Keeping BT ahead of the game
Q2 and half year results 2007/8
November 8th 2007
BT Group plc
Sir Michael Rake - Chairman
BT Group plc
Ben Verwaayen - CEO
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: continuing growth in revenue, earnings per share, EBITDA and dividends;
growth in new wave revenue mainly from networked IT services and broadband; the introduction of next
generation services; Global Services’ cost reductions and EBITDA margin; and the anticipated benefits of
BT’s business transformation, including cost savings.
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 forward-looking
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.
Q2 – 2007/8 highlights
• Revenue up 3%
• Global Services non-UK grew by 19%
• Consumer up for the first time in four years
• BT’s retail market share of DSL broadband net adds, 37%
• EBITDA*up 2%
• Q2 cost reduction delivered £136m of savings
• Best fault repair stats in Openreach for 10 years
• EPS* up 2%
• 22 quarters of year on year growth
10
Interim
8
Final
• Dividend up 6%
• Interim dividend 5.4p, ex-div 24 Dec ‘07
6
4
2
0
2002/3
2003/4
2004/5
2005/6
2006/7
2007/8
* Before specific items and leavers
Q2 2007/8 - Group revenue up 3%
£bn
5.0
4.0
1.7
1.9
3.0
10%
1%
2.0
3.2
3.2
1.0
0.0
Q2 2006/7
New Wave
Traditional
Q2 2007/8
Strategy in action – defend traditional
Q2 traditional revenue down 0.7%
Q1
Q2
Q3
Q4
Q1
Q2
Q3
2007/8
2006/7
2005/6
2004/5
Q4
Q1
Q2
Q3
Q4
Q1
0%
(1%)
(2%)
(3%)
(4%)
(5%)
(6%)
* Growth versus prior year adjusted for the impact of mobile termination cut and excluding Albacom 2005/06
Q2
Strategy in action – grow new wave
Q2 new wave revenue up 10.3%
£m
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07
BT Global Services – Q2 total order intake £1.6bn
£m
Networked
IT services
DHL Express (Italy), ArcelorMittal
Novartis, LogicaCMG
Other
orders
4,000
Reuters
5,000
DFTS
3,000
2,000
£1.3bn
£1.6bn
£1.6bn
£1.5bn
1,000
0
Q1
Q2
Q3
2004/5
Q4
Q1
Q2
Q3
2005/6
Q4
Q1
Q2
Q3
2006/7
Rolling 12 months intake £9.2bn
Q4
Q1
Q2
2007/8
European network* deals - April ’04 to Sept ‘07
Company
Deals
Company
Value
BT Global Services
75
BT Global Services
Ericsson
36
Siemens AG
$6.3bn
Alcatel-Lucent
34
EDS
$6.0bn
T-Systems
29
IBM Global Services
$5.9bn
AT&T
16
T-Systems
$2.8bn
HP
15
Fujitsu
$2.1bn
Atos Origin
14
HP
$1.6bn
Fujitsu
12
CSC
$1.4bn
IBM
11
Capgemini
$1.0bn
CSC
11
Atos Origin
$0.9bn
Capgemini
7
AT&T
$0.3bn
$23.4bn
Others (>130 firms)
390
Others (>130 firms)
Total
650
Total
$11.5bn
$63.2bn
* Source Datamonitor Computerwire - deals excluding Wholesale networks
Broadband – DSL continues to grow
Q2 net additions 479k
000s
12000
LLU
Other ISPs
BT Retail
10000
8000
6000
4000
2000
0
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
11.7 million ADSL connections
Mar-07
Jun-07
Sep-07
Broadband – BT’s retail market share* 37%
Subscriber base 4.1m
Subscriber base
000s
4,200
PlusNet
Best Broadband Provider
3,500
2,800
BT Total Broadband
2,100
1,400
Q2 gross installs 450k
700
• c60% take Option 2 or 3
0
Sep05
Dec05
