Q1 2008/9 Results 31 July 2008 BT Group plc. Ian Livingston – Chief Executive BT Group plc

Q1 2008/9 Results31 July 2008

BT Group plc

Ian Livingston – Chief Executive

BT Group plc

© British Telecommunications plc

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: expectations of continuing growth in revenue, EBITDA, earnings per share and dividends per share; continued growth in BT Global Services’ revenue, and EBITDA margin improvement; BT Retail EBITDA growth and improving trends in BT Wholesale; continued growth in the broadband market; further cost savings; expectations regarding capital expenditure, and levels of free cash flow; planned investment in fibre-based super-fast broadband; investment in BT’s 21st Century Network and growth of the 21CN Ethernet footprint; and the scope and delivery of next generation services and applications.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 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


Q1 2008/9 key points

Good revenue growth up 3%

Strong order intake, growing order pipeline

EBITDA* up 1%– revenue growth and cost savings– effect of LLU– higher input costs

Working capital– weak versus strong Q4– full year cash flow forecast remains

EPS* up 2%– 25th quarter of growth

* before specific items and leaver costs


38%

13%

24%

25%

Q1 2008/9 revenue by customer

Strength in mix of customers and businesses

Corporate

12%

Business

5%

Consumer flat

Carrier

7%

External revenue


Q1 2008/9 line of business summary

Retail – better than expected performance

Wholesale and Openreach – performed as expected

Global Services – strong revenue but margin needs improvement


Q1 2008/9 line of business overview

Global Services

Strong revenue growth– 33% non-UK revenue growth– NITS/MPLS revenue up 19%

EBITDA* up 10% EBITDA* margin growth held back

– FX– decline in higher margin UK calls and lines

15% EBITDA* margin target remains Q1 order intake £1.9bn up 12%, order pipeline c.£29bn



0

500

1000

1500

2000

2500

3000

3500

4000

4500

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Global Services £1.9bn order intake in Q1

Rolling 12 months order intake £8.2bn

DF

TS

Networked IT services

Other orders

2008/92005/6 2006/7 2007/8

£m



Global Services

Focus on margin improvement: quality of contracts replicable solutions product mix product rationalisation cost savings initiatives contract execution maturity of contracts



Retail

Revenue growth Strong profit growth

– all business units growing profits

BT Business up 7%– NITS revenue up 38%– fast growing Tradespace community

Consumer revenue trend improved– ARPU up £4 to £278– Option 2 & 3 calling plans up 53% year on year– c.300,000 Vision customers

Maintained share of DSL and LLU installed base 35%– new Home Hub launched


Retail new Home Hub

Best wireless range of any UK broadband provider

Our simplest ever set-up process

Improved security More energy efficient

– allows power consumption control



Wholesale

Trends continue as expected– decline in broadband reflects LLU growth– continued decline in low margin transit revenue – growth in managed network solutions and white label revenue

Managed network solutions– Q1 order intake £490m – rolling 12 month order intake £1.2bn, Sky, vodafone and O2

deals– order pipeline £2.7bn

Around a third FY 2008/9 revenue contracted Good cost reductions


0

100

200

300

400

500

600

700

800

900

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1


Openreach

Continued steady performance

LLU net additions slowing Slower housing market

affecting connections as expected

Cost efficiencies driving margin improvement

Driving for a fairer regulatory environment

LLU net adds

2008/92005/6 2006/7 2007/8

‘000


Priorities

Customer service

Global platforms

Agility

Customer loyalty Lower costs Margin

expansion Stronger

cashflow Shareholder

returns


Customer service

Right First Time programme: broadband repair and help –

dissatisfaction reduced by a third complaint volumes reduced by a

third abandoned calls have more than

halved lead times for repair and

provision down by a quarter access faults down by 16%

…but still more to do


Global platforms

Investing for the future

North America

Wire One, Ribbit

LatAm

Global sourcing centre

MEA

Radianz/Etisalat in UAE

AsiaPac

Frontline, China & Korea PoPs

Russia/CEE

Global sourcing centre

Western Europe

Net2S, Stemmer, SND

UK

21CN, NGA


Global platforms Next Generation Access

Total investment of c.£1.5bn

Available to up to 10m homes by 2012

Majority fibre to the cabinet

Basis for nationwide demand led roll out

Commencing discussion with Ofcom on regulatory framework

Investing in our global platforms


Global platforms 21CN

100% of UK core and metro nodes interconnected– ahead of plan

21CN Broadband– now available to 1m homes and businesses

– target 10m by April 2009

21CN Ethernet– available from 100 nodes +

– target 600 nodes by April 2009

– underpins mobile deals in BT Wholesale worth £770m

Software development kits

Investing in our global platforms


Ribbit

Silicon Valley based software company

Ribbit’s technology brings telephone functionality to the web

Ribbit for Salesforce.com– integrated into commercial

CRM system

Open platform– thousands of developers

using technology to develop applications


Priorities

Customer service

Global platforms

Agility

Customer loyalty Lower costs Margin

expansion Stronger

cashflow Shareholder

returns


Global Services

Retail

Wholesale

Openreach

2008/9 outlook line of business

Full year Group guidance unchanged – we expect revenue, EBITDA*, EPS* and dividends per share to grow in 2008/9


Continued strong revenue growth EBITDA* margins may fall slightly in 2008/9

Solid EBITDA* growth

Q2 & Q3 similar to Q1, improving trend in Q4

Stable performance

Hanif Lalani – Group Finance Director

BT Group plc


Q1 2008/9 line of business financial headlines

Group Global Services Retail Wholesale Openreach

3% Revenue 13% 3% 12% 1%

1% EBITDA* 10% 11% 14% 2%



0

50

100

150

200

250

300

Q1 Q2 Q3 Q4

Global Services

Revenue £2.1bn up 13%– 45% revenue is non-UK, up 33%

Costs & savings– network optimisation savings– new cost reduction plans

EBITDA* £195m up 10%– EBITDA* margin 9.5%


EBITDA*

2006/7

2007/8

2008/9

£m


200

250

300

350

400

Q1 Q2 Q3 Q4

Retail

Revenue £2.1bn up 3%– broadband up 17%– calls & lines down 4%

Costs & savings– gross margin 36.8% up 60 b.p.– SG&A reduced by £1m

EBITDA* £368m up 11%– EBITDA* margin 17.4% up

120 b.p.

