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Transcript of Transformation accelerates Q2 Results 2004/05. BT Group plc Sir Christopher Bland, Chairman...
Transformationaccelerates
Q2 Results 2004/05
Q2 Results 2004/05
BT Group plc
Sir Christopher Bland, Chairman
Transformationaccelerates
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: growing dividends, improving earnings, free cash flow and continued net debt reduction; expectations regarding ICT, broadband, mobility and managed services growth; new wave revenue growth, turnover transformation and improving underlying revenue trends; the completion and expected impact of proposed global ICT transactions; investment in, and implementation of, BT's 21st Century Network; and cost savings and re-investment.
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 and its lines of business of the appropriate trading and marketing models for its products and services; fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing new products and the need to increase expenditures for improving the quality of service; conditions, including regulatory approvals, to completion of proposed global ICT transactions not being satisfied; prolonged adverse weather conditions resulting in a material increase in overtime, staff or other costs; developments in the convergence of technologies; the anticipated benefits and advantages of new technologies, products and services, including broadband and other new wave initiatives, not being realised; and general financial market conditions affecting BT’s performance. BT undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
H1 04/05 – Financial headlines
*adjusted for the impact of mobile termination cut**before leaver costs, exceptional items and goodwill
Group turnover £9.2bn 1.5%*
Free cashflow £0.8bn £0.4bn
Net debt £8.3bn £0.5bn
Earnings per share** 9.4p 7%
Interim dividend 3.9p 22%
H1 04/05 - Turnover transformation
New wave : BT Retail and Wholesale new wave plus C&SI and Solutions revenue* adjusted for the impact of mobile termination cut
+ 34%
- 5% *
Total Revenue £bn+ 1.5% *
New Wave proportion for H1
04/05 03/04
Consumer 6% 3%
Business 17% 12%
Major Corporate 45% 38%
Wholesale/Carrier 12% 7%
TOTAL 21% 16%
New wave
Traditional
Earnings per share
• H1 EPS up 7%, pre leavers (maintained post leavers)
• H1 EPS more than doubled over the last 3 years
EPS pre leavers, before goodwill and exceptionals
6.5
8.5
2.0
Dividends• Interim dividend per share of 3.9p
• 22% increase year on year
• Progressive policy continues
• Target payout ratio is 60% for 2005/06
2.25 3.2 3.9
5.3
4.25
0p
3p
6p
9p
FY 01/02 FY 02/03 FY 03/04 H1 04/05
Final
Interim
Three years of transformation - benefits for customers
• Broadband Sept ‘01 Sept ‘04
– Coverage * 6th 1st
– ADSL users 89k 3.3m
• Product and service innovation
• Competitively priced services– 30 minute national evening call 60p 5.5p
• Customer satisfaction– Dissatisfaction reduced by more than 50%
• 21st Century Network
* OECD / BT estimate of G7 countries
Three years of transformation - delivering for shareholders
• Group turnover is growing, driven by new wave strategy
• Earnings are improving through financial discipline
• Free cash flow continues to be strong
• Dividends are increasing via a progressive policy
• Debt continues to be reduced
• Ongoing buyback programme augments dividend policy
Delivering results while transforming the business to lead the next stage of the technology revolution
Q2 Results 2004/05
BT Group plc
Ben Verwaayen, CEO
Transformationaccelerates
Key deliverables
• Build on network centric ICT capability
• Create convergent MOBILITY solutions
• Deliver on BROADBAND
• Defend TRADITIONAL business rigorously
• Drive for COST LEADERSHIP
Q2 - Turnover transformation
+ 36%
- 5% *
New wave New wave
Traditional Traditional
TotalRevenue
£bn
New wave : BT Retail and Wholesale new wave plus C&SI and Solutions revenue* adjusted for the impact of mobile termination cut
+ 2.1% *
Underlying* revenue trend improving