Mar06
* DSL and LLU net adds
Jun06
Sep06
Dec06
Mar07
Jun07
Sep07
• 178k net additions
Broadband – UK retail market including cable
BT Retail
Virgin Media
CPW / AOL
Tiscali
Report net adds Nov 8th
Net adds in Q2
Acquisition of
Brightview
Orange
Sky
0
500
1,000
1,500
2,000
2,500
3,000
Total broadband customers (k)
* Based on published data for 30th Sept 2007
3,500
4,000
Broadband – so much more than just access
BT Fusion
Security &
Storage
BT Broadband
Talk
Wireless
Networks
Gaming
Monitoring
and Control
Home IT advisor
– that’s entertainment
Installed base
Installed customer base
000s
• 46k at the end of September
• Now over 70k
70
65
Self-install
60
55
• Option of choice by over 75%
of new installs
• Recently increased number of trained
call centre staff to cross sell Total
Broadband and Vision
50
45
40
35
30
Customer Marketing Strategy
25
20
• Customers targeted by segment
• Vision Customer
magazine launched
November 1st
15
10
v
-N
o
t
02
p
-O
c
12
-Se
21
-Au
g
g
31
-Au
10
-Ju
l
20
n
-Ju
n
29
-Ju
08
-M
ay
r
-Ap
18
r
27
06
-Ap
5
0
The world’s largest Wi-Fi community
• Free access in hundreds of thousands
of places in the UK and around the world
• Completely secure
• It’s included as part of the
BT Total Broadband package
– which includes access to BT Openzone
and wireless city networks
Consumer ARPU* – up £5 to £271
275
New wave
Traditional
260
245
£
230
215
200
Q1
Q2
Q3
Q4
2004/5
* Consumer household rolling 12 months
Q1
Q2
Q3
2005/6
Q4
Q1
Q2
Q3
2006/7
Q4
Q1
Q2
2007/8
Consumer – revenue growth
3%
2%
1%
0%
(1%)
(2%)
(3%)
(4%)
(5%)
(6%)
(7%)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2003/4
2004/5
2005/6
2006/7
2007/8
Business – performance transformed
6th quarter of
revenue growth
4%
• Value packages
• c30% take-up amongst SMEs
• 18k new One Plan customers
• Uplift in new wave revenue
2%
• ICT revenue up 24%
• Mobile revenue up 35%
0%
• Business broadband market
share remains over 40%
-2%
-4%
• BT Enterprise (EBITDA up 14%)
- deals signed with Yahoo and Morrison’s
-6%
- strong performance from Dabs & Expedite
• BT Ireland (EBITDA up 13%)
- network IT services accounts for 29%
Q
Q
1
05
/0
6
2
05
/0
6
Q
3
05
/0
Q
6
4
05
/0
Q
6
1
06
/0
Q
7
2
06
/0
Q
7
3
06
/0
7
Q
4
06
/0
7
Q
1
07
/0
Q
8
2
07
/0
8
-8%
of revenue
Wholesale - future growth from managed services
Recent wins
4%
3%
2%
1%
0%
-1%
Revenue
-2%
-3%
-4%
Q1 06/07 Q2 06/07 Q3 06/07 Q4 06/07 Q1 07/08 Q2 07/08
And in Q2
• Orange
Broadband
000s
12000
LLU
Other ISPs
BT Retail
10000
for Calls and Lines - signed late August
and launched on 18th September
8000
•
6000
Jersey Telecom
12 year contract for managed backhaul,
equipment and accommodation services
4000
2000
0
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Openreach
Revenue growth
• Best fault repair stats for 10 years
4%
• 50% increase in frame activity
3%
• Rapid take-up of Ethernet services
driving revenue
2%
1%
• OTA report - Oct 2007
0%
– encouraging signs of improvement
in service quality for SMPF & MPF
-1%
-2%
-3%
-4%
Q1
06/07
Q2
06/07
Q3
