Consistent delivery in
a dynamic environment
Q3 results 2005/6
9th February 2006
BT Group plc
Q3 results 2005/6
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: continued growth in new wave revenue, mainly from
networked IT services, broadband and mobility growth; the benefits of convergence, implementation
of BT’s 21st Century Network; introduction of next generation services; and expectations regarding
cost efficiencies, earnings per share and EBITDA.
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 and its lines of business of the appropriate trading and
marketing models for its products and services; fluctuations in foreign currency exchange rates
and interest rates; technological innovations, including the cost of developing new products, networks
and solutions and the need to increase expenditures for improving the quality of service; prolonged
adverse weather conditions resulting in a material increase in overtime, staff or other costs;
developments in the convergence of technologies; the anticipated benefits and advantages of new
technologies, products and services, including broadband and other new wave initiatives, not being
realised; 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 delivery in a dynamic environment
Drivers
–
–
–
–
–
–
Consistent strategy
Regulatory certainty in place
Capitalising on convergence
Customer engagement
Global reach with local service
Innovation in services and solutions
8 quarters of revenue growth
Delivery
15 quarters of EPS* growth
* Pre specific items and leaver costs
Q3 2005/6 - Overview
• Group revenue up 8%*
Operational
performance
– 20% increase in Corporate revenues
– 16% rise in Carrier revenue
• Group EBITDA improving trend continues
– BT Retail EBITDA rose 9%
• Earnings per share up 4%**
• Annualised order intake remains over £8bn
Strategic
direction
• LLU delivery capabilities proven
– Openreach now operational
• 700,000 net DSL additions
– BT Retail share of net adds 31%
* Underlying growth is 3.2%, excluding acquisitions
** Before leavers and specific items
Revenue - customer segmentation
2004/5
2005/6
Q3 Group Revenue
Q3 Group Revenue
Carrier
Consumer
Carrier
Consumer
24%
31%
26%
27%
Business
Business
13%
12%
Corporates
32%
Corporates
35%
Consumer
Accounts for 27% of our revenues
– 66% of total under contract
Q3 2005/6
Revenue £1.3bn
Broadband
– new wave rose 43%
• Voice
– BT Privacy, 2.9m subscribers
5% 5% Other
Other
new wave
Traditional
5%
– BT Together, 2.0m on Option II & III
– BT VoIP, customer base growing
• Broadband
– 176,000 net additions in Q3
(Consumer only)
Lines
41%
Calls
44%
Consumer - VoIP pricing
UK landlines evenings
and weekends
Mobile*
USA
BT**
0p
8.0p
1.25p
Dixon’s**
0p
10.0p
2p
Skype
1.4p
16.5p
1.4p
Tesco
2p
10p
2p
Vonage**
0p
10p
2p
Wanadoo**
0p
10p
4p
Pence per minute
* Evening rates calling Vodafone
** Monthly fee payable
Consumer - household ARPU* stabilising
£
270
44%
240
34%
210
180
150
120
90
60
30
0
Jun-03
Sep-03
Dec-03
Mar-04
New wave
Jun-04
Sep-04
Dec-04
Trad (Contracted)
* Rolling 12 month consumer revenue, less mobile
POLOs, divided by average number of primary lines
Mar-05
Jun-05
Sep-05
Trad (Variable)
Dec-05
Consumer
- unlocking the power of convergence
Music online
Wireless
networking
BT Communicator
BT Broadband Talk
VoIP
BT Fusion
Home
Monitoring
Handheld
gaming
Next generation TV
Business
- unlocking the power of convergence
Wireless
access
Assured
Application
Infrastructure
VoIP
services
IT support
manager
IP
enabled
networks
BT Fusion
System
Integration
Remote
working
Business – BT Fusion
* £6.25 per handset for the first three months of 24 month contract, £12.50 there after
