BT Group plc
Q4 and preliminary 2007/8 full year results
BT Group plc
Sir Michael Rake - Chairman
Forward-looking statements - caution
Certain statements in this presentation are forward-looking and are made in reliance on the safe
harbour provisions of the US Private Securities Litigation Reform Act of 1995. These statements
include, without limitation, those concerning: expectations of continuing growth in revenue, EBITDA,
earnings per share and dividends per share; levels of free cash flow; continued growth in Global
Services’ revenue and EBITDA margins; growth in new wave revenue, mainly from networked IT
services and broadband; continued growth in the broadband market; cost efficiencies and reduced
capital expenditure; investment in, and the delivery and benefits of, BT’s 21st Century Network
and the expected cost savings; and the scope and delivery of next generation services.
Although BT believes that the expectations reflected in these forward-looking statements are
reasonable, it can give no assurance that these expectations will prove to have been correct.
Because these statements involve risks and uncertainties, actual results may differ materially from
those expressed or implied by these forward-looking statements.
Factors that could cause differences between actual results and those implied by the forwardlooking statements include, but are not limited to: material adverse changes in economic conditions
in the markets served by BT; future regulatory actions and conditions in BT’s operating areas,
including competition from others; selection by BT of the appropriate trading and marketing models
for its products and services; technological innovations, including the cost of developing new
products, networks and solutions and the need to increase expenditures to improve the quality
of service; the anticipated benefits and advantages of new technologies, products and services,
including broadband and other new wave initiatives, not being realised; developments in the
convergence of technologies; fluctuations in foreign currency exchange rates and interest rates;
prolonged adverse weather conditions resulting in a material increase in overtime, staff or other
costs; the timing of entry and profitability of BT in certain communications markets; and general
financial market conditions affecting BT’s performance and ability to raise finance. BT undertakes
no obligation to update any forward-looking statements whether as a result of new information,
future events or otherwise.
Consistent strategy …
Long-term Partnership
with our customers
Defend traditional
– Improved service
– Price innovation
– Reduce costs /
improve margin
– Aggressive & creative
marketing
Grow new wave
21st Century Network
– Networked
IT services
– Broadband
– Mobility solutions
… evolving to meet our customers needs
FY 2007/8 – Group financial headlines
Group revenue
EBITDA
(1)
Earnings per share
Free cash flow
Dividend
(1) Before specific items
(1)
£20.7bn
2%
£5.8bn
3%
23.9p
5%
£1.5bn
11%
15.8p
5%
FY 2007/8 – final dividend 10.4p
pence
16
14
Interim
Final
12
10
8
6
4
2
0
2003/4
2004/5
2005/6
2006/7
Full year dividend 15.8p up 5%
2007/8
Opportunities and priorities
Customers
Globalisation
Investment & returns
People
Continue to deliver for customers and shareholders
BT Group plc
Ben Verwaayen - CEO
Q4 2007/8 – Group financial headlines
Group revenue
EBITDA
(1)
Operating profit
(1)
Earnings per share
Free cash flow
(1) Before specific items and leavers
(1)
£5.4bn
2%
£1.6bn
2%
£0.8bn
7%
7.0p
11%
£1.7bn
9%
