Bringing it all Together
Q4 and preliminary full year results 2006/7
17th May 2007
BT Group plc
Preliminary full year results 2006/7
Sir Christopher Bland - 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: continuing growth in revenue,
EBITDA, earnings per share and dividends; cost reductions and efficiencies; growth in new
wave revenue mainly from networked IT services and broadband; growth in non-UK business;
growing free cash flow and increasing shareholder returns; and BT's transformation strategy.
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. BT undertakes no obligation to update any forward-looking statements whether
as a result of new information, future events or otherwise.
BT Group - 2001 headlines
Bloomin’ Terrible
BT fights to tame
£30bn debt
BT’s wrong
numbers
23 Mar ‘01
22 Mar ’01
BT poised for
cash call dash
BT at the end
of the line
BT buried in debt
26 Mar ‘01
27 Mar ‘01
23 Mar ‘01
BT turmoil as shares
slump 66% in a year
20 Mar ‘01
Company seeks to
refinance loans
The dominant themes of 2001
Can BT survive with £30bn of debt?
Will there be any revenue growth?
Is BT just a utility?
My original check list
BT Group 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
... Consistent delivery
EPS - FIVE years of continuous growth, 20% CAGR
pence
EPS 22.7p up 16%
24
22
20
18
16
14
12
10
8
6
4
2
0
2001/2
2002/3
2003/4
2004/5
2005/6
UKGAAP, April 2001 – March 2004, before exceptional items and goodwill from continuing activities
IFRS, April 2004 – March 2007, before specific items
2006/7
Dividends - two thirds of earnings, 1 year early
pence
Dividend 15.1p up 27%
16
14
12
10
8
6
4
2
0
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
Shareholder returns
£m
1500
Dividend
Buy back
1250
1000
750
500
250
0
2002/3
2003/4
2004/5
2005/6
Returned £4.8bn in last 5 years
2006/7
Distribution policy
Share buy back
• Since November 2003 spent over £1bn
– 2006/7 spent over £400m
• New £2.5bn programme
– expected completion March 2009
Dividends
• 2006/7 proposed
– two thirds payout ratio ONE year early
• Going forward
– expect to increase dividends, taking into
account our earnings growth, cash generation
and our ongoing investment needs
Transformation - the journey so far
2001
2006/7
Level of gearing
Level of gearing
Revenue growth
Revenue growth
Utility characteristics
Utility characteristics
Transformation continues
• Regulatory certainty
• Financial stability
• Service delivery
• Global capability
• Management ability
BT Group - 2006/7 headlines
Oil’s Well at BT
BT’s Growth
Rings Louder
Magic £3 mark
14 Apr ‘06
15 Dec ‘06
17 Dec ‘06
Resurgent BT
planning
£2bn buy back
5 May ‘07
A Perfect Day
21 Dec ‘06
BT Group plc
Q4 results 2006/7
Hanif Lalani – Group Finance Director
BT Group - Financial headlines
FY 2006/7
Group revenue
EBITDA
(1)
Earnings per share
Free cash flow
Full year dividend
(1)
Q4 2006/7
£20.2bn
4%
3%
£5.6bn
2%
3%
22.7p
16%
14%
£1.4bn
16%
42%
15.1p
27%
(2)
(1) Before specific items
(2) After paying a deficiency pension contribution of £520m
BT Group - Quarterly Income Statement*
Better /
(Worse) £m
Q4 2006/7
£m
Q4 2005/6
£m
Revenue
5,292
5,134
158
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
1,537
(773)
764
1,498
(773)
725
39
0
39
Operating margin
14.4%
14.1%
(63)
1
(70)
632
(67)
5
