Annual Report & Form 20-F 2003
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26692 NEWBT_AR_20F_fc/bc 2/5/03 6:29 pm Page fc1 Annual Report and Form 20-F 2003 BT Group BT plc Annual Report and 20-F Form 2003 annual report BT Group plc Registered office: 81 Newgate Street, London EC1A 7AJ Registered in England and Wales No. 4190816 Produced by BT Group Designed by Pauffley Typeset by Greenaways Printed in England by Pindar plc Printed on paper which meets international environmental standards. www.bt.com BT is one of Europe’s leading providers of telecommunications services. Its principal activities include local, national and international telecommunications services, higher-value broadband and internet products and services, and IT solutions. In the UK, BT serves over 20 million business and residential customers with more than 29 million exchange lines, as well as providing network services to other licensed operators. Contents Financial headlines 3 Chairman’s message 4 Chief Executive’s statement 6 Business review 8 Our commitment to society 24 Five-year financial summary 26 Financial review 28 Board of directors and Operating Committee 50 Report of the directors 52 Corporate governance 53 Report on directors’ remuneration 58 Statement of directors’ responsibility 73 Report of the independent auditors 74 Consolidated financial statements 75 United States Generally Accepted Accounting Principles 127 Subsidiary undertakings, joint ventures and associates 135 Quarterly analysis of turnover and profit 136 Financial statistics 138 Operational statistics 139 Risk factors 140 Additional information for shareholders 141 Glossary of terms and US equivalents 156 Cross reference to Form 20-F 157 Index 160 BT Group plc is a public limited company registered in England and Wales, with listings on the London and New York stock exchanges. This is the annual report for the year ended 31 March 2003. 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 2003 has been issued to all shareholders. In this annual report, references to ‘‘BT Group’’, ‘‘BT’’, ‘‘the group’’, ‘‘the company’’, ‘‘we’’ or ‘‘our’’ are to BT Group plc (which includes the continuing activities of British Telecommunications plc) and its subsidiaries and lines of business, or any of them as the context may require. References to the ‘‘financial year’’ are to the year ended 31 March of each year, e.g. the ‘‘2003 financial year’’ refers to the year ended 31 March 2003. Unless otherwise stated, all non-financial statistics are at 31 March 2003. Please see cautionary statement regarding forward-looking statements on page 142. BT Annual Report and Form 20-F 2003 1 BT’s strategy is to create value for shareholders through being the best provider of communications services and solutions for everybody in the UK, and for corporate customers in Europe, achieving global reach through partnership. The fundamentals of our strategy are: & customer satisfaction & financial discipline & broadband – at the heart of BT & value-added solutions for multi-site organisations with European operations & a clear network strategy, with unified management of all UK networks & a clear strategy for each customer group, including new services and brand extension & diverse, skilled and motivated people. 2 BT Annual Report and Form 20-F 2003 Financial headlines & Group turnover1 of £18.7 billion, 2% up on prior year & Profit before taxation1 up 44% to £1.8 billion & Earnings per share1 of 14.2 pence, up 61% on prior year & Net exceptional gains of £1.5 billion & Net debt reduced from £13.7 billion to £9.6 billion & Dividends of 6.5 pence per share for the year 1 from continuing activities before goodwill amortisation and exceptional items Years ended 31 March Continuing activities In £ million unless otherwise stated 2003 2002 2001 Group turnover 18,727 18,447 17,141 Exceptional operating costs 48 3,990 303 Total operating profit (loss) 2,901 (1,489) 2,456 Profit on sale of fixed asset investments 1,700 169 534 (Loss) profit on sale of group undertakings (9) (148) 84 Profit on sale of property fixed assets 11 1,089 34 Amounts written off investments (7) (535) – Profit (loss) before taxation 3,157 (2,493) 1,937 Profit (loss) after taxation 2,698 (2,878) 1,505 Basic earnings (loss) per share 31.2p (34.8)p 20.7p Dividends per share 6.5p 2.0p 7.8p Profit before goodwill amortisation, exceptional items and taxation 1,829 1,273 1,763 Basic earnings per share before goodwill amortisation and exceptional items 14.2p 8.8p 19.3p Net cash flow from operating activities 6,023 5,023 5,410 Capital expenditure on property, plant and equipment 2,445 3,100 3,857 The financial information