BT 2003 Annual Report Download - page 36

Carrier divisions within BT Global Services reflect
the majority of the results of the returning Concert
businesses in the 2003 financial year.
In the 2003 financial year BT Global Services
turnover was £5,251 million representing an increase
of 17% compared to the prior year. The Global Carrier
division reflected an increase of £744 million in the
2003 financial year to £1,007 million, principally due
to the re-integration of the international carrier
business of the former Concert global venture. Global
Products turnover grew by 22% in the 2003 financial
year to £1,883 million mainly due to the re-integration
of Concert and the growth in IP VPN (Internet Protocol
Virtual Private Network) products. Syntegra performed
strongly in the difficult systems integration market with
turnover of £623 million in the 2003 financial year, an
increase of 2%. Solutions turnover grew by 11% in the
2003 financial year to £2,042 million and order intake
in the second half of the year has been very strong,
with total orders for the year of £3.6 billion, after a
slow first half year.
In the 2002 financial year BT Global Services’
turnover was £4,472 million representing an increase
of 29% driven mainly by Solutions, European
operations and UK IP revenues.
Continued cost reductions, both in network costs
as well as selling, general and administration costs,
helped generate improvements in EBITDA before
exceptional items in the 2003 financial year of 22% to
£178 million, following an improvement of £96 million
in the 2002 financial year. The re-integration of the
former Concert business has had an adverse impact on
the growth in EBITDA before exceptional items. The
2003, 2002 and 2001 financial years include leaver
costs of £65 million, £55 million and £8 million
respectively. Headcount increased by 3% to 17,200 in
the 2003 financial year as a result of the re-integration
of 1,900 employees from the former Concert business
offset by leavers and reduced by 2,100 to 16,700 in
the 2002 financial year. All major European operations
achieved their target of becoming EBITDA positive
during the 2003 financial year.
In the 2002 financial year an exceptional charge
of £2,211 million was recognised principally relating
to the impairment of the goodwill and tangible fixed
assets of the European activities. This followed the
announcement that activities were being streamlined
to focus on multi-site corporate customers.
The group operating loss before goodwill
amortisation and exceptional items increased by
£74 million in the 2003 financial year to a loss of
£427 million after increasing by £44 million to a loss
of £353 million in the 2002 financial year. The loss
in the 2003 financial year includes the adverse impact
of the former Concert business.
Capital expenditure for the 2003 financial year was
£439 million, a reduction of 28%, and £609 million in
the 2002 financial year, a reduction of 35%. This
demonstrates the focus on cash control and is reflected
in the £202 million improvement in operating free cash
outflow (EBITDA less capital expenditure) before
exceptional items to £261 million in the 2003 financial
year. This represents a turnaround of £624 million
since the 2001 financial year.
Other operating income
As part of the arrangements for the establishment of
Concert, BT had been seconding staff and providing
administrative and other services from its launch in
early January 2000. The income from these services
totalled £nil in the 2003 financial year, £135 million
in the 2002 financial year and £168 million in the 2001
financial year.
Operating costs
Total operating costs from continuing activities were
reduced by 13% in the 2003 financial year to £16,370
million after increasing by 30% in the 2002 financial
year. As a percentage of group turnover from
continuing activities, operating costs from continuing
activities, excluding goodwill amortisation and
exceptional items, increased from 84% in the 2001
financial year, to 87% in the 2002 financial year and
reduced to 86% in the 2003 financial year. Operating
costs in the 2003 financial year include the costs
associated with the re-integrated activities of the
former Concert global venture. Because these activities
have been fully integrated into the lines of business it is
not possible to separately identify those specific costs
associated with the activities of the former Concert
global venture. In all three financial years, net
exceptional costs from continuing activities were
incurred. These amounted to £198 million,
£2,696 million and £7 million in the 2003, 2002
and 2001 financial years, respectively. These
exceptional costs are considered separately in the
discussion which follows.
Operating costs 2003
£m
2002
£m
2001
£m
Continuing activities:
Staff costs 4,254 4,260 4,069
Own work capitalised (583) (623) (642)
Depreciation 3,011 2,974 2,689
Goodwill and other
intangibles amortisation 24 124 91
Payments to
telecommunications
operators 3,846 4,289 3,736
Other operating costs 5,620 5,134 4,550
Total operating costs from
continuing activities before
exceptional costs 16,172 16,158 14,493
Exceptional costs 198 2,696 7
Total operating costs from
continuing activities 16,370 18,854 14,500
Total operating costs from
discontinued activities –2,546 6,259
Total operating costs 16,370 21,400 20,759
Staff costs from continuing activities were broadly flat
in the 2003 financial year at £4,254 million after
increasing by 5% in the 2002 financial year. In the
2003 financial year, the numbers employed in the
Financial review
BT Annual Report and Form 20-F 2003 35