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BT Group plc Q3 2007/8 results

Explore BT Group Plc's Q3 2007/8 financial highlights, revenue growth, EBITDA, and forward-looking statements. Learn about market trends, cost base transformation, and future initiatives.

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BT Group plc Q3 2007/8 results

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

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

  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 • 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

  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. 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

  12. 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

  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 • 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

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

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

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

  19. BT Global Services – margin expansion Q3 Revenue • EBITDA margin up 140bp • Contract maturity • c60% of top 100 contracts now in 2nd 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% EBITDA 23% EBITDAmargin 10.9% Medium term EBITDA margin target 15%

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

  21. 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

  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 11% EBITDA 9% EBITDAmargin 28.5%

  23. – Revenue £1.3bn EBITDA £0.5bn Q3 Revenue • 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 1% EBITDA 2% EBITDAmargin 37.1%

  24. Q3 2007/8results Change £m Q32007/8 £m Q32006/7 £m 28 28 56 30 9 39 7 (9) (72) (35) 30 (5) 0.1p 0.1p 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 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.

  25. Q3 2007/8 -free cash flow Q32006/7 £m Change £m Q32007/8 £m EBITDA*(post leavers) Interest & Tax Capex Working capital Pension deficiency contribution Other (incl specific items) Free cash flow 1,449 (414) (877) (294) --- (85) (221) 37 22 (100) (82) 500 (73) 304 1,412 (436) (777) (212) (500) (12) (525) * Before specific items

  26. Balance sheet -as at 31 December 2007 Buy back Pension • 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 Net debt Liquidity • Currently £10.2bn • Seasonal turnaround in FCF expected in Q4 • Raised debt of €1.0bn and $1.2bn in the quarter • 5 year facility of £1.5bn

  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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