Q4 2007/8 – revenue by customer
Carrier
25%
23%
Consumer
Corporate
40%
12%
Business
Strength in mix of customers and businesses
Corporate
Q4
• 28% growth in non-UK revenue
• Further improvement in Global
Services EBITDA* margin,13.7%
• Order intake £2.8bn
Corporate revenue growth
10%
8%
6%
Key business trends
4%
2%
8
07
/0
8
Q
4
07
/0
8
Q
3
07
/0
8
Q
2
07
/0
7
Q
1
06
/0
7
Q
4
06
/0
7
Q
3
06
/0
Q
2
06
/0
7
0%
1
Globalisation
Convergence
Right sourcing
Capabilities
Q
•
•
•
•
BT Global Services – £2.8bn order intake in Q4
£m
Networked IT
services
4500
3000
DFTS
3500
Other orders
Reuters
4000
2500
2000
1500
1000
500
0
Q4
2004/5
Q1
Q2
Q3
2005/6
Q4
Q1
Q2
Q3
Q4
Q1
2006/7
Rolling 12 months order intake £8bn
Q2
Q3
2007/8
Q4
BT Global Services – customer diversity
Q4 2007/8 order intake
Business
Q4
• Value packages
- 39% increase in take-up
• Continued strong revenue
growth
– New wave up 33%
– Basilica and Lynx boost
service portfolio
Business revenue growth
11%
9%
7%
5%
3%
1%
-1%
-5%
05
/0
6
3
05
/0
Q
6
4
05
/0
Q
6
1
06
/0
Q
7
2
06
/0
Q
7
3
06
/0
Q
7
4
06
/0
Q
7
1
07
/0
Q
8
2
07
/0
Q
8
3
07
/0
Q
8
4
07
/0
8
Q
Q
2
05
/0
6
-7%
1
• Expansion of capabilities into
adjacent markets
• Niche business units complement
overall strategy for SMEs
-3%
Q
Developing our portfolio
BT Group plc
Running VT
Consumer
Q4
Consumer household ARPU
• Revenue down 4%
£
– Impact of free evening
and weekend calls
– New wave up 19%
• Household ARPU £274 up £1
280
Traditional
260
• UK’s No.1 retail broadband
provider
240
Customers demand
220
– 4.4m connections
– 30% of net adds*
• Value packages
• Innovative products
• Converged services
New wave
200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
* DSL & LLU
BT Total Broadband – work, rest and play
BT ToGo
Security &
Storage
BT Broadband
Talk
> 2m users
> 600k users
Launched
May 7th
Entertainment
Wireless
Networks
Openzone
c.1m minutes
of usage per day
All calls to our
Helpdesks
are now free
250K
customers now
Gaming
“Go messenger”
now has 300k users
Monitoring
and Control
Home IT advisor
BT Group plc
Running VT
BT Total Broadband – work, rest and play
BT ToGo
Security &
Storage
BT Broadband
Talk
> 2m users
> 600k users
Launched
May 7th
Entertainment
Wireless
Networks
Openzone
c.1m minutes
of usage per day
All calls to our
Helpdesks
are now free
250K
customers now
Gaming
“Go messenger”
now has 300k users
Monitoring
and Control
Home IT advisor
– that’s entertainment
Installed customer base
Installed base
• 214k at the end of March
• Now over 250k
000s
260
240
Q4 net adds
220
200
180
94k
160
140
120
100
37k
• 68% of new customers chose a
subscription package at point of sale
Usage
80
60
• 4,660hrs of VoD content now available
40
• The average number of views per
subscriber, per month, was 29
06-Apr
27-Apr
18-May
08-Jun
29-Jun
20-Jul
10-Aug
31-Aug
21-Sep
12-Oct
02-Nov
23-Nov
14-Dec
04-Jan
25-Jan
15-Feb
07-Mar
28-Mar
18-Apr
09-May
20
0
56k
Carrier – BT Wholesale
Q4
Growth
• £1bn of contracts signed
• Operational trends continue as
expected
• Continued success in long term
managed solutions
– Low margin transit and PRS
revenue decline continues
– Ongoing migration from IPstream
to LLU and price reductions
• Introduced family of 21CN
‘smart’ broadband services
– Higher speeds
– Flexible bandwidth
– Quality control for video
• Launch of next generation Ethernet
– £750m of managed access on
next generation Ethernet
signed in 2007/8
• Agreements signed during the
quarter include
Carrier – Openreach
Q4
• External revenue up 22%
driven by LLU growth
• Operating cost down 2% due to
previous investment in service
