues from managed network solutions over the last 12
months is over GBP1 billion.
Openreach
Half year
Second quarter ended September 30 ended September 30
----------------------------------------------------------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
External revenue 208 162 46 28 419 292
Revenue from BT
lines of
business 1,096 1,117 (21) (2) 2,195 2,246
------- ------- ------- -------
Revenue 1,304 1,279 25 2 2,614 2,538
Operating costs
before
leaver costs 836 819 (17) (2) 1,675 1,606
----- ----- ------- -------
EBITDA before leaver
costs 468 460 8 2 939 932
Depreciation and
amortisation 170 178 8 4 351 353
----- ----- ----- -----
Operating profit
before
leaver costs 298 282 16 6 588 579
===== ===== ===== =====
Capital expenditure 268 279 11 4 545 550
===== ===== ===== =====
Openreach revenue in the second quarter increased by 2 per cent to GBP1,304
million, driven by growth in broadband revenues for LLU and Ethernet products.
External revenue increased by GBP46 million driven by continued growth of the
rental base on all products partially offset by lower co-mingling connections
due to the high roll out in the prior year. Revenues from other BT lines of
business decreased by 2 per cent to GBP1,096 million, reflecting the volume
shift of Wholesale Line Rental (WLR) to external communications providers.
At September 30, 2007 Openreach had 3.2 million external LLU lines (with net
additions of 0.8 million in the quarter) and 8.5 million lines with other BT
lines of business. Overall broadband revenue has increased by 25 per cent year
on year as exchange rollout continues and the broadband market expands.
Openreach has over 4.4 million external WLR lines and channels and 22.7 million
WLR lines and channels with other BT lines of business. Overall WLR revenues
remained largely flat year on year.
Operating costs increased by GBP17 million to GBP836 million. Headcount has
increased by 2,500 since September 30, 2006 as Openreach has invested in service
improvements. This investment, as well as inflationary pressures, higher
activity levels and increased maintenance and support costs of new systems have
been partly offset by efficiency programme savings across the business to keep
the overall increase in operating costs to 2 per cent.
Overall this has resulted in a GBP8 million increase in EBITDA before leaver
costs.
Depreciation and amortisation costs of GBP170 million have decreased by GBP8
million with the impact of increased depreciation on the Equivalence Management
Platform and LLU assets from the large capital investment in prior periods being
more than offset by lower amortisation on software. Operating profit before
leaver costs increased by GBP16 million to GBP298 million.
Capital expenditure in the quarter was 4 per cent lower at GBP268 million.
Increased customer driven spend on network infrastructure and 21CN work have
been offset by lower but continued spend on systems development required under
the Undertakings, focused cost control on capital expenditure and lower levels
of co-mingling activity.
The investment Openreach has made over the last year, with increased resources
and network investment programmes such as 'seal our network', has contributed
significantly towards the improvements in service to the customer. This was
particularly highlighted following the worst of the flooding in July, when
Openreach recovered reactive workstacks to normal levels within two weeks.
Openreach is continuing to make good progress with meeting the key milestones
required by the Undertakings, with the latest being delivery of Equivalence Of
Input (EOI) for the WLR ISDN2 product at September 30, 2007. Another achievement
was the completion of the migration of Short Haul Data Service lines to use the
Openreach EOI Ethernet products which was reached some weeks ahead of schedule.
