BT 2005 Annual Report Download - page 33

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reduction programmes focused on ‘Elimination of Failure’
in end to end processes, particularly through initiatives in
the customer contact centres. Additionally, sustainable
cost reduction programmes targeted the identification
and removal of inefficiencies and duplication. The
majority of these initiatives were targeted at people
related costs, with significant savings in billing, IT
operations and other support functions. In the 2004
financial year savings of £228 million before leaver costs
were also driven by cost reduction programmes.
The number of employees in BT Retail at 31 March
2005 and 31 March 2004 was 39,500 and 41,500,
respectively.
BT Retail’s EBITDA before exceptional items and
goodwill amortisation declined by 10% to £1,249 million
in the 2005 financial year after showing a decline in the
2004 financial year of 2% to £1,394 million. The
increased rate of decline in the 2005 financial year is due
to a 9% fall (compared to 7% in 2004 financial year) in
traditional turnover coupled with increased investment in
new wave activities, particularly in mobility and
broadband, that laid the foundations for further growth in
new wave activities. In the 2004 financial year, cost
savings more than offset the decline in turnover and the
impact on margins of the product mix.
Capital expenditure for the 2005 financial year was
£154 million, an increase of 31% from the 2004 financial
year, mainly due to increased expenditure on software.
BT Wholesale 2005 2004 2003
£m £m £m
Group turnover 8,979 8,883 9,251
Gross variable profit
a
6,817 6,791 7,241
Group operating profit
a
1,940 1,883 2,070
EBITDA
a
3,849 3,802 3,993
Capital expenditure 1,973 1,809 1,652
a
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, internet and other 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 (2005 – 58%, 2004
– 61%, 2003 – 62%) 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.
In the 2005 financial year, turnover totalled £8,979
million, an increase of 1% over the 2004 financial year,
after a reduction of 4% to £8,883 million in the 2004
financial year.
External turnover increased by 10% to £3,812 million
in the 2005 financial year (an increase of 17% excluding
the impact of regulatory reductions to mobile termination
rates). This follows a decline of 1% in the 2004 financial
year to £3,473 million (an increase of 2% excluding the
impact of regulatory reductions to mobile termination
rates). The increase in the 2005 financial year reflects
particularly strong growth in new wave revenues, mainly
broadband. The regulatory price reductions on mobile
termination rates have no impact on profitability.
External turnover from traditional products increased
by 1% in the 2005 financial year compared to a decline of
5% in the 2004 financial year. Excluding the impact of
regulatory reductions to mobile termination rates turnover
was up 10% in the 2005 financial year and down 2% in
the 2004 financial year. The growth in traditional turnover
was mainly driven by growth in private circuits, wholesale
access and interconnect traffic. Turnover from partial
private circuits of £191 million increased by 26% in the
2005 financial year after an increase of 43% in the 2004
financial year to £152 million. This reflects the continuing
trend of customers migrating from lower bandwidth
products to less expensive alternatives such as partial
private circuits and short haul data services. Substitution
to broadband has resulted in the continued declining
trend in Flat Rate Internet Access Call Origination
revenues with turnover of £57 million in the 2005
financial year (2004 – £78 million, 2003 – £84 million).
Wholesale access revenues have increased by £65 million
in the 2005 financial year as a result of increased volumes
from other service providers. Conveyance and low margin
transit revenues of £2,014 million decreased by 2%
compared to the 2004 financial year and at £2,054
million decreased by 1% in the 2004 financial year with
the impact of regulatory price reductions being offset by
increased call volumes.
New wave turnover, including broadband and managed
services, at £664 million in the 2005 financial year,
showed strong growth of 84% following growth of 54% in
the 2004 financial year. Broadband revenues grew by
158% year on year. Wholesale broadband DSL lines more
than doubled during the 2005 financial year and reached
5 million DSL lines in the first week of April 2005 which is
a year ahead of our target. In the 2004 financial year
wholesale DSL lines grew by 177% to over 2.2 million
lines.
Internal turnover decreased by 4% to £5,167 million in
the 2005 financial year after a decrease of 6% to
£5,410 million in the 2004 financial year. The reduction
reflects the impact of lower volumes of calls, lines and
private circuits, and lower regulatory prices being
reflected in internal charges.
Gross variable profit of £6,817 million marginally
increased compared to £6,791 million for the 2004
financial year after a decrease of 6% compared to the
2003 financial year reflecting sales volume changes and
changes in sales mix.
In the 2005 financial year, network and selling, general
and administration costs, excluding leaver costs,
decreased by £20 million, following a decrease of
£174 million in the 2004 financial year. Activity levels in
the network, driven by broadband volumes, have
increased in both the 2005 and 2004 financial years. The
financial impact of this increased activity has been
mitigated by a series of cost reduction programmes
focusing on efficiency, discretionary cost management
and process improvements.
The number of employees in BT Wholesale at 31 March
2005 and 31 March 2004 was 28,300 and 27,800,
respectively.
EBITDA before exceptional items at £3,849 million in
the 2005 financial year was 1% higher than in the 2004
financial year following a reduction of 5% to £3,802
million in the 2004 financial year. EBITDA margins before
exceptional items were maintained at 43% across all three
financial years. Leaver costs were £45 million in the 2005
financial year (2004 – £46 million, 2003 – £131 million).
32 BT Group plc Annual Report and Form 20-F 2005 Operating and financial review