06/07
Q4
06/07
Q1
07/08
Q2
07/08
Transformation of cost base – FY target £600m
Retail
Wholesale
• Overhead value analysis driving deduplication & process efficiency (c£35m)
• Marketing efficiencies (c£30m)
• Billing programme (c£29m)
• Field operations productivity (c£17m)
• Support contracts (c£12m)
• Network transformation (c£17m)
Global
Openreach
• De-layering (c£20m)
• Global sourcing (c£60m)
• Non telco procurement activity (c£120m)
• Service systems automation (c£15m)
• Field and service centres productivity
improvements (c£17m)
• Fault volume reduction and visit
avoidance (c£18m)
H1 delivered £275m, more in H2
H2 agenda
Revenue
•
Grow consumer ARPU with enhanced broadband portfolio
•
Develop further the addressable SME market with targeted propositions
•
Convert strong pipeline of orders from corporates
•
Increase carriers’ take-up of Ethernet services
Margin
•
•
•
Deliver £325m efficiency savings in H2 across the business
Global Services EBITDA margin improvement
– contract milestones and operational savings
BT Design and BT Operate synergies
Consistent delivery
Revenue
7th quarter of growth
15th quarter of growth
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
2%
1%
1%
-1.0%
-2.0%
-3.0%
-4.0%
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
-5.0%
Q
3
Q
1
0%
-1%
-1%
-2%
Q
1
03
Q /04
2
03
Q /04
3
03
Q /04
4
03
Q /04
1
04
Q /05
2
04
Q /05
3
04
Q /05
4
04
Q /05
1
05
Q /06
2
05
Q /06
3
05
Q /06
4
05
Q /06
1
06
Q /07
2
06
Q /07
3
06
Q /07
4
06
Q /07
1
07
Q /08
2
07
/0
8
5%
5%
4%
4%
3%
3%
2%
EBITDA*
EPS*
6.5
Dividends
22nd quarter of growth
Interim up 6%
10
pence
Interim
8
5.5
Final
6
pence
4.5
4
3.5
2
0
2.5
2002/3
Q1
Q2
Q3
* Before specific items and leavers
Q4
2003/4
2004/5
2005/6
2006/7
2007/8
BT Group plc
Hanif Lalani – Group Finance Director
Q2 2007/8 – Financial headlines
Group revenue
£5.1bn
3%
£1.4bn
2%
6.1p
2%
Free cash flow
£0.2bn
49%
Interim dividend
5.4p
6%
EBITDA
(1)
Earnings per share
(1) Before specific items and leavers
(1)
Q2 2007/8 results
Better /
(Worse) £m
Q2 2007/8
£m
Q2 2006/7
£m
Revenue
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
5,095
1,448
(693)
755
4,941
1,418
(703)
715
Operating margin
14.8%
14.5%
Leaver costs
Associates
Finance costs (net)
Profit before tax
Tax
Profit for the period
(43)
(3)
(92)
617
(153)
464
(33)
5
(55)
632
(155)
477
(10)
(8)
(37)
(15)
2
(13)
5.7p
6.1p
5.7p
6.0p
0.0p
0.1p
£799m
£812m
£13m
Earnings per share (post leavers)
Earnings per share (pre leavers)
Capital Expenditure
Note: all numbers are before specific items. Q2 2007/8 charge £182m pre tax
154
30
10
40
/5
Q
20
1
04
/5
Q
20
04 2
/5
Q
20
3
04
/5
Q
20
05 4
/6
Q
20
1
05
/6
Q
20
2
05
/6
Q
20
05 3
/6
Q
20
4
06
/7
Q
20
06 1
/7
Q
20
2
06
/7
Q
20
06 3
/7
Q
4
20
07
/8
Q
20
07 1
/8
Q
2
20
04
Free cash flow - seasonality
£m
1,600
1,400
1,200
1,000
800
600
400
200
0
-200
-400
-600
Q2 2007/8 - BT Global Services
• Revenue £2.3bn up 6%
– New wave up 10%
– UK traditional down 8%
350
300
• Gross profit £651m, up 2%
250
• SG&A £411m, maintained
200
