Keeping BT ahead of the game
Q1 results 2007/8
26th July 2007
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, EBITDA, earnings per share and dividends; the benefits of BT's new
organisation structure including efficiencies and cost transformation; growth in new wave
revenue mainly from networked IT services and broadband; growth in non-UK business;
and continuing improvement in free cash flow.
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.
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
… has put BT ahead of the game
Q1 2007/8 - Group revenue up 3.5%
£bn
5.0
4.0
1.6
1.8
11%
3.2
3.2
0%
3.0
2.0
1.0
0.0
Q1 2006/7
New Wave
Traditional
Q1 2007/8
Strategy in action – defend traditional
Q1 traditional revenue maintained
Q1
0%
(1%)
(2%)
(3%)
(4%)
(5%)
(6%)
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Strategy in action – grow new wave
Q1 new wave revenue up 11%
£m
2000
1750
1500
1250
1000
750
500
250
0
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
Setting new benchmarks
Info Tech 100
Only UK company in rankings
World’s Most Admired Companies
Company of the year
Winner, Impact on
Society Award
Top 5 in worldwide telecoms
Top 5 among all UK companies
2007 Awards
Telemark 2007 brand awards
™Gold award for network reliability and secure data transfer
creating value for shareholders
Consistent strategy, new emphasis …
Keys to our
future success
Real time
Global
Open
… driving BT further ahead of the game
Creating a “success culture”
• Customer experience and Service
• Efficiency driven cost transformation
• Innovation
• Partnership, Collaboration
and co-operation
• Global Capabilities,
resources and skills
• Making Choices
Customer experience – improving delivery
Consumer
SME
• Rated BT as the best performing
broadband provider for the fifth
consecutive quarter
• Pilot of new IVR system
Service
– Customer satisfaction trebled
– Customer terminated IVR calls halved
• Home IT Advisor satisfaction
scores consistently over 90%
• Since launch BT Assurance Plus
has reduced dissatisfaction with
repair by over 40%
Corporate
Carrier
• Best in Class for long term relationship
and single point of contact*
• Fault resolution in consumer one
day faster than last year
• On time delivery of the new WLR3
EMP system
• Provide services in 170 countries
with 24/7 support via centres on
three continents
* Telemark 2007 Awards - Customer experience of data VPN from Global service providers
Transformation of cost base – this year
Efficiency
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)
c£600m in 2007/8
Innovation
Open innovation
Aim is to exploit innovation globally for the
benefit of customers and shareholders
Revenue
EBITDA
Innovate within each stage and through the entire value chain
Customer
experience
Cost
reduction
Invent
Architect
Customers
Validate
Operate
& Implement
Productise Channels
Universities
People Customers
& Orginsation
Government
Partners
Collaboration – working in partnership
Collaboration
Capitalising on BT's network infrastructure and
communications skills allied with HP's global IT capability
Global collaboration to provide converged seamless
services to BT’s and Vodafone’s customer bases
Transforming the PSP together – adding wireless
broadband communications features such as high quality
video/voice calls and messaging
Creating a software driven services environment including web
services, broadband portals and BT Vision
SMB Live jointly developed Tradespace to enable
SMEs to build and develop new trading channels
University of Oxford’s Saïd Business School
creation of the world’s first research centre for major
programme management
Q1 contract wins worth over £2bn
Capabilities
Corporates
Communication Providers
Enterprises
5 year contract
- Backhaul for UK base station network
- Upgrade with Ethernet services
4 year contract