GROUP INCOME STATEMENT
for the three months ended September 30, 2007
--------------------------------------------------------------------------------
Before Specific items
specific items (note 4) Total
Notes GBPm GBPm GBPm
--------------------------------------------------------------------------------
Revenue 2 5,095 - 5,095
Other operating income 73 - 73
Operating costs 3 (4,456) (191) (4,647)
------ ------ ------
Operating profit 712 (191) 521
------ ----- ------
Finance expense (719) - (719)
Finance income 627 - 627
------ ----- ------
Net finance expense 5 (92) - (92)
Share of post tax losses
of associates and joint
ventures (3) - (3)
Profit on disposal of
associate - 9 9
------ ----- ------
Profit before taxation 617 (182) 435
Taxation (153) 57 (96)
------ ----- ------
Profit for the period
attributable to equity
shareholders 464 (125) 339
====== ===== =====
Earnings per share 7
- basic 5.7p 4.2p
====== ======
- diluted 5.6p 4.1p
====== ======
GROUP INCOME STATEMENT
for the three months ended September 30, 2006
--------------------------------------------------------------------------------
Before Specific items Total
specific items
(note 4)
Notes GBPm GBPm GBPm
--------------------------------------------------------------------------------
Revenue 2 4,941 - 4,941
Other operating income 52 - 52
Operating costs 3 (4,311) (23) (4,334)
------- ------ -------
Operating profit 682 (23) 659
Finance expense (651) - (651)
Finance income 596 - 596
------- ------ -------
Net finance expense 5 (55) - (55)
Share of post tax profits
of associates and joint
ventures 5 - 5
Profit on disposal of ------- ------ -------
associate - 20 20
------- ------ -------
Profit before taxation 632 (3) 629
Taxation (155) 1 (154)
------- ------ -------
Profit for the period
attributable to equity
shareholders 477 (2) 475
======= ===== =======
Earnings per share 7
- basic 5.7p 5.7p
====== ======
- diluted 5.6p 5.6p
====== ======
GROUP INCOME STATEMENT
for the six months ended September 30, 2007
--------------------------------------------------------------------------------
Before Specific items Total
specific items
(note 4)
Notes GBPm GBPm GBPm
--------------------------------------------------------------------------------
Revenue 2 10,128 - 10,128
Other operating income 140 (1) 139
Operating costs 3 (8,848) (240) (9,088)
------- ------ -------
Operating profit 1,420 (241) 1,179
Finance expense (1,399) - (1,399)
Finance income 1,252 - 1,252
------- ------ -------
Net finance expense 5 (147) - (147)
Share of post tax losses
of associates and joint
ventures (6) - (6)
Profit on disposal of
associate - 9 9
------- ------ -------
Profit before taxation 1,267 (232) 1,035
Taxation (314) 226 (88)
------- ------ -------
Profit for the period 953 (6) 947
======= ====== =======
Attributable to:
Equity shareholders 952 (6) 946
Minority interests 1 - 1
======= ====== =======
Earnings per share 7
- basic 11.7p 11.
- diluted 11.3p 11.3p
======= =======
GROUP INCOME STATEMENT
for the six months ended September 30, 2006
--------------------------------------------------------------------------------
Before specific Specific items Total
items
(note 4)
Notes GBPm GBPm GBPm
--------------------------------------------------------------------------------
Revenue 2 9,805 - 9,805
Other operating income 102 - 102
Operating costs 3 (8,566) (23) (8,589)
--------- ------ ---------
Operating profit 1,341 (23) 1,318
Finance expense (1,293) - (1,293)
Finance income 1,192 - 1,192
--------- ------ ---------
Net finance expense 5 (101) - (101)
Share of post tax profits
of associates and joint
ventures 7 - 7
--------- ------ ---------
Profit on disposal of
associate - 20 20
Profit before taxation 1,247 (3) 1,244
Taxation (306) 1 (305)
--------- ------ ---------
Profit for the period
attributable to equity
shareholders 941 (2) 939
========= ====== =========
Earnings per share 7
- basic 11.3p 11.3p
- diluted 11.1p 11.1p
======= =======
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the six months ended September 30, 2007
----------------------------------------------------------------------------------
Half year
ended September 30
2007 2006
GBPm GBPm
----------------------------------------------------------------------------------
Profit for the period 947 939
====== ======
Actuarial gains (losses) on defined benefit pension
schemes 2,065 (369)
Exchange differences on translation of foreign (1) (72)
operations
Fair value movements on cash flow hedges
- fair value losses (71) (130)
- reclassified and reported in net profit 84 227
Tax on items taken directly to equity (714) 46
------- -------
Net gains (losses) recognised directly in equity 1,363 (298)
------- -------
Total recognised income for the period 2,310 641
Attributable to: ------- -------
Equity shareholders 2,308 641
Minority interests 2 -
======= =======
GROUP CASH FLOW STATEMENT
for the three months and six months ended September 30, 2007
------------------------------------------------------------------------------------
Second quarter Half year
ended September 30 ended September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
