Third Quarter Financial Results: October to December 2003
· Earnings per share* up 7%
· Group turnover down 2.6% (down 1.4%, excluding the impact of mobile termination rate reductions)
· New wave turnover of ?838million, up 31%
· Net debt of ?8,795million, 32% lower than previous year
· Contract wins of over ?2billion in the quarter
· Broadband end users approaching 2 million
This quarter’s results show that the transformation of our marketplace is accelerating. We are driving that change in line with our strategy to defend our traditional business and grow in new wave areas.
We’ll take a look at the progress we are making in these areas.
Traditional: revenues have fallen by 8%. Excluding the impact of regulatory reductions to mobile termination charges (the charges mobile operators make for terminating calls made on their networks) the decline is 6%. This impacts our revenues, but not profits, as we pass on these reductions to our customers.
The continued success of packages such as BT Together and BT Business Plan has slowed market share losses, despite severe competition from resellers and cable operators. Nearly 60% of consumer revenue is now contracted in advance, showing that we are fighting back and retaining customer loyalty.
Recent developments prove that it is possible for us to win back business in traditional areas. Last quarter we saw competitors rush to provide directory enquiry services. However, customers have seen the difference in quality and value between BT and the rest and, as a result, our market share has risen from 28% to over 40%.
At the same time as defending traditional revenues and attracting customers to our flexible, better value new wave services we must drastically reduce costs. This is the only way to protect the profitability of the traditional business.
New wave: revenues grew by 31% – our highest rate of growth, helping to offset the decline in the traditional business.
BT’s status as a major provider of global ICT solutions for corporate customers is well established. This was reinforced by contract wins of over ?2billion this quarter, which will provide a basis for future revenue growth.
Broadband connections are approaching 2 million, and we are now receiving over 45,000 orders each week. We are making our interactions with customers ‘netcentric’, with 65% of consumer and 18% of business broadband orders made online. This delivers a better customer experience, and saves costs.
Meanwhile BT is back in the mobile market. In the Business sector, we’ve seen a 39% increase in connections to 82,000 handsets. We have also re-launched as a consumer mobile brand in the high street. But our mobility story is not just about phones. It is also about wireless broadband (wi-fi) where we are leading the industry and laying the foundations for the convergence of voice and data for people on the move.
Although growth in new wave has been strong, profits are still relatively low as with most new businesses. Managing down costs is more important than ever before, as this will free up the cash we need to invest in the future of the company.
Free employee shares: earnings per share (EPS) are up, and we are on course to beat our target of 15% EPS growth this year. This will trigger an allshare payout of 1% of pre-tax profits. We have reduced customer dissatisfaction by 18% and although this is a good result, a great deal of effort is required in the final quarter to achieve a decrease of 25%. That is the target we have to hit to trigger a further 1% allshare payout.
Our strategy sets out the steps we are taking to transform the company.
Success depends on the speed and determination with which we move forward.
Your efforts are critical to our success, and very much appreciated.
Ian Livingston