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BT Group plc Q3 2007/8 results February 7 th 2008.

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Presentation on theme: "BT Group plc Q3 2007/8 results February 7 th 2008."— Presentation transcript:

1 BT Group plc Q3 2007/8 results February 7 th 2008

2 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; growth in new wave revenue mainly from networked IT services and broadband; transforming the cost base; delivery of 21CN; and Global Services’ cost reductions and EBITDA margin. 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.

3 Earnings per share* 5.9p Group revenue £5.2bn EBITDA* £1.5bn Capital expenditure £0.9bn Operating profit* £0.7bn Free cash outflow £0.2bn Q3 2007/8 – Group financial headlines * Before specific items and leavers 2% 1% 6%

4 Q3 2007/8 – revenue by customer

5 Corporate Q3 - Global Services Improvement in EBITDA margin of 140bp to 10.9% 22% growth in non-UK revenue Robust £29bn prospect order book pipeline Corporate market trends Globalisation Convergence Optimisation Growth * 2006/7 growth rates not restated for reorganisation

6 Business Q3 – Retail Business Continued strong revenue growth Value packages -c38% take-up amongst SMEs Good growth from BT Enterprises SME market trends Decline in spend on hardware Simplify technology for customers Increased spend on networked IT services * 2006/7 growth rates not restated for reorganisation

7 Consumer * DSL & LLU Q3 – Retail Consumer Continued ARPU growth BT remains UK’s No.1 broadband provider –Resilient broadband market share*, 35% Consumer market trends Broadband now a necessity Inclusive call bundles Highly competitive market

8 Carrier Q3 – Openreach Steady performance driven by LLU line growth Cost efficiencies Service improvements Market trends Continued LLU migration Slowing LLU build out More demand for backhaul Principle based regulation Regulatory pricing review

9 Carrier Q3 – Wholesale Expected decline in low margin transit and PRS revenue continues, down £68m YoY Ongoing migration from IPstream to LLU Focus on managed services –£98m Virgin Media contract Market trends Network rationalisation More outsourcing Further transit declines

10 Transforming the cost base – Q3 YTD £468m of cost efficiencies * Before specific items and leavers

11 Ongoing efficiency opportunities Right first time focus for customer service –Reduce cost of complexity and failure Overhead Value Analysis Global sourcing Ongoing re-investment for the future 21CN Transforming the cost base – opportunities On track to exceed FY target of £600m

12 21CN - update Overall objective remains unchanged Services driven migration >35% of UK core network already rebuilt Wholesale Broadband Connect –ADSL2+ rollout from Spring 2008 with speeds of up to 24Mb available Next generation Ethernet Services –More bandwidth, more reach, more flexibility Platform operational in more than 160 countries NGA Openreach deploying fiber technology at Ebbsfleet

13 Summary Q3 highlights Global Services - EBITDA margin improvement Retail - continued strong EBITDA growth Openreach - strong operational performance Wholesale - decline in transit and migration to LLU Cost savings - on track to exceed target Q4 Outlook Expect continued growth in revenue, EBITDA*, EPS* and dividends and significant cash inflow Continue to deliver for customers and shareholders * Before specific items and leavers

14 BT Group plc Hanif Lalani – Group Finance Director

15 Q3 2007/8 – line of business analysis * Before specific items and leavers First quarter of reporting under new structure -Increased line of sight of end to end profitability -Significant reduction in internal trading -No material change to Openreach Transformation into software driven services company

16 * Before specific items and leavers Q3 2007/8 – lines of business dashboard Global Retail Wholesale Openreach Group 6% Revenue 2%11%1% 9% New wave growth 18%(23%)31%7% 23% EBITDA* 12%9%2% 10.9% 18.7% 28.5% 37.1%28.5% EBITDA* margin

17 Global Services – Revenue £2.0bn EBITDA £0.22bn

18 Rolling 12 months intake £8.6bn BT Global Services – Q3 total order intake £1.9bn 6% Q3 Revenue 10.9% EBITDA EBITDA margin 23%

19 EBITDA margin up 140bp Contract maturity –c60% of top 100 contracts now in 2 nd half of life, rising to two thirds by year end Cost transformation –Rebalancing of workforce –De-layering management structures –Rationalisation of networks and IT systems 6% BT Global Services – margin expansion Q3 Revenue Medium term EBITDA margin target 15% 10.9% EBITDA EBITDA margin 23%

20 BT Retail – Revenue £2.1bn EBITDA £0.4bn 2% Q3 Revenue 18.7% EBITDA EBITDA margin 12%

21 BT Retail * DSL & LLU Broadband Q3 gross installs 404k c65% take Option 2 or 3 177k net additions Market share* 35% Currently >150k Vision subscribers Consumer ARPU £273 up £2 69% contracted

22 BT Wholesale – Revenue £1.2bn EBITDA £0.3bn Revenue Transit & PRS –Continued decline –Low margin Broadband –Price reductions –Migration volumes Cost base SG&A reduced by 10% EBITDA margin up 60bp from 27.9% Q3 Revenue 28.5% EBITDA EBITDA margin 9% 11%

23 Revenue External up 15% - LLU & WLR growth Rest of BT down 3% - WLR migration Cost efficiencies Operating cost down £17m 50% improvement in average provisioning and repair lead times – Revenue £1.3bn EBITDA £0.5bn Q3 Revenue 37.1% EBITDA EBITDA margin 2% 1%

24 Revenue POLOs Revenue (net of POLOs) EBITDA (pre leavers) Depreciation & amortisation Operating profit (pre leavers) Operating margin Leaver costs Associates Finance costs (net) Profit before tax Tax Profit for the period Earnings per share (post leavers) Earnings per share (pre leavers) 5,154 1,023 4,137 1,469 (732) 737 14.3% (20) (2) (134) 581 (120) 461 5.7p 5.9p Q3 2007/8 results Q3 2006/7 £m Q3 2007/8 £m Change £m 5,126 1,051 4,075 1,439 (741) 698 13.6% (27) 7 (62) 616 (150) 466 5.6p 5.8p Note: all numbers are before specific items. Q3 2007/8 specific charge £134m pre tax. 28 56 30 9 39 7 (9) (72) (35) 30 (5) 0.1p

25 1,412 (436) (777) (212) (500) (12) (525) 1,449 (414) (877) (294) --- (85) (221) Q3 2007/8 - free cash flow EBITDA*( post leavers ) Interest & Tax Capex Working capital Pension deficiency contribution Other ( incl specific items ) Free cash flow Q3 2006/7 £m Q3 2007/8 £m 37 22 (100) (82) 500 (73) 304 Change £m * Before specific items

26 Balance sheet - as at 31 December 2007 Liquidity Buy back Net debt Pension Raised debt of €1.0bn and $1.2bn in the quarter 5 year facility of £1.5bn Currently £10.2bn Seasonal turnaround in FCF expected in Q4 Repurchased £281m of shares in Q3 YTD repurchased £1.0bn of planned £2.5bn buy back by March 2009 Q3 IAS19 surplus £0.9bn - £1.6bn deficit last year Previous mitigation of exposure to equity market risk

27 Earnings per share * Before exceptional items and goodwill from continuing activities ** Before specific items and leavers

28 BT Group plc Q3 2007/8 results

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