------------------------------------------------------------------------------------
Cash flow from operating
activities
Cash generated from
operations (note 8 (a)) 1,030 1,281 1,494 2,373
Income taxes (paid)
received - (90) 384 (180)
------ ------ ------ -------
Net cash inflow from
operating activities 1,030 1,191 1,878 2,193
Cash flow from investing
activities
Interest received 11 22 86 37
Dividends received from
associates and joint
ventures - 2 1 5
Proceeds on disposal of
property, plant and
equipment 15 17 27 57
Proceeds on disposal of
associates and joint
ventures 11 27 11 27
Proceeds on disposal of non
current financial assets - 1 1 1
Proceeds on disposal of
current financial assets - 886 - 1,881
Acquisition of
subsidiaries, net of cash
acquired (69) (10) (233) (45)
Purchases of property,
plant and equipment and
computer software (813) (811) (1,644) (1,653)
Investments in associates
and joint ventures - (4) - (7)
Purchases of non current
financial assets - (1) (1) (1)
Purchases of current
financial assets (356) (637) (435) (2,361)
------ ------ ------ -------
Net cash used in investing
activities (1,201) (508) (2,187) (2,059)
Cash flows from financing
activities
Equity dividends paid (784) (622) (786) (627)
Dividends paid to minority
interests - (3) - (3)
Interest paid (72) (83) (329) (318)
Repayments of borrowings (80) (140) (736) (153)
Repayment of finance lease
liabilities (8) - (12) (9)
New bank loans and bonds 1,100 - 2,603 -
Net proceeds on issue of
commercial paper (218) (77) 424 227
Repurchase of ordinary (353) (101) (735) (166)
shares
Proceeds on issue of
treasury shares 54 49 68 52
------ ------ ------ -------
Net cash (used) received in
financing activities (361) (977) 497 (997)
Effects of exchange rate
changes 6 - 3 -
Net (decrease) increase in
cash and cash equivalents (526) (294) 191 (863)
====== ======= ====== ======
Cash and cash equivalents
at beginning of period 1,741 1,215 1,024 1,784
Cash and cash equivalents,
net of bank overdrafts, at
end of period (note 8 (c)) 1,215 921 1,215 921
====== ======= ====== ======
Free cash flow (note 8 (b)) 171 338 19 321
====== ======= ====== ======
Increase in net debt from
cash flows (note 9 (b)) 970 326 1,656 448
====== ======= ====== ======
GROUP BALANCE SHEET
at September 30, 2007
--------------------------------------------------------------------------------
September 30 September 30 March 31
2007 2006 2007
GBPm GBPm GBPm
--------------------------------------------------------------------------------
Non current assets
Intangible assets 2,985 2,212 2,584
Property, plant and equipment 15,157 14,999 14,997
Derivative financial instruments 35 29 25
Investments 27 18 27
Associates and joint ventures 72 53 67
Trade and other receivables 656 408 523
Retirement benefit assets of the BT
Pension scheme 2,186 - -
Deferred tax assets 27 853 117
---------- ---------- ----------
21,145 18,572 18,340
---------- ---------- ----------
Current assets
Inventories 134 131 133
Trade and other receivables 4,790 4,276 4,073
Current tax receivables - - 504
Derivative financial instruments 56 10 27
Investments 441 768 3
Cash and cash equivalents 1,591 993 1,075
---------- ---------- ----------
7,012 6,178 5,815
---------- ---------- ----------
Total assets 28,157 24,750 24,155
========== ========== ==========
Current liabilities
Loans and other borrowings 3,350 2,729 2,203
Derivative financial instruments 257 192 318
Trade and other payables 6,811 6,343 6,719
Current tax liabilities 394 704 277
Provisions 87 85 100
---------- ---------- ----------
10,899 10,053 9,617
---------- ---------- ----------
Total assets less current liabilities 17,258 14,697 14,538
========== ========== ==========
Non current liabilities
Loans and other borrowings 7,981 6,948 6,387
Derivative financial instruments 1,040 1,074 992
Other payables 628 526 590
Deferred tax liabilities 2,153 1,547 1,683
Retirement benefit obligations 96 2,842 389
Provisions 217 219 225
---------- ---------- ----------
12,115 13,156 10,266
---------- ---------- ----------
Capital and reserves
Called up share capital 432 432 432
Reserves 4,680 1,062 3,806
---------- ---------- ----------
Total equity shareholders' funds 5,112 1,494 4,238
Minority interests 31 47 34
---------- ---------- ----------
Total equity 5,143 1,541 4,272
---------- ---------- ----------
17,258 14,697 14,538
========== ========== ==========
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 Basis of preparation and accounting policies
These condensed consolidated financial statements ("the financial statements")
comprise the financial results of BT Group plc for the quarters and half years
ended September 30, 2007 and 2006, together with the audited balance sheet at
March 31, 2007. The financial statements for the quarter and half year ended
September 30, 2007 have been reviewed by the auditors and their review opinion
is on page 38. The financial statements have been prepared in accordance with
the Disclosure and Transparency Rules (DTR) of the Financial Services Authority
and with IAS 34 'Interim Financial Reporting'. The financial statements should
be read in conjunction with the annual financial statements for the year ended
March 31, 2007.
