Transcript Document

BT Group plc
Q3 2007/8 results
February 7th 2008
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.
Q3 2007/8 – Group financial headlines
Group revenue
£5.2bn
1%
EBITDA*
£1.5bn
2%
Operating profit*
£0.7bn
6%
5.9p
2%
Earnings per share*
Capital expenditure £0.9bn
* Before specific items and leavers
Free cash outflow £0.2bn
Q3 2007/8 – revenue by customer
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
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
Consumer
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
* DSL & LLU
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
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
Transforming the cost base – Q3 YTD
£468m of cost efficiencies
* Before specific items and leavers
Transforming the cost base – opportunities
• 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
On track to exceed FY target of £600m
21CN - update
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
Overall objective remains unchanged
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
BT Group plc
Hanif Lalani – Group Finance Director
Q3 2007/8 – line of business analysis
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
* Before specific items and leavers
Q3 2007/8 – lines of business dashboard
Group
Global
Retail
Wholesale
Openreach
1%
Revenue
6%
2%
11%
1%
7%
New wave
growth
9%
18%
(23%)
31%
2%
EBITDA*
23%
12%
9%
2%
28.5%
EBITDA*
margin
10.9%
18.7%
28.5%
37.1%
* Before specific items and leavers
Global Services – Revenue £2.0bn EBITDA £0.22bn
BT Global Services – Q3 total order intake £1.9bn
Q3
Revenue
6%
EBITDA
23%
EBITDA
margin
10.9%
Rolling 12 months intake £8.6bn
BT Global Services – margin expansion
Q3
Revenue
6%
• EBITDA margin up 140bp
• Contract maturity
– c60% of top 100 contracts now in 2nd half
of life, rising to two thirds by year end
EBITDA
23%
EBITDA
margin
• Cost transformation
– Rebalancing of workforce
– De-layering management structures
– Rationalisation of networks and IT systems
10.9%
Medium term EBITDA margin target 15%
BT Retail – Revenue £2.1bn EBITDA £0.4bn
Q3
Revenue
2%
EBITDA
12%
EBITDA
margin
18.7%
BT Retail
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
* DSL & LLU
BT Wholesale – Revenue £1.2bn EBITDA £0.3bn
Q3
Revenue
11%
Revenue
• Transit & PRS
– Continued decline
– Low margin
• Broadband
EBITDA
9%
EBITDA
margin
28.5%
– Price reductions
– Migration volumes
Cost base
• SG&A reduced by 10%
• EBITDA margin
up 60bp from 27.9%
– Revenue £1.3bn EBITDA £0.5bn
Q3
Revenue
1%
Revenue
• External up 15%
- LLU & WLR growth
• Rest of BT down 3%
- WLR migration
EBITDA
2%
Cost efficiencies
• Operating cost down £17m
EBITDA
margin
37.1%
• 50% improvement in
average provisioning
and repair lead times
Q3 2007/8 results
Change
£m
Q3 2007/8
£m
Q3 2006/7
£m
Revenue
POLOs
Revenue (net of POLOs)
EBITDA (pre leavers)
Depreciation & amortisation
Operating profit (pre leavers)
5,154
1,023
4,137
1,469
(732)
737
5,126
1,051
4,075
1,439
(741)
698
Operating margin
14.3%
13.6%
Leaver costs
Associates
Finance costs (net)
Profit before tax
Tax
Profit for the period
(20)
(2)
(134)
581
(120)
461
(27)
7
(62)
616
(150)
466
7
(9)
(72)
(35)
30
(5)
5.7p
5.9p
5.6p
5.8p
0.1p
0.1p
Earnings per share (post leavers)
Earnings per share (pre leavers)
Note: all numbers are before specific items. Q3 2007/8 specific charge £134m pre tax.
28
28
56
30
9
39
Q3 2007/8 - free cash flow
Q3 2007/8
£m
Q3 2006/7
£m
Change
£m
EBITDA*(post leavers)
1,449
1,412
37
Interest & Tax
(414)
(436)
22
Capex
(877)
(777)
(100)
Working capital
(294)
(212)
(82)
---
(500)
500
(85)
(12)
(73)
(221)
(525)
304
Pension deficiency contribution
Other (incl specific items)
Free cash flow
* Before specific items
Balance sheet - as at 31 December 2007
Pension
• Q3 IAS19 surplus £0.9bn
- £1.6bn deficit last year
• Previous mitigation of
exposure to equity market risk
Net debt
• Currently £10.2bn
• Seasonal turnaround in
FCF expected in Q4
Buy back
• Repurchased £281m
of shares in Q3
• YTD repurchased £1.0bn
of planned £2.5bn buy
back by March 2009
Liquidity
• Raised debt of €1.0bn and
$1.2bn in the quarter
• 5 year facility of £1.5bn
Earnings per share
* Before exceptional items and goodwill from continuing activities
** Before specific items and leavers
BT Group plc
Q3 2007/8 results