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
27 July 2006
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. 1st Quarter Results announcement made on 27 July 2006
July 27, 2006
FIRST QUARTER RESULTS TO JUNE 30, 2006
HIGHLIGHTS
- Revenue of GBP4,864 million, up 3 per cent
- New wave revenue of GBP1,641 million, up 18 per cent, represents 34 per cent
of total revenue
- EBITDA before specific items (1) and leaver costs of GBP1,386 million, up 2
per cent
- Profit before taxation, specific items (1) and leaver costs of GBP639
million, up 24 per cent
- Earnings per share before specific items (1) and leaver costs of 5.8 pence,
up 26 per cent
- BT Retail's share of broadband net additions was 30 per cent
- Broadband end users (2) of 8.7 million at June 30, 2006
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the first quarter results, said:
"This is a strong all round performance to start the financial year, with the
momentum we saw in recent quarters continuing. Revenue has increased for ten
consecutive quarters; EBITDA (3) was up 2 per cent, an improvement on the rate
of growth we achieved last quarter; and earnings per share3 was up 26 per cent,
the seventeenth consecutive quarter of growth.
"Our international business is expanding strongly and we won more than 200 new
customer accounts outside the UK in the quarter.
"Our first quarter results underpin our confidence in our ability to continue to
grow our revenue, EBITDA, earnings per share and dividends this year."
The income statement, cash flow statement and balance sheet from which this
information is extracted are set out on pages 14 to 19.
(1) Before specific items which are material one off or unusual items as defined
in note 4 on page 23.
(2) DSL and LLU connections as restated to include BT own use and test lines as
sourced from equivalent BT Wholesale systems.
(3) Before specific items and leaver costs.
RESULTS FOR THE FIRST QUARTER ENDED JUNE 30, 2006
First quarter Year ended
---------------------------------- March 31
2006 2005 Better (worse) 2006
GBPm GBPm % GBPm
Revenue 4,864 4,731 3 19,514
EBITDA
- before specific items and leaver
costs 1,386 1,363 2 5,650
- before specific items 1,362 1,357 - 5,517
Profit before taxation
- before specific items and leaver
costs 639 517 24 2,310
- before specific items 615 511 20 2,177
- after specific items 615 499 23 2,040
Earnings per share
- before specific items and leaver
costs 5.8p 4.6p 26 20.6p
- before specific items 5.6p 4.5p 24 19.5p
- after specific items 5.6p 4.4p 27 18.4p
Capital expenditure 715 716 - 3,142
Free cash flow (17) (126) 87 1,612
Net debt 7,727 8,121 5 7,534
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 income statement, cash flow statement and balance sheet are provided on
pages 14 to 19. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 28. A definition and reconciliation of free
cash flow and net debt are provided on pages 24 to 27.
GROUP RESULTS
Revenue was 3 per cent higher at GBP4,864 million in the quarter with strong
growth in new wave revenue more than offsetting the decline in traditional
revenue. EBITDA before specific items and leaver costs grew by 1.7 per cent.
This is the second quarter of growth and builds on the 0.9 per cent growth
reported last quarter. Earnings per share before specific items and leaver costs
increased by 26 per cent to 5.8 pence, the seventeenth consecutive quarter of
year on year growth.
The strong growth in new wave revenue continued and at GBP1,641 million was 18
per cent higher than last year. New wave revenue accounted for 34 per cent of
the group's revenue compared to 29 per cent in the first quarter of last year.
New wave revenue is mainly generated from networked IT services, broadband and
mobility. Networked IT services revenue grew by 9 per cent to GBP981 million,
broadband revenue increased by 45 per cent to GBP454 million and mobility
revenue increased by 8 per cent to GBP71 million.
Networked IT services contract wins were GBP1.0 billion in the first quarter,
and the value of total orders achieved over the last twelve months was GBP4.1
billion. Of this total, more than 20 per cent of the order value was generated
outside the UK.
BT had 8.7 million wholesale broadband connections at June 30, 2006, including
580,000 local loop unbundled lines, an increase of 2.9 million connections year
on year and 535,000 connections in the quarter. The definition of broadband
connections has been adjusted to include BT own use and test lines as sourced
from equivalent BT Wholesale systems on which a data cleanse has also been
performed and the statistics above are quoted on a consistent basis. Over 40 per
cent of all UK homes now subscribe to broadband services.
Revenue from the group's traditional businesses declined by 4 per cent
continuing recent trends. This reflects regulatory intervention, competition,
price reductions and also technological changes that we are using to drive
customers from traditional services to new wave services.
Major corporate (UK and international) revenue showed growth of 6 per cent, with
10 per cent growth in new wave revenue more than offsetting the decline in
traditional services. Migration from traditional voice only services to
networked IT services continued with new wave revenue representing 58 per cent
of all major corporate revenue.
Revenue from smaller and medium sized (SME) UK businesses was maintained year on
year. New wave revenue grew by 25 per cent driven by continued growth in
broadband and other new wave services. In the declining UK calls market, BT has
continued to use BT Business Plan to defend revenues through delivering value to
its customer base.
Consumer revenue in the first quarter was 5 per cent lower. Growth in new wave
revenue of 37 per cent continues to reduce our dependence on traditional revenue
which has declined by 10 per cent with the strategic shift towards new wave
products and services. New wave revenue now represents 14 per cent of the total
consumer revenue.