The financial statements have also been prepared in accordance with the
accounting policies as set out in the 2007 Annual Report and have been prepared
under the historical cost convention as modified by the revaluation of financial
assets and liabilities (including derivative financial instruments) at fair
value. The 2007 Annual Report refers to new accounting standards and
interpretations effective from April 1, 2007. None of these standards or
interpretations have had a material impact on these financial statements.
The financial statements do not constitute statutory accounts within the meaning
of Section 240 of the Companies Act 1985. Statutory accounts for the year ended
March 31, 2007 were approved by the Board of Directors on May 16, 2007,
published on May 30, 2007 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified and did not contain any
statement under Section 237 of the Companies Act 1985.
Certain comparative balance sheet amounts have been reclassified as at September
30, 2006 to conform with the presentation adopted as at March 31, 2007 and
September 30, 2007.
2 Results of businesses
(a) Operating results
External Internal Group EBITDA Group operating
revenue revenue revenue (ii) profit (loss)
(ii)
GBPm GBPm GBPm GBPm GBPm
Second quarter ended
September 30, 2007
BT Global Services 1,920 360 2,280 240 65
BT Retail 2,025 111 2,136 257 217
BT Wholesale 937 875 1,812 466 216
Openreach 208 1,096 1,304 468 298
Other 5 - 5 17 (41)
Intra-group items (i) - (2,442) (2,442) - -
------- --------- --------- ------- --------
Total 5,095 - 5,095 1,448 755
======= ========= ========= ======= ========
Second quarter ended
September 30, 2006
BT Global Services 1,763 394 2,157 229 72
BT Retail 1,982 95 2,077 235 196
BT Wholesale 1,030 855 1,885 484 193
Openreach 162 1,117 1,279 460 282
Other 4 - 4 10 (28)
Intra-group items (i) - (2,461) (2,461) - -
------- --------- --------- ------- --------
Total 4,941 - 4,941 1,418 715
======= ========= ========= ======= ========
Half year ended
September 30, 2007
BT Global Services 3,773 763 4,536 479 140
BT Retail 3,988 207 4,195 455 373
BT Wholesale 1,936 1,742 3,678 952 417
Openreach 419 2,195 2,614 939 588
Other 12 - 12 48 (47)
Intra-group items (i) - (4,907) (4,907) - -
------- --------- --------- ------- --------
Total 10,128 - 10,128 2,873 1,471
======= ========= ========= ======= ========
Half year ended
September 30, 2006
BT Global Services 3,517 795 4,312 457 152
BT Retail 3,959 186 4,145 417 338
BT Wholesale 2,027 1,705 3,732 962 386
Openreach 292 2,246 2,538 932 579
Other 10 - 10 36 (57)
Intra-group items (i) - (4,932) (4,932) - -
------- --------- --------- ------- --------
Total 9,805 - 9,805 2,804 1,398
======= ========= ========= ======= ========
(i) Elimination of intra-group revenue between businesses, which is included in
the total revenue of the originating business.
(ii) Before specific items and leaver costs.
There is extensive trading between BT's lines of business and the line of
business profitability is dependent on the transfer price levels. For regulated
products and services those transfer prices are market based whilst for other
products and services the transfer prices are agreed between the relevant lines
of business on an arm's length basis. These intra-group trading arrangements are
subject to periodic review.