Business
Q3 2005/6
Revenue £0.6bn
Accounts for 12% of our revenues
– new wave grew 14%
• Voice
Other new wave
Broadband
13%
10%
– BT Business Plan sites up 24%
• >50% of call revenues
• Broadband
– 32k net additions in Q3, base 428k
– attachment rate of value add services
over 100%
Other
Traditional
Calls
25%
18%
34%
Lines
Corporates
Q3 2005/6
Revenue £1.8bn
• Accounts for 35% of our revenues
– 59% is new wave
Other new wave
– MPLS revenues up 35%
3%
• Customer base across
a spectrum of markets
– International reach extended
Networked
IT Services
• Added >250 new customers in Q3
• MPLS available in 90 countries
– Rolling 12 month intake £8.1bn*
* Sales Order Value of networked IT services contracts
56%
Traditional
41%
Corporates - Q3 order intake*
Wins worth £1.2bn
• Wins between £200m and £500m
– Department for Work and Pensions
– Fiat
• Wins between £20m and £50m
– Microsoft
– MyTravel
• Wins between £10m and £20m
– Citigroup (Germany)
– Comet
* Sales Order Value of networked IT services contracts
Carrier
Q3 2005/6
Revenue £1.3bn
• Accounts for 26% of our revenues
– UK new wave rose 47%
• Fixed Operators
Mobile
Global
– WLR, 2.3m, net adds 451k
– CPS, 5.8m, net adds 225k
14%
32%
31%
23%
• Mobile Operators
– no termination rate cuts in Q3
• Global Carrier
– revenue up 2%*
• Broadband Providers
– continued strong volume growth
* Excluding Albacom
Fixed
ISPs
Carrier - Broadband providers
000’s
• Total DSL connections
6.9m
– 700k net additions in Q3
Total net adds
850
800
750
700
LLU
Wholesale
Retail
650
• Total LLU lines, 192k
600
550
500
– 70k net additions in Q3
450
400
• BT Retail share of net
adds
350
300
250
200
– DSL, 31%, 4% higher than Q2
150
100
50
ec
-0
2
M
ar
-0
3
Ju
n0
Se 3
p03
D
ec
-0
3
M
ar
-0
4
Ju
n0
Se 4
p04
D
ec
-0
4
M
ar
-0
5
Ju
n0
Se 5
p05
D
ec
-0
5
0
D
– DSL & LLU 28%, up 3% on Q2
Customer Service - investment and innovation
• Corporate
– 3 global control centres operating 24/7
– 13,000 services and technical
professionals in 140 countries
• Consumer
• Carrier
– 9m customer interactions
completed via BT.com in
last 9 months
– 2.1m customers now
receive an e-Bill
– 92% of UK transactions
processed through BT
Wholesale eCo system
• Business
– 3m customers interactions
have been completed on
BT.com YTD
– Each BT Business Plan
customer has one contact
number for all services
Q3 2005/6 - Group revenue
+ 8%
£bn
Underlying*
5.0
+ 42%
+ 27.1%
4.5
4.0
+ 3.2%
1.1
New wave
3.5
1.4
0.2
3.0
3.4
2.5
Traditional
3.3
2.0
Q3 2004/5
* Excluding Albacom & Infonet
Q3 2005/6
- 3%
- 4.7%
Q3 2005/6 - Traditional*
£m
3,500
Calls
Lines
Other
- £90m
- £63m
+ £43m
3,350
3,300
3,250
Substitution
DSL for ISDN
WLR for PSTN
3,200
3,150
Dial IP £23m
Volume/price £31m
Market share £36m
3,100
3,050
Mainly WLR
£3,339 m
3,400
£3,449 m
3,450
3,000
Q3 2004/5
* Excludes Albacom
Q3 2005/6
- 4.7%*
Revenue analysis
£m
BT Retail calls*
Total BT Group*
Proportion
18%
18%
4500
4000
15%
15%
3500
12%
12%
3000
2500
9%
9%
2000
6%
6%
1500
1000
3%
3%
500
0%
0%
0
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
* Revenue less POLO payments
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Q3 2005/6 - New Wave revenue*
£m
+ £121m
+ £37m
+ £150m
1,300
900
700
£1,135 m
1,100
Mobility &
Other
+ 27%*
£1,443 m
1,500
Broadband
Networked
IT services
+ 20%
Q3 2004/5
* Excludes Albacom and Infonet
+ 48%
+ 26%
Q3 2005/6
Consistent strategy driving ongoing delivery
Speed to
market and
innovation
Cost
efficiencies
Profit
growth
BT Group plc
Q3 results 2005/6
Hanif Lalani – Group Finance Director
Q3 2005/6 - Financial headlines
Group revenue
£4.9bn
8% / 3%*
