London, UK -- (MARKET WIRE) -- November 9, 2006 --
November 9, 2006
SECOND QUARTER AND HALF YEAR RESULTS TO SEPTEMBER 30, 2006
SECOND QUARTER HIGHLIGHTS
- Revenue of GBP4,941 million, up 4 per cent
- New wave revenue of GBP1,736 million, up 21 per cent,
representing 35 per cent of total revenue compared
with 30 per cent last year
- EBITDA before specific items(1) and leaver costs of
GBP1,418 million, up 2 per cent
- Profit before taxation, specific items(1) and leaver
costs of GBP665 million, up 12 per cent
- Earnings per share before specific items(1) and
leaver costs of 6.0 pence, up 13 per cent
- Continued strong broadband net additions(2) of
626,000 of which BT Retail's share was 25 per cent
HALF YEAR HIGHLIGHTS
- Revenue of GBP9,805 million, up 3 per cent
- New wave revenue of GBP3,377 million, up 20 per cent
- EBITDA before specific items(1) of GBP2,747 million,
up 2 per cent
- Profit before taxation and specific items(1) of
GBP1,247 million, up 17 per cent
- Earnings per share before specific items(1) of
11.3 pence, up 19 per cent
- Interim dividend of 5.1 pence per share, up
19 per cent
- Broadband end users(2) of 9.3 million at
September 30, 2006 of which BT Retail now has
3 million customers
The income statement, cash flow statement and balance
sheet from which this information is extracted are
set out on pages 16 to 22.
(1) Before specific items which are material one off
or unusual items as defined in note 4 on page 26.
(2) DSL and LLU connections.
Chairman's statement
Sir Christopher Bland, Chairman, commenting on the half year results said:
"These strong half year results show sustained momentum across the business with
revenues up 3 per cent and earnings per share before specific items up 19 per
cent.
"I am pleased to report that we will be paying an interim dividend of 5.1 pence,
up 19 per cent on last year, showing our continued commitment to improving
shareholder returns and our confidence for the future."
Chief Executive's statement
Ben Verwaayen, Chief Executive, commenting on the second quarter results, said:
"These second quarter results show another strong team performance with every
part of the business playing its part. We have announced today that BT Retail
has passed 3 million broadband connections in a fast growing market. We have now
reached 1 million LLU connections. 21CN is going live in the Cardiff area this
month. The business continues to win major transformational contracts, including
PepsiCo and Vodafone.
"Revenue has increased for eleven consecutive quarters and earnings per share(1)
were up 13 per cent, the eighteenth consecutive quarter of growth. EBITDA(1)
continues to grow and was up 2.4 per cent.
"These results underpin our confidence in our ability to grow our revenue,
EBITDA, earnings per share and dividends this year."
(1)Before specific items and leaver costs.
RESULTS FOR THE SECOND QUARTER AND HALF YEAR
TO SEPTEMBER 30, 2006
Second quarter Half year
______________________ ______________________
Better Better
2006 2005 (worse) 2006 2005 (worse)
GBPm GBPm % GBPm GBPm %
Revenue 4,941 4,767 4 9,805 9,498 3
EBITDA
- before specific
items and leaver
costs 1,418 1,385 2 2,804 2,748 2
- before specific
items 1,385 1,348 3 2,747 2,705 2
Profit before
taxation
- before specific
items and leaver
costs 665 596 12 1,304 1,113 17
- before specific
items 632 559 13 1,247 1,070 17
- after specific
items 629 489 29 1,244 988 26
Earnings per share
- before specific
items and leaver
costs 6.0p 5.3p 13 11.8p 9.8p 20
- before specific
items 5.7p 5.0p 14 11.3p 9.5p 19
- after specific
items 5.7p 4.4p 30 11.3p 8.8p 28
Capital expenditure 812 694 (17) 1,527 1,410 (8)
Free cash flow 338 503 (33) 321 377 (15)
Interim dividend 5.1p 4.3p 19
Net debt 8,079 8,133 1
The commentary focuses on the results before specific items and leaver costs.
This is consistent with the way that financial performance is measured by
management and we believe allows a meaningful analysis to be made of the trading
results of the group. Specific items are defined in note 4 on page 26.
The income statement, cash flow statement and balance sheet are provided on
pages 16 to 22. A reconciliation of EBITDA before specific items to group
operating profit is provided on page 31. A definition and reconciliation of free
cash flow and net debt are provided on pages 28 to 30.