2 Results of businesses continued
(b) Revenue analysis
------------------------ -------------
Second quarter ended Half year ended September 30
September 30
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Traditional 3,181 3,205 (24) (1) 6,399 6,428
New wave 1,914 1,736 178 10 3,729 3,377
------- ------- -------- -------
5,095 4,941 154 3 10,128 9,805
======= ======= ======== =======
Major 1,830 1,703 127 7 3,615 3,402
corporate
Business 612 593 19 3 1,213 1,181
Consumer 1,289 1,257 32 3 2,520 2,509
Wholesale/
Carrier 1,359 1,384 (25) (2) 2,768 2,703
Other 5 4 1 25 12 10
------- ------- -------- -------
5,095 4,941 154 3 10,128 9,805
======= ======= ======== =======
(c) New wave revenue analysis
------------------------ -------------
Second quarter ended Half year ended September 30
September 30
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
Networked IT
services 1,120 1,001 119 12 2,181 1,982
Broadband 543 486 57 12 1,083 940
Mobility 93 72 21 29 168 143
Other 158 177 (19) (11) 297 312
------- ------- -------- -------
1,914 1,736 178 10 3,729 3,377
======= ======= ======== =======
(d) Capital expenditure on property, plant, equipment, software and motor vehicles
------------------------ -------------
Second quarter ended Half year ended September 30
September 30
------------------------ -------------
2007 2006 Better (worse) 2007 2006
GBPm GBPm GBPm % GBPm GBPm
BT Global
Services 181 176 (5) (3) 367 325
BT Retail 46 40 (6) (15) 92 80
BT Wholesale 316 266 (50) (19) 588 466
Openreach 268 279 11 4 545 550
Other
(including (12) 51 63 n/m 110 106
fleet
vehicles
and property)
------- ------- -------- -------
799 812 13 2 1,702 1,527
======= ======= ======== =======
Transmission
equipment 279 297 18 6 568 594
Exchange
equipment 24 39 15 38 55 53
Other network
equipment 306 229 (77) (34) 566 389
Computers and
office
equipment 21 22 1 5 55 50
Software 153 202 49 24 410 382
Motor
vehicles and
other 10 13 3 23 25 27
Land and
buildings 6 10 4 40 23 32
------- ------- -------- -------
799 812 13 2 1,702 1,527
======= ======= ======== =======
3 (a) Operating costs
Second quarter ended Half year ended
September 30 September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Staff costs before leaver costs 1,297 1,274 2,596 2,530
Leaver costs 43 33 51 57
------- ------- ------- -------
Staff costs 1,340 1,307 2,647 2,587
Own work capitalised (192) (175) (379) (346)
------- ------- ------- -------
Net staff costs 1,148 1,132 2,268 2,241
Depreciation and amortisation 693 703 1,402 1,406
Payments to telecommunication
operators 1,054 1,034 2,116 2,040
Other operating costs 1,561 1,442 3,062 2,879
------- ------- ------- -------
Total before specific items 4,456 4,311 8,848 8,566
Specific items (note 4) 191 23 240 23
------- ------- ------- -------
Total 4,647 4,334 9,088 8,589
======= ======= ======= =======
(b) Leaver costs
Second quarter ended Half year ended
September 30 September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
BT Global Services 12 5 16 22
BT Retail 5 7 5 9
BT Wholesale 16 15 19 16
Openreach 8 - 8 2
Other 2 6 3 8
------- ------- ------- -------
Total 43 33 51 57
======= ======= ======= =======
4 Specific items
BT separately identifies and discloses any significant 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.
Second quarter ended Half year ended
September 30 September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Restructuring costs 167 - 216 -
Write off of circuit inventory
and other working capital
balances 24 - 24 -
Property rationalisation costs - 23 - 23
----- ------ ----- ------
Specific operating costs 191 23 240 23
Loss on sale of investment - - 1 -
Profit on disposal of associate (9) (20) (9) (20)
----- ------ ----- ------
Net specific items charge before
tax 182 3 232 3
Tax credit on specific items (57) (1) (72) (1)
Tax credit on re-measurement of
deferred tax - - (154) -
----- ------ ----- ------
Net specific items charge after
tax 125 2 6 2
===== ====== ===== ======
5 Net finance expense
Second quarter Half year ended
ended
September 30 September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Finance expense1 before pension
interest 212 182 385 357
Interest on pension scheme
liabilities 507 469 1,014 936
----- ----- ------- -------
Finance expense 719 651 1,399 1,293
----- ----- ------- -------
Finance income before pension
income (15) (22) (28) (46)
Expected return on pension
scheme assets (612) (574) (1,224) (1,146)
----- ----- ------- -------
Finance income (627) (596) (1,252) (1,192)
assets
----- ----- ------- -------
Net finance expense 92 55 147 101
===== ===== ======= =======
Net finance expense before
pensions 197 160 357 311
Interest associated with
pensions (105) (105) (210) (210)
----- ----- ------- -------
Net finance expense 92 55 147 101
===== ===== ======= =======
1 Finance expense in the second quarter and half year ended September 30, 2007
include a GBP9 million and GBP3 million net charge, respectively, arising from
the re-measurement of financial instruments which under IAS 39 are not in
hedging relationships on a fair value basis. Finance expense in the second
quarter and half year ended September 30, 2006 included a GBP4 million and GBP1
million net charge respectively, arising from the re-measurement of financial
instruments which were not in hedging relationships on a fair value basis.
