BT 2005 Annual Report Download - page 34

Depreciation costs were broadly flat at £1,909 million in
the 2005 financial year and £1,919 million in the 2004
financial year.
Operating profit before goodwill amortisation and
exceptional items at £1,940 million increased by 3% in
the 2005 financial year. This was after a reduction of 9%
to £1,883 million in the 2004 financial year. The
operating profit margin, before exceptional items,
remained broadly flat at 21.6% and 21.2% in the 2005
and 2004 financial years, respectively.
Capital expenditure on plant and equipment at
£1,973 million increased by 9% in the 2005 financial year
and follows an increase of 10% in the 2004 financial year.
This reflects increased expenditure to support the rapid
growth in broadband and investment to support the
transformation of the group’s network.
BT Global Services 2005 2004 2003
£m £m £m
Group turnover 6,381 5,782 5,417
Group operating profit (loss)
a
7(105) (375)
EBITDA
a
580 508 238
Capital expenditure 628 479 445
a
Before goodwill amortisation and exceptional items
BT Global Services supplies managed services and
solutions to multi-site organisations worldwide – our core
target market is 10,000 multi-site organisations including
major companies with significant global requirements,
together with large organisations in target local markets.
We provide them with global reach and a complete range
of networked IT services.
Our extensive global communications network and
strong strategic partnerships enable us to serve customers
in the key commercial centres of Europe, North America
and the Asia Pacific region.
Our global communications services portfolio includes:
desktop and network equipment and software; transport
and connectivity; managed LAN (local area network),
WAN (wide area network) and IPVPN (internet protocol
virtual private network) services; managed mobility;
applications hosting; storage and security services; and
business transformation and change management
services.
In the 2005 financial year BT Global Services’ turnover
was £6,381 million, including £111 million from the
Albacom and Infonet businesses acquired in the final
quarter of the year. This represents an underlying increase
of 8% compared to the 2004 financial year. BT Global
Solutions’ turnover grew by 17% in the 2005 financial
year to £3,202 million, following growth of 14% in the
2004 financial year, reflecting the conversion of the
strong order book. BT Consulting & Systems Integration
performed strongly with turnover of £824 million in the
2005 financial year, representing an increase of 14% over
the prior year (2004 – 16%). The growth includes the
impact of the NHS contracts won in 2004. In the 2005
and 2004 financial years contract wins from managed ICT
solutions amounted to more than £7 billion. BT Global
Products’ turnover grew by 4% to £1,897 million in the
2005 financial year (2004 – 9%) and continues to reflect
the growth of MPLS (Multi Protocol Label Switching). In
the 2005 financial year BT Global Carrier turnover
increased by 2% to £981 million, reversing the decline of
1% seen in the 2004 financial year. The increase in 2005
reflects the increases in termination revenues in Europe
partly offset by the anticipated decline in AT&T revenues.
The increase in turnover, together with lower network
and selling, general and administration costs, helped
generate improvements in EBITDA before exceptional
items in the 2005 financial year of 14% to £580 million,
following an improvement of 113% in the 2004 financial
year. The 2005, 2004 and 2003 financial years include
leaver costs of £33 million, £33 million and £65 million,
respectively. Headcount increased by 16% to 24,600 in
the 2005 financial year which includes the expected
increase in resources associated with strengthening the
overseas network centric solutions delivery capabilities
and an increase in headcount to service the increased ICT
contract base. Headcount increased by 23% to 21,200 in
the 2004 financial year.
The 2005 financial year saw Global Services deliver its
first ever full year operating profit before goodwill
amortisation and exceptional items, at £7 million, an
improvement of £112 million over the previous year. The
acquisitions contributed an operating loss of £10 million
since acquisition in the final quarter of the 2005 financial
year.
Capital expenditure for the 2005 financial year was
£628 million, an increase of 31% from £479 million in the
2004 financial year, mainly due to expenditure on the
NHS contracts won in 2004.
Other operating income
Other operating income for the group decreased by
£6 million to £171 million in the 2005 financial year and
by £38 million to £177 million in the 2004 financial year.
Operating costs
Total operating costs increased by 1% in the 2005
financial year to £16,005 million although they were flat
year on year excluding the impact of acquisitions after
reducing by 3% in the 2004 financial year. Our cost
efficiency programmes achieved savings of around
£400 million in the 2005 financial year which enabled
us to invest in growing our new wave activities.
The increase in total costs in the 2005 financial year
reflects the cost of supporting new ICT contracts,
including strengthening our networked IT services delivery
capabilities outside the UK, higher marketing costs and
higher subscriber acquisition costs. As a percentage of
group turnover, operating costs, excluding goodwill
amortisation and exceptional items, were 86% in the
2005 financial year (2004 – 85%, 2003 – 86%). In all
three financial years, net exceptional costs were incurred.
These amounted to £59 million, £7 million and
£198 million in the 2005, 2004 and 2003 financial years,
respectively. These exceptional costs are considered
separately in the discussion which follows.
Operating and financial review BT Group plc Annual Report and Form 20-F 2005 33