above is discussed in the Financial review on pages 28 to 49, together with the reasons for focusing on the results from continuing activities before goodwill amortisation and exceptional items. The Consolidated financial statements are on pages 75 to 135. Group turnover2 Net debt Capital expenditure2 £m £m £m years ended 31 March as at 31 March years ended 31 March 27,942 3,857 18,727 18,447 17,141 16,125 15,197 3,160 3,100 2,811 2,445 13,701 9,573 8,700 953 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03 2from continuing activities 2from continuing activities BT Annual Report and Form 20-F 2003 3 Chairman’s message Sir Christopher Bland, Chairman, reports on a year in which BT further reduced debt, grew its dividend significantly and continued to invest in the future. The year commercial success if we make every experience of This has been a really good year for BT. We said our services simple and complete. 12 months ago that, in a turbulent market, your Your company’s broader responsibilities include company had taken the hard decisions and necessary the maintenance of a good reputation, definitive actions early. Events have shown that we were right to standards of governance and a coherent corporate do so and that we have now established a strong base social responsibility programme, all vital to for sustainable growth. Earnings per share in the year encouraging investors to put their trust in us, increased by 61% and net debt reduced by over customers to buy from us and the best people to £4 billion. The group generated free cash flow of work for us. This sense of responsibility runs through £1.7 billion. The full year dividend of 6.5 pence per the whole of our organisation. share reflects the group’s financial performance, operational strength and confidence in the future. Pensions In the past two years, our net debt has been BT takes its responsibilities to its pensioners, existing reduced from £27.9 billion as at 31 March 2001 to and prospective, very seriously. The result of a recent £9.6 billion as at 31 March 2003, a reduction of 66%. valuation of the main BT pension scheme, carried out The foundations of the progress in 2003 were the by the independent actuary appointed by the Scheme achievement of operating efficiencies and the sale of trustees, showed a funding deficit of £2.1 billion. This non-core assets, such as our stake in Cegetel, which compares to £1 billion at the last formal valuation in we sold for £2.6 billion. Progress was sustained by 1999. BT has agreed it will make good this deficit with improving service in our traditional markets, and our additional annual payments of £232 million, compared growing success in such new-wave markets as to the £200 million additional annual payments that BT broadband, mobility, information and communications has been making. technology (ICT) and solutions. We continue to invest in and to transform our network to help take our Strength of the BT Pension Scheme 20 million customers into a future shaped by new The BT Pension Scheme, which has been closed to new communications possibilities. members since 31 March 2001, is backed by BT. The Scheme assets are controlled by trustees who must act Purpose and responsibilities in the best interests of its members. Any deficit has to As a business, our purpose is to connect the worlds be made good by the company, and no changes can be of our customers. In achieving that purpose we will made to the rules and benefits that apply to Scheme provide the greatest customer satisfaction and enjoy members without the agreement of the trustees. 4 BT Annual Report and Form 20-F 2003 Key events and achievements June 2002 Launch of Openzone, BT’s public wireless LAN hotspot service September 2002 The UK’s most intensive TV campaign stimulates demand for broadband November 2002 BT wins e1 billion contract to manage and develop Unilever’s global communications infrastructure January 2003 Sale of stake in Cegetel for £2.6 billion April 2003 BT announces that it has connected more than 800,000 broadband customers Company Board We believe the company is well placed – financially, Iamdelighted to welcome Clay Brendish, former operationally and managerially – to meet new deputy chairman of CMG plc, and founder and former challenges and to seize new opportunities. executive chairman of Admiral plc, to the Board. Clay brings with him a wealth of experience in the information technology industry. His appointment with effect from 1 September 2002, on which shareholders will have the opportunity to vote at this year’s AGM, means that independent non-executive directors constitute a majority on your Board.