6 Dividends
Second quarter Half year
ended September 30 ended September 30
2007 2006 2007 2006
Pence per share GBPm GBPm
Amounts recognised as
distributions to equity holders
in the period 10.0 7.6 810 633
====== ===== ===== =====
The directors have declared an interim dividend of 5.4 pence per share (5.1
pence last year), payable on February 11, 2008 to the shareholders on the
register at the close of business on December 28, 2007. This interim dividend,
amounting to GBP436 million, has not been included as a liability as at
September 30, 2007 (GBP423 million as at September 30, 2006). The final dividend
for the year ended March 31, 2007 of 10.0 pence per share was approved at the
Annual General Meeting on July 19, 2007.
7 Earnings per share
The basic earnings per share are 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
2007 2006 2007 2006
millions of shares millions of shares
Basic 8,108 8,308 8,162 8,311
Diluted 8,343 8,483 8,394 8,466
8 (a) Reconciliation of profit before tax to cash generated from operations
Second quarter Half year
ended September 30 ended September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Profit before tax 435 629 1,035 1,244
Depreciation and amortisation 693 703 1,402 1,406
Net finance expense 92 55 147 101
Associates and joint ventures 3 (5) 6 (7)
Employee share scheme costs 19 27 36 47
Profit on disposal of associates (9) (20) (8) (20)
Changes in working capital (234) (196) (925) (553)
Provisions, pensions and other
movements 31 88 (199) 155
------- ------- ------- -------
Cash generated from operations 1,030 1,281 1,494 2,373
======= ======= ======= =======
(b) Free cash flow
Second quarter Half year
ended September ended September 30
30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Cash generated from operations 1,030 1,281 1,494 2,373
Income taxes (paid) received - (90) 384 (180)
------- ------- ------- -------
Net cash inflow from operating
activities 1,030 1,191 1,878 2,193
Included in cash flows from
investing activities
Net purchase of property, plant,
equipment and software (798) (794) (1,617) (1,596)
Dividends received from
associates - 2 1 5
Interest received 11 22 86 37
Included in cash flows from
financing activities
Interest paid (72) (83) (329) (318)
------- ------- ------- -------
Free cash flow 171 338 19 321
======= ======= ======= =======
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), less the
acquisition or disposal of group undertakings and less the net sale of short
term investments. 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
2007 2006 2007
GBPm GBPm GBPm
Cash at bank and in hand 819 397 568
Short term deposits 772 596 507
-------- ------ --------
Cash and cash equivalents 1,591 993 1,075
Bank overdrafts (376) (72) (51)
-------- ------- --------
1,215 921 1,024
======= ===== ========
9 Net debt
Net debt at September 30, 2007 was GBP9,618 million (September 30, 2006 -
GBP8,079 million, March 31, 2007 - GBP7,914 million).
Net debt consists of loans and other borrowings less current asset investments
and cash and cash equivalents. Loans and other borrowings are measured at the
net proceeds raised, adjusted to amortise any discount over the term of the
debt. For the purpose of this analysis current asset investments, 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 measures balances at the future cash flows due to
arise on maturity of financial instruments and removes the balance sheet
adjustments made for the re-measurement of hedged risks under fair value hedges
and the use of the amortised cost method as required by IAS 39. In addition, the
gross balances are adjusted to take account of netting arrangements amounting to
GBP374 million. Net debt is a non GAAP measure since it is not defined in IFRS
but it is a key indicator used by management in order to assess operational
performance.
