Q1 2008/9 Results31 July 2008
BT Group plc
Ian Livingston – Chief Executive
BT Group plc
© British Telecommunications plc
Forward-looking statements cautionCertain 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; continued growth in BT Global Services’ revenue, and EBITDA margin improvement; BT Retail EBITDA growth and improving trends in BT Wholesale; continued growth in the broadband market; further cost savings; expectations regarding capital expenditure, and levels of free cash flow; planned investment in fibre-based super-fast broadband; investment in BT’s 21st Century Network and growth of the 21CN Ethernet footprint; and the scope and delivery of next generation services and applications.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 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
© British Telecommunications plc
Q1 2008/9 key points
Good revenue growth up 3%
Strong order intake, growing order pipeline
EBITDA* up 1%– revenue growth and cost savings– effect of LLU– higher input costs
Working capital– weak versus strong Q4– full year cash flow forecast remains
EPS* up 2%– 25th quarter of growth
* before specific items and leaver costs
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38%
13%
24%
25%
Q1 2008/9 revenue by customer
Strength in mix of customers and businesses
Corporate
12%
Business
5%
Consumer flat
Carrier
7%
External revenue
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Q1 2008/9 line of business summary
Retail – better than expected performance
Wholesale and Openreach – performed as expected
Global Services – strong revenue but margin needs improvement
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Q1 2008/9 line of business overview
Global Services
Strong revenue growth– 33% non-UK revenue growth– NITS/MPLS revenue up 19%
EBITDA* up 10% EBITDA* margin growth held back
– FX– decline in higher margin UK calls and lines
15% EBITDA* margin target remains Q1 order intake £1.9bn up 12%, order pipeline c.£29bn
* before specific items and leaver costs
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0
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4500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Global Services £1.9bn order intake in Q1
Rolling 12 months order intake £8.2bn
DF
TS
Networked IT services
Other orders
2008/92005/6 2006/7 2007/8
£m
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Q1 2008/9 line of business overview
Global Services
Focus on margin improvement: quality of contracts replicable solutions product mix product rationalisation cost savings initiatives contract execution maturity of contracts
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Q1 2008/9 line of business overview
Retail
Revenue growth Strong profit growth
– all business units growing profits
BT Business up 7%– NITS revenue up 38%– fast growing Tradespace community
Consumer revenue trend improved– ARPU up £4 to £278– Option 2 & 3 calling plans up 53% year on year– c.300,000 Vision customers
Maintained share of DSL and LLU installed base 35%– new Home Hub launched
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Retail new Home Hub
Best wireless range of any UK broadband provider
Our simplest ever set-up process
Improved security More energy efficient
– allows power consumption control
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Q1 2008/9 line of business overview
Wholesale
Trends continue as expected– decline in broadband reflects LLU growth– continued decline in low margin transit revenue – growth in managed network solutions and white label revenue
Managed network solutions– Q1 order intake £490m – rolling 12 month order intake £1.2bn, Sky, vodafone and O2
deals– order pipeline £2.7bn
Around a third FY 2008/9 revenue contracted Good cost reductions
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0
100
200
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500
600
700
800
900
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Q1 2008/9 line of business overview
Openreach
Continued steady performance
LLU net additions slowing Slower housing market
affecting connections as expected
Cost efficiencies driving margin improvement
Driving for a fairer regulatory environment
LLU net adds
2008/92005/6 2006/7 2007/8
‘000
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Priorities
Customer service
Global platforms
Agility
Customer loyalty Lower costs Margin
expansion Stronger
cashflow Shareholder
returns
© British Telecommunications plc
Customer service
Right First Time programme: broadband repair and help –
dissatisfaction reduced by a third complaint volumes reduced by a
third abandoned calls have more than
halved lead times for repair and
provision down by a quarter access faults down by 16%
…but still more to do
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Global platforms
Investing for the future
North America
Wire One, Ribbit
LatAm
Global sourcing centre
MEA
Radianz/Etisalat in UAE
AsiaPac
Frontline, China & Korea PoPs
Russia/CEE
Global sourcing centre
Western Europe
Net2S, Stemmer, SND
UK
21CN, NGA
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Global platforms Next Generation Access
Total investment of c.£1.5bn
Available to up to 10m homes by 2012
Majority fibre to the cabinet
Basis for nationwide demand led roll out
Commencing discussion with Ofcom on regulatory framework
Investing in our global platforms
© British Telecommunications plc
Global platforms 21CN
100% of UK core and metro nodes interconnected– ahead of plan
21CN Broadband– now available to 1m homes and businesses
– target 10m by April 2009
21CN Ethernet– available from 100 nodes +
– target 600 nodes by April 2009
– underpins mobile deals in BT Wholesale worth £770m
Software development kits
Investing in our global platforms
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Ribbit
Silicon Valley based software company
Ribbit’s technology brings telephone functionality to the web
Ribbit for Salesforce.com– integrated into commercial
CRM system
Open platform– thousands of developers
using technology to develop applications
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Priorities
Customer service
Global platforms
Agility
Customer loyalty Lower costs Margin
expansion Stronger
cashflow Shareholder
returns
© British Telecommunications plc
Global Services
Retail
Wholesale
Openreach
2008/9 outlook line of business
Full year Group guidance unchanged – we expect revenue, EBITDA*, EPS* and dividends per share to grow in 2008/9
* before specific items and leaver costs
Continued strong revenue growth EBITDA* margins may fall slightly in 2008/9
Solid EBITDA* growth
Q2 & Q3 similar to Q1, improving trend in Q4
Stable performance
Hanif Lalani – Group Finance Director
BT Group plc
© British Telecommunications plc
Q1 2008/9 line of business financial headlines
Group Global Services Retail Wholesale Openreach
3% Revenue 13% 3% 12% 1%
1% EBITDA* 10% 11% 14% 2%
* before specific items and leaver costs
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0
50
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300
Q1 Q2 Q3 Q4
Global Services
Revenue £2.1bn up 13%– 45% revenue is non-UK, up 33%
Costs & savings– network optimisation savings– new cost reduction plans
EBITDA* £195m up 10%– EBITDA* margin 9.5%
* before specific items and leaver costs
EBITDA*
2006/7
2007/8
2008/9
£m
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200
250
300
350
400
Q1 Q2 Q3 Q4
Retail
Revenue £2.1bn up 3%– broadband up 17%– calls & lines down 4%
Costs & savings– gross margin 36.8% up 60 b.p.– SG&A reduced by £1m
EBITDA* £368m up 11%– EBITDA* margin 17.4% up
120 b.p.
