Annual Report and Form 20-F 2002 BT Is One of Europe’S Leading Providers of Telecommunications Services
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Annual Report and Form 20-F 2002 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 21 million corporate and residential customers with more than 28 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 48 Report of the directors 50 Corporate governance 52 Risk factors 55 Report on directors’ remuneration 57 Statement of directors’ responsibility 70 Report of the independent auditors 71 Accounting policies 72 Consolidated financial statements 75 United States Generally Accepted Accounting Principles 128 Subsidiary undertakings, joint ventures and associates 134 Quarterly analysis of turnover and profit 136 Financial statistics 138 Operational statistics 139 Additional information for shareholders 140 Glossary of terms and US equivalents 155 Cross reference to Form 20-F 156 Index 159 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 2002. 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 2002 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, 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 “2002 financial year” refers to the year ended 31 March 2002. Unless otherwise stated, all non-financial statistics are at 31 March 2002. Please see cautionary statement regarding forward-looking statements on page 140. BT Group Annual Report and Form 20-F 2002 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 corporate customers in Europe; ■ a clear network strategy, with unified management of all UK networks; ■ a clear strategy for each customer group, including new services and brand extension; and ■ diverse, skilled and motivated people. 2 BT Group Annual Report and Form 20-F 2002 Financial headlines I Group turnover1 of £18.4 billion, 8% up on prior year I Profit before taxation1 down 28% to £1.3 billion I Net exceptional gains of £0.8 billion I Net debt reduced from £27.9 billion to £13.7 billion I Dividend resumed – final dividend of 2.0 pence per share I Successful corporate restructuring programme I New three-year strategic plan announced 1 from continuing activities before goodwill amortisation and exceptional items Years ended 31 March Continuing activities In £ million unless otherwise stated 2002 2001 2000 Group turnover 18,447 17,141 16,125 Exceptional operating costs 2,696 764 Total operating profit (loss) (1,489) 2,456 3,143 Profit on sale of fixed asset investments 169 534 – Profit on sale of group undertakings (148) 84 126 Profit on sale of property fixed assets 1,089 34 26 Amounts written off investments (535) –– Profit (loss) before taxation (2,493) 1,937 2,968 Profit (loss) after taxation (2,878) 1,505 2,104 Basic earnings (loss) per share (34.8)p 20.7p 29.2p Dividends per share 2.0p 7.8p 19.6p Profit before goodwill amortisation, exceptional items and taxation 1,273 1,763 2,973 Basic earnings per share before goodwill amortisation and exceptional items 8.8p 19.3p 29.5p Net cash flow from operating activities 5,023 5,410 5,609 Capital expenditure on property, plant and equipment 3,100 3,857 3,160 Group turnover2 Net debt Capital expenditure2 £m £m £m years ended 31 March as at 31 March years ended 31 March 942 447 , , 857 141 7 8 , 2 3, 125 1 7 , 197 , 1 6 160 100 5 651 1 , 1 811 3, 3, 720 3 1 2, 2, 701 , 3 1 700 , 8 977 3, 953 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 2from continuing activities BT Group Annual Report and Form 20-F 2002 3 Chairman’s message Sir Christopher Bland, Chairman, reports on the successful delivery of the action plan outlined a year ago and the company’s return to the dividend list... The last year has been a significant one for BT Group. Our operating results were satisfactory and we are pleased to propose a final dividend of 2.0 pence per share. In May 2001, your Board developed an action plan to reduce debt, manage costs and enhance BT’s ability to serve its customers even more effectively. In the year since then, we have delivered on that plan. In a turbulent market characterised by rising debt levels—a consequence in large part of the high cost of acquiring 3G mobile licences—and cooling sentiment towards the telecommunications sector, we have taken the hard decisions early and are now in a position of relative strength. 4 BT Group Annual Report and Form 20-F 2002 Key events June 2001 UK’s largest-ever rights issue closes Sale of Yell for approximately £2 billion Sale of interest in Airtel in Spain for £1.1 billion June and July 2001 Sale of interests in Japan Telecom and J-Phone for £3.7 billion October 2001 Court Meeting and Extraordinary General Meeting win approval for creation of a holding company and demerger of mmO2 November 2001 Demerger of mmO2 February 2002 Ben Verwaayen takes over as Chief Executive April 2002 Formal unwinding of Concert joint venture with AT&T Debt was reduced from £27.9 billion as at 31 March The appointment of Ian Livingston, former group 2001, to £13.7 billion as at 31 March 2002. finance director of Dixons Group, as Group Finance Director ■ A significant part of this reduction was achieved in April 2002 completes the top team. through the successful completion of the largest rights issue I would like to thank the non-executive directors, Lord in UK corporate history. Some 1.98 billion new shares were Marshall, Iain Anderson, Helen Alexander, Neville Isdell, issued, raising £5.9 billion. June de Moller and Sir John Weston, who retired during the ■ We demerged mmO2, which comprises what used to year and welcome Baroness Jay, John Nelson and Carl be BT’s wholly-owned mobile assets in the UK and Symon to the Board. continental Europe. I would also like to thank Philip Hampton and Colin ■ We unwound Concert, our international joint venture Green, both of whom left the company recently, for the with AT&T, which had come under considerable pressure notable contributions they made as Group Finance Director from the downturn in the global communications sector. Our and Secretary respectively. destiny in this market is once again under our direct control. As we progress, and while we continue to concentrate ■ We disposed of Yell, our international directories and on managing the debt and further reducing costs, we are e-commerce business. We sold our interests in Japan and also embarked on the pursuit of profitable growth and Spain at a significant profit. customer service excellence. ■ We achieved the sale and leaseback of a large part of After a year of relative introspection, we need to show our UK property portfolio. the self-confidence that our assets and strategy justify. We ■ And we made significant changes to your Board of will be entirely focused on finding profitable ways to meet directors, through a series of executive and non-executive what our customers need, particularly in the “new wave” appointments, on which shareholders will have the services arena, in order to enhance shareholder value. opportunity to vote at the AGM. The last couple of years have been tough for our I would like to pay tribute to Sir Peter Bonfield, who left shareholders. I would like to thank you all for your continued the company at the end of January this year. In Peter’s six support. years as Chief Executive, his energy and drive were of They’ve also been tough for BT employees, who have enormous value and he played a key role in the restructuring consistently risen to the challenge. of the company. We wish him well for the future. Looking ahead, I see every reason for optimism. The appointment of Ben Verwaayen, former vice chairman of the management board of Lucent Technologies, as your new Chief Executive marks the next stage in your company’s evolution. Ben has significant telecommunications experience and a proven track record Sir Christopher Bland in driving culture change. Chairman In November 2001, we strengthened the Board with the 21 May 2002 appointment of Pierre Danon, Chief Executive of BT Retail, Paul Reynolds, Chief Executive of BT Wholesale and Andy Green, Chief Executive of BT Ignite. BT Group Annual Report and Form 20-F 2002 5 Chief Executive’s statement Ben Verwaayen, Chief Executive, says that outstanding customer service, profitable growth and the development of new broadband services are key to the creation of shareholder value..