EBITDA*2006/7

2007/8

2008/9


£m


0

300

600

900

1200

Q106/07

Q206/07

Q306/07

Q406/07

Q107/08

Q207/08

Q307/08

Q407/08

Q108/09

Wholesale

Revenue £1.2bn down 12%– transit & interconnect down 19%– private circuits down 15%– broadband down 26%– managed network solutions up

27%

Costs & savings– 27% reduction in SG&A– customer service efficiencies and

productivity improvements

EBITDA* £322m down 14%

External revenue mixTransit & interconnect

Broadband

Private circuits

Man. network soln.


£m


0

2000

4000

6000

8000

10000

12000

14000

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Openreach

Revenue £1.3bn down 1%– external up 11% – internal down 3%

Costs & savings– productivity improvements– operating costs down 3%– superior service

EBITDA* £491m up 2%

External LLU

BT Wholesale (external sales)

BT Retail

ADSL broadband


‘000

2008/92005/6 2006/7 2007/82004/5


2%6.0p6.1pEarnings per share*

608398Profit for the period

(161)(123)Tax

(17%)650

119

540

(19)

Profit before tax

Specific items net of tax

(3)1JV & assoc.

4%71614.2%

(8)

(55)

74214.3%

(73)

(130)

Operating profit*Operating* margin

Leaver costs

Finance costs (net)

(709)(691)Depreciation & amortisation

1%1,42528.3%

1,43327.7%

EBITDA*EBITDA* margin

4%3,9714,140Revenue (net)

1,0621,037POLOs

3%5,0335,177Revenue

ChangeQ1 2007/8Q1 2008/9£m

2%6.0p6.1pEarnings per share*

608398Profit for the period

(161)(123)Tax

(17%)650

119

540

(19)

Profit before tax

Specific items net of tax

(3)1JV & assoc.

4%71614.2%

(8)

(55)

74214.3%

(73)

(130)

Operating profit*Operating* margin

Leaver costs

Finance costs (net)

(709)(691)Depreciation & amortisation

1%1,42528.3%

1,43327.7%

EBITDA*EBITDA* margin

4%3,9714,140Revenue (net)

1,0621,037POLOs

3%5,0335,177Revenue

ChangeQ1 2007/8Q1 2008/9£mProfit and loss account



(271)(691)(962)Working capital

120(120)0Tax

(582)

1,950

(152)

8,631

(734)

10,581Net debt

(332)

(570)

320

(402)

570

(320)

(734)

0

0

Free cash flow

HMRC settlement (incl. interest)

Pension deficiency payment

(70)59(11)Other (incl. specific items)

(17)(819)(836)Capex

(37)(248)(285)Interest

(57)1,4171,360EBITDA (post leavers)

Change

£m

Q1 2007/8

£m

Q1 2008/9

£m

(271)(691)(962)Working capital

120(120)0Tax

(582)

1,950

(152)

8,631

(734)

10,581Net debt

(332)

(570)

320

(402)

570

(320)

(734)

0

0

Free cash flow

HMRC settlement (incl. interest)

Pension deficiency payment

(70)59(11)Other (incl. specific items)

(17)(819)(836)Capex

(37)(248)(285)Interest

(57)1,4171,360EBITDA (post leavers)

Change

£m

Q1 2007/8

£m

Q1 2008/9

£m

Free cash flow


Margin management & main cost reduction initiatives

Operational efficiencies c.£200m Procurement/COS c.£250m

Overhead initiatives c.£150m LOB specific c.£200m

FY 2008/9 savings target increased from £700m to c.£800m

‘Right First Time’

Service systems automation

Productivity improvements

Fault visit reduction

Network optimisation

Supplier savings

Improved demand management

Overhead function reductions

Global sourcing

Marketing efficiencies

Billing programme

Cable recovery programme


-9.0

-7.5

-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Balance sheet Pension fund

– £0.6bn post tax deficit at 30 June 2008 on IAS19 basis

– next triennial funding valuation at 31 Dec 2008

– sustainable, modernised pension scheme

Liquidity– net debt £10.6bn

– £4.3bn debt raised in last 12 months

– £2.4bn committed facilities

– solid investment grade credit rating

IAS19 pre tax valuation

£bn

2002/3 2003/4 2004/5 2005/6 2006/7 2007/8 2008/9


2008/9 outlook

Revenue

Cost savings c.£800m expected

EBITDA*

Earnings per share*

Capex c.£3.2bn 2008/9, c.£3.1bn 2009/10

Free cash flow c.£1.4bn

Dividends per share

* before specific items and leavers

The Board remains committed to the dividend

Q&A

BT Group plc


Documents

Q1 2008/9 Results 31 July 2008 BT Group plc. Ian Livingston – Chief Executive BT Group plc