- Includes network operation and support
- Includes back office systems
Long term commitment from key customers
BT Conferencing
New contract with Nestle
New contracts with Lipsy and Bodycare
Local capabilities – globally
Capabilities
Europe
AsiaPac
• Launched MVNO in Italy
• Breakthrough deal signed in Germany
• Global Business Support Office
opened in Budapest
• 15,000 people in 17 countries
• i2i win 5yr/€5m MPLS contract
• Global sourcing in China & India
Americas
Rest of the World
• Infonet delivered $150m cost savings
• Comsat International acquisition
completed
• BT Managed Mobility launched in
Canada & USA
• Now have >2,000 customer sites
v 700 last year in South Africa
• In Russia, customer sites up five fold
to c2,000
Double digit revenue growth in all regions
Local capabilities – NHS update
N3
Capabilities
• Deliver > 20,000 connections provided in England ahead of schedule
• Scottish network is over two-thirds complete
• Network in England now VoIP-enabled
Spine
• Already transmitted over 500 million messages, raised 4.5 million
Choose and Book appointments and dispensed 30 million electronic
prescriptions
• All 14 software releases delivered on time or ahead of schedule
• Access available to around 400,000 registered users
London
• Significant capability delivered to 70% of trusts, including more than
half of London’s Mental Health Trusts
• BT has 45,000 users across 137 different sites
• Plans to install 3 acute patient administration systems by the
end of this year
Choices
Broadband – UK market dynamics
000’s
12000
BT Retail
Other ISPs
LLU
10000
8000
6000
4000
2000
0
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
11.2 million ADSL connections
Mar-07
Jun-07
Broadband – BT Retail market share* 38%
000’s
Subscriber base
Choices
Q1 gross installs 426k
4000
– 58% take Option 2 or 3
3500
3000
2500
2000
1500
1000
175k net additions in Q1
500
Subscriber base now >3.8m
0
Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07
* DSL and LLU net adds
Choices
Consumer ARPU – An improving trend
Q1 consumer ARPU up £4 to £266
£
270
260
250
New
Trad
240
230
220
210
Q1
Q2
Q3 Q4 Q1
2004/5
Q2 Q3 Q4
2005/6
Q1 Q2 Q3
2006/7
Q4 Q1
2007/8
Broadband – BT Vision
Launch of Sports channel
• Unique mix of live and on demand sports
• From as little as £1 a week
• £12 pm for 75% of all Premiership Football
games including 46 live matches, plus:
– Live US PGA Golf, 70 Scottish Premier
League Games, Magners League Rugby,
World Boxing and much more
• No minimum subscription
• Pay per view option on all near live games
and classic programming
Choices
Choices
BT Business
5th quarter of growth
4.0%
Know your customer
• Uplift in new wave revenue
– ICT revenue up 10%
– Mobile revenue up 35%
2.0%
0.0%
• Business broadband market
share remains over 40%
-2.0%
-4.0%
• Ad campaign increased
customers consideration
for using BT
for IT services
-6.0%
07
/0
8
Q
1
06
/0
7
Q
4
06
/0
7
Q
3
06
/0
7
Q
2
06
/0
7
Q
1
05
/0
6
Q
4
05
/0
6
Q
3
05
/0
6
Q
2
Q
1
05
/0
6
-8.0%
– by 50%
BT Group plc
BT Ramsey Advert Playing in the Auditorium
Keeping BT ahead of the game
Revenue
EBITDA*
14th quarter of growth
1.0%
0.0%
-1.0%
-2.0%
Q
Q1 – 2007/8
21st quarter of growth
… continuing
the
momentum…
5.5
4.5
3.5
2.5
Q1
Q2
Q3
* Before specific items and leavers
Q4
07
/0
8
1
06
/0
7
06
/0
7
4
Q
06
/0
7
3
Q
06
/0
7
2
1
Q
Q
05
/0
6
05
/0
6
4
Q
05
/0
6
3
2
Q
Q
04
/0
5
05
/0
6
1
4
Q
Q
04
/0
5
04
/0
5
3
Q
04
/0
5
2
Q
03
/0
4
1
4
Q
Q
03
/0
4
03
/0
4
3
Q
03
/0
4
1
2
Q
Q
Q
1
Q
3
Q
1
Q
3
Q
1
Q
3
Q
1
Q
1
Q
3
-3.0%
Q
3
Q
1
2.0%
EPS*
6.5
6th 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%)
BT Group plc
Hanif Lalani – Group Finance Director
Q1 2007/8 results*
Better /
(Worse) £m
Q1 2007/8
£m
Q1 2006/7
£m
Revenue
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
5,033
1,425
(709)
716
4,864
1,386
(703)
683
Operating margin
14.2%
14.0%