• EBITDA £240m, up 5%
– Margin maintained
150
• Depreciation up 11%
• Operating profit £65m,
down £7m
EBITDA
£m
100
50
0
Q1
2005/6
Q2
2006/7
Q3
Q4
2007/8
BT Global Services – driving H2 performance
Recent actions
•
Increasing number of deals with higher value add element
– Standard Chartered Bank (Asia Pac), MPLS network resilience
– gasNatural (Spain), network security enhancements
– Punch Taverns (UK), technology refresh and integration
•
Delivering synergies and scale from acquisitions
– Consolidating operations in the Americas
– Net2S and CS IT Division providing scale in France
•
Rationalisation of cost base
– Alcatel-Lucent will support and maintain legacy networks globally
– Management delayering and global sourcing of 1,800 roles
•
More balanced contract base
– Increasing number of contracts entering 2nd half of their lives
Q2 2007/8 - BT Retail
•
Revenue £2.1bn, up 3%
– New wave up 18%
– Traditional down 2%
•
Gross profit £631m, up 7%
– Margin improved by
1 percentage point
•
SG&A £374m, up 5%
EBITDA
£m
270
225
180
135
– Investment in service
and marketing
90
•
EBITDA £257m, up 9%
45
•
Operating profit £217m, up 11%
0
Q1
Q2
2005/6 2006/7
Q3
2007/8
Q4
Q2 2007/8 - BT Wholesale
•
Revenue £1.8bn down 4%
– External down 9%
– Internal up 2%
•
Gross variable profit down 1%
•
Network and SG&A up 1%
•
EBITDA £466m, down 4%
•
Depreciation down 14%
•
Operating profit £216m, up 12%
EBITDA
£m
500
450
400
350
Q1
Q2
2005/6
Q3
2006/7
Q4
2007/8
Q2 2007/8 •
Revenue £1.3bn up 2%
– External up 28%
– Internal down 2%
•
Operating costs 2% higher
at £836m
•
EBITDA £468m, up 2%
•
Depreciation up 4%
•
Operating profit £298m, up 6%
£m
External Revenue
210
140
70
0
Q1
Q2
2005/6
Q3
2006/7
Q4
2007/8
EBITDA* - seventh consecutive quarter of growth
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
-3.0%
-4.0%
Q
2
07
/0
8
8
07
/0
1
Q
Q
4
06
/0
7
7
06
/0
7
Q
3
06
/0
7
* Before exceptionals / specific items, leaver costs and sale of property in Q2 2004/5
Q
2
06
/0
6
Q
1
05
/0
6
Q
4
3
Q
Q
2
05
/0
05
/0
6
6
05
/0
Q
1
04
/0
Q
4
04
/0
3
Q
5
5
5
04
/0
5
Q
2
04
/0
4
Q
1
03
/0
4
Q
4
03
/0
4
Q
3
03
/0
2
Q
Q
1
03
/0
4
-5.0%
Earnings per share – 22 quarters of delivery
pence
6.5
2002/3* 2003/4* 2004/5* 2005/6** 2006/7** 2007/8**
5.5
4.5
3.5
2.5
Q1
Q2
* before exceptional items and goodwill from continuing activities
** before specific items
Q3
Q4
Dividends – interim dividend 5.4p
pence
10
Interim
Final
8
up 6%
6
4
2
0
2002/3
2003/4
2004/5
2005/6
2006/7
Complete £2.5bn buy back by March 2009
2007/8
Building on success – keeping ahead of the game
Strategy built around convergence & innovation
• 10% growth in new wave revenues
Corporate evolution
• From traditional telco to leading services provider
with global capabilities
Strong momentum with track record of delivery
• Twenty-two quarters of EPS* growth
• Fifteen quarters of revenue growth
• Seven quarters of EBITDA* growth
Continue to grow revenue, EBITDA*,
EPS* and dividends in 2007/8
* Before specific items and leavers
BT Group plc
Q2 results 2007/8