The 12 month rolling average revenue per consumer household (net of mobile
termination charges) of GBP253 increased by GBP2 compared to last quarter, the
second successive quarter of growth. Improvements in the proportion of customers
upgrading from the basic broadband package and more new customers subscribing
for higher value packages more than offset the lower call revenues. BT Total
Broadband reflects our strategy to drive value into the broadband market.
Contracted revenues increased by 1 percentage point to 68 per cent compared to
last quarter, 3 percentage points higher than last year.
Wholesale (UK and Global Carrier) revenue increased by 8 per cent. UK Wholesale
new wave revenue increased by 21 per cent to GBP265 million, mainly driven by
broadband.
Group operating costs before specific items increased by 3 per cent year on year
at GBP4,255 million. Staff costs before leaver costs increased by GBP100 million
to GBP1,256 million due mainly to the additional staff needed to support
networked IT services contracts, increased levels of activity in the network and
21CN activities (including capital work) as well as cost inflation. Leaver costs
were GBP24 million in the quarter (GBP6 million last year). Payments to other
telecommunication operators were flat year on year at GBP1,006 million. Other
operating costs before specific items increased by GBP83 million mainly due to
increased costs of sales from growth in networked IT and other new wave
services. These were partly offset by cost savings from our efficiency
programmes. Depreciation and amortisation decreased by 1 per cent year on year
to GBP703 million.
Group operating profit before specific items and leaver costs increased by 4 per
cent to GBP683 million. Operating profit margins before specific items and
leaver costs increased by 0.2 percentage points to 14.0 per cent.
Net finance costs were GBP46 million, an improvement of GBP96 million against
last year. Net finance income associated with the group's defined benefit
pension scheme was GBP105 million in the first quarter, GBP42 million higher
than last year. Repayment of maturing debt last year, fair value movements on
derivatives that are economic hedges but are not fully effective hedges under
the IAS 39 definitions and lower net debt have also contributed to the reduction
in net finance costs.
Profit before taxation, specific items and leaver costs of GBP639 million
increased by 24 per cent.
The effective tax rate on the profit before specific items was 24.5 per cent
(25.2 per cent last year). The effective tax rate reflects the continued focus
on tax efficiency within the group.
Earnings per share before specific items and leaver costs increased by
26 per cent to 5.8 pence.
Specific items
Specific items are defined in note 4 on page 23. There were no specific items in
the first quarter. The charge of GBP12 million in the first quarter of last year
arose from the rationalisation of the group's provincial office portfolio.
Cash flow and net debt
Net cash from operating activities in the first quarter amounted to GBP1,002
million compared to GBP841 million last year, largely due to lower working
capital outflows.
Cash flows from investing activities were a net cash outflow of GBP1,551 million
in the first quarter compared to GBP887 million last year. This mainly reflects
the higher surplus funds in the quarter compared to the prior year, which were
invested in short term investments.
Cash flows from financing activities were a net outflow of GBP20 million in the
first quarter compared to a net outflow of GBP353 million last year. This mainly
reflects the issue of commercial paper in the current quarter to support funding
requirements which were financed through operational flows in the prior year and
lower net interest payments following the maturity of bonds in the prior year.
Free cash flow was a net outflow of GBP17 million in the first quarter compared
to a net outflow of GBP126 million last year mainly reflecting the lower working
capital outflows. The share buyback programme continued with the repurchase of
22 million shares for GBP50 million during the quarter. Net debt was GBP7,727
million at June 30, 2006, GBP394 million below the level at June 30, 2005. Free
cash flow and net debt are defined and reconciled in notes 7 and 8 on pages 24
to 27.
Pensions
The IAS 19 net pension obligation at June 30, 2006 was a deficit of GBP1.6
billion, net of tax, being GBP1.8 billion lower than the level at June 30, 2005.
The BT Pension Scheme had assets of GBP35 billion at June 30, 2006. The
triennial funding valuation at December 31, 2005 is currently being performed
and reviewed in the context of recent regulatory developments and the impact of
the Crown Guarantee granted on privatisation in 1984.
21st Century Network
In response to industry feedback, BT presented a detailed 21st Century Network
(21CN) proposal in May 2006, and since then has been actively consulting with
industry and Ofcom on these revised proposals. These consultation streams are
due to close over the coming weeks.
Upon conclusion, BT expects to have an industry-agreed rollout plan for 21CN.
This will cover the migration of existing voice and IPStream broadband services
and the introduction of next generation wholesale broadband services in a
planned national upgrade. These new services, including backhaul support for
LLU, next generation IP Connect and up to 24 Mbit/s broadband, are scheduled to
be offered from January 2008 as part of the 21CN UK national rollout programme.
The delivery of 21CN will make BT the first incumbent operator in the world to
switch off the PSTN and migrate all of its voice customers onto an all-IP
network. Since May this year almost 23 million end-to-end calls have been
successfully carried over this network, using equipment from the 21CN preferred
suppliers. In addition, BT staff are currently testing services across the IP
network between Multi-Service Access Nodes (MSANs). This is part of the
comprehensive 21CN testing programme during which more than half a million tests
will be conducted in the countdown to the first end user lines being migrated in
the Cardiff area in November 2006, as the first stage of the 21CN migration plan
commences.
This initial migration phase will conclude in June 2007 and will be followed by
a period of industry review and testing ahead of national migration, currently
scheduled to begin in January 2008.
The exchange preparation programme, to ensure readiness for all premises
required for the delivery of the first stage of the 21CN migration plan, is
nearing completion in 90 locations across the country and the build of the IP/
MPLS (Multi-Protocol Label Switching) core network is also underway.
