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BT Group plc Q4 and preliminary 2007/8 full year results. BT Group plc Sir Michael Rake - Chairman. Forward-looking statements - caution.

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bt group plc q4 and preliminary 2007 8 full year results
BT Group plc

Q4 and preliminary 2007/8 full year results

bt group plc sir michael rake chairman
BT Group plc

Sir Michael Rake - Chairman

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: expectations of continuing growth in revenue, EBITDA, earnings per share and dividends per share; levels of free cash flow; continued growth in Global Services’ revenue and EBITDA margins; growth in new wave revenue, mainly from networked IT services and broadband; continued growth in the broadband market; cost efficiencies and reduced capital expenditure; investment in, and the delivery and benefits of, BT’s 21st Century Network and the expected cost savings; and the scope and delivery of next generation services.

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.

consistent strategy
Improved service

Price innovation

Reduce costs / improve margin

Aggressive & creative marketing

Consistent strategy …

Long-term Partnership with our customers

Defend traditional

Grow new wave

  • NetworkedIT services
  • Broadband
  • Mobility solutions

21st Century Network

… evolving to meet our customers needs

fy 2007 8 group financial headlines
FY 2007/8 – Group financial headlines

Group revenue £20.7bn

2%

EBITDA (1) £5.8bn

3%

Earnings per share (1) 23.9p

5%

Free cash flow £1.5bn

11%

Dividend 15.8p

5%

(1) Before specific items

fy 2007 8 final dividend 10 4p
FY 2007/8 – final dividend 10.4p

pence

Full year dividend 15.8p up 5%

opportunities and priorities
Opportunities and priorities

Customers

Globalisation

Investment & returns

People

Continue to deliver for customers and shareholders

bt group plc ben verwaayen ceo
BT Group plc

Ben Verwaayen - CEO

q4 2007 8 group financial headlines
Q4 2007/8 – Group financial headlines

Group revenue £5.4bn

2%

EBITDA (1) £1.6bn

2%

Operating profit (1) £0.8bn

7%

Earnings per share (1) 7.0p

11%

Free cash flow £1.7bn

9%

(1) Before specific items and leavers

q4 2007 8 revenue by customer
Q4 2007/8 – revenue by customer

Carrier

Corporate

25%

40%

23%

12%

Business

Consumer

Strength in mix of customers and businesses

corporate
Corporate

Corporate revenue growth

  • Q4
  • 28% growth in non-UK revenue
  • Further improvement in Global Services EBITDA* margin,13.7%
  • Order intake £2.8bn
  • Key business trends
  • Globalisation
  • Convergence
  • Right sourcing
  • Capabilities
bt global services 2 8bn order intake in q4
BT Global Services – £2.8bn order intake in Q4

£m

Networked IT services

Other orders

Reuters

DFTS

2004/5

2005/6

2007/8

2006/7

Rolling 12 months order intake £8bn

business
Business

Business revenue growth

  • Q4
  • Value packages
    • 39% increase in take-up
  • Continued strong revenue growth
    • New wave up 33%
    • Basilica and Lynx boost service portfolio
  • Developing our portfolio
  • Expansion of capabilities into adjacent markets
  • Niche business units complement overall strategy for SMEs
bt group plc running vt
BT Group plc

Running VT

consumer
Consumer

Consumer household ARPU

  • Q4
  • Revenue down 4%
    • Impact of free evening and weekend calls
    • New wave up 19%
  • Household ARPU £274 up £1
  • UK’s No.1 retail broadband provider
    • 4.4m connections
    • 30%of net adds*
  • Customers demand
  • Value packages
  • Innovative products
  • Converged services

£

* DSL & LLU

bt total broadband work rest and play
BT Total Broadband – work, rest and play

BT ToGo

Security & Storage

> 600k users

BT Broadband

Talk

> 2m users

Launched

May 7th

Entertainment

Wireless Networks

250K

customers now

Openzone

c.1m minutes

of usage per day

All calls to our

Helpdesks

are now free

Gaming

“Go messenger”

now has 300k users

Monitoring and Control

Home IT advisor

bt group plc running vt18
BT Group plc

Running VT

bt total broadband work rest and play19
BT Total Broadband – work, rest and play

BT ToGo

Security & Storage

> 600k users

BT Broadband

Talk

> 2m users

Launched

May 7th

Entertainment

Wireless Networks

250K

customers now

Openzone

c.1m minutes

of usage per day

All calls to our

Helpdesks

are now free

Gaming

“Go messenger”

now has 300k users

Monitoring and Control

Home IT advisor

slide20

– that’s entertainment

Installed customer base

  • Installed base
    • 214k at the end of March
    • Now over 250k
  • Q4 net adds
    • 94k 56k 37k
    • 68% of new customers chose a subscription package at point of sale
  • Usage
    • 4,660hrs of VoD content now available
    • The average number of views per subscriber, per month, was 29