– Average lead times on provision
and repair improved by over 40%
Market fundamentals
ADSL Broadband
000’s
14000
external LLU
BT Wholesale (external sales)
12000
BT Retail
10000
8000
6000
• LLU business model evolving
4000
• Financial Framework Review
due soon for public consultation
2000
0
Mar-05
Jun-05 Sep-05 Dec-05 Mar-06
Jun-06 Sep-06 Dec-06 Mar-07
Jun-07 Sep-07 Dec-07 Mar-08
Transforming the cost base – FY 2007/8
£625m of cost efficiencies
£m
£386m £625m
£304m
£260m
15000
14500
£14,679m
£148m
Systems & processes
Global propositions
21CN programmes
Customer service
BT Vision
£15,152m
15500
14000
FY 2006/7
Pay inflation
Acquisitions
Volume
growth
Cost
Re-investment
Efficiencies
FY2008/9 target of £700m
FY 2007/8
21CN – objective remains unchanged
Legacy network
21CN platform
PSTN Migration
Converged Core
Class 5
Call Server
Fibre or
Copper
WWW
DSL
IP-MPLS-WDM
Content
End
User
~5k
nodes
17 networks to ONE global platform
~100
nodes
ISP
21CN – faster, better, cheaper services
Speed to
Market
Cost
Transformation
Power to
Customers
Next
Generation
Services
Scope extended to include
• 21CN Ethernet
• 21CN “Smart” Broadband
• Software Development Kits (SDK)
21CN now customer led
21CN – progress to date
• 58% of UK national core infrastructure built
• 21CN “Smart” Broadband
– Available from exchanges serving
1m homes and businesses
• 21CN Ethernet
– Available to c. 20% of UK business market by the
end of May 2008, rising to 80% or more in 12 months
• 21CN Global Platform
– Available in 172 countries
• BT’s Software Development Kits (SDK) now in use
– 11,000 downloads
– 500 applications in production
– 5,000 in testing
21CN – SDK, what developers say
“We are very pleased with how
rapidly we were able to add the
voice and SMS capabilities into
the BT BizBox solution…if it
weren’t for BT’s SDK we would
not have been able to do this so
quickly.”
“BT says that it takes one line of
code to add voice to an application
and it’s true. This functionality is
easily accessible and doesn’t
require a large budget. Because
we are leveraging the power of
BT’s global network we know our
applications can scale to handle
high volumes if needed. This lets
us focus on what we do best –
building great applications.”
Sarah Laylock, COO of TierLinear
Miha Lesjak, co-founder of Inova
IT and inventor of Click2Call.
21CN – forward view
… upcoming in 2008/9
… financials
• 21CN “Smart” Broadband
• Substantial cost savings
already delivered
– available to over 10m homes
and businesses by April 2009
• 21CN Gigabit Ethernet
– rising to c600 nodes by April 2009
– Gigabit speeds will be available
• Converged broadband & voice
– Trials 2008, launch 2009
> £200m pa cost savings
> £400m pa, legacy capex savings
• Total cash cost savings will
exceed £1bn
- Opex savings increase
- Capex will be reduced over time
• Revenue opportunities
available much earlier
Business case remains strongly NPV positive
The trends ARE your friends!
Revenue
EBITDA*
17th quarter of growth
1.0%
0.0%
-1.0%
-2.0%
07
/0
8
Q
3
07
/0
8
1
06
/0
7
Q
3
06
/0
7
Q
Q
1
05
/0
6
Q
3
05
/0
6
Q
1
04
/0
5
3
04
/0
5
Q
Q
1
03
/0
4
Q
3
03
/0
4
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
-3.0%
Q
3
Q
1
2.0%
EPS*
7.0
9th quarter of growth
3.0%
5.0%
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
(0.5%)
(1.0%)
(1.5%)
Dividends
24th quarter of growth
16
6.0
14
Final
12
Interim
10
5.0
8
6
4.0
4
2
3.0
Q1
2002/3
Q2
2003/4
2004/5
Q3
2005/6
Q4
2006/7
* Before specific items and leavers
2007/8
0
2002/3
2003/4
2004/5
2005/6
2006/7
2007/8
BT Group plc