GROUP RESULTS
Revenue was 4 per cent higher at GBP4,941 million in the quarter with continued
strong growth in new wave revenue more than offsetting the decline in
traditional revenue. EBITDA before specific items and leaver costs grew by 2.4
per cent. This is the third quarter of growth and builds on the 1.7 per cent
growth reported last quarter. Earnings per share before specific items and
leaver costs increased by 13 per cent to 6.0 pence, the eighteenth consecutive
quarter of year on year growth.
The strong growth in new wave revenue continued and at GBP1,736 million was
21 per cent higher than last year. New wave revenue accounted for 35 per cent of
the group's revenue compared to 30 per cent in the second quarter of last year.
New wave revenue is mainly generated from networked IT services, broadband and
mobility. Networked IT services revenue grew by 10 per cent to GBP1,001 million,
broadband revenue increased by 39 per cent to GBP486 million and mobility revenue
increased by 4 per cent to GBP72 million.
Networked IT services contract wins were GBP0.7 billion in the second quarter,
with GBP4.0 billion achieved over the last twelve months.
BT had 9.3 million wholesale broadband connections at September 30, 2006,
including 838,000 local loop unbundled lines, an increase of 2.8 million
connections year on year and 626,000 connections in the quarter. Over 46 per
cent of all UK homes now subscribe to broadband services, comprising both DSL
and cable services (Source: Informa, Telecoms Market, September 2006).
Revenue
Revenue from the group's traditional businesses declined by 4 per cent
continuing recent trends. This reflects regulatory intervention, competition,
price reductions and also technological changes that we are using to drive
customers from traditional services to new wave services.
Major corporate (UK and international) revenue showed growth of 5 per cent, with
11 per cent growth in new wave revenue more than offsetting the decline in
traditional services. Migration from traditional voice only services to
networked IT services continued with new wave revenue representing 60 per cent
of all major corporate revenue.
Revenue from smaller and medium sized (SME) UK businesses grew by 2 per cent
year on year. New wave revenue grew by 23 per cent driven by continued growth in
broadband and other new wave services. In the declining UK calls market, BT has
gained market share in the SME sector through innovative pricing plans and a
focus on propositions that bring together IT, broadband and communications to
allow business people to concentrate on running their business.
Consumer revenue in the second quarter was 6 per cent lower, primarily due to
wholesale line rental (WLR) substitution. Growth in new wave revenue of 44 per
cent continues to reduce our dependence on traditional revenue which has
declined by 12 per cent with the strategic shift towards new wave products and
services. New wave revenue now represents 17 per cent of the total consumer
revenue.
The 12 month rolling average revenue per consumer household (net of mobile
termination charges) of GBP254 increased by GBP1 compared to last quarter, the third
successive quarter of growth. Improvements in the proportion of customers
upgrading from the basic broadband package and more new customers subscribing
for higher value packages has more than offset the lower call revenues. BT Total
Broadband reflects our strategy to drive value into the broadband market and we
reached 3 million BT Retail broadband connections in October. Contracted
revenues increased by 1 percentage point to 69 per cent compared to last
quarter, 3 percentage points higher than last year.
Wholesale (UK and Global Carrier) revenue increased by 14 per cent driven by WLR
and LLU. UK Wholesale new wave revenue increased by 41 per cent to GBP339 million,
mainly driven by broadband.
Operating results
Group operating costs before specific items increased by 4 per cent year on year
to GBP4,311 million. Staff costs before leaver costs increased by GBP64 million to
GBP1,274 million due mainly to the additional staff needed to support networked IT
services contracts, increased levels of activity in the network and 21CN
activities (including capital work) as well as cost inflation. Leaver costs were
GBP33 million in the quarter (GBP37 million last year). Payments to other
telecommunication operators increased by GBP45 million to GBP1,034 million. Other
operating costs before specific items of GBP1,442 million increased by GBP47 million
mainly due to increased costs of sales from growth in networked IT and other new
wave services which were partly offset by cost savings from our efficiency
programmes. Depreciation and amortisation increased by 2 per cent year on year
to GBP703 million.
Group operating profit before specific items and leaver costs increased by 3 per
cent to GBP715 million. Operating profit margin before specific items remained
flat year on year at 14 per cent.
