BT Is One of Europe's Leading Communications Companies, Offering High Quality Innovative Voice, Broadband, Data, Internet
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BT is one of Europe’s leading communications companies, offering high quality innovative voice, broadband, data, internet and wireless services. We aim to help our customers make the most of the unprecedented opportunities that are arising as communications technologies advance and develop. We have announced our intention of forming two strong and separately listed companies, BT Wireless and Future BT, with the objective of further increasing our ability to build shareholder value. British Telecommunications plc is a public limited company registered in England, with listings on the London, New York and Tokyo stock exchanges. This is the annual report for the year ended 31 March 2001. It complies with UK regulations and is the annual report on Form 20-F for the Securities and Exchange Commission to meet US regulations. This annual report has been sent to shareholders who have elected to receive a copy. A separate annual review and summary financial statement for the year ended 31 March 2001 has been issued to all shareholders. BT Annual report and Form 20-F 01 Contents 3 Financial headlines 4 Chairman’s message 6 Chief Executive’s statement 7 Message from Sir Iain Vallance 8 Business review 26 Our commitment to society 28 Five-year financial summary 30 Financial review 49 Board of directors and executive committee 52 Report of the directors 53 Corporate governance 57 Risk factors 62 Report on directors’ remuneration 71 Statement of directors’ responsibility 72 Report of the independent auditors 73 Accounting policies 76 Consolidated financial statements 124 United States generally accepted accounting principles 130 Subsidiary undertakings, joint ventures and associates 132 Quarterly analysis of turnover and profit 133 Unaudited pro forma condensed combined financial statements 141 Financial statistics 142 Operational statistics and regulatory information 143 Additional information for shareholders 157 Glossary of terms and US equivalents 158 Cross reference to Form 20-F 160 Index In this annual report, references to the ‘‘financial year’’ are to the year ended 31 March of each year, e.g. the ‘‘2001 financial year’’ refers to the year ended 31 March 2001. Unless otherwise stated, all non-financial statistics are at 31 March 2001. References to the ‘‘company’’ are to British Telecommunications public limited company, and references to ‘‘BT’’ or the ‘‘group’’ are to the company and its subsidiaries, or any of them as the context may require. Please see cautionary statement regarding forward-looking statements on page 143 02 BT Annual report and Form 20-F Financial headlines Years ended 31 March 2001 2000 1999 Group turnover £20,427m £18,715m £16,953m Exceptional operating costs £2,857m £111m £69m Total operating profit (loss) £(336)m £3,198m £3,474m Profit on sale of fixed asset investments and group undertakings £619m £126m £1,107m Profit (loss) before taxation £(1,031)m £2,942m £4,295m Profit (loss) after taxation £(1,683)m £2,045m £3,002m Basic earnings (loss) per share (27.7)p 31.7p 46.3p Dividends per share 8.7p 21.9p 20.4p Profit before goodwill amortisation, exceptional items and taxation £2,072m £3,100m £3,274m Basic earnings per share before goodwill amortisation and exceptional items 20.5p 34.2p 35.0p Net cash flow from operating activities £5,887m £5,849m £6,035m Capital expenditure on property, plant and equipment £4,986m £3,680m £3,269m Investment in telecommunication licences, subsidiaries, associates and joint ventures £18,709m £7,165m £1,998m & Group turnover rose by 9.1 per cent to £20,427 million & Disposal programme contributes £619 million to profit before tax & Capital expenditure on property, plant and equipment rose by 35 per cent to £4,986 million & Successful US$10 billion and Euro 9.7 billion bonds issued & Goodwill impairment charges of £3.2 billion BT Annual report and Form 20-F 03 Chairman’s message The past year has been one that no-one with any involvement in the communications industry will ever forget. We have seen the continuing rapid A major part of our plans for the spread of communications technologies future is our intention to demerge BT into every part of everyday life. But it Wireless. This will mean that, provided has also been a year of great turbulence the necessary permissions are received, for the industry itself. At a time of such shareholders will own shares in two profound change, many players, strong and separately quoted businesses, including BT, have not found it easy to both in the FTSE 100 list: BT Wireless stay ahead of the game. and Future BT, which will be a focused However, BT’s operating European network and retail group performance during the year has been concentrating on voice and data services. satisfactory, and in line with This amounts to nothing less than a expectations. Group turnover rose by