An estimated 3,000 people within BT are working full time on the programme and
this number is expected to rise as the programme moves towards national
migration.
Line of business results
Openreach, a new line of business created in accordance with the regulatory
framework agreed with Ofcom (the Undertakings), was launched on January 21,
2006. It is responsible for ensuring that all communications providers have
transparent and equivalent access to the BT network, and comprises a work force
of approximately 30,000 people. As at March 31, 2006 Openreach had net operating
assets of GBP7.7 billion. Its primary products are wholesale line rental (WLR)
and local loop unbundling (LLU).
As required by the timetable set out in the Undertakings the separation of the
financial and operating systems to facilitate the reporting of Openreach as a
separate line of business has been completed and the Openreach results are
reported separately in this quarter's results. In order to assist readers in
understanding the year on year performance, we have restated the comparative
line of business results. These restatements also reflect the impact of the new
internal trading arrangements that have been implemented due to the creation of
Openreach. There is no change to the overall group reported results.
_____________________________________________________________________________
BT's final dividend of 7.6 pence per share will be paid on September 11, 2006 to
shareholders on the register on August 18, 2006. The ex-dividend date is August
16, 2006.
The second quarter and half year's results are expected to be announced on
November 9, 2006.
BT Global Services
First quarter ended June 30 Year ended
----------------------------------- March 31
2006 2005* Better (worse) 2006*
GBPm GBPm GBPm % GBPm
Revenue 2,155 2,067 88 4 8,772
EBITDA before leaver costs 228 221 7 3 975
Leaver costs 17 2 (15) n/m 49
------ ------ ------
EBITDA 211 219 (8) (4) 926
Depreciation and amortisation 148 152 4 3 638
------ ------ ------
Operating profit 63 67 (4) (6) 288
====== ====== ======
Capital expenditure 149 142 (7) (5) 702
====== ====== ======
*Restated to reflect changes in intra-group trading arrangements.
BT Global Services grew revenue in the first quarter by 4 per cent to
GBP2,155 million. This was achieved despite absorbing the impact of further
declines in UK traditional and carrier revenues. Order intake remained firm with
networked IT services contract orders of GBP1.0 billion, which included Unilever
and Philips, resulting in orders of GBP4.1 billion over the last twelve months.
More than 20 per cent of the order intake was again generated outside the UK.
EBITDA before leaver costs increased year on year by GBP7 million to GBP228
million. Further growth in new wave profitability, together with
rationalisations in network related and indirect costs, more than offset the
decline in EBITDA experienced in UK traditional products, including migration to
IPVPNs sold to UK corporates and further reductions in dial IP due to broadband
substitution. Depreciation charges were GBP4 million lower but leaver costs were
GBP15 million higher following a further headcount reduction programme which
took approximately 250 people from the support cost base and this has led to a
fall in operating profit after leaver costs of GBP4 million.
Capital expenditure in the quarter rose by GBP7 million to GBP149 million due to
extra network investment outside the UK.
BT has achieved some notable successes on its NHS National Programme for IT
contracts. On N3, the NHS broadband network in England, it has installed 15,000
connections - ahead of schedule for its target of 18,000 by March 2007. In an
extension to this contract, BT has completed over half of the NHS Scotland
broadband network. N3 is the largest virtual private network in Europe.
As the London service provider, BT will have delivered some capability to more
than 50 per cent of trusts by the end of the year. It has already delivered 50
per cent of its Picture Archiving and Communications Systems (PACS) to trusts
serving over two million people. PACS enables X-rays and scans to be stored,
displayed, and transmitted electronically, rather than being printed onto film.
The programme has also delivered systems for GPs, pathology and pharmacy.
The BT delivered Spine, one of the world's largest transactional database and
messaging services, has enabled national services such as electronic
prescriptions, (over 2 million prescriptions issued) and the "Choose and Book"
service (more than 700,000 appointments). Spine has 250,000 registered users.
BT Retail
First quarter ended June 30 Year ended
---------------------------------- March 31
2006 2005* Better (worse) 2006*
GBPm GBPm GBPm % GBPm
Revenue 2,068 2,120 (52) (2) 8,507
------ ------ ------
Gross margin 560 536 24 4 2,229
SG&A before leaver costs 378 378 - - 1,491
------ ------ ------
EBITDA before leaver costs 182 158 24 15 738
Leaver costs 2 3 1 33 22
------ ------ ------
EBITDA 180 155 25 16 716
Depreciation and amortisation 40 34 (6) (18) 147
------ ------ ------
Operating profit 140 121 19 16 569
====== ====== ======
Capital expenditure 40 35 (5) (14) 153
====== ====== ======
*Restated to reflect changes in intra-group trading arrangements.
BT Retail's EBITDA before leaver costs was 15 per cent higher than last year,
the fourth consecutive quarter of growth. Gross margins increased by 1.8
percentage points compared to the prior year helped by increased consumer
broadband margins. Improved gross margin management more than compensated for
the 2 per cent decline in revenues. Selling, general and administration costs
were held flat year on year. Operating profit improved by 16 per cent to GBP140
million.
Traditional revenue declined by 8 per cent whilst new wave revenue grew by 31
per cent, driven primarily by broadband and other new wave services. New wave
revenue was 19 per cent of total revenue in the quarter, up from 14 per cent
last year.
Broadband revenue grew by 37 per cent to GBP220 million with BT Retail
connections at 30 June growing to 2,826,000 an increase of 6 per cent in the
quarter. We achieved a 30 per cent market share of broadband net additions (DSL
plus LLU) in the quarter.