Earnings
Net finance costs were GBP55 million, an improvement of GBP45 million against last
year. This includes net finance income associated with the group's defined
benefit pension scheme which was GBP105 million in the second quarter, GBP41 million
higher than last year. Repayment of maturing debt last year, fair value
movements on derivatives that are economic hedges but are not fully effective
hedges under the IAS 39 definitions and lower average net debt have also
contributed to the reduction in net finance costs. This reduction was offset by
a GBP31 million net gain last year on the early redemption of the US dollar 2008
LG Telecom convertible bond.
Profit before taxation, specific items and leaver costs of GBP665 million
increased by 12 per cent.
The effective tax rate on the profit before specific items was 24.5 per cent
(24.9 per cent last year) reflecting the continued focus on tax efficiency
within the group.
Earnings per share before specific items and leaver costs increased by
13 per cent to 6.0 pence.
Specific items
Specific items are defined in note 4 on page 26. There was a net charge before
taxation of GBP3 million in the quarter (GBP70 million charge last year). Costs of
GBP23 million relating to the further rationalisation of the group's office
portfolio were incurred in the quarter (GBPnil last year). This was partly offset
by a profit of GBP20 million arising from the group's disposal of 6 per cent of
its equity interest in Tech Mahindra Limited, an associated undertaking,
reducing the group's holding to 36 per cent. In the prior year, a provision of
GBP70 million was recognised relating to the incremental and directly attributable
costs in connection with creating the Openreach line of business.
Earnings per share after specific items were 5.7 pence in the quarter (4.4 pence
last year).
Cash flow and net debt
Net cash inflows from operating activities in the second quarter amounted to
GBP1,191 million compared to GBP1,263 million last year, largely due to higher
working capital outflows.
Free cash flow was a net inflow of GBP338 million in the second quarter compared
to GBP503 million last year mainly reflecting the higher working capital outflows
and increased capital expenditure. The year on year deterioration reflects the
timing of receipts and payments and is expected to reverse in the second half of
the year. The share buyback programme continued with the repurchase of
48 million shares for GBP102 million during the quarter. Net debt was
GBP8,079 million at September 30, 2006, GBP54 million below the level at September
30, 2005. Free cash flow and net debt are defined and reconciled in notes 8 and
9 on pages 28 to 30.
Pensions
The IAS 19 net pension obligation at September 30, 2006 was a deficit of GBP2.0
billion, net of tax, being GBP0.6 billion lower than the level at September 30,
2005. The BT Pension Scheme had assets of GBP35.9 billion at September 30, 2006.
The triennial funding valuation as at December 31, 2005 is currently being
performed and we expect this exercise to conclude by December 31, 2006.
21st Century Network
BT's 21st Century Network programme made significant progress during the
quarter. The construction of 10 per cent of the UK's core communications
infrastructure is in place and fully operational. Site planning and preparation
has been completed in all core and metro nodes in South Wales, and at a further
100 sites across the country. Nine new fibre rings, totalling 2,100 kilometres,
have been installed in South Wales and 1,500 man years of IT systems development
work has been carried out. All of this preparatory work is required to support
the migration of the first end user customers to 21CN. This is scheduled to take
place near Cardiff at the end of November.
Readiness testing of the network, systems, services and customer premises
equipment (CPE) is well advanced. A test facility in Swansea, where other
communications providers can test their services, was opened on October 25,
2006. Live voice calls have already been carried over the new 21CN network,
built using 21CN hardware and software, in South Wales.
BT and representatives from across industry have agreed a single end user
communications programme to help consumers and single site small and medium
enterprises understand better what next generation networks are and to provide a
single source of detail and further information. The programme, which launched
in October, operates under a single independent brand - "Switched-On".
Shareholder distributions
An interim dividend of 5.1 pence per share, an increase of 19 per cent on last
year, will be paid on February 12, 2007 to shareholders on the register on
December 29, 2006. The ex dividend date is December 27, 2006. During the first
half year 69 million shares were repurchased for GBP167 million under the group's
share buyback programme.
Prospects
Our performance underpins our confidence that we will continue to grow revenue,
EBITDA, earnings per share and dividends this financial year. Revenue growth
will continue to be fuelled by new wave services; the EBITDA improvement will be
driven by the continued growth in BT Retail's profitability and an acceleration
through the year of the EBITDA growth in BT Global Services.
We are confident in our ability to improve shareholder returns and accelerate
the strategic transformation of the business.
______________________________________________________________________
The half year report, which contains the independent review report of the
auditors, will be published in The Times on November 10, 2006.
The third quarter results are expected to be announced on February 8, 2007.
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