BT 2002 Annual Report Download - page 31

The group's pro®ts from continuing activities are derived
predominantly from BT Retail and BT Wholesale's ®xed
network business in the UK. BT Ignite and BTopenworld are
both in a development stage and incurring losses. The
discontinued activities comprise mmO2, Yell, Japan
Telecom, J-Phone and Airtel.
mmO2's activities up to the demerger in November
2001 comprised principally the group's controlled mobile
activities in the UK, Germany, the Republic of Ireland and
the Netherlands, and the Genie mobile internet business.
The pro®t from mmO2's mobile network in the UK was
offset by losses being incurred in establishing its networks
in Germany, the Republic of Ireland and the Netherlands.
Until its sale in June 2001, Yell contributed a pro®t principally
from its Yellow Pages directory activities in the UK.
BT Retail 2002
£m
2001
£m
Group turnover 12,085 12,063
Gross margin 3,399 3,443
Sales, general and administration costs 2,097 2,371
EBITDA 1,302 1,072
Operating pro®t 1,102 888
Capital expenditure 143 157
Operating free cash ¯ow 1,159 915
Note ± before goodwill amortisation and exceptional items.
BT Retail's results have bene®ted in the 2002 ®nancial year
from the strategic focus on defending core revenues and
gross margins, cost reduction through a series of cost
transformation programmes and positioning BT Retail to
grow top line revenue through new wave revenues.
Turnover in the 2002 ®nancial year at £12,085 million
was virtually unchanged on the previous year. Initiatives
such as BT Answer 1571 and BT Together ®xed price
packages, together with increased focus on business
customers, have contributed to stemming the decline in
turnover. As a result of changes required by Oftel, partial
private circuits used by UK ®xed network operators are no
longer provided by BT Retail, but are provided as a
BT Wholesale product. This has reduced revenue by
£90 million in BT Retail.
Gross margin at £3,399 million declined in the 2002
®nancial year and was 28.1% of turnover compared with
28.5% in the 2001 ®nancial year.
Cost transformation has produced a total saving of
£274 million (12%) in selling, general and administration
costs, excluding exceptional items, over the year. These cost
savings have contributed towards the EBITDA growth in the
year of £230 million (21%). This has also enabled BT Retail to
contribute an operating free cash ¯ow (EBITDA less capital
expenditure) of £1,159 million in the year which is £244 million
(27%) better than the 2001 ®nancial year. In addition, BT
Retail generated £170 million cash in¯ow as a result of an
improvement in stock and debtors during the year.
The number of employees in BT Retail at 31 March 2002
at 50,800 was approximately 5% lower than at 31 March
2001.
BT Retail launched the Next Generation Contact Centre
Programme, which will rationalise the number of call centres
from 104 sites to 30 over the next two years. The
associated exceptional costs of £68 million are discussed
on page 34.
BT Retail provides an end to end service to its
customers over 28.3 million lines in the UK. BT Retail's
turnover is mainly derived from calls, lines, private services
and total business solutions to the consumer, SME and
major business markets.
BT Retail has undertaken a number of pricing and other
initiatives, which has resulted in the slowing down of the
estimated loss of market share. Within the residential voice
market, BT Retail maintained market share, as it has done
since June 2000, with share internally estimated at 73%. In
the business voice market, internal estimates put BT Retail's
share at 48%, down 3% in the year against a 4.5% fall in
the prior year. Within the Dial IP market, BT Retail continues
to gain market share in both business and residential
sectors, with an estimated total share of 75%, up 8% in the
year.
Turnover for the year is summarised as follows:
BT Retail turnover 2002
£m
2001
£m
Fixed network calls 4,691 4,963
Exchange lines 3,617 3,398
Customer premises equipment supply 605 609
Private services 559 616
Other sales and services 1,048 1,078
Total external sales
a
10,520 10,664
Sales to other BT businesses 1,565 1,399
Total 12,085 12,063
a
External sales include sales to mmO2 for both years under review.
Turnover from ®xed network calls declined by 5% to
£4,691 million compared to the 2001 ®nancial year following
a decline of 4% in the 2001 ®nancial year. Fixed network
calls comprise all calls made by customers on the BT ®xed
line network in the UK, including outbound international
calls, calls to mobile phones and calls to the internet.
Absolute call volumes in BT Retail increased by 6%
following growth of 8% in both the 2001 and 2000 ®nancial
years.
The year saw the stemming of the rate of decline of
inland geographic call volumes driven by initiatives such as
BT Together, with unlimited local and UK calls, Chataway
weekends and updates of the 1571 services. Total
geographic call volume decreased by 6% in the 2002
®nancial year compared to 10% in the prior year.
Following rapid growth of 60% in the 2001 ®nancial
year, internet related and other non-geographic growth has
stabilised in the fourth quarter of the 2002 ®nancial year to
give overall growth of 24% for the year as customers switch
to FRIACO (Flat Rate Internet Access Call Origination) based
internet products. FRIACO is not a BT Retail product and
accordingly, not re¯ected in the BT Retail call volumes. The
Financial review
30 BT Group Annual Report and Form 20-F 2002