Hanif Lalani – Group Finance Director
Q4 2007/8 – lines of business dashboard
Group
2%
Revenue
Group
(1)
2%
* External revenue
(1) Before leavers
EBITDA
Global
Retail
Wholesale
Openreach
10%
2%
12%
22%*
Global
Retail
Wholesale
13%
8%
14%
Openreach
0%
BT Global Services
Q4
Revenue
Revenue £2,226m
H1
• 19% growth in MPLS
9.6%
H2
9.8%
11.5%
12.4%
%
14
10%
EBITDA
13%
EBITDA £304m with margin
improving by 40bp
– Maturing contracts
– Global sourcing
– Process improvement
– SG&A reduced by 1%
2006/7
13
2007/8
12
11
10
9
EBITDA
margin
Delivered H2 margin
expansion
8
7
Q1
13.7%
Operating profit up 30%
Q2
Q3
Q4
EBITDA margin progression
BT Retail
EBITDA
Revenue £2,158m
Q4
Revenue
2%
EBITDA
8%
• New wave revenue up 24%
– 27% of total revenue
£m
400
2006/7
2007/8
Gross profit up 4%
• Margin improved 80bp to
36.5%
EBITDA £391m
350
300
Operating profit up 12%
250
200
Q1
Q2
Q3
Q4
BT Wholesale
Revenue £1,180m
Q4
Revenue
12%
EBITDA
14%
• Transit and PRS –
down £97m
• Broadband - down £54m
(volume and price cuts)
• £1bn of orders signed in Q4
EBITDA £320m
• SG&A reduced by 9%
• Headcount reduced by 13%
• Process improvements
helping to drive costs down
External revenue mix
£m
Transit & Interconnect
PCs & Other
Broadband
1200
900
600
300
0
Q1
06/07
Q2
06/07
Q3
06/07
Q4
06/07
Q1
07/08
Q2
07/08
Q3
07/08
Q4
07/08
External volumes
Revenue £1,320m
Q4
Revenue
• External revenue up 22%
• Sales to other lines of
business down 5%
5,000
WLR
4,500
LLU
4,000
1%
EBITDA
0%
EBITDA £496m
• Operating costs reduced
by £15m
• Record levels of service
improvement
3,500
3,000
2,500
2,000
1,500
Operating profit up 1%
1,000
500
0
Jun05
Sep- Dec05
05
Mar- Jun06
06
Sep- Dec- Mar- Jun06
06
07
07
Sep- Dec- Mar07
07
08
Q4 2007/8 results
Q4 2007/8
Q4 2006/7
Change
Revenue
POLOs
Revenue (net)
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
5,422
1,098
4,324
1,569
(755)
814
5,292
1,071
4,221
1,537
(773)
764
2%
Operating margin
15.0%
14.4%
Leaver costs
Finance costs (net)
Profit before tax
Tax
Profit for the period
(56)
(97)
658
(147)
511
(63)
(70)
632
(155)
477
6.5p
7.0p
5.8p
6.3p
£m
Earnings per share (post leavers)
Earnings per share (pre leavers)
Note: all numbers are before specific items. Q4 2007/8 specific charge £85m post tax.
2%
7%
5%
11%
Earnings per share
pence
7.0
2002/3*
2003/4*
2004/5*
2005/6**
2006/7**
2007/8**
6.0
5.0
4.0
3.0
Q1
Q2
* before exceptional items and goodwill from continuing activities
** before leavers and specific items
Q3
Q4
Free cash flow
Q4 2007/8
£m
Q4 2006/7
£m
Change
£m
EBITDA*(post leavers)
1,569
1,537
32
Interest & Tax
(159)
212
(371)
Capex
(759)
(836)
77
Working capital
1,195
713
482
Other (incl specific items)
(141)
(68)
(73)
Free cash flow
1,705
1,558
147
Net debt
9,460
7,914
1,546
* Before specific items
Pension
IAS 19 pre tax
£bn
3.0
• BT Pension Scheme £2.9bn pre
tax in surplus based on IAS19
valuation
1.5
0.0
-1.5
-3.0
• Next triennial funding valuation
begins after 31/12/2008
• Pension scheme asset mix
– 45% in equities
-4.5
-6.0
-7.5
-9.0
Pension interest credit
• 2008/9 £313m v £420m 2007/8
– but EBITDA benefits from a lower
pension scheme service charge
2008/9 outlook
Revenue, continued growth expected
Costs, £700m of efficiencies to be delivered
EBITDA*, growth underpinned by cost transformation
Earnings per share*, growth driven by operational performance
Capex, reduces to around £3.1bn
Free cash flow, similar level to 2007/8
Dividends per share, will also grow
Continue to deliver for shareholders and customers
* Before leavers and specific items
BT Group plc
Ian Livingston
BT Group plc
15 May 2008