000s

carrier bt wholesale
Carrier – BT Wholesale
  • Growth
  • Continued success in long term managed solutions
    • £750m of managed access on next generation Ethernet signed in 2007/8
  • Agreements signed during the quarter include
  • Q4
  • £1bn of contracts signed
  • Operational trends continue as expected
    • Low margin transit and PRS revenue decline continues
    • Ongoing migration from IPstream to LLU and price reductions
  • Introduced family of 21CN ‘smart’ broadband services
    • Higher speeds
    • Flexible bandwidth
    • Quality control for video
  • Launch of next generation Ethernet
carrier openreach
Carrier – Openreach

ADSL Broadband

  • Q4
  • External revenue up 22% driven by LLU growth
  • Operating cost down 2% due to previous investment in service
    • Average lead times on provision and repair improved by over 40%
  • Market fundamentals
  • LLU business model evolving
  • Financial Framework Review due soon for public consultation

000’s

transforming the cost base fy 2007 8
Transforming the cost base – FY 2007/8

£625m of cost efficiencies

£m

£625m

£386m

£304m

£260m

£148m

£15,152m

Systems & processes

Global propositions

21CN programmes

Customer service

BT Vision

£14,679m

FY2008/9 target of £700m

21cn objective remains unchanged
21CN – objective remains unchanged

Legacy network

21CN platform

PSTN Migration

Converged Core

Class 5

Call Server

Fibre orCopper

WWW

DSL

IP-MPLS-WDM

ISP

Content

EndUser

~5knodes

~100nodes

17 networks to ONE global platform

21cn faster better cheaper services

Next

Generation

Services

Speed to

Market

Cost

Transformation

Power to Customers

21CN – faster, better, cheaper services
  • Scope extended to include
  • 21CN Ethernet
  • 21CN “Smart” Broadband
  • Software Development Kits (SDK)

21CN now customer led

21cn progress to date
21CN – progress to date
  • 58% of UK national core infrastructure built
  • 21CN “Smart” Broadband
    • Available from exchanges serving 1m homes and businesses
  • 21CN Ethernet
    • Available to c. 20% of UK business market by the end of May 2008, rising to 80% or more in 12 months
  • 21CN Global Platform
    • Available in 172 countries
  • BT’s Software Development Kits (SDK) now in use
    • 11,000 downloads
    • 500 applications in production
    • 5,000 in testing
21cn sdk what developers say
21CN – SDK, what developers say

“We are very pleased with how rapidly we were able to add the voice and SMS capabilities into the BT BizBox solution…if it weren’t for BT’s SDK we would not have been able to do this so quickly.”

Sarah Laylock, COO of TierLinear

“BT says that it takes one line of code to add voice to an application and it’s true. This functionality is easily accessible and doesn’t require a large budget. Because we are leveraging the power of BT’s global network we know our applications can scale to handle high volumes if needed. This lets us focus on what we do best – building great applications.”

Miha Lesjak, co-founder of Inova IT and inventor of Click2Call.

21cn forward view
21CN – forward view
  • …upcoming in 2008/9
  • … financials
  • Substantial cost savings already delivered
  • > £200m pa cost savings
  • > £400m pa, legacy capex savings
  • Total cash cost savings will
  • exceed £1bn
  • - Opex savings increase
  • - Capex will be reduced over time
  • Revenue opportunities available much earlier
  • 21CN “Smart” Broadband
    • available to over 10m homes and businesses by April 2009
  • 21CN Gigabit Ethernet
    • rising to c600 nodes by April 2009
    • Gigabit speeds will be available
  • Converged broadband & voice
    • Trials 2008, launch 2009

Business case remains strongly NPV positive

the trends are your friends
The trends ARE your friends!