9 (a) Analysis
At September 30 At March 31
2007 2006 2007
GBPm GBPm GBPm
Loans and other borrowings 11,331 9,677 8,590
Cash and cash equivalents (1,591) (993) (1,075)
Investments (441) (768) (3)
--------- --------- -----------
9,299 7,916 7,512
Adjustments:
To retranslate currency denominated balances
at swapped rates where hedged 569 437 577
To recognise borrowings at net proceeds and
unamortised discount (250) (274) (175)
--------- --------- ---------
Net debt 9,618 8,079 7,914
======== ======== ========
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at September 30, 2007 was GBP11,273 million (September
30, 2006 - GBP9,760 million, March 31, 2007 - GBP8,943 million).
(b) Reconciliation of movement in net debt
Second quarter ended Half year
September 30 ended September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Net debt at beginning of period 8,631 7,727 7,914 7,534
Increase in net debt resulting
from cash flows 970 326 1,656 448
Net debt assumed or issued on
acquisitions 7 - 31 9
Currency movements (1) 36 1 99
Other non-cash movements 11 (10) 16 (11)
---- ------ --- ---- ------
Net debt at end of period 9,618 8,079 9,618 8,079
======= ======= === ======= =======
During the half year ended September 30, 2007, the group issued debt of GBP3,027
million consisting mainly of long term listed bonds of GBP1,501 million, in
aggregate, maturing in 2014, 2017 and 2037, bank borrowings of GBP300 million
maturing in 2012 and short term borrowings of GBP1,224 million (including net
commercial paper issuances of GBP424 million). Debt maturities amounted to
GBP748 million. The net increase in short term investments, including cash,
resulted in a cash inflow of GBP623 million.
During the half year ended 30 September 2006, the group's net commercial paper
issuances were GBP227 million, maturities amounted to GBP162 million reflecting
the repayment of long term borrowings and there was a net reduction in short
term investments, including cash, of GBP383 million.
10 Statement of changes in equity
Half year ended Year ended
September 30 March 31
2007 2006 2007
GBPm GBPm GBPm
Shareholders' funds 4,238 1,555 1,555
Minority interest 34 52 52
-------- -------- --------
Equity at beginning of period 4,272 1,607 1,607
Total recognised income for the
period 2,310 641 3,843
Share based payment 17 27 71
Issues of shares 10 12 24
Tax on items taken directly to equity - - 82
Net purchase of treasury shares (651) (108) (284)
Dividends on ordinary shares (810) (633) (1,053)
Minority interest (5) (5) (18)
----------- ----------- ----------
Net changes in equity for the
period 871 (66) 2,665
Equity at end of period
Shareholders' funds 5,112 1,494 4,238
Minority interest 31 47 34
--------- --------- ---------
Total equity 5,143 1,541 4,272
======= ======= =======
During the half year ended September 30, 2007, the company purchased 229 million
(2006: 69 million) of its own shares of 5p each for consideration of GBP727
million (2006: GBP168 million). In addition, 43 million (2006: 34 million)
shares were issued from treasury to satisfy obligations under employee share
schemes at a cost of GBP80 million (2006: GBP60 million). Excess proceeds
received from options exercised under employee share arrangements of GBP10
million (2006: GBP12 million) were credited to the share premium account.
11 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Second quarter ended Half year
September 30 ended September 30
2007 2006 2007 2006
GBPm GBPm GBPm GBPm
Operating profit 521 659 1,179 1,318
Specific items (note 4) 191 23 241 23
Depreciation and amortisation 693 703 1,402 1,406
------- ------- ------- -------
EBITDA before specific items 1,405 1,385 2,822 2,747
======= ======= ======= =======
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 Business Combinations
Comsat International Inc
On June 14, 2007 the group acquired Comsat International Inc ('Comsat Int'l')
through the purchase of 100 per cent of the issued share capital of its parent
company, CI Holding Corporation, for a total consideration of GBP130 million,
including GBP8 million deferred, contingent consideration. Provisional fair
values for the assets and liabilities acquired and goodwill arising as are
follows:
At date of acquisition
Book Provisional
value fair value
GBPm GBPm
--------------------- ------------ -----------
Property, plant and
equipment 70 72
Other non current assets 4 4
Trade and other receivables 32 32
Cash and cash equivalents 3 3
Trade and other payables (44) (45)
Non current payables (14) (17)
------ ------
Net assets acquired 51 49
Goodwill 81
----
Total consideration 130
=====
The fair values relating to the acquisition of Comsat Int'l are provisional, due
to the timing of the transaction, and will be finalised in the second half of
the financial year. From the date of acquisition to September 30, 2007, Comsat
Int'l has contributed to the group's results revenue of GBP28 million and profit
of GBP2 million. If the acquisition had occurred on April 1, 2007, the group's
revenue and profit would have been higher by GBP20 million and by GBP1 million,
respectively.