EBITDA*2006/7
2007/8
2008/9
* before specific items and leaver costs
£m
© British Telecommunications plc
0
300
600
900
1200
Q106/07
Q206/07
Q306/07
Q406/07
Q107/08
Q207/08
Q307/08
Q407/08
Q108/09
Wholesale
Revenue £1.2bn down 12%– transit & interconnect down 19%– private circuits down 15%– broadband down 26%– managed network solutions up
27%
Costs & savings– 27% reduction in SG&A– customer service efficiencies and
productivity improvements
EBITDA* £322m down 14%
External revenue mixTransit & interconnect
Broadband
Private circuits
Man. network soln.
* before specific items and leaver costs
£m
© British Telecommunications plc
0
2000
4000
6000
8000
10000
12000
14000
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Openreach
Revenue £1.3bn down 1%– external up 11% – internal down 3%
Costs & savings– productivity improvements– operating costs down 3%– superior service
EBITDA* £491m up 2%
External LLU
BT Wholesale (external sales)
BT Retail
ADSL broadband
* before specific items and leaver costs
‘000
2008/92005/6 2006/7 2007/82004/5
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2%6.0p6.1pEarnings per share*
608398Profit for the period
(161)(123)Tax
(17%)650
119
540
(19)
Profit before tax
Specific items net of tax
(3)1JV & assoc.
4%71614.2%
(8)
(55)
74214.3%
(73)
(130)
Operating profit*Operating* margin
Leaver costs
Finance costs (net)
(709)(691)Depreciation & amortisation
1%1,42528.3%
1,43327.7%
EBITDA*EBITDA* margin
4%3,9714,140Revenue (net)
1,0621,037POLOs
3%5,0335,177Revenue
ChangeQ1 2007/8Q1 2008/9£m
2%6.0p6.1pEarnings per share*
608398Profit for the period
(161)(123)Tax
(17%)650
119
540
(19)
Profit before tax
Specific items net of tax
(3)1JV & assoc.
4%71614.2%
(8)
(55)
74214.3%
(73)
(130)
Operating profit*Operating* margin
Leaver costs
Finance costs (net)
(709)(691)Depreciation & amortisation
1%1,42528.3%
1,43327.7%
EBITDA*EBITDA* margin
4%3,9714,140Revenue (net)
1,0621,037POLOs
3%5,0335,177Revenue
ChangeQ1 2007/8Q1 2008/9£mProfit and loss account
* before specific items and leaver costs
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(271)(691)(962)Working capital
120(120)0Tax
(582)
1,950
(152)
8,631
(734)
10,581Net debt
(332)
(570)
320
(402)
570
(320)
(734)
0
0
Free cash flow
HMRC settlement (incl. interest)
Pension deficiency payment
(70)59(11)Other (incl. specific items)
(17)(819)(836)Capex
(37)(248)(285)Interest
(57)1,4171,360EBITDA (post leavers)
Change
£m
Q1 2007/8
£m
Q1 2008/9
£m
(271)(691)(962)Working capital
120(120)0Tax
(582)
1,950
(152)
8,631
(734)
10,581Net debt
(332)
(570)
320
(402)
570
(320)
(734)
0
0
Free cash flow
HMRC settlement (incl. interest)
Pension deficiency payment
(70)59(11)Other (incl. specific items)
(17)(819)(836)Capex
(37)(248)(285)Interest
(57)1,4171,360EBITDA (post leavers)
Change
£m
Q1 2007/8
£m
Q1 2008/9
£m
Free cash flow
© British Telecommunications plc
Margin management & main cost reduction initiatives
Operational efficiencies c.£200m Procurement/COS c.£250m
Overhead initiatives c.£150m LOB specific c.£200m
FY 2008/9 savings target increased from £700m to c.£800m
‘Right First Time’
Service systems automation
Productivity improvements
Fault visit reduction
Network optimisation
Supplier savings
Improved demand management
Overhead function reductions
Global sourcing
Marketing efficiencies
Billing programme
Cable recovery programme
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-9.0
-7.5
-6.0
-4.5
-3.0
-1.5
0.0
1.5
3.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Balance sheet Pension fund
– £0.6bn post tax deficit at 30 June 2008 on IAS19 basis
– next triennial funding valuation at 31 Dec 2008
– sustainable, modernised pension scheme
Liquidity– net debt £10.6bn
– £4.3bn debt raised in last 12 months
– £2.4bn committed facilities
– solid investment grade credit rating
IAS19 pre tax valuation
£bn
2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9
© British Telecommunications plc
2008/9 outlook
Revenue
Cost savings c.£800m expected
EBITDA*
Earnings per share*
Capex c.£3.2bn 2008/9, c.£3.1bn 2009/10
Free cash flow c.£1.4bn
Dividends per share
* before specific items and leavers
The Board remains committed to the dividend
Q&A
BT Group plc
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