The launch of BT Total Broadband during the quarter allows customers to enjoy a
comprehensive set of cutting-edge features as standard, powered by up to 8 Mbit/
s download speeds. Value for money is enhanced by free evening and weekend
calls, and free video calls when made over the broadband connection, along with
a suite of security software. These are all brought together through the
revolutionary BT Home Hub, providing wireless connectivity to all wireless
broadband-enabled devices and services. BT Total Broadband also includes 250
free BT Openzone (public Wi-Fi Service) minutes per month and is enhanced with
24/7 helpdesk support which includes remote diagnostics.
BT Broadband Talk suite of Voice over Internet Protocol (VoIP) products have
been upgraded and is one of the most advanced VoIP services on the market, now
available with high-definition sound for delivering crystal clear internet voice
and video calls. We have also launched BT Broadband Talk Video where customers
equipped with the BT Videophone can see the person they are talking to.
The acquisition of dabs.com, one of the UK's leading internet retailers of IT
and technology products was completed on April 28, 2006. dabs.com strengthens BT
Retail's online sales and service capabilities particularly for the SME market -
enhancing its position as a leading retailer of converged IT and communications
products and services. We continue to launch new propositions to the SME market,
including switches such as BT Micro (office in a box) and converged options and
upgrades such as the Broadband Voice Module to facilitate voice and data
convergence. These propositions allow our customers to have one system to manage
their voice calls, data network, share of broadband access and exploit VoIP
technology.
BT Vision, due to launch in Autumn, yesterday announced a major download-to-own
and video-on-demand agreement with NBC Universal. BT Vision has also won the
rights to carry 242 'near-live' FA Premier League football matches per season
covering the 2007-8, 2008-9 and 2009-10 seasons. This will allow fans to watch
full Premiership matches on their televisions on a pay per view basis without
the need for an up-front subscription. This added to the existing BT Vision
content from well-known names including Paramount, DreamWorks, National
Geographic and Warner Music will give viewers one of the most compelling
entertainment offers in the UK.
Agreements are now in place with 12 cities, including Westminster, Cardiff,
Birmingham and Glasgow, which are set to become pioneers of the BT Wireless
Cities initiative across the UK. In addition, our customers currently have
access to over 8,500 public Wi-Fi hotspots in the UK and Ireland and over 30,000
globally allowing them access to information and services to work, talk and
play. BT Openzone the public Wi-Fi service was recently awarded the Best Service
Provider accolade at the 2006 Global Wireless Broadband Innovation Awards.
BT Wholesale
First quarter ended June 30 Year ended
---------------------------------- March 31
2006 2005* Better (worse) 2006*
GBPm GBPm GBPm % GBPm
External revenue 997 968 29 3 3,908
Internal revenue 850 846 4 - 3,435
------ ------ ------
Revenue 1,847 1,814 33 2 7,343
Variable cost of sales 920 931 11 1 3,720
------ ------ ------
Gross variable profit 927 883 44 5 3,623
Network and SG&A before leaver
costs 449 415 (34) (8) 1,731
------ ------ ------
EBITDA before leaver costs 478 468 10 2 1,892
Leaver costs 1 - (1) n/m 31
------ ------ ------
EBITDA 477 468 9 2 1,861
Depreciation and amortisation 285 271 (14) (5) 1,102
------ ------ ------
Operating profit 192 197 (5) (3) 759
====== ====== ======
Capital expenditure 200 230 30 13 974
====== ====== ======
*Restated to reflect changes in intra-group trading arrangements.
BT Wholesale revenue in the first quarter of GBP1,847 million increased by 2 per
cent, driven by external revenue growth of 3 per cent, reflecting strong growth
in broadband. External revenue from new wave services increased by 21 per cent
to GBP265 million and accounts for 27 per cent of external revenue.
Internal revenue increased marginally to GBP850 million due to strong growth in
internal broadband revenue more than offsetting the impact of lower call volumes
and lower regulatory prices being reflected in internal charges.
Gross variable profit at GBP927 million increased by 5 per cent as a result of
revenue growth and a change in sales mix towards more profitable products such
as broadband. Cost savings through network efficiencies have been more than
offset by higher 21CN expenditure and increasing network and customer service
costs from growth in broadband.
Overall, EBITDA before leaver costs has increased by GBP10 million to GBP478
million. Higher depreciation due to the shortening of the useful economic lives
of legacy transmission assets to be replaced by the 21CN and leaver costs of
GBP1 million has resulted in a 3 per cent decline in operating profit.
Capital expenditure in the quarter was 13 per cent lower than last year
reflecting the increased investment in the 21CN being more than offset by
significantly decreased investment in legacy network technologies.
BT Wholesale will launch BT Movio, Europe's first national broadcast digital TV
and Radio Service to a mobile handset, later this summer. Virgin Mobile will be
the first retail partner to take the service to market.
BT Wholesale launched broadband max services in March 2006, providing the UK
market with the highest stable speed broadband service across the widest
national footprint in the world. Service providers are currently migrating
broadband subscribers to BT Wholesale's IPMax services, which deliver services
at speeds of up to 8 Mbit/s. To date, more than 750,000 subscribers have been
migrated to max services, aided by the availability of a new automated mass
customer migration tool.
BT Wholesale has also launched beta trials of a range of advanced services,
including application driven quality of service, which will ensure high
performance for business critical broadband applications.
