BT 2005 Annual Report Download - page 35

Operating costs 2005 2004 2003
£m £m
a
£m
a
Staff costs 4,451 4,415 4,250
Own work capitalised (722) (677) (583)
Depreciation 2,834 2,921 3,011
Goodwill and other
intangibles amortisation 22 15 24
Payments to
telecommunications
operators 3,725 3,963 3,940
Other operating costs 5,636 5,182 5,526
Total operating costs before
exceptional costs 15,946 15,819 16,168
Net exceptional costs 59 7 198
Total operating costs 16,005 15,826 16,366
a
Restated – see note 1
Staff costs increased by 1% to £4,451 million in the 2005
financial year and by 4% to £4,415 million in the 2004
financial year. In the 2005 financial year, the number of
staff employed increased by 2,200 to 102,100 at
31 March 2005 after decreasing by 4,800 in the 2004
financial year. The increase in the 2005 financial year was
mainly due to the additional staff required to service ICT
contracts and the acquisitions of Albacom and Infonet.
The increase in headcount and pay rates was offset by
lower early leaver costs. In the 2004 financial year
increased pay rates and national insurance and a
£141 million increase in the pension charge offset the
impact of the lower headcount and leaver costs.
The allocation for the employee profit share scheme,
included within staff costs, was £11 million in the 2005
financial year. The allocation for the 2004 and 2003
financial years was £20 million and £36 million,
respectively.
Early leaver costs of £166 million were incurred in the
2005 financial year, compared with £202 million and
£276 million in the 2004 and 2003 financial years,
respectively. This reflects BT’s continued focus on
improving operational efficiencies. Leaver costs include
the cost of enhanced pension benefits provided to leavers
which amounted to £nil, £1 million and £60 million in the
2005, 2004 and 2003 financial years, respectively.
The depreciation charge decreased by 3% in the 2005
financial year to £2,834 million after decreasing by 3% in
the 2004 financial year.
Goodwill amortisation in respect of subsidiaries and
businesses acquired and amortisation of other intangibles
totalled £22 million in the 2005 financial year compared
with £15 million in the 2004 financial year and £24 million
in the 2003 financial year.
Payments to other telecommunications operators
decreased by 6% in the 2005 financial year to
£3,725 million after increasing by 1% in the 2004
financial year. The decrease in the 2005 financial year
mainly reflects the impact of mobile termination rate
reductions offset by higher volumes.
Other operating costs before goodwill amortisation
and exceptional items increased by 9% in the 2005
financial year to £5,636 million after reducing by 6% in
the 2004 financial year. This reflects not only the cost of
supporting new ICT contracts, but also investment in new
wave activities, including strengthening our networked IT
services delivery capabilities outside the UK, higher
marketing costs and higher subscriber acquisition costs.
The decrease in the 2004 financial year was largely due to
efficiency cost savings offset by the adverse impact of
currency movements. Other operating costs include the
maintenance and support of the networks,
accommodation and marketing costs, the cost of sales of
customer premises equipment and non pay related leaver
costs.
The exceptional items within operating costs for the
2005, 2004 and 2003 financial years are shown in the
table below.
Exceptional operating costs 2005 2004 2003
£m £m £m
Property rationalisation costs 59 – 198
Rectification costs –30 –
BT Wholesale bad debt
release –(23) –
Total exceptional
operating costs 59 7 198
In the 2005 financial year £59 million of exceptional
property rationalisation charges were recognised in
relation to the group’s provincial office portfolio. This
rationalisation programme is expected to continue
through next year giving rise to further rationalisation
costs. In the 2004 financial year, net exceptional
operating costs included the rectification costs relating to
a major incident offset by the £23 million release of the
surplus exceptional bad debt provisions made in the 2002
financial year. In the 2003 financial year a property
rationalisation charge of £198 million was recognised in
relation to the group’s London office estate.
Group operating profit (loss)
In the 2005 financial year, group operating profit before
goodwill amortisation and the exceptional items described
above, of £2,864 million was 1% lower than in the 2004
financial year, which in turn was 3% higher than in the
2003 financial year. This reflects the increased operating
costs, described above, in the 2005 financial year.
Total group operating profit for the 2005 financial year
was £2,789 million compared to a profit of £2,870 million
in the 2004 financial year and a profit of £2,576 million in
the 2003 financial year.
Associates and joint ventures
The results of associates and joint ventures are shown
below:
2005
£m
2004
£m
2003
£m
Share of turnover 408 395 1,455
Share of operating
(loss) profit before
goodwill
amortisation and
exceptional items –(8) 181
The group’s share of associates’ and joint ventures’
turnover was £408 million during the 2005 financial year.
In the 2004 financial year the group’s share of associates’
and joint ventures’ turnover was £395 million, a decrease
of £1,060 million over the previous year due to the
disposal of the group’s interest in Cegetel in the 2003
financial year.
34 BT Group plc Annual Report and Form 20-F 2005 Operating and financial review