structural and ¢nancial transformation of 9%, and earnings before interest, BT. I joined BT as Chairman on the taxation, depreciation and amortisation basis that I was totally committed to this have been maintained at similar levels to transformation and would be responsible last year. for leading the Board in overseeing its Netdebthasrisentoan delivery. unsustainable »27.9billion at 31 March To provide greater ¢nancial following the acquisitions made during stability and to help ¢nance this the year. Our ¢rst priority is to repay a restructuring, we have announced a signi¢cant amount of this debt. We have »5.9billion rights issue. Clearly it would made a good start with the agreed sales not be appropriate to raise this amount of investments in Japan, Spain, of money from shareholders and then Switzerland and Malaysia, which should immediately recycle some of it back raise around »5.5 billion. Further through dividends. We are, therefore, disposals are planned. taking the unwelcome but necessary step of halting payments for the 2000/2001 ¢nal dividend and also the current year’s interim dividend. Future dividend policy will be decided by the individual listed companies, taking into account their respective capital structures, their cash requirements and the markets in which they operate. 04 BT Annual report and Form 20-F I would like to pay tribute to Sir Iain Vallance, my predecessor. As successively Director, Chief Executive and Chairman of ‘‘This amounts to nothing less BT, he played a major role in the development of BT from a nationalised utility into a leading player in the than a structural and financial telecommunications industry. In conclusion, I recognise that it will transformation of BT.’’ require determined and rapid action by BT management to achieve the transformation of the company. We have made a good start, the culture is changing, and I am con¢dent that we can complete the process in the best interests of our shareholders, our customers and our employees. Sir Christopher Bland Chairman 22 May 2001 BT Annual report and Form 20-F 05 Chief Executive’s statement BT has achieved much operationally over the past year. We have continued to introduce innovative products and services, such as Genie, our mobile internet portal; we have continued to develop our high-speed broadband network; and we have continued to compete vigorously. Now, we are moving swiftly to take parts of the business via the IPO route further action that will transform BT. represents the best way ahead for the Action that: company. & addresses the debt built up through As a result, we announced in May pursuing our strategy; our intention to demerge BT Wireless & accepts the realities of the market; and so create two substantial companies, & continues the process of separation by BT Wireless and Future BT. lines of business; & creates two substantial listed BT Wireless companies; and We plan for BT Wireless to include all of & keeps both companies focused on our fully-owned wireless assets in the growth opportunities. UK and Europe, and Genie, one of In April 2000, we began a radical Europe’s leading mobile internet portals. restructuring of BT. We grouped some of It should be a high-growth business, our activities by market sector, rather strongly positioned to develop third- than by geography, to create BT generation services by taking advantage Wireless, BT Ignite, BTopenworld and of its leadership in mobile data. It will be Yell, four businesses with potential for an independent wireless operator in a high growth. market which is consolidating. In October 2000, we split management of our UK communications Future BT services between BT Retail and BT Future BT will combine four separately Wholesale. managed businesses, BT Retail, BT And, in November 2000, we Wholesale, BTopenworld and BT Ignite announced our intention of seeking to form a focused European network and separate listings via initial public retailgroupconcentratingonvoiceand o¡erings for BT Wireless and Yell. We data services. Its aim is to create value also stated our target of reducing our net based on service excellence, its brand debt by at least »10 billion by the end of leadership, its large scale networks and 2001. its existing customer base. It will also Since then, stock market volatility develop and market new, higher value throughout the world, particularly in the broadband and internet products and telecommunications sector, has led us to services. reconsider whether selling o¡ equity in 06 BT Annual report and Form 20-F Your investment in BT will, on productivity and their own customer pro¢les of each business ^ and this better therefore, provide ownership of two segments, and it gives each business enables them to attribute value to each. strong and separately quoted businesses, more £exibility for forging partnerships This restructuring represents a and the £exibility that gives and strategic alliances. We are already major task for BT, but I’m con¢dent that shareholders.