BT Seeks Clarity
The group-level financial results stay the same. For the financial year ended March 31, 2007, for example, BT still reported £20.2 billion (US$39.5 billion) in revenue. But the revenue and EBITDA margin figures for the business units BT Global Services , BT Wholesale , and BT Retail have changed slightly. (See BT Reports Q2, BT Posts Q1 Results, and 'New Wave' Keeps BT on Track.)
The intent of the accounting revamp is to strip out most of the internal trading among Global Services, Wholesale, and Retail, so that the profitability of those businesses is more clear. The exception is Openreach, which is a separate, regulated business unit for local loop services. (See BT Revamps, Creates New Units and BT Unveils New Structure.)
"The big change is that we've removed nearly all the intra-group trading except around Openreach," says Phil Moss, group controller and director of investor relations. "So, you get greater visibility of the lines of business."
Dresdner Kleinwort analyst Lawrence Sugarman explains that the changes affect where revenue is booked among the business units and do not alter BT's group results.
"Revenues and EBITDA at BT Retail gains at the expense of BT Wholesale both in respect of revenue and EBITDA because now BT Retail will book everything connected to selling DSL products to its retail customer base," writes Sugarman in a research note.
BT has introduced the new financial reporting structure ahead of its third-quarter earnings report on February 7, so that the results can be compared on a like-for-like basis. From now on, all financial reports will fall under the new structure.
BT also took this opportunity to move some smaller corporate customer accounts worth £155 million ($303 million) from Global Services to Retail. In addition, some ISP accounts worth £52 million ($102 million) were moved from Retail to Wholesale.
BT introduced a new corporate structure in April last year, which went into effect in October. The operator created two new units called BT Operate and BT Design, which are responsible for running BT's networks and creating services. The customer-facing businesses, BT Global Services, Wholesale, Retail, and Openreach, fall under these two new units.
— Michelle Donegan, European Editor, Light Reading