BT 2003 Annual Report Download - page 37

continuing activities decreased by 3,900 to 104,700
at 31 March 2003 after decreasing by 8,200 in the
2002 financial year. The increased leaver costs and
salary increases offset the impact of the lower head
count in the 2003 financial year. Higher pension
costs for enhanced benefits provided to leavers and
the annual pay awards were the main reasons
for the increase in staff costs in the 2002 financial year.
The allocation for the employee share ownership
scheme, included within staff costs, was £36 million
in the 2003 financial year. The allocation for the
2002 and 2001 financial years was £25 million and
£32 million, respectively.
Early leaver costs from continuing activities, before
exceptional items, of £276 million were incurred in the
2003 financial year, compared with £186 million in the
2002 financial year and £111 million in the 2001
financial year. This reflects BT’s continued focus on
reducing headcount and improving operational
efficiencies. This includes the cost of enhanced pension
benefits provided to leavers which amounted to
£60 million, £46 million and £nil in the 2003, 2002
and 2001 financial years. In the 2002 and 2001
financial years this did not reflect the full cash cost
because there was a pension fund accounting surplus,
which for accounting purposes includes any provision
for pensions on the group’s balance sheet, and in
accordance with BT’s accounting policies, the
accounting surplus was utilised before making a charge
to the profit and loss account. The cost of enhanced
pension benefits charged against the accounting
surplus in the 2002 and 2001 financial years amounted
to £140 million and £429 million, respectively. In the
2002 financial year the excess over the available
accounting surplus, amounting to £46 million, was
charged to the profit and loss account. Under the
NewStart programme launched in the fourth quarter
of 2001, BT employees who leave in advance of normal
retirement age receive a leaving payment rather than
a redundancy payment and the incremental pension
benefits have been scaled down which has reduced the
level of the cash cost associated with early leavers.
The depreciation charge from continuing activities
increased by 1% in the 2003 financial year to
£3,011 million after increasing by 11% in the 2002
financial year. The increase in the 2003 financial year
is despite the reduction in property depreciation as a
result of the property sale and leaseback in December
2001. The increase in the 2003 and 2002 financial
years reflects a reduction in the estimated asset lives,
reflecting BT’s continuing investment in its networks
and broadband investment.
Goodwill amortisation in respect of subsidiaries and
businesses acquired since 1 April 1998, when BT
adopted Financial Reporting Standard No. 10, and
amortisation of other intangibles totalled £24 million
in the 2003 financial year compared with £124 million
in the 2002 financial year and £91 million in the 2001
financial year. The low charge in the 2003 financial
year reflects the impact of the demerger of mmO
2
and the impairment of goodwill in the 2002 and 2001
financial years which significantly reduced the carrying
value of goodwill. Goodwill on acquisitions before
1 April 1998 was written off directly to reserves.
Payments to other telecommunication operators from
continuing activities reduced by 10% in the 2003
financial year to £3,846 million after increasing by 15%
in the 2002 financial year. The payments in the 2002
and 2001 financial years include those made to the
Concert global venture for the delivery of BT’s outgoing
international calls, which accounts for most of the
reduction in the 2003 financial year.
Other operating costs, which rose by 9% in the
2003 financial year to £5,620 million after increasing
by 13% in the 2002 financial year, include the
maintenance and support of the networks,
accommodation and marketing costs, the cost of sales
of customer premises equipment and non pay related
leaver costs. The increase in the 2003 financial year
includes the property rental costs of around
£190 million following the sale and leaseback
transaction in December 2001.
The exceptional items within operating costs for
the 2003, 2002 and 2001 financial years are shown in
the table below.
Exceptional operating costs 2003
£m
2002
£m
2001
£m
Property rationalisation costs 198 ––
Impairment of goodwill and
tangible fixed assets –2,202 200
Concert unwind costs –172 –
BT Retail call centre
rationalisation –68 –
BT Wholesale bad debt
expense –79 –
mmO
2
demerger costs –98 –
Other –77 (193)
Total attributable to
continuing activities 198 2,696 7
Total attributable to
discontinued activities –11 2,850
Total exceptional
operating costs 198 2,707 2,857
In the 2003 financial year a property rationalisation
charge of £198 million was recognised in relation
to the rationalisation of the group’s London office
portfolio. The rationalisation involves the exit from
a number of office properties.
The most significant item in the 2002 financial
year was the impairment of goodwill and tangible fixed
assets in the European activities of BT Global Services.
In the light of our announcement that BT Global
Services was streamlining its activities to focus on
multi-site corporate customers with European activities
and the assimilation of BT’s share of Concert’s
activities, an impairment review of the investment in
its European activities was performed. As a result, a
goodwill impairment charge of £1,939 million and a
tangible fixed asset impairment charge of £263 million
was recognised. The goodwill in the European activities
was fully written down as a result of the charge.
Financial review
36 BT Annual Report and Form 20-F 2003