BT Wholesale recently launched Virtual Interconnect Circuits (VIC), a product
designed to provide commercial stability as the industry moves towards next
generation networks. VIC will allow service providers to continue to benefit
from local exchange segment (LES) rates while BT closes digital line exchanges
as part of the 21CN upgrade programme.
Openreach
First quarter ended June 30 Year ended
--------------------------------- March 31
2006 2005* Better (worse) 2006*
GBPm GBPm GBPm % GBPm
External revenue 130 53 77 145 318
Internal revenue 1,129 1,241 (112) (9) 4,824
------ ------ ------
Revenue 1,259 1,294 (35) (3) 5,142
Operating costs 787 787 - - 3,156
------ ------ ------
EBITDA before leaver costs 472 507 (35) (7) 1,986
Leaver costs 2 - (2) n/m 3
------ ------ ------
EBITDA 470 507 (37) (7) 1,983
Depreciation and amortisation 175 186 11 6 800
------ ------ ------
Operating profit 295 321 (26) (8) 1,183
====== ====== ======
Capital expenditure 271 257 (14) (5) 1,039
====== ====== ======
*Restated to reflect changes in intra-group trading arrangements.
Openreach's revenue in the first quarter was GBP1,259 million, a decrease of 3
per cent driven by regulatory price reductions partially offset by market volume
growth. Recent price reductions have stimulated the market resulting in an
increase in external revenues of 145 per cent to GBP130 million. Internal
revenue has decreased by 9 per cent to GBP1,129 million reflecting the
regulatory price cuts and the volume shift from internal to external revenues.
At the end of June, Openreach had over 580,000 external LLU lines and 3.5
million external WLR lines. These have grown significantly from March 31, 2006
with net additions being 224,000 LLU connections and 683,000 WLR connections on
last quarter.
On June 30, 2006, in line with the Undertakings, Openreach successfully provided
Metallic Path Facility (MPF) and shared MPF products on an equivalent basis.
This was achieved by the development and delivery of the Equivalence Management
Platform (EMP). The EMP is an automated system designed to cope with higher
volumes of orders for unbundled lines to meet increasing demand.
Operating costs at GBP787 million were held flat despite the increased
infrastructure costs incurred to support Openreach, volume increases and
inflationary rises. These increases have been offset by various cost savings
across the business.
Overall this has delivered a GBP35 million decrease in EBITDA before leaver
costs. Decreased depreciation and amortisation costs of GBP11 million is due to
the lengthening of the useful economic life of copper, consistent with Ofcom's
review. This is partially offset by higher systems depreciation.
Capital expenditure in the quarter was 5 per cent higher than last year
reflecting increased investment in new systems to ensure compliance with the
Undertakings and increased network infrastructure spend to meet LLU demand.
GROUP INCOME STATEMENT
for the three months ended June 30, 2006
Before specific Specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
----------------------- ------ ---------- ----------- ---------
Revenue 2 4,864 - 4,864
Other operating income 50 - 50
Operating costs 3 (4,255) - (4,255)
---------- ----------- ---------
Operating profit 2 659 - 659
Finance costs (642) - (642)
Finance income 596 - 596
---------- ----------- ---------
Net finance costs 5 (46) - (46)
Share of post tax profits
of associates and joint
ventures 2 - 2
---------- ----------- ---------
Profit before taxation 615 - 615
Taxation (151) - (151)
---------- ----------- ---------
Profit for the period
attributable to equity
shareholders 464 - 464
========== =========== =========
Earnings per share 6
- basic 5.6p 5.6p
- diluted 5.5p 5.5p
========== =========== =========
GROUP INCOME STATEMENT
for the three months ended June 30, 2005
Before specific Specific items
items (note 4) Total
(unaudited) Notes GBPm GBPm GBPm
----------------------- ------ ---------- ----------- ---------
Revenue 2 4,731 - 4,731
Other operating income 42 - 42
Operating costs 3 (4,125) (12) (4,137)
---------- ----------- ---------
Operating profit 2 648 (12) 636
Finance costs (716) - (716)
Finance income 574 - 574
---------- ----------- ---------
Net finance costs 5 (142) - (142)
Share of post tax profits
of associates and joint
ventures 5 - 5
---------- ----------- ---------
Profit before taxation 511 (12) 499
Taxation (129) 4 (125)
---------- ----------- ---------
Profit for the period
attributable to equity
shareholders 382 (8) 374
========== =========== =========
Earnings per share 6
- basic 4.5p 4.4p
- diluted 4.5p 4.4p
========== =========== =========
GROUP INCOME STATEMENT
for the year ended March 31, 2006
Before specific Specific items
items (note 4) Total
Notes GBPm GBPm GBPm
----------------------- ------ ---------- ----------- ---------
Revenue 2 19,514 - 19,514
Other operating income 227 - 227
Operating costs 3 (17,108) (138) (17,246)
---------- ----------- ---------
Operating profit 2 2,633 (138) 2,495
Finance costs (2,740) - (2,740)
Finance income 2,268 - 2,268
---------- ----------- ---------
Net finance costs 5 (472) - (472)
Share of post tax profits
of associates and joint
ventures 16 - 16
Profit on disposal of
joint venture - 1 1
---------- ----------- ---------
Profit before taxation 2,177 (137) 2,040
Taxation (533) 41 (492)
---------- ----------- ---------
Profit for the year 1,644 (96) 1,548
========== =========== =========
Attributable to:
Equity shareholders 1,643 (96) 1,547
Minority interest 1 - 1
========== =========== =========
Earnings per share 6
- basic 19.5p 18.4p
- diluted 19.2p 18.1p
========== =========== =========
GROUP STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the three months ended June 30, 2006