(101)
562
4
(4)
31
70
Tax
Profit for the period
(155)
477
(131)
431
(24)
46
Earnings per share
5.8p
5.1p
0.7p
Leaver costs
Associates
Finance costs (net)
Profit before tax
* All numbers are before specific items
Q4 2006/7 - BT Global Services
•
Revenue £2.5bn up 4%
– New wave up 9%
£m
350
EBITDA*
2005/6
2006/7
– Traditional down 13%
300
•
Gross profit £754m, down £3m
•
SG&A* £429m, down 5%
•
EBITDA* £325m up 6%
•
Depreciation up 13%
250
200
150
•
Operating profit* £135m
down £4m
100
Q1
* Before leavers
Q2
Q3
Q4
BT Global Services - growth
2006/7 Revenue up 4%
£m
£m
2006/7 EBITDA* up 5%
10000
1050
+ 8%
8000
£5.31bn
£7.15bn
£6.63bn
+ 19%
900
750
£681m
£570m
£443m
6000
600
4000
450
300
- 16%
2000
£2.29bn
£2.14bn
- 9%
£1.96bn
0
150
£502m
£405m
£339m
2004/5
2005/6
2006/7
0
2004/5
2005/6
Traditional
2006/7
New Wave
* Pre leavers
Estimated allocation of SG&A across revenue split
Traditional
New Wave
Q4 2006/7 - BT Retail
•
EBITDA*
Revenue £2.1bn up £3m
– New wave up 28%
£m
250
2005/6
2006/7
– Traditional down 6%
•
Gross profit up 4%
– Margin improved by
1 percentage point
•
200
SG&A* £376m, flat
•
EBITDA* £228m up 11%
•
Operating profit* £179m up 7%
150
100
Q1
* Before leavers
Q2
Q3
Q4
BT Retail – EBITDA contribution*
2005/6
2006/7
BT Business
up >40%
Enterprises
up >30%
Consumer
* Excluding central BT Retail costs
BT Business
Enterprises
Ireland
Q4 2006/7 - BT Wholesale
•
Revenue £1.9bn up 3%
EBITDA*
– External up 1%
£m
– Internal up 5%
500
•
Gross variable profit up 4%
•
Network and SG&A* up 2%
•
EBITDA* £496m up 5%
2005/6
2006/7
450
400
•
Depreciation up 15%
•
Operating profit* £167m
down 10%
* Before leavers
350
Q1
Q2
Q3
Q4
Q4 2006/7 External Revenue
•
Revenue £1.3bn up 2%
– External up £82m
– Internal down £56m
•
•
Operating costs 6% higher
at £838m
£m
2005/6
2006/7
200
150
100
50
0
Q1
EBITDA* £487m, down 4%
Q2
Q3
Q4
2006/7 impact of WLR price cuts
•
Depreciation down 23%
•
Operating profit* £310m, up 11%
Q1
Q2
Q3
Q4
£m
-10
-25
-40
-55
* Before leavers
-70
August '05
March '06
EBITDA* - fifth 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
-3.0%
* Before exceptionals / specific items, leaver costs and sale of property in Q2 2004/5
BT Group - free cash flow
Q4 2006/7
£m
Better /
(Worse) £m
FY 2006/7
£m
EBITDA*(post leavers)
1,474
43
5,633
Interest & Tax
(164)
85
(1,061)
Capex
(836)
(44)
(3,209)
713
8
(52)
15
13
187
1,202
105
1,498
Pension (deficit funding)
(20)
(20)
(520)
Tax rebate
376
376
376
1,558
461
1,354
Working capital
Other
Free cash flow
* Before specific items
Pension and Tax
Pension
Tax
Deficit funding
Q4 effective tax rate 24.5%
•
Paid £520m in 2006/7
•
Paid £320m in April
Next valuation in Dec ‘08
IAS19
•
31 Mar ’07 deficit £0.4bn
•
30 Apr ’07 in surplus
2007/8 pension interest
credit c.£420m
Tax repayment
•
£376m received in Q4
•
£0.5bn received in April
•
Total interest received £0.1bn
2007/8 effective tax rate
c.25% - 26%
2008/9 onwards
•
Tax rate expected to remain
below statutory level
Capital expenditure – FY 2006/7
£m
3250
3000
2750
2500
2250
2000
1750
1500
1250
1000
750
500
250
0
Global new wave
Systems and Software
(incl 21C & LLU)
Legacy Network
Openreach Access
Other
FY 2005/6
FY 2006/7
Earnings per share*
pence
6.5
20th consecutive quarter of year on year growth
5.5
4.5
2002/3
2003/4
2004/5
