change to presentation of financial results phil moses – group controller & director of...

Change to presentation of financial results

Phil Moses – Group Controller & Director of Investor Relations

23 January 2008

Forward looking statements - cautionCertain 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

Apr 2007 - New organisational structure announced

Oct 2007 - New organisational structure effective

New organisational structure benefits customers – faster, better, more efficient services

BT Design is responsible for service design and development

BT Operate is responsible for service deployment and network operation Lines of business retain responsibility for sales and customer service

BT continues to comply with regulatory Undertakings and obligations

Results for Q3 onwards to be reported under new structure

Background

3

Significant amount of intra-group trading removed (excluding Openreach)

No material change to Openreach

Greater visibility on end-to-end profitability of lines of business

BT Design and BT Operate are cost recovery centres

Some minor reallocation of customer accounts between Global Services, Retail and Wholesale

Previously announced expected restructuring charge of £450m and 2-3 year payback period remain unchanged

Key points

Previously reported group level results and financial targets are unaffected

4

Group

External revenueInternal revenueEliminationsTotal revenue

EBITDA*

Depreciation & amortisation

Operating profit*

20,22310,075

(10,075)20,223

5,780

2,920

2,860

0(4,014)4,014

0

0

0

0

20,223 6,061

(6,061)20,223

5,780

2,920

2,860

• 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

Old FY2006/07

£m

Adjustment£m

NewFY2006/07

£m

5

Global Services

External revenueInternal revenueTotal revenue

EBITDA*EBITDA* margin


Operating profit*

7,4671,6399,106

1,02011.2%

675

345

Old FY2006/07

£m

Adjustment£m

NewFY2006/07

£m(155)

(1,639)(1,794)

(244)

(10)

(234)

7,3120

7,312

77610.6%

665

111

• 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

4,0573,5277,584

1,96125.9%

1,198

763

52(2,250)(2,198)

(450)

(290)

(160)

4,1091,2775,386

1,51128.1%

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




Operating profit*

Old FY2006/07

£m

Adjustment£m

NewFY2006/07

£m

7

Retail

7,997417

8,414

86910.3%

171

698

103(171)(68)

512

274

238

8,100246

8,346

1,38116.5%

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




Operating profit*

Old FY2006/07

£m

Adjustment£m

NewFY2006/07

£m

* Pre leaver costs 8

Openreach

6854,4925,177

1,88836.5%

707

1,181

04646

43

0

43

6854,5385,223

1,93137.0%

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




Operating profit*

Old FY2006/07

£m

Adjustment£m

NewFY2006/07

£m

9

Other

Revenue

EBITDA*


Operating profit*

17

42

169

(127)

Old FY 2006/07

£m

Adjustment£m

NewFY2006/07

£m0

139

26

113

17

181

195

(14)

• 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

SummarySignificant amount of intra-group trading removed

Greater visibility on end-to-end profitability

BT Design and BT Operate are cost recovery centres

No change to compliance with regulatory Undertakings and obligations

Minor changes to published performance indicators

Q3 onwards reported under new structure

Previously reported group level results and financial targets are unaffected

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change to presentation of financial results phil moses – group controller & director of...

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