First quarter ended Year ended
June 30 March 31
2006 2005 2006
(unaudited)
GBPm GBPm GBPm
--------------------------------------- ------- ------- -------
Profit for the period 464 374 1,548
======= ======= =======
Actuarial gains (losses) on
defined benefit pension obligations 305 (80) 2,122
Net movement on cash flow hedges (24) 64 (200)
Exchange differences on translation of
foreign operations (54) 10 24
Tax on items taken directly to equity (87) 10 (588)
------- ------- -------
Net gains recognised directly in equity 140 4 1,358
------- ------- -------
Total recognised income for the period 604 378 2,906
======= ======= =======
Attributable to:
Equity shareholders 604 378 2,905
Minority interests - - 1
------- ------- -------
604 378 2,906
======= ======= =======
GROUP CASH FLOW STATEMENT
for the three months ended June 30, 2006
First quarter ended Year ended
June 30 March 31
2006 2005 2006
(unaudited)
GBPm GBPm GBPm
--------------------------------------- ------- ------- -------
Cash flows from operating activities
Cash generated from operations
(note 7 (a)) 1,092 972 5,777
Income taxes paid (90) (131) (390)
------- ------- -------
Net cash inflow from operating
activities 1,002 841 5,387
Cash flows from investing activities
Acquisition of subsidiaries (net
of cash acquired) (38) (88) (167)
Net purchase of property, plant,
equipment and software (802) (686) (2,874)
Interest received 18 37 185
Net (purchase) sale of short
term investments and non current
asset investments (729) (150) 3,221
------- ------- -------
Net cash used in investing activities (1,551) (887) 365
Cash flows from financing activities
Repurchase of ordinary share capital (62) (21) (339)
Net proceeds from (repayments
of) borrowings 282 (14) (2,946)
Interest paid (235) (318) (1,086)
Equity dividends paid (5) - (907)
------- ------- -------
Net cash used in financing activities (20) (353) (5,278)
Effects of exchange rate changes - 29 -
------- ------- -------
Net (decrease) increase in cash
and cash equivalents (569) (370) 474
======= ======= =======
Cash and cash equivalents at
beginning of period 1,784 1,310 1,310
Cash and cash equivalents, net
of bank overdrafts, at end of
period (note 7 (c)) 1,215 940 1,784
======= ======= =======
Free cash flow (note 7 (b)) (17) (126) 1,612
======= ======= =======
Increase (decrease) in net debt
from cash flows (note 8) 122 235 (199)
======= ======= =======
GROUP BALANCE SHEET
at June 30, 2006
June 30 June 30 March 31
2006 2005 2006
(unaudited)
GBPm GBPm GBPm
------------------------------------- --------- --------- ---------
Non current assets
Goodwill and other intangible assets 1,773 1,343 1,641
Property, plant and equipment 15,375 15,431 15,489
Other non current assets 81 184 84
Deferred tax assets 667 1,460 764
--------- --------- ---------
17,896 18,418 17,978
--------- --------- ---------
Current assets
Inventories 138 124 124
Trade and other receivables 4,549 4,210 4,199
Other financial assets 1,052 3,866 434
Cash and cash equivalents 1,391 1,177 1,965
--------- --------- ---------
7,130 9,377 6,722
--------- --------- ---------
Total assets 25,026 27,795 24,700
Current liabilities
Loans and other borrowings 2,888 4,626 1,940
Trade and other payables 6,394 5,722 6,540
Other current liabilities 1,043 1,284 1,000
--------- --------- ---------
10,325 11,632 9,480
--------- --------- ---------
Total assets less current liabilities 14,701 16,163 15,220
========= ========= =========
Non current liabilities
Loans and other borrowings 7,042 8,094 7,995
Deferred tax liabilities 1,498 1,458 1,505
Retirement benefit obligations 2,222 4,867 2,547
Other non current liabilities 1,755 1,489 1,566
--------- --------- ---------
12,517 15,908 13,613
--------- --------- ---------
Capital and reserves
Called up share capital 432 432 432
Reserves 1,701 (226) 1,123
--------- --------- ---------
Total equity shareholders' funds 2,133 206 1,555
Minority interest 51 49 52
--------- --------- ---------
Total equity 2,184 255 1,607
--------- --------- ---------
14,701 16,163 15,220
========= ========= =========
NOTES (unaudited)
1 Basis of preparation and accounting policies
These primary statements and selected notes comprise the unaudited interim
consolidated financial results of BT Group plc for the quarters ended June 30,
2006 and 2005, together with the audited results for the year ended March 31,
2006. 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, 2006 were approved by the Board of Directors on May 17,
2006 and published on May 31, 2006. The report of the auditors on those accounts
was unqualified and did not contain any statement under Section 237 of the
Companies Act 1985.
The financial information set out in these interim financial results has been
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted for use in the European Union (EU). The accounting polices which have
been applied to prepare the interim financial results are the same as those used
for the preparation of the consolidated financial statements for the year ended
March 31, 2006.
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.
As required by the timetable set out in the Undertakings the separation of the
financial and operating systems to facilitate the reporting of Openreach as a
separate line of business has been completed and the Openreach results are
reported separately in this quarter's results. In order to assist readers in
understanding the year on year performance, we have restated the comparative
line of business results. These restatements also reflect the impact of the new
internal trading arrangements that have been implemented due to the creation of
Openreach. There is no change to the overall group reported results.