2005/6
2006/7
3.5
2.5
Q1
Q2
Q3
Q4
* UKGAAP, April 2001 – March 2004, before exceptional items and goodwill from continuing activities and leavers
* IFRS, April 2004 – March 2007, before specific items and leaver costs
BT Group plc
Ben Verwaayen – CEO
Transformation continues
• Regulatory certainty
• Financial stability
• Service delivery
• Global capability
• Management ability
BT Group strategy - positive results, positive trends
Revenue
EBITDA*
13th quarter of growth
5th quarter of growth
3.0%
5.0%
2.0%
4.5%
4.0%
1.0%
3.5%
3.0%
0.0%
2.5%
2.0%
-1.0%
1.5%
1.0%
-2.0%
0.5%
0.0%
7
7
7
Q
4
06
/0
06
/0
7
06
/0
Q
2
Q
3
06
/0
Q
1
4
05
/0
6
6
6
05
/0
05
/0
Q
3
Q
1
Q
2
05
/0
6
5
04
/0
4
Q
Q
Q
3
04
/0
5
5
5
04
/0
4
04
/0
1
Q
Q
2
4
03
/0
Q
4
03
/0
Q
3
03
/0
1
Q
(1.5%)
Q
2
(1.0%)
03
/0
4
4
-3.0%
(0.5%)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
EPS*
Dividends
20th quarter of growth
Two thirds of earnings in 2006/7
16
6.5
14
12
5.5
10
8
4.5
6
4
3.5
2
0
2.5
Q1
Q2
Q3
* Before specific items and leavers
Q4
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
Fixed line revenue trends
4%
Underlying fixed revenue growth in 2006
3%
2%
1%
0%
(1%)
(2%)
(3%)
(4%)
Weighted
average
(5%)
(6%)
(7%)
BT
BT
TEF OTE
TA
FT
BEL Avg*
TI
KPN
SC
Source Lehman Brothers equity research estimates (April 2007)
TS
DT
TN
PT
Group revenue - new wave driving transformation
£bn
8.0
30% CAGR in 4 years
7.0
CAGR
+ 44%
6.0
+ 71%
Mobility & Other
5.0
4.0
+ 20%
Broadband
3.0
2.0
Networked IT Services
1.0
0.0
2002/3
2003/4
2004/5
2005/6
2006/7
BT Global Services - Q4 2006/7 order intake
£3.4bn
(Hong Kong) 5yrs $20m
5yrs £578m
with CSC 5yrs > £30m
with HP 7yrs $450m
4yrs €22m
15yrs £296m
Signed 207 new customers
BT Global Services - total order intake trend
£m
4500
Reuters
4000
3500
Networked IT
services
DFTS
3000
2500
2000
1500
1000
Other orders
500
0
Q1
Q2
Q3
2004/5
Q4
Q1
Q2
Q3
2005/6
Q4
Q1
Q2
Q3
2006/7
Q4
Broadband - in the UK
Market share of net adds including cable
BT Retail*
Other ISPs
Cable
100%
75%
50%
25%
0%
Q1 04 Q2 04 Q3 04 Q4 04
Q1 05 Q2 05
Q3 05 Q4 05
* excludes Plusnet
Chart based on broadband providers 31 March 2007 data
Q1 06 Q2 06 Q3 06 Q4 06
Broadband - total DSL market
000’s
> 10.7 million connections
11000
Retail*
10000
Other ISPs
LLU
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
Mar-04
Jun-04
* excludes Plusnet
Sep-04 Dec-04
Mar-05
Jun-05
Sep-05 Dec-05 Mar-06
Jun-06
Sep-06 Dec-06
Mar-07
Broadband – BT, No1 retail broadband provider
BT Total Broadband
245k* net additions in Q4
32% of DSL + LLU
•
No1 by market share
•
No1 trusted ISP
- Reader Digest survey
•
No1 ISP
- Mac magazine 2007 awards
•
No1 performing ADSL
broadband provider - Epitiro
•
No1 broadband provider
of VoIP services
Q4 gross installs 456k
And
Jan ’07 Plusnet acquired
- customer base 195k
No1 for value
* excludes Plusnet
Consumer - ARPU improvement
Consumer ARPU*
up £4 to £262 in Q4
270
Value added services
Home IT advisor
68% contracted
- 40,000 users
260
VoIP
250
- 1.4 million registered users
240
BT Digital Vault
£
- 125,000 users
230
Home hubs
220
- Over 1 million
210
BT Vision
<
0 <
2004/5
2005/6
Traditional
* Rolling 12 months
2006/7
New Wave
- National marketing
campaign underway
BT Group plc
BT Vision Advert – Duration 2:15
Business – helping business do what they do best