Other
During the six months ended September 30, 2007, the group acquired a number of
other smaller subsidiaries, including principally i2i Enterprise Private
Limited, Basilica Group Limited and Brightview Plc for a total consideration of
GBP126 million, including GBP40 million of deferred, contingent consideration.
The provisional fair value of the combined net assets and goodwill arising in
respect of these acquisitions were as follows:
At date of acquisition
Book Provisional
value fair value
GBPm GBPm
--------------------- ------------ ---------
Property, plant and
equipment 7 3
Trade and other receivables 26 26
Cash and cash equivalents 2 2
Trade and other payables (19) (19)
------ ------
Net assets acquired 16 12
Goodwill 114
--- -----
Total consideration 126
=== =====
The fair value adjustments relating to these acquisitions are provisional due to
the timing of the transactions and will be finalised in the second half of the
financial year. From the date of acquisition, these acquisitions have
contributed to the group's results revenue of GBP22 million and profit of GBP2
million. If the acquisitions had occurred on April 1, 2007, the group's revenue
and profit would have been higher by GBP64 million and GBP3 million,
respectively.
Acquisitions made in the year ended March 31, 2007
During the period, the group has updated the acquisition accounting for
Counterpane, an acquisition made in the year ended March 31, 2007. As a result,
a reclassification has been made between goodwill and other intangible assets to
recognise the fair value of proprietary technology acquired with the business.
Prior year balances have not been restated as the amount of the adjustment is
not significant to the group.
13 Capital commitments
Capital expenditure for property, plant equipment and software contracted for at
the balance sheet date but not yet incurred was GBP1,028 million (March 31,
2007, GBP779 million).
14 Related party transactions
During the six months ended September 30, 2007, the group purchased services in
the normal course of business and on an arm's length basis from its associate,
Tech Mahindra Limited. The value of services purchased was GBP145 million
(September 30, 2006: GBP108 million) and the amounts outstanding and payable for
services at September 30, 2007 was GBP114 million (September 30, 2006: GBP64
million).
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors confirm, to the best of their knowledge, that this condensed set
of financial statements has been prepared in accordance with IAS 34 as adopted
by the European Union and that the Interim Management Report includes a fair
review of the information required by Rules 4.2.7 and 4.2.8 of the Disclosure
and Transparency Rules of the United Kingdom Financial Services Authority.
7 November 2007
The names and functions of the BT Group plc board can be found at
http://www.btplc.com/Thegroup/Theboard/TheBTboard.htm
Independent review report to BT Group plc on the interim financial information
Introduction
We have been engaged by the company to review the condensed set of financial
statements in the interim report for the three and six months ended 30 September
2007, which comprises the group income statement, group statement of recognised
income and expense, group cash flow statement and group balance sheet and
related notes. We have read the other information contained in the interim
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the financial information in the condensed set
of financial statements.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the interim financial
report in accordance with the Disclosure and Transparency Rules of the United
Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the group are
prepared in accordance with IFRSs as adopted by the European Union. The
condensed set of financial statements included in this interim financial report
has been prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on the condensed
set of financial statements in the interim financial report based on our review.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Disclosure and Transparency Rules of the
Financial Services Authority and for no other purpose. We do not, in producing
this report, accept or assume responsibility for any other purpose or to any
other person to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information
Performed by the Independent Auditor of the Entity' issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in
accordance with International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the interim financial report
for the three and six months ended 30 September 2007 is not prepared, in all
material respects, in accordance with International Accounting Standard 34 as
adopted by the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP, Chartered Accountants
London
7 November 2007
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 revenue, EBITDA, earnings per share and
dividends; growth in new wave revenue, mainly from networked IT services,
broadband and mobility growth; implementation of BT's 21st Century Network in
the UK and globally; the introduction of next generation services: anticipated
benefits of BT's business transformation and accelerated cost savings; Global
Services' cost savings; and improving shareholder returns.
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 and ability to raise finance. BT
undertakes no obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise.
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 08 November, 2007