Leaver costs
Associates
Finance costs (net)
Profit before tax
Tax
Profit for the period
(8)
(3)
(55)
650
(161)
489
(24)
2
(46)
615
(151)
464
16
(5)
(9)
35
(10)
25
5.9p
6.0p
5.6p
5.8p
0.3p
0.2p
£903m
£715m
(£188m)
Earnings per share (post leavers)
Earnings per share (pre leavers)
Capital Expenditure
* All numbers are before specific items
169
39
(6)
33
Q1 2007/8 - BT Global Services
• Revenue £2.3bn up 5%
– New wave up 10%
– Traditional down 12%
£m
350
300
• Gross profit £643m, up 2%
250
• SG&A £404m, up £4m
200
• EBITDA £239m, up 5%
150
• Depreciation up 11%
100
• Operating profit £75m,
down £5m
EBITDA
50
0
Q1
Q2
2005/6 2006/7
Q3
2007/8
Q4
BT Global Services – Q1 mix effect
£m
Revenue
£m
EBITDA
250
2500
12%
10%
200
2000
1500
150
1000
100
500
50
5%
12%
0
0
Q1-2006/7
Trad
Q1-2007/8
New
Q1-2006/7
Trad
Q1-2007/8
New
Q1 2007/8 - BT Retail
• Revenue £2.1bn, maintained
– New wave up 16%
– Traditional down 5%
• Cost of Sales, down 2%
– Margin improved by
1.4 percentage points
• SG&A £389m, up 3%
– Investment in service
and marketing
EBITDA
£m
250
200
150
100
50
• EBITDA £198m, up 9%
• Operating profit £156m, up 10%
0
Q1
2005/6
Q2
2006/7
Q3
Q4
2007/8
Q1 2007/8 - BT Wholesale
• Revenue £1.9bn up 1%
– External up £2m
– Internal up £17m
• Gross variable profit down 1%
EBITDA
£m
500
450
• Network and SG&A down 4%
• EBITDA £486m, up 2%
400
• Depreciation unchanged
• Operating profit £201m, up 4%
350
Q1
2005/6
Q2
2006/7
Q3
Q4
2007/8
Q1 2007/8 • Revenue £1.3bn up 4%
£m
– External up 62%
– Internal down 3%
210
• Operating costs 7% higher
at £839m
External Revenue
140
• EBITDA £471m, maintained
• Depreciation up 3%
70
• Operating profit £290m,
down 2%
0
Q1
2005/6
Q2
2006/7
Q3
Q4
2007/8
EBITDA* - sixth consecutive quarter of growth
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
Q
1
03
/0
4
Q
2
03
/0
4
Q
3
03
/0
4
Q
4
03
/0
4
Q
1
04
/0
5
Q
2
04
/0
5
Q
3
04
/0
5
Q
4
04
/0
5
Q
1
05
/0
6
Q
2
05
/0
6
Q
3
05
/0
6
Q
4
05
/0
6
Q
1
06
/0
7
Q
2
06
/0
7
Q
3
06
/0
7
Q
4
06
/0
7
Q
1
07
/0
8
-3.0%
* Before exceptionals / specific items, leaver costs and sale of property in Q2 2004/5
Q1 2007/8 - free cash flow
Q1 2007/8
£m
Q1 2006/7
£m
1,417
1,362
55
202
(310)
512
Capex
(819)
(802)
(17)
Pension deficiency payment
(320)
---
(320)
Working capital & Other
(632)
(267)
(365)
Free cash flow
(152)
(17)
(135)
EBITDA*(post leavers)
Interest & Tax
* Before specific items
Better /
(Worse) £m
20
04
/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
20
4
07
/8
Q
1
Free cash flow - seasonality
£m
1600
1400
1200
1000
800
600
400
200
0
-200
-400
-600
Pension scheme – now in surplus
£m
3000
IAS19 net position
•
Three years of contributions
(£840m) paid upfront
•
Next triennial funding
valuation due Dec 2008
•
Scheme now in surplus
(c£2bn pre tax) based on
IAS19 valuation
•
True up / true down
arrangement in place to
reflect asset performance
1500
0
-1500
-3000
-4500
-6000
-7500
20
02
/3
Q
20
02 1
/3
Q
20
03 3
/4
Q
20
03 1
/4
Q
20
04 3
/5
Q
20
04 1
/5
Q
20
05 3
/6
Q
20
05 1
/6
Q
20
06 3
/7
Q
20
06 1
/7
Q
20
07 3
/8
Q
1
-9000
Building on success – keeping ahead of the game
Strategy built around convergence & innovation
• 11% growth in new wave revenues
Corporate evolution
• From traditional telco to leading services
provider with global capabilities
Strong momentum with track record of delivery
6.5
5.5
4.5
3.5
2.5
Q1
Q2
Q3
Q4
• Twenty-one quarters of EPS growth
• Fourteen quarters of revenue growth
• Six quarters of EBITDA growth
6th quarter of growth
3.0%
Continue to grow revenue, EBITDA*,
EPS* and dividends in 2007/8
2.0%
1.0%
0.0%
-1.0%
-2.0%
4
03
/0
4
Q
03
/0
2
1
3
Q
Q
Q
4
03
/0
4
03
/0
4
Q
1
04
/0
5
Q
2
04
/0
5
Q
3
04
/0
5
Q
4
04
/0
5
Q
1
05
/0
6
Q
2
05
/0
6
Q
3
05
/0
6
Q
4
05
/0
6
Q
1
06
/0
7
Q
2
06
/0
7
Q
3
06
/0
7
Q
4
06
/0
7
Q
1
07
/0
8
-3.0%
* Before specific items and leavers
BT Group plc
Q1 results 2007/8