2 Results of businesses
(a) Operating results
Group operating
External Internal Group EBITDA profit (loss)
revenue revenue revenue (ii) (ii)
GBPm GBPm GBPm GBPm GBPm
First quarter ended
June 30, 2006
BT Global Services 1,754 401 2,155 211 63
BT Retail 1,977 91 2,068 180 140
BT Wholesale 997 850 1,847 477 192
Openreach 130 1,129 1,259 470 295
Other 6 - 6 24 (31)
Intra-group items (i) - (2,471) (2,471) - -
------- ------- ------- ------- -------
Total 4,864 - 4,864 1,362 659
======= ======= ======= ======= =======
First quarter ended
June 30, 2005
(restated - note 1)
BT Global Services 1,681 386 2,067 219 67
BT Retail 2,023 97 2,120 155 121
BT Wholesale 968 846 1,814 468 197
Openreach 53 1,241 1,294 507 321
Other 6 - 6 8 (58)
Intra-group items (i) - (2,570) (2,570) - -
------- ------- ------- ------- -------
Total 4,731 - 4,731 1,357 648
======= ======= ======= ======= =======
Year ended March 31,
2006
(restated - see note 1)
BT Global Services 7,168 1,604 8,772 926 288
BT Retail 8,102 405 8,507 716 569
BT Wholesale 3,908 3,435 7,343 1,861 759
Openreach 318 4,824 5,142 1,983 1,183
Other 18 - 18 31 (166)
Intra-group items (i) - (10,268) (10,268) - -
------- ------- ------- ------- -------
Total 19,514 - 19,514 5,517 2,633
======= ======= ======= ======= =======
(i) Elimination of intra-group revenue between businesses, which is included
in the total revenue of the originating business.
(ii) Before specific items.
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. These intra-group trading arrangements are subject to periodic
review.
(b) Revenue analysis
Year ended
First quarter ended June 30 March 31
2006 2005 Better (worse) 2006
GBPm GBPm GBPm % GBPm
Traditional 3,223 3,346 (123) (4) 13,232
New wave 1,641 1,385 256 18 6,282
------- ------- -------
4,864 4,731 133 3 19,514
======= ======= =======
Major Corporate 1,699 1,597 102 6 6,880
Business 588 586 2 - 2,324
Consumer 1,252 1,324 (72) (5) 5,296
Wholesale/Carrier 1,319 1,218 101 8 4,996
Other 6 6 - - 18
------- ------- -------
4,864 4,731 133 3 19,514
======= ======= =======
(c) New wave revenue analysis
Year ended
First quarter ended June 30 March 31
2006 2005 Better (worse) 2006
GBPm GBPm GBPm % GBPm
Networked IT services 981 899 82 9 4,065
Broadband 454 314 140 45 1,459
Mobility 71 66 5 8 292
Other 135 106 29 27 466
------- ------- -------
1,641 1,385 256 18 6,282
======= ======= =======
(d) Capital expenditure on property, plant, equipment, software and motor
vehicles:
Year ended
First quarter ended June 30 March 31
2006 2005 Better (worse) 2006
GBPm GBPm GBPm % GBPm
BT Global Services 149 142 (7) (5) 702
BT Retail 40 35 (5) (14) 153
BT Wholesale 200 230 30 13 974
Openreach 271 257 (14) (5) 1,039
Other (including fleet
vehicles and property) 55 52 (3) (6) 274
------- ------- -------
715 716 1 - 3,142
======= ======= =======
Transmission equipment 297 373 76 20 1,429
Exchange equipment 14 18 4 22 80
Other network equipment 160 162 2 1 727
Computers and office
equipment 74 56 (18) (32) 281
Software 134 65 (69) (106) 449
Motor vehicles and other 14 31 17 55 108
Land and buildings 22 11 (11) (100) 68
------- ------- -------
715 716 1 - 3,142
======= ======= =======
3 Operating costs
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Staff costs before leaver costs 1,256 1,156 4,833
Leaver costs 24 6 133
------- ------- -------
Staff costs 1,280 1,162 4,966
Depreciation and amortisation 703 709 2,884
Payments to telecommunication
operators 1,006 1,009 4,045
Other operating costs 1,519 1,436 6,113
Own work capitalised (253) (191) (900)
------- ------- -------
Total before specific items 4,255 4,125 17,108
Specific items (note 4) - 12 138
------- ------- -------
Total 4,255 4,137 17,246
======= ======= =======
4 Specific items
BT separately identifies and discloses 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. Specific
items were previously referred to as exceptional items under UK GAAP.
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Operating costs
Creation of Openreach - - 70
Property rationalisation costs - 12 68
------- ------- -------
Specific operating costs - 12 138
Profit on sale of joint ventures - - (1)
------- ------- -------
Total specific items before
taxation - 12 (137)
======= ======= =======
5 Net finance costs
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Finance costs1 before pension
interest 175 262 924
Interest on pension scheme
liabilities 467 454 1,816
------- ------- -------
Finance costs 642 716 2,740
Finance costs before pension
income (24) (57) (198)
Expected return on pension scheme
assets (572) (517) (2,070)
------- ------- -------
Finance income (596) (574) (2,268)
------- ------- -------
Net finance costs 46 142 472
======= ======= =======
Net finance costs before pensions 151 205 726
Interest associated with pensions (105) (63) (254)
------- ------- -------
Net finance costs 46 142 472
======= ======= =======
1Finance costs in the first quarter ended June 30, 2006 and June 30, 2005
include a GBP3 million net credit and GBP12 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.
