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Change to presentation of financial results Phil Moses – Group Controller & Director of Investor Relations 23 January 2008 Forward looking statements - caution

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change to presentation of financial results

Change to presentation of financial results

Phil Moses

– Group Controller & Director of Investor Relations

23 January 2008

forward looking statements caution
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 margins, restructuring charges and financial targets. 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 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; and the timing of entry and profitability of BT in certain communications markets. BT undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

2

background
Background

Apr 2007 - New organisational structure announced Oct 2007 - New organisational structure effectiveNew organisational structure benefits customers – faster, better, more efficient servicesBT Design is responsible for service design and developmentBT Operate is responsible for service deployment and network operationLines of business retain responsibility for sales and customer serviceBT continues to comply with regulatory Undertakings and obligations

Results for Q3 onwards to be reported under new structure

3

key points
Key points

Significant amount of intra-group trading removed (excluding Openreach)No material change to OpenreachGreater visibility on end-to-end profitability of lines of businessBT Design and BT Operate are cost recovery centres Some minor reallocation of customer accounts between Global Services, Retail and WholesalePreviously announced expected restructuring charge of £450m and 2-3 year payback period remain unchanged

Previously reported group level results and financial targets are unaffected

4

group
Group

New

FY2006/07

£m

Adjustment

£m

Old

FY2006/07 £m

0

(4,014)

4,014

0

0

0

0

20,2236,061

(6,061)

20,223

5,780

2,920

2,860

20,223

10,075

(10,075)

20,223

5,780

2,920

2,860

External revenue

Internal revenue

Eliminations

Total revenue

EBITDA*

Depreciation & amortisation

Operating profit*

  • Significant amount of intra-group trading removed
  • No change to total group EBITDA or EBIT
  • No change to other group P&L items

* Pre specific items and leaver costs

5

global services
Global Services

New

FY2006/07

£m

Adjustment

£m

Old

FY2006/07 £m

7,467

1,639

9,106

1,020

11.2%

675

345

7,312

0

7,312

776

10.6%

665

111

(155)

(1,639)

(1,794)

(244)

(10)

(234)

External revenue

Internal revenue

Total revenue

EBITDA*

EBITDA* margin

Depreciation & amortisation

Operating profit*

  • All internal revenue and related EBITDA removed as UK IP network has been transferred to BT Operate
  • A few small ‘major corporate’ accounts transferred to Retail
  • Reduction in EBITDA partially offset by benefits of end-to-end profitability on external trading
  • EBITDA margin target of 15% remains

* Pre leaver costs

6

wholesale
Wholesale

New

FY2006/07

£m

Adjustment

£m

Old

FY2006/07 £m

4,057

3,527

7,584

1,961

25.9%

1,198

763

External revenue

Internal revenue

Total revenue

EBITDA*

EBITDA* margin

Depreciation & amortisation

Operating profit*

52

(2,250)

(2,198)

(450)

(290)

(160)

4,109

1,277

5,386

1,511

28.1%

908

603

  • Small increase in external revenue due to transfer of some customer accounts from Retail
  • Removal of substantial amount of internal revenue and related EBITDA as Wholesale no longer charges other lines of business for network
  • Internal revenue only relates to line cards and electronics charged to Openreach
  • Reduction in depreciation as no longer running network

* Pre leaver costs

7

retail
Retail

New

FY2006/07

£m

Adjustment

£m

Old

FY2006/07 £m

External revenue

Internal revenue

Total revenue

EBITDA*

EBITDA* margin

Depreciation & amortisation

Operating profit*

103

(171)

(68)

512

274

238

7,997

417

8,414

869

10.3%

171

698

8,100

246

8,346

1,381

16.5%

445

936

  • Small net decrease in revenue due to transfer of customer accounts between Retail and other lines of business and reduction in intra-group trading
  • Increase in EBITDA reflects full end-to-end profitability of products (downstream of Openreach)
  • Increase in depreciation due to allocation of network costs

* Pre leaver costs

8

openreach
Openreach

New

FY2006/07

£m

Adjustment

£m

Old

FY2006/07 £m

685

4,492

5,177

1,888

36.5%

707

1,181

External revenue

Internal revenue

Total revenue

EBITDA*

EBITDA* margin

Depreciation & amortisation

Operating profit*

0

46

46

43

0

43

685

4,538

5,223

1,931

37.0%

707

1,224

  • Small increase in internal revenue to realign with regulatory accounts
  • Now sells LLU and partial private circuit tails to BT Operate rather than Wholesale
  • Regulatory accounts unchanged

* Pre leaver costs

9

other
Other

New

FY2006/07

£m

Adjustment

£m

Old

FY 2006/07 £m

0

139

26

113

17

181

195

(14)

17

42

169

(127)

Revenue

EBITDA*

Depreciation & amortisation

Operating profit*

  • Increase in EBITDA primarily due to regulated return on line cards
  • EBITDA will include BT Design and BT Operate under/over recoveries
  • Increase in depreciation relates to IT assets that support group overhead activity

* Pre leaver costs

10

summary
Summary

Significant amount of intra-group trading removedGreater visibility on end-to-end profitabilityBT Design and BT Operate are cost recovery centresNo change to compliance with regulatory Undertakings and obligationsMinor changes to published performance indicatorsQ3 onwards reported under new structure

Previously reported group level results and financial targets are unaffected

11