BT 2003 Annual Report Download - page 29

Financial review
28 BT Annual Report and Form 20-F 2003
The review is divided into the following
sections:
28 Introduction
30 Group results
30 Line of business results
31 BT Retail
33 BT Wholesale
34 BT Global Services
35 Other operating income
35 Operating costs
37 Group operating profit (loss)
37 Associates and joint ventures
38 Total operating profit (loss)
38 Profit on sale of group undertakings and
fixed asset investments
39 Profit on sale of property fixed assets
40 Interest charge
40 Profit (loss) before taxation
41 Taxation
41 Earnings (loss) per share
41 Dividends
41 Financing
43 Treasury policy
43 Capital resources
43 Foreign currency and interest rate exposure
44 Capital expenditure
44 Acquisitions
44 Demerger and capital reduction
45 Balance sheet
45 Return on capital employed
45 Pensions
46 Regulation and prices
46 Competition and the UK economy
46 Environment
46 Geographical information
47 Regulatory financial information
47 Critical accounting policies
47 New UK accounting standards
48 Economic and Monetary Union (EMU)
48 US GAAP
Please see cautionary statement regarding forward-
looking statements on page 142.
Introduction
The 2003 financial year was characterised by a focus
on implementing and delivering the three-year strategy
announced in April 2002 and further corporate
transactions in the continued restructuring of the group
and reduction of net debt. The corporate transactions
included the unwind of the Concert joint venture on
1 April 2002 and the disposal of our interest in Cegetel
for £2.6 billion.
The 2002 financial year was dominated by a series
of corporate transactions designed to focus and
transform the group and reduce its net debt position.
Those corporate transactions included raising
£5.9 billion through the rights issue in June 2001,
selling our Japanese telecom and Spanish mobile
investments for £4.8 billion, selling the Yell directories
business for approximately £2 billion, the demerger of
mmO
2
and the sale and leaseback of properties for
£2.4 billion.
During the 2001 financial year the group
underwent an organisational restructuring that resulted
in the formation of the lines of business with activities
being grouped by market sector rather than
geography. Significant acquisitions were also made for
a total consideration of £11.9 billion, including Viag
Interkom and Telfort.
As a result of the major restructuring of the group
and the significant level of corporate transactions
completed during the period under review, we believe
it is difficult for investors to meaningfully compare the
financial performance of the group between the
financial years under review. In this Financial review the
commentary is therefore focused principally on the
trading results of the continuing activities of BT Group
before goodwill amortisation and exceptional items. In
comparing the continuing activities of the group, the
results of our discontinued activities, namely our
Japanese telecom and Spanish mobile investments, Yell
and mmO
2
are excluded. Goodwill amortisation is
excluded because the annual charge has varied
significantly during the period under review as a result
of the corporate transactions noted above and the
exceptional impairment charges. The exceptional items
are excluded because they predominantly relate to the
corporate transactions rather than the trading activities
of the group. This is also consistent with the way that
financial performance is measured by management and
we believe allows a meaningful comparison to be made
of the trading results of the group during the period
under review.
The goodwill amortisation and exceptional items
are therefore analysed and discussed separately from
the line of business results in this Financial review
because they are considered to be a reflection of the
corporate activity rather than the trading activity of the
lines of business.
The following table shows the summarised profit
and loss account which includes a reconciliation of the
key performance measures before and after goodwill
amortisation and exceptional items and is discussed
further in this Financial review. The operating results by
line of business are discussed in addition to the overall
group results as we believe the activities and markets
they serve are distinct and this analysis provides a
greater degree of insight to investors.