BT 2002 Annual Report Download - page 39

The rentals payable under the lease will have an adverse
impact on other operating costs in future years, initially
around £190 million for the 2003 ®nancial year. It is
expected that this will be wholly offset by reduced
depreciation and interest charges.
In advance of the property transaction being completed
with Telereal, BT also completed the sale of one of its major
properties in London at a pro®t of £43 million.
Interest charge
In the 2002 ®nancial year, the total net interest charge,
including BT's share of its ventures' charges, at
£1,622 million was £308 million higher than in the preceding
year, which in turn was £932 million higher than in the 2000
®nancial year. Of the total charge, £1,540 million arises in
the BT group for the 2002 ®nancial year, compared with
£1,044 million and £306 million in the 2001 and 2000
®nancial years, respectively.
The substantially higher charge in the 2002 and 2001
®nancial years are mainly due to the cost of funding the
acquisition of mmO2's third-generation mobile licences,
principally in the UK and Germany, and the cost of
acquisitions in the 2001 and 2000 ®nancial years. In the 2002
®nancial year, the group's net interest charge was further
increased by the £162 million exceptional cost of novating
interest swaps as a consequence of the property sale and
leaseback transaction. In the 2001 ®nancial year, there was
also a one-off £194 million increase in BT's share of its
ventures' interest charges principally through the Japanese
investments and Viag Interkom which was partly offset by
an exceptional interest receipt of £25 million relating to the
rates refund from the UK Government, noted above.
The 2002 ®nancial year did not have the full year bene®t
of the £5.9 billion proceeds raised by the rights issue and
the £8.0 billion proceeds from the disposal of non-core
businesses. This will reduce interest charges in the 2003
®nancial year.
Interest cover for continuing activities in the 2002
®nancial year represented 1.9 times total operating pro®t
before goodwill amortisation and exceptional items, and
compares with interest cover of 2.4 in the 2001 ®nancial
year and 10.0 in the 2000 ®nancial year. The decline in
cover is due to the increase in the interest charge and
decrease in the operating pro®t before goodwill amortisation
and exceptional items. We expect the net interest charge to
decrease and interest cover to improve in the 2003 ®nancial
year following the signi®cant reduction in net debt during the
2002 ®nancial year.
Pro®t (loss) and taxation
The group's pro®t before taxation for the 2002 ®nancial year
was £1,461 million, compared with a loss of £1,031 million
in the 2001 ®nancial year and a pro®t of £2,942 million in the
2000 ®nancial year. The pro®t in the 2002 ®nancial year
included the exceptional pro®ts from the sale of investments
and businesses totalling £4,389 million. The loss in the 2001
®nancial year was principally due to the £3,200 million
exceptional goodwill impairment charges.
The group's pro®t before taxation from continuing
activities before goodwill amortisation and exceptional items
for the 2002 ®nancial year was £1,273 million, compared
with £1,763 million in the 2001 ®nancial year and £2,973
million in the 2000 ®nancial year. The signi®cantly lower
underlying pro®ts in the 2002 and 2001 ®nancial years were
principally due to the higher interest charges and lower
operating pro®ts explained above.
The tax charge for the 2002 ®nancial year was
£443 million and comprises £528 million on the pro®t before
taxation before the exceptional items on continuing
activities, offset by tax relief of £143 million on certain
exceptional charges and £58 million tax charge on
discontinued activities. The tax charge on the pro®t from
continuing activities before exceptional items and goodwill
amortisation is at an effective rate of 41.5%. This is in
excess of the standard UK tax rate of 30% due to the
impact of loss making subsidiaries outside the UK for which
tax relief is not immediately available and associate
company taxation.
The tax charge of £712 million for the 2001 ®nancial
year represents 34.4% of pro®t before exceptional items
and goodwill amortisation. This compares with a tax charge
of 30.9% for the 2000 ®nancial year. The standard UK
corporation tax rate was 30% for all three years.
The ®gures for the 2001 and 2000 ®nancial years have
been restated for the new UK accounting standard FRS 19,
implemented on 1 April 2001, under which we have made
full provision for deferred taxation liabilities.
The minority interests in the results of the 2001 ®nancial
year of £127 million were primarily attributable to outside
interests in the Japanese investments.
Earnings (loss) and dividends
The basic earnings per share of 12.0 pence per share for
the 2002 ®nancial year compares with a loss of 25.7 pence
for the 2001 ®nancial year and earnings of 27.6 pence for
the 2000 ®nancial year. These results include those of
mmO2 and the group's other discontinued activities up to
the date of demerger or sale, as well as signi®cant
exceptional items and goodwill amortisation. The following
table illustrates the impact of these factors on the earnings
per share for the past three ®nancial years:
2002
pence
2001
pence
2000
pence
Earnings per share from
continuing activities before
goodwill amortisation and
exceptional items 8.8 19.3 29.5
Exceptional items and goodwill
amortisation from
continuing activities (43.6) 1.4 (0.3)
Earnings (loss) per share from
continuing activities (34.8) 20.7 29.2
Earnings (loss) per share from
discontinued activities 46.8 (46.4) (1.6)
Total earnings (loss) per share 12.0 (25.7) 27.6
Financial review
38 BT Group Annual Report and Form 20-F 2002