BT 2001 Annual Report Download - page 37

phone operators on behalf of BT Cellnet Lumina and
DX Communications’ customers.
Other operating costs, which rose by 20% in the 2001
¢nancial year to »6,737 million and by 9.4% in the 2000
¢nancial year, include the maintenance and support of the
networks, accommodation and marketing costs, the cost of
sales of customer premises equipment and redundancy costs.
The increase in costs in the 2001 ¢nancial year is mainly
attributable to the other operating costs of acquired businesses.
The costs incurred in supporting the high growth of
BT Cellnet was the main factor behind the increase in costs in
the 2000 ¢nancial year. Also, in the 1999 ¢nancial year, a
currency gain of »87 million from investing the proceeds of the
MCI shares was o¡set against these costs.
Redundancy costs of »104 million were incurred in the
2001 ¢nancial year, compared with »59 million in the 2000
¢nancial year and »124 million in the 1999 ¢nancial year. The
redundancy costs in the 2001 ¢nancial year and to a much
lesser extent in the 2000 ¢nancial year include the costs of over
3,000 managers who took early voluntary release as part of
BT’s plans to improve e⁄ciency. In view of a pension fund
surplus, which for accounting purposes includes the provision
for pension costs in the group’s balance sheet, and in
accordance with BT’s accounting policies, redundancy charges
for the three ¢nancial years 2001, 2000 and 1999 do not include
the costs of the incremental pension bene¢ts provided to early
retirees, which totalled »429 million, »140 million and »279
million, respectively.
We are changing the arrangements under which people
leave BT in advance of the normal retirement age. Under our
NewStart programme launched during the fourth quarter of the
2001 ¢nancial year, BT employees will be expected to leave
with a leaving payment in place of a redundancy payment, and
incremental pension bene¢ts are to be scaled down. This should
reduce early leaver costs, which have been very signi¢cant in
recent years.
The exceptional items within operating costs are
summarised in the table in the adjacent column. The most
signi¢cant item in the 2001 ¢nancial year is the impairment of
goodwill in Viag Interkom. We completed the acquisition of
the 55% interest in the company for »8,770 million in January
and February 2001 including repayment of loans. Goodwill of
»4,992 million arose on this transaction, the consideration
for which was negotiated in August 2000. We have
undertaken an impairment review under the requirements
of the UK Accounting Standard FRS 11, incorporating
reduced expectations for the rate of growth in pro¢ts in the
medium term re£ecting current market views.
Exceptional operating costs
2001
£m
2000
£m
1999
£m
Impairment of goodwill in Viag
Interkom 3,000 ––
Write off of Viag Interkom’s IT
systems 43 ––
Infrastructure rates refunds (193) ––
Write off of cellular subscriber
acquisition costs 7––
Costs relating to the
disengagement from MCI –64 69
Costs relating to the closure of
the BT Cellnet analogue
network –47 –
Total exceptional costs 2,857 111 69
An impairment in goodwill of »3,000 million resulted from this
review.
Other exceptional items within operating costs in the 2001
¢nancial year mainly comprised:
&a write o¡ of »43 million on Viag Interkom’s IT systems
following its division into ¢xed and wireless business on
BT’s acquisition;
&a credit of »193 million for the refund of rates on BT’s
infrastructure following a successful legal action taken by
BT in 2000 to challenge the rateable valuations on which it
was charged for its network assets.
The exceptional costs for the 2000 ¢nancial year included
»47 million for the exit of BT Cellnet’s analogue network in
autumn 2000. Additionally, in the 2000 and 1999 ¢nancial
years, costs of »64 million and »69 million, respectively,
involved in the work to ensure that BT’s business became fully
independent of MCI have been shown as exceptional items in
the group pro¢t and loss account.
In the 2002 ¢nancial year productivity improvements and
cost savings will be sought and initiatives to reduce costs
totalling approximately »575 million have been identi¢ed.
Group operating profit
Group operating pro¢t for the 2001 ¢nancial year of »61 million
was »3,537 million lower than in the previous year, principally
due to the »3,000 million goodwill impairment charge. The
pro¢t for the 2000 ¢nancial year was »218 million lower than in
the 1999 ¢nancial year. Before goodwill amortisation and the
exceptional items described above, group operating pro¢t in the
2001 ¢nancial year was 13.3% lower than in the 2000 ¢nancial
year. This, in turn, was 2.2% lower than that in the 1999
¢nancial year. The reduction in pro¢t in the 2001 ¢nancial year
was caused by reduced call prices, increased lower margin
wholesale business with other operators, the losses of
BT Annual report and Form 20-F 37