BT 2004 Annual Report Download - page 27

The review is divided into the following
sections:
26 Introduction
28 Group results
30 Line of business results
30 BT Retail
32 BT Wholesale
34 BT Global Services
34 Other operating income
34 Operating costs
36 Group operating profit (loss)
36 Associates and joint ventures
37 Total operating profit (loss)
37 Profit on sale of group undertakings and
fixed asset investments
38 Profit on sale of property fixed assets
39 Interest charge
39 Profit (loss) before taxation
39 Taxation
40 Earnings (loss) per share
40 Dividends
40 Financing
42 Treasury policy
42 Off-balance sheet arrangements
42 Capital resources
42 Foreign currency and interest rate exposure
43 Capital expenditure
43 Acquisitions
43 Demerger and capital reduction
43 Balance sheet
43 Return on capital employed
44 Pensions
44 Geographical information
44 Economic and Monetary Union
45 Regulatory financial information
45 Regulation, competition and prices
45 Competition and the UK economy
45 Environment
45 Critical accounting policies
46 International accounting standards
46 US GAAP
Please see cautionary statement regarding
forward-looking statements on page 141.
Introduction
The 2004 financial year was marked by the continuing
transformation of our business operations and
markets, where the pace of change is accelerating. We
are driving the change by providing our customers with
new technology and services with greater capabilities
and lower cost. The focus on delivering the strategy
continued and the group’s performance benefited from
the growth in new wave activities such as Information
and Communications Technology (ICT) solutions,
broadband, mobility and managed services and
continued cost efficiency programmes.
The 2003 financial year was characterised by a
focus on implementing and delivering the strategy
announced in April 2002 and further corporate
transactions in the continued restructuring of the
group and reduction of net debt. The corporate
transactions included the unwind of the Concert joint
venture on 1 April 2002 and the disposal of our
interest in Cegetel for £2.6 billion.
The 2002 financial year was dominated by a series
of corporate transactions designed to focus and
transform the group and reduce its net debt position.
Those corporate transactions included raising
£5.9 billion through the rights issue in June 2001, selling
our Japanese telecom and Spanish mobile investments
for £4.8 billion, selling the Yell directories business for
approximately £2 billion, the demerger of mmO
2
and
the sale and leaseback of properties for £2.4 billion.
As a result of the major restructuring of the group
and the significant level of corporate transactions
completed during the period under review, we believe
it is difficult for investors to meaningfully compare the
financial performance of the group between the
financial years under review. In this Financial review
the commentary is therefore focused principally on the
trading results of the continuing activities of BT Group
before goodwill amortisation and exceptional items. In
comparing the continuing activities of the group, the
results of our discontinued activities, namely our
Japanese telecom and Spanish mobile investments,
Yell and mmO
2
are excluded. Goodwill amortisation is
excluded because the annual charge has varied
significantly during the period under review as a result
of the corporate transactions noted above and the
exceptional impairment charges. The exceptional
items, by virtue of their size or nature, are excluded
because they predominantly relate to corporate
transactions rather than the trading activities of the
group. This is also consistent with the way that
financial performance is measured by management
and we believe allows a meaningful comparison to be
made of the trading results of the group during the
period under review.
The goodwill amortisation and exceptional items
are therefore analysed and discussed separately from
the line of business results in this Financial review
because they are considered to be a reflection of the
corporate activity rather than the trading activity of the
lines of business.
The following table shows the summarised profit
and loss account which includes a reconciliation of the
key performance measures before and after goodwill
amortisation and exceptional items and is discussed
further in this Financial review. The operating results
by line of business are discussed in addition to the
overall group results as we believe the activities and
markets they serve are distinct and this analysis
provides a greater degree of insight to investors.
BT Annual Report and Form 20-F 200426 Operating and financial review
Financial review