BT 2004 Annual Report Download - page 31

for the 2004 financial year, an increase of 19% from
14.2 pence in the 2003 financial year, and were
8.8 pence in the 2002 financial year. The 2002
financial year reflected the higher operating costs and
net interest payable which have continued to improve
during the 2004 and 2003 financial years.
Line of business results
In the following commentary, we discuss the operating
results of the group for the 2004, 2003 and 2002
financial years in terms of the lines of business.
There is extensive trading between the lines of
business and their profitability is dependent on the
transfer price levels. The intra-group trading
arrangements and operating assets are subject to
review and have changed in certain circumstances.
Where that is the case the comparative figures have
been restated to reflect those changes.
The table below analyses the trading relationships
between each of the lines of business for the 2004
financial year. The majority of the internal trading is
performed by BT Wholesale with BT Retail, reflecting
sales of calls and access lines and network charges for
other products. This trading relationship also reflects
the pass through of termination charges on other
telecom operator networks and the sale of wholesale
broadband ISP products. BT Retail also trades with BT
Wholesale, selling calls and lines products, private
circuits, apparatus and conferencing for onward sale to
other telecom operators. BT Global Services’ turnover
with BT Retail mainly reflects the sales of Global
Services products in the UK. BT Global Services trades
with BT Wholesale mainly for use of the IP/ATM
network, International Direct Dial traffic settlements
and certain dial IP revenue share arrangements. BT
Wholesale’s turnover with BT Global Services reflects
the use of the network infrastructure for BT Global
Services’ products.
Internal cost recorded by:
Internal turnover
BT
Retail
BT
Wholesale
BT Global
Services Other Total
recorded by: £m £m £m £m £m
BT Retail – 769 130 5 904
BT Wholesale 6,902 – 510 2 7,414
BT Global Services 2,702 646 – 24 3,372
Other – – 1 – 1
Total 9,604 1,415 641 31 11,691
The line of business results are presented and
discussed before goodwill amortisation and exceptional
items, for the reasons set out above, to provide a
meaningful comparison of the trading results between
the financial years under review. Goodwill amortisation
and exceptional items are discussed separately in a
group context in this Financial review.
In addition to measuring financial performance of
the lines of business based on the operating profit
before goodwill amortisation and exceptional items,
management also measure the operating financial
performance of the lines of business based upon the
EBITDA before exceptional items. EBITDA is defined as
the group operating profit (loss) before depreciation
and amortisation. This may not be directly comparable
to the EBITDA of other companies as they may define
it differently. EBITDA excludes depreciation and
amortisation, both being non cash items, from group
operating profit and is a common measure, particularly
in the telecommunications sector, used by investors
and analysts in evaluating the operating financial
performance of companies.
EBITDA before exceptional items is considered to
be a good measure of the operating performance
because it reflects the underlying operating cash costs,
by eliminating depreciation and amortisation, and
excludes non-recurring exceptional items that are
predominantly related to corporate transactions.
EBITDA is not a direct measure of the group’s
liquidity, which is shown by the group’s cash flow
statement and needs to be considered in the context of
the group’s financial commitments. A reconciliation of
EBITDA before exceptional items to group operating
profits (losses) by line of business and for the group is
provided in the table across the page above. Trends in
EBITDA before exceptional items are discussed for
each line of business in the following commentary.
BT Retail 2004
£m
2003
£m
2002
£m
Group turnover 13,534 13,882 13,284
Gross margin 3,722 3,936 3,584
Sales, general and
administration costs* 2,126 2,207 2,369
Group operating profit* 1,434 1,528 1,006
EBITDA* 1,596 1,729 1,215
Capital expenditure 118 109 147
* Before goodwill amortisation and exceptional items
BT Annual Report and Form 20-F 200430 Operating and financial review
Line of business summary
Group turnover Group operating profit (loss) Goodwill amortisation Exceptional charges (credits)
2004
£m
2003
£m
2002
£m
2004
£m
2003
£m
2002
£m
2004
£m
2003
£m
2002
£m
2004
£m
2003
£m
2002
£m
BT Retail 13,534 13,882 13,284 1,433 1,527 894 111––111
BT Wholesale 10,859 11,247 12,325 1,682 1,758 2,070 –––(1) –79
BT Global Services 5,782 5,417 4,678 (116) (394) (2,625) 11 19 120 ––2,211
Other 35 41 95 (126) (319) (385) –––8198 295
Intra-group (11,691) (11,860) (11,935) –––––––––
Total continuing
activities 18,519 18,727 18,447 2,873 2,572 (46) 12 20 121 7198 2,696
Discontinued
activities ––2,112 ––(433) ––231 ––11
Group totals 18,519 18,727 20,559 2,873 2,572 (479) 12 20 352 7198 2,707