BT 2004 Annual Report Download - page 33

operators are no longer provided by BT Retail, but are
provided as a BT Wholesale product. Private circuit
revenues declined by £228 million in the 2004
financial year and by £109 million in the 2003 financial
year.
The total number of BT Retail lines, which includes
voice, digital and broadband, were flat at 29.6 million
at 31 March 2004 following an increase of 1% in the
2003 financial year, reflecting the continued growth in
broadband offset by the declining PSTN lines. The
movement in the 2003 financial year mainly reflected
the growth of high speed ISDN lines and broadband.
New wave turnover grew by 29% to £2,166 million
in the 2004 financial year compared to growth of 19%
in the 2003 financial year. ICT turnover increased by
15% in the 2004 financial year to £1,734 million after
an increase of 9% in the 2003 financial year reflecting
the growth in new IP based services and solutions
contracts, offset by the decline in business telephony
equipment. Broadband turnover grew by 134% to
£307 million in the 2004 financial year after an
increase of 322% in the 2003 financial year. This
reflects the increased take up of broadband, with
928,000 BT Retail customers at 31 March 2004 and
429,000 customers at 31 March 2003, reflecting
increases of 116% and 298% on the respective prior
years. In November 2003, BT entered the consumer
mobile market with the launch of BT Mobile Home
Plan through on-line, voice and retail store outlets. BT
now has a consumer and corporate mobile customer
base of 144,000. Total turnover from mobile services
increased by 100% in the 2004 financial year to
£84 million.
The gross margin percentage decreased by
1 percentage point in the 2004 financial year after an
increase of 1 percentage point in the 2003 financial
year. The decline in the 2004 financial year reflects
lower prices and changes in the revenue mix, partly
offset by lower charges from BT Wholesale, in line with
market and regulatory prices. The improvements in the
2003 financial year were driven by the success of BT
Together packages, improved product mix and lower
wholesale prices which more than offset the impact of
the decline in call volumes.
Gross margin is turnover less costs directly
attributable to the provision of the products and
services reflected in turnover in the period. Selling,
general and administration costs are those costs that
are ancillary to the business processes of providing
products and services and are the general business
operating costs. BT Retail analyses its costs in this
manner for management purposes in common with
other retail organisations and it has set target savings
for selling, general and administration costs.
Cost transformation programmes in the 2004
financial year generated selling, general and
administration cost savings of £228 million before
leaver costs in the traditional business compared to the
2003 financial year (£154 million net of new wave
investment). The savings in the year were driven by a
reduction in people related expenses such as travel,
accommodation and communications, lower service
costs resulting from improvements in service quality,
billing initiatives and cost reduction programmes
focusing on customer contact centres, improving the
billing platform, and optimising processes across
BT Retail.
Excluding leaver costs and investment in new wave
activities, BT Retail has achieved its target of
£800 million savings almost a year early in the
traditional business, achieving savings of £228 million,
£275 million and £290 million in the 2004, 2003 and
2002 financial years, respectively.
The number of employees in BT Retail at 31 March
2004 and 31 March 2003 was 41,500 and 50,400,
respectively.
BT Retail’s EBITDA before exceptional items and
goodwill amortisation declined by 8% to £1,596
million in the 2004 financial year after showing strong
growth in the 2003 financial year of 42% to
£1,729 million. In the 2004 financial year, cost savings
were more than offset by the decline in turnover and
the impact on margins of the product mix. In the 2003
financial year, the cost savings and improved gross
margins contributed towards BT Retail’s strong
EBITDA growth before exceptional items.
BT Wholesale 2004
£m
2003
£m
2002
£m
Group turnover 10,859 11,247 12,325
Group operating profit* 1,681 1,758 2,149
EBITDA* 3,600 3,681 4,063
Capital expenditure 1,809 1,652 1,974
* Before goodwill amortisation and exceptional items
BT Wholesale is the line of business within BT that
provides network services and solutions within the UK.
Its customers include communications companies,
fixed and mobile network operators and service
providers. The customer base includes BT’s lines of
business, BT Retail and BT Global Services. The
majority of BT Wholesale’s turnover is internal (2004 –
68%, 2003 – 69%, 2002 – 68%) and mainly
represents trading with BT Retail. External turnover is
derived from providing wholesale products and
solutions to other operators interconnecting with BT’s
UK fixed network, including mmO
2
since the
demerger. Internal turnover and costs with mmO
2
for
the 2002 financial year have been reclassified as
external in this section to enable a meaningful year on
year comparison.
In the 2004 financial year, turnover totalled
£10,859 million, a decline of 3% following a decrease
of 9% to £11,247 million in the 2003 financial year.
The reduction in the 2004 and 2003 financial years is
primarily due to lower sales volumes and prices to BT
Retail. The results for the 2002 financial year included
turnover of £770 million relating to the former Concert
global venture, which was re-integrated from 1 April
2002. Excluding this Concert turnover in the 2002
financial year, the underlying turnover declined by 3%
in the 2003 financial year.
External turnover declined by 2% in the 2004
financial year to £3,445 million which is fully
accounted for by regulatory price reductions on mobile
termination rates which have reduced external turnover
BT Annual Report and Form 20-F 200432 Operating and financial review