Value added services
IT Manager
23,000 customers
BT Office Anywhere offers any
time, any place, any where, any
device capabilities
BT Web Clicks smart advert and
publicity searches
BT Tradespace B2B community
network and trade services
Also new
to market
BT Web Consult & Build
BT eShop
BT Dedicated
Managed Services for other operators
BT Wholesale
White Label Managed Services
- Allows CPs to offer own brand services
Enabling services through:
- CPs benefit from BT’s national reach
LLU
- Includes network operation and support
• 1,585 exchanges
- Includes back office systems
• 2 million lines (May 1st)
WLR
IP Stream price reductions
- Implemented May 1st
- Cuts between 5% and 17% net
• Right first time > 99%
Service quality
• Now local responsibility
– “Pride in patch”
• > 150,000 joints replaced and sealed
Delivering value for our customers
• Consumer
• Corporates
– Networked IT services
– BT Together
– Local service, global delivery
– BT Total Broadband
– Expanded portfolio of capabilities
– BT Fusion & BT Vision
• Business
• Other operators
– BT Business One Plan
– Managed services
– BT IT Manager
– Broadband
– BT Office Anywhere
– LLU & WLR
Higher
quality
Simpler
Faster
More
efficient
What investors tell us
Generate more cash and increase returns
Global
Services
EBITDA margin
21C
Platform
& Portfolio
Revenue growth
EBITDA growth
Capex
discipline
Efficient
balance
sheet
EPS growth
Cost
efficiencies
Dividend growth
Customer service
Targeted
acquisitions
From traditional telco…
Keys to
our evolution
Real time
Global
Open
… to leading services provider with global capabilities
Real time processes
Service delivery process transformation
The way
it is
Collaboration
Platform
Days to complete
Customer
Management
Platform
Service
Management
(NT) Platform
Platorm
Network Service
Inventory
& Design
Domain
Management
Platform
Customer Self Service
The way
it will be
Minutes to deliver
Test
Network
Global delivery, local service
Our customers
Our platform
Our suppliers
Our capabilities
Open platforms
End customer created services
3rd party services
BT services
Common software building blocks
Global network and computing
Servers
Storage
Concept-tomarket
Lead-to-cash
Converged
bandwidth
Trouble-toresolve
Transformation to Service Provider
• To enable
– Customer to focus on
what they do best
– Software solutions
– Global delivery and reach
• To reduce
• To deliver
– Right first time service
– Where our customers are
– A simplified organisation
• To improve
– Complexity
– Customer service
– Cost base
– Efficiency
– Time to market
– Free cash flow
Bringing it all Together
Strategy built around convergence & innovation
• 14% growth in new wave revenues
Corporate evolution
• From traditional telco to leading services
provider with global capabilities
Revenue
Strong momentum with track record of delivery
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%)
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
• Twenty quarters of EPS growth
• Thirteen quarters of revenue growth
• Five quarters of EBITDA growth
EPS
24
22
20
18
16
14
12
10
8
6
4
2
0
Continue to grow revenue, EBITDA*,
EPS* and dividends in 2007/8
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
* Before specific items and leavers
BT Group plc
Q4 results 2006/7