6 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:
Year ended
First quarter ended June 30 March 31
2006 2005 2006
millions of shares
Basic 8,314 8,471 8,422
Diluted 8,455 8,556 8,537
7 (a) Reconciliation of profit before tax to cash generated from operations
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Profit before tax 615 499 2,040
Depreciation and amortisation 703 709 2,884
Associates and joint ventures (2) (5) (16)
Net finance costs 46 142 472
Changes in working capital (357) (453) 120
Provision movements, pensions
and other 87 80 277
------ ------ ------
Cash generated from operations 1,092 972 5,777
====== ====== ======
7 (b) Free cash flow
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Cash generated from
operations 1,092 972 5,777
Income taxes paid (90) (131) (390)
------ ------ ------
Net cash inflow from operating
activities 1,002 841 5,387
Included in cash flows from
investing activities
Net purchase of property,
plant, equipment and software (802) (686) (2,874)
Net purchase of non current
asset investments - - (1)
Dividends received from
associates 3 - 1
Interest received 15 37 185
Included in cash flows from
financing activities
Interest paid (235) (318) (1,086)
------ ------ ------
Free cash flow (17) (126) 1,612
====== ====== ======
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 June 30 At March 31
2006 2005 2006
GBPm GBPm GBPm
Cash at bank and in hand 464 438 511
Short term deposits 927 739 1,454
------ ------ ------
Cash and cash equivalents 1,391 1,177 1,965
Bank overdrafts (176) (237) (181)
------ ------ ------
1,215 940 1,784
====== ====== ======
8 Net debt
Net debt at June 30, 2006 was GBP7,727 million (June 30, 2005 - GBP8,121
million, March 31, 2006 - GBP7,534 million).
Net debt consists of loans and other borrowings less current asset investments
and cash and cash equivalents. Loans and other borrowings are measured as the
net proceeds raised, adjusted to amortise any discount over the term of the
debt. For the purpose of this analysis current asset investments 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 measures balances at the future cash flows due to
arise on maturity of financial instruments and removes the balance sheet
adjustments made from 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
GBP173 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.
(a) Analysis
At June 30 At March 31
2006 2005 2006
GBPm GBPm GBPm
Loans and other borrowings 9,930 12,720 9,935
Cash and cash equivalents (1,391) (1,177) (1,965)
Other current financial assets(1) (1,036) (3,704) (365)
------ ------ ------
7,503 7,839 7,605
Adjustments:
To retranslate currency denominated balances at
swapped rates where hedged 371 486 121
To recognise borrowings at net proceeds and
unamortised discount (147) (212) (192)
Other - 8 -
------ ------ ------
Net debt 7,727 8,121 7,534
====== ====== ======
After allocating the element of the adjustments which impact loans and other
borrowings, gross debt at June 30, 2006 was GBP9,975 million (June 30, 2005 -
GBP12,686 million, March 31, 2006 - GBP9,686 million).
(1) Excluding derivative financial instruments of GBP16 million, GBP162 million
and GBP69 million at June 30, 2006 and 2005 and March 31, 2006, respectively.
(b) Reconciliation of net cash flow to movement in net debt
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Net debt at beginning of period 7,534 7,893 7,893
Increase (decrease) in net debt
resulting from cash flows 122 235 (199)
Net debt assumed or issued on
acquisitions - 1 -
Currency movements 63 (14) (75)
Other non-cash movements 8 6 (85)
------ ------ ------
Net debt at end of period 7,727 8,121 7,534
====== ====== ======
9 Statement of changes in equity
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Shareholders' funds 1,555 45 45
Minority interest 52 50 50
------ ------ ------
1,607 95 95
Effect of adoption of IAS 32 and 39 - (209) (209)
------ ------ ------
Fund (deficit) at beginning of
period 1,607 (114) (114)
Total recognised income for the
period 604 378 2,906
Share based payment 20 2 65
Issues of shares 1 2 4
Net purchase of treasury shares (47) (12) (344)
Dividends on ordinary shares - - (912)
Minority interest (1) (1) 2
------ ------ ------
Net changes in equity for the
financial period 577 369 1,721
Equity at end of period
Shareholders' funds 2,133 206 1,555
Minority interest 51 49 52
------ ------ ------
2,184 255 1,607
====== ====== ======
10 Earnings before interest, taxation, depreciation and amortisation (EBITDA)
Year ended
First quarter ended June 30 March 31
2006 2005 2006
GBPm GBPm GBPm
Operating profit 659 636 2,495
Specific items (note 4) - 12 138
Depreciation and amortisation
(note 3) 703 709 2,884
------ ------ ------
EBITDA before specific items 1,362 1,357 5,517
====== ====== ======
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.
11 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.
Year ended
First quarter ended June 30 March 31
2006 2005 2006
Net income attributable to
Shareholders (GBPm) 414 393 1,063
Earnings per ADS (GBP)
- basic 0.50 0.46 1.26
- diluted 0.49 0.46 1.25
Each American Depositary Share (ADS) represents 10 ordinary shares of BT Group
plc.
Shareholders' equity, calculated in accordance with US GAAP, is GBP159 million
at June 30, 2006 (June 30, 2005 - GBP231 million deficit, March 31, 2006 -
GBP158 million deficit).
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; expanding international business; implementation
of BT's 21st Century Network and the rollout programme, and the introduction of
next generation services; and cost savings.
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.
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 27 July, 2006