EBITDA** (pre leavers)
£1.4bn
0.6%
Profit before tax** (pre leavers) £0.6bn
2%
Earnings per share** (pre leavers) 5.1p
Free cash flow
£138m
4%
£201m***
* Underlying excluding Albacom and Infonet ** Before specific items
*** Excludes disposal proceeds of £450 million mainly from the sale of
Eutelsat and Starhub investments
Q3 2005/6 - BT Retail
% change in EBITDA*
• Revenue £2.1bn down 3%
– Traditional decline driven by WLR,
CPS and dial IP decline
– New wave, boosted by 40% growth
in broadband
• Gross margin up 0.6 percentage
points
– Improving mix and cost control
Q1
04/05
15
10
5
0
-5
• SG&A reduced by 7%*
-10
• EBITDA £207m up 13%*
-15
• Operating profit £171m*
up 13%
-20
* Before leavers and specific items
-25
Q2
04/05
Q3
04/05
Q4
04/05
Q1
05/06
Q2
05/06
Q3
05/06
Q3 2005/6 - BT Wholesale
• Revenue £2.3bn up 1%
£m
1800
Gross Variable Profit
– External revenue up 12%
2004/5
2005/6
Q2
Q3
– Internal revenue down 6%
• Gross variable profit
£1,775m up 2%
1700
• Network and SG&A costs rose 5%*
• EBITDA £978m down 0.7%*
1600
• Operating profit maintained
at £511m*
1500
Q1
* Before leavers and specific items
Q4
Q3 2005/6 - BT Global Services
• Revenue £2.2bn up 20%
– 8% excluding Albacom
and Infonet
• EBITDA £246m* up £1m
– new wave and MPLS growth of
£26m was off-set by decline in
UK traditional business
• Operating profit £86m*
down 23%
– higher depreciation
External revenue
Rolling 12 months
£m
4,000
Traditional
New wave
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Q1
Q2
Q3
2004/5
* Before leavers and specific items
Q4
Q1
Q2
2005/6
Q3
Q3 2005/6 - Group P&L
2005/6
£m
Better /
2004/5
(Worse) £m
£m
Turnover
4,946
4,584
362
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
1,404
(710)
694
1,412
(695)
717
(8)
(15)
(23)
Leaver costs
Associates
Finance costs (net)
Profit before tax
(23)
3
(129)
545
(12)
(10)
(149)
546
(11)
13
20
(1)
Tax
(134)
(140)
6
Tax rate
24.6%
25.6%
1.0%
Profit for the period
411
406
5
Earnings per share (pence)
4.9p
4.8p
0.1p
* All numbers are before specific items
EBITDA* - year on year trend
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
03/04 03/04 03/04 03/04 04/05 04/05 04/05 04/05 05/06 05/06 05/06
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
-3.5%
* Before exceptionals / specific items, leaver costs
and sale of property in Q2 2004/5
Financial discipline - cost management
Delivering > £400m of efficiency savings each year
• Next generation contact centres
• Reorganisation of finance functions
• OneIT global sourcing
2005/6
and
beyond
• Better billing, faster collection cycles
• Rationalistion of global IP network
• Streamlining of corporate account management teams
• 21CN and further network management efficiencies
• Optimising channels to market
• De-duplication of overhead functions
• More efficient procurement: marketing, agency,
directories
Q3 2005/6 - Free cash flow
Q3 2005/6
£m
Q3 2004/5
£m
Better /
(Worse) £m
EBITDA* (post leavers)
1,381
1,400
(19)
Interest (net)
(356)
(382)
26
(75)
(133)
58
(725)
(755)
30
Working capital and Other
(87)
(193)
106
Free cash flow
138
(63)
201
---
450
(450)
138
387
(249)
Tax paid
Capex (net of disposals)
Disposals**
Free cash flow
* Before specific items
** Excludes disposal proceeds of £450 million mainly from
the sale of the Eutelsat and Starhub investments
Underlying earnings per share*
pence
5.5
4.5
3.5
2.5
Q1
Q2
2002/03
UK GAAP*
2003/04
Q3
2004/05**
UK GAAP*
* Before exceptionals and leaver costs
** Before specific items and leaver costs
Q4
2005/06 **
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
... Consistent delivery
BT Group plc
Q3 results 2005/6