Revenue

EBITDA*

9th quarter of growth

17th quarter of growth

EPS*

Dividends

24th quarter of growth

* Before specific items and leavers

slide30

BT Group plc

Hanif Lalani – Group Finance Director

q4 2007 8 lines of business dashboard

Revenue

2%

10%

12%

22%*

2%

EBITDA(1)

0%

8%

14%

13%

2%

Q4 2007/8 – lines of business dashboard

Openreach

Retail

Global

Wholesale

Group

Openreach

Retail

Global

Wholesale

Group

* External revenue

(1) Before leavers

bt global services
BT Global Services

Q4

Revenue

  • Revenue £2,226m
  • 19% growth in MPLS
  • EBITDA £304m with margin
  • improving by 40bp
    • Maturing contracts
    • Global sourcing
    • Process improvement
    • SG&A reduced by 1%
  • Delivered H2 margin
  • expansion
  • Operating profit up 30%

H1

9.6%9.8%

H2

11.5% 12.4%

%

10%

EBITDA

13%

EBITDAmargin

13.7%

EBITDA margin progression

bt retail

2%

8%

BT Retail

EBITDA

  • Revenue £2,158m
  • New wave revenue up 24%
    • 27% of total revenue
  • Gross profit up 4%
  • Margin improved 80bp to 36.5%
  • EBITDA £391m
  • Operating profit up 12%

Q4

Revenue

£m

EBITDA

bt wholesale
BT Wholesale

External revenue mix

  • Revenue £1,180m
  • Transit and PRS – down £97m
  • Broadband - down £54m (volume and price cuts)
  • £1bn of orders signed in Q4
  • EBITDA £320m
  • SG&A reduced by 9%
  • Headcount reduced by 13%
  • Process improvements helping to drive costs down

Q4

Revenue

£m

12%

EBITDA

14%

slide35

External volumes

  • Revenue £1,320m
  • External revenue up 22%
  • Sales to other lines of business down 5%
  • EBITDA £496m
  • Operating costs reduced by £15m
  • Record levels of service improvement
  • Operating profit up 1%

Q4

Revenue

1%

EBITDA

0%

q4 2007 8 results
Q4 2007/8results

Change

Q42007/8

Q42006/7

£m

Revenue

POLOs

Revenue (net)

EBITDA (pre leavers)

Depreciation & amortisation

Operating profit (pre leavers)

Operating margin

Leaver costs

Finance costs(net)

Profit before tax

Tax

Profit for the period

Earnings per share(post leavers)

Earnings per share(pre leavers)

5,422

1,098

4,324

1,569

(755)

814

15.0%

(56)

(97)

658

(147)

511

6.5p

7.0p

5,292

1,071

4,221

1,537

(773)

764

14.4%

(63)

(70)

632

(155)

477

5.8p

6.3p

2%

2%

7%

5%

11%

Note: all numbers are before specific items. Q4 2007/8 specific charge £85m post tax.

earnings per share
Earnings per share

pence

*

**

*

**

*

**

* before exceptional items and goodwill from continuing activities

** before leavers and specific items

free cash flow
Free cash flow

Change

£m

Q42007/8 £m

Q42006/7 £m

EBITDA*(post leavers)

Interest & Tax

Capex

Working capital

Other (incl specific items)

Free cash flow

Net debt

1,569

(159)

(759)

1,195

(141)

1,705

9,460

32

(371)

77

482

(73)

147

1,546

1,537

212

(836)

713

(68)

1,558

7,914

* Before specific items

slide39

Pension

IAS 19 pre tax

  • BT Pension Scheme £2.9bn pre tax in surplus based on IAS19 valuation
  • Next triennial funding valuation begins after 31/12/2008
  • Pension scheme asset mix
    • 45% in equities
  • Pension interest credit
  • 2008/9 £313m v £420m 2007/8
    • but EBITDA benefits from a lower pension scheme service charge

£bn

2008 9 outlook
2008/9 outlook

Revenue, continued growth expected

Costs, £700m of efficiencies to be delivered

EBITDA*, growth underpinned by cost transformation

Earnings per share*, growth driven by operational performance

Capex, reduces to around £3.1bn

Free cash flow, similar level to 2007/8

Dividends per share,will alsogrow

Continue to deliver for shareholders and customers

* Before leavers and specific items

slide41

BT Group plc

Ian Livingston

slide42

BT Group plc

15 May 2008