BT 2005 Annual Report Download - page 32

base of the traditional business, allowing investment in
new wave products and services.
BT Retail’s turnover decreased by 3% in the 2005
financial year to £12,562 million after declining by 2% in
the 2004 financial year. The growth in new wave turnover
of 28% in the 2005 financial year (2004 – 29%) was more
than offset by the decline in traditional turnover driven by
the impact of regulation and competition. After adjusting
for the regulatory impact of the reduction in mobile
termination rates, turnover declined by 2% in the 2005
financial year (2004 – 1%). Turnover for the three years is
summarised as follows:
BT Retail turnover 2005 2004 2003
£m £m £m
Voice services 8,054 8,906 9,552
Intermediate products 1,728 1,868 1,982
Traditional 9,782 10,774 11,534
ICT 1,978 1,734 1,502
Broadband 541 307 131
Mobility 184 84 42
Other 77 41 8
New wave 2,780 2,166 1,683
Total 12,562 12,940 13,217
Voice services comprise calls made by customers on the
BT fixed line network in the UK, analogue lines,
equipment sales, rentals and other business voice
products. Overall turnover from voice services was 10%
lower in the 2005 financial year (8% excluding the impact
of regulatory reductions to mobile termination rates) after
a decrease of 7% in the 2004 financial year. The
reduction includes the effect of continued migration to
broadband with a 25% fall in dial up minutes over the
year, a reduction in market share reflecting regulatory
and competitive pressure and a decline in the overall fixed
to fixed calls market.
Turnover from intermediate products in the 2005
financial year of £1,728 million decreased by 7% after
decreasing by 6% in the 2004 financial year. The
reduction was mainly driven by the continued decline in
private circuits and ISDN as customers migrate to new
wave products including broadband, and IPVPN. As a
result of regulatory changes, partial private circuits used
by UK fixed network operators are no longer provided by
BT Retail, but are provided as a BT Wholesale product.
Private circuit revenues declined by £68 million in the
2005 financial year and by £88 million in the 2004
financial year.
New wave turnover grew by 28% to £2,780 million in
the 2005 financial year compared to growth of 29% in the
2004 financial year. New wave turnover accounted for
22% of BT Retail’s turnover in the 2005 financial year
compared to 17% and 13% in the 2004 and 2003
financial years, respectively. ICT solutions are the main
component and increased by 14% in the 2005 financial
year to £1,978 million after an increase of 15% in the
2004 financial year reflecting the growth in new IP based
services and solutions contracts. Broadband turnover grew
by 76% to £541 million in the 2005 financial year after an
increase of 134% in the 2004 financial year. The growth
of broadband continues to accelerate with 1,752,000
BT Retail connections at 31 March 2005, an increase of
81% over last year. BT Retail had net additions of
785,000 broadband customers in the year, a 29% share
of the broadband DSL market additions. Turnover from
mobility services increased by 119% in the 2005 financial
year after doubling in the 2004 financial year. BT Mobile
had over 372,000 contract mobile connections at 31
March 2005, an increase of 158% from 31 March 2004.
BT Openzone has grown significantly this year with paid
minutes across the network almost four times higher and
the number of access sites is now over 20,000 worldwide.
Other new wave turnover has grown by 88% primarily
driven by revenues from BT Phone Books (now covering
171 different regions) increasing to £65 million.
The total number of BT Retail lines, which includes
voice, digital and broadband, were flat at 30 million at
31 March 2005, reflecting the continued growth in
broadband offset by the declining PSTN lines.
The gross margin percentage decreased by 0.9
percentage points in the 2005 financial year after a
decrease of 0.2 percentage points in the 2004 financial
year. The decline primarily reflects the change in revenue
mix from traditional business to lower margin new wave
services. As the broadband and mobility customer base
grows, the additional subscriber acquisition costs are
written off as incurred. In addition, the creation and
development of new value added services resulted in
increased development costs.
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 2005 financial
year generated selling, general and administration cost
savings of £124 million before leaver costs in the
traditional business (£27 million net of new wave
investment). The savings in the year were driven by cost
Operating and financial review BT Group plc Annual Report and Form 20-F 2005 31
Group operating profit (loss)
before goodwill amortisation
and exceptional items Depreciation
Amortisation of
intangible assets
EBITDA before
exceptional items
2005 2004 2003 2005 2004 2003 2005 2004 2003 2005 2004 2003
£m £m
a
£m
a
£m £m £m £m £m £m £m £m
a
£m
a
1,120 1,232 1,216 129 162 201 –––1,249 1,394 1,417 BT Retail
1,940 1,883 2,070 1,909 1,919 1,923 –––3,849 3,802 3,993 BT Wholesale
7(105) (375) 567 610 609 634580 508 238 BT Global Services
(203) (121) (117) 229 230 278 –––26 109 161 Other
––––––––– –––Intra-group
2,864 2,889 2,794 2,834 2,921 3,011 6345,704 5,813 5,809 Group totals