BT 2007 Annual Report Download - page 43

ASSOCIATES AND JOINT VENTURES
The results of associates and joint ventures before specific items
are shown below:
2007
£m
2006
£m
2005
£m
Share of post tax profit (loss) of
associates and joint ventures 15 16 (14)
The group’s share of post tax profits (losses) from associates and
joint ventures, before specific items, was a profit of £15 million
in the 2007 financial year. This compares with a profit of
£16 million in the 2006 financial year and a loss of £14 million
in the 2005 financial year.
The principal contributor to profit before taxation in the 2007
financial year was the group’s associate, Tech Mahindra, which
contributed £21 million (2006: £13 million, 2005 £6 million). In
the 2006 and 2005 financial years the joint venture LG Telecom
in Korea also contributed a profit of £7 million and £6 million
respectively. In the 2005 financial year, Albacom in Italy
contributed a loss of £22 million prior to becoming a subsidiary.
PROFIT BEFORE TAXATION
The group’s profit before taxation for the 2007 financial year
was £2,484 million, compared with profits of £2,040 million and
£2,354 million in the 2006 and 2005 financial years,
respectively.
The group’s profit before taxation before specific items for
the 2007 financial year was £2,495 million, compared with
£2,177 million in the 2006 financial year and £2,080 million in
the 2005 financial year. Operating profit was maintained in line
with the increase in revenue, with the improvement in profit
before taxation mainly due to lower net finance charges.
TAXATION
The tax benefit for the 2007 financial year was a net credit of
£368 million and comprised a charge of £611 million on the
profit before taxation and specific items, offset by a tax credit of
£41 million on certain specific items and a further specific items
tax credit of £938 million arising from the settlement of
substantially all open UK tax matters relating to ten tax years up
to and including the 2004/05 tax year.
The tax charge on the profit before taxation and specific
items was at an effective rate of 24.5%, compared with 24.5%
and 26.0% in the 2006 and 2005 financial years, respectively,
and reflects the continued focus on tax efficiency in the group.
The tax charge for the 2006 financial year was £492 million
and comprised a charge of £533 million on the profit before
taxation and specific items, offset by a tax credit of £41 million
on certain specific items. The tax charge for the 2005 financial
year was £525 million and comprised a £541 million charge on
the profit before taxation and specific items, offset by a tax
credit of £16 million on certain specific items.
EARNINGS PER SHARE
The basic earnings per share of 34.4 pence per share for the
2007 financial year compared with 18.4 pence per share for the
2006 financial year and 21.5 pence for the 2005 financial year.
The following table illustrates the impact of specific items on the
basic earnings per share.
Basic earnings per share before specific items of 22.7 pence
for the 2007 financial year compare with 19.5 pence and 18.1
pence for the 2006 and 2005 financial years, respectively.
2007
pence
2006
pence
2005
pence
Basic earnings per share before
specific items 22.7 19.5 18.1
Specific items 11.7 (1.1) 3.4
Total basic earnings per share 34.4 18.4 21.5
Diluted earnings per share were not materially different in either
year from basic earnings per share.
DIVIDENDS
The Board recommends a final dividend of 10.0 pence per share
(2006: 7.6 pence per share, 2005: 6.5 pence per share) to
shareholders, amounting to £825 million (2006: £631 million,
2005: £551 million). This will be paid, subject to shareholder
approval, on 17 September 2007 to shareholders on the register
on 24 August 2007. When combined with the 2007 interim
dividend of 5.1 pence per share, the total dividend proposed for
the 2007 financial year is 15.1 pence per share, totalling
£1,247 million (2006: £993 million; 2005: £883 million). This
compares to 11.9 pence in the 2006 financial year and 10.4
pence in the 2005 financial year, an increase of 27% and 14%,
respectively. This represents a two thirds payout ratio, which has
been achieved a year earlier than previously announced.
Dividends paid in the 2007 financial year were £1,053 million
(2006: £912 million; 2005: £786 million) and have been
presented as a deduction in shareholders’ equity.
SHARE BUY BACK
During the 2007 financial year the share buy back programme
continued with the group repurchasing 148 million shares for
consideration of £401 million. During 2006 and 2005, the
group repurchased 166 million and 101 million shares for
consideration of £360 million and £195 million respectively.
Taking into account the group’s net debt level and the strong
cash flow generation, we have decided to introduce a new
£2.5 billion share buy back programme whilst increasing
dividends and continuing to invest in the growth of the
business. The buy back programme is expected to be completed
by 31 March 2009. BT seeks to maintain a solid investment
grade credit rating whilst continuing to invest for the future and
with an efficient balance sheet further enhance shareholder
value.
BUSINESS TRANSFORMATION
In April 2007, we announced a new structure that will deliver
faster, more resilient and cost effective services to customers
wherever they are. With effect from 1 July 2007, BT Design will
be responsible for the design and development of the platforms,
systems and processes, which will support our services; BT
Operate will be responsible for their deployment and operation.
Around 20,000 employees – from design, operations, IT and
networks – will move into these new units. We estimate that the
reorganisation and transformation activities will result in
restructuring costs of around £450 million which is expected to
generate a payback within two to three years. These activities
will include developing new processes and systems, re-skilling
and leaver costs which will be accommodated within existing
policies and by voluntary means. We expect the majority of
these costs to be incurred in the 2008 financial year and to be
classified as a specific item in our 2008 results.
Report of the Directors Financial review
42 BT Group plc Annual Report & Form 20-F