2003/04 2004/052002/03
* 2002/3 is adjusted to take account of Concert unwind. 2003/04 and 2004/05 adjusted for the impact of mobile termination cut
New Wave - dramatic growth
2003/04 2004/05
Rolling 12 months revenue
2002/03
£m
ICT / C&SI /
Solutions
Mobility
Broadband
Other - inc. Classified directories &
Wholesale Managed Services
Q2 - New Wave turnover£m
Q2 04/05Q2 03/04
+ £115m
+ £93m+ £32m
+ £32m
+ 88% + 59%+ 188%+ 20%
+ 36%
£761
m
£1,0
33m
ICT - building for the future
£m Rolling 12 month order intake*
2003/042002/03 2004/05
* Sales Order Value of contracts won by Solutions and C&SI quarterly
In Q2 54 Solutions orders were between £1m & £5m
Build ICT
ICT - building for the future, internationally
Visa £40m, supply of managed international telecoms services
Dutch Police Force €31m, 5 years, supply fixed network infrastructure
Superfos (Danish HQ) €27m operation of global IT & telecoms infrastructure in 14 European countries
Cyberlogitec (S. Korea) US$37m, 9 years, supply MPLS/WAN services
Intentia (Sweden) €3m, 3years, manage mobile requirements
Build ICT
Build ICT
ICT - building for the future - Infonet acquisition• Strategic fit
– Build on BT Global Services record of delivery– Extended global reach, wider customer base, specialist skills and
enhanced product portfolio
• Acquired for £310m net of cash– Paying $2.06 per share in cash
• Financial implications– Cashflow neutral in year 1, thereafter positive– EPS enhancing from 2006/7– Realise £80m of annual cash cost savings from year 3
• Deal expected to complete in 1st half of 2005– Commitment from 97% of voting shareholders– Phased transition plan and gradual integration
Build ICT
ICT - building for the future- exclusive Reuters negotiations• Potential long-term network services contract
• Significant new customer to BT
• 18,000 extra sites on MPLS network
• Due diligence process underway
• Acquisition of Radianz– Leading provider of extranet financial services
– Strengthen BT’s position in the global financial services market
• Completion expected in spring 2005
Broadband - BT Wholesale
Wholesale DSL end user base
Wholesale end user connections as at end Sep ‘04 - 3.3m
Q2 highest ever net additions > 600,000
Deliver on Broadband
Deliver on Broadband
Broadband - BT Retail
• Retail DSL Q2 end user base 1.3m
• Retail market share of DSL 39% as at end Sep ‘04
30% of net additions in Q2,up from 29% in Q1
2003/042002/03 2004/05
Create Mobility Convergence
Mobility
• Creating scale– Total connections up by 90k to over 300k in Q2
– Consumer subscribers up from 11k to 161k in 12 months
– Business subscribers up from 59k to 145k in 12 months
Post-pay subscriber growth
Mobility
Project Bluephone• Target launch Spring 2005• Fixed Mobile Converged Alliance (FMCA) members
– Founders: BT, Brasil Telecom, KT, NTT, Rogers Wireless, Swisscom– New members: AT&T, Bezeq, Cegetel, KPN
BT Openzone• International roaming agreements
– Gives customers access to >20,000 hotspots in 12 countries
• New offers launched – For BT’s Broadband customers
• £1 per month for 500 minutes access for three months, £5 per month thereafter
Create Mobility Convergence
Defend Traditional
Traditional turnover* - rate of decline slowing
2003/04
- 2.4%
- 4.5%
- 6.5%- 5.8%
- 1.0%
* adjusted for the impact of mobile termination cut
- 4.9%
2004/05
- 4.6%
Defend Traditional
Q2 -Traditional turnover
£m
Q2 04/05Q2 03/04
- £64m+ £1m - £180m
Mobile Termination
Private Circuits Calls Lines Other
- £3m + £17mNo effect on profit
+ WLR+ Interconnect- Payphones
Adj’d Q2 03/04
next slide
0% - 16% 0% + 2%
- 5% *
DSL & WLR substitution offset by re-balancing
DQ
- £9m
- 32%
* adjusted for the impact of mobile termination cut
£3,8
07m
£3,7
43m
£3,5
69m
Calls - £180m decrease year on year
Defend Traditional
BT estimates based on latest Ofcom data :Local, national, international and non-geographic voice minutes
Rebalancing• To lines and other
servicesMarket share:• Business down 0.5%• Consumer down 1%
£50m
£37m
£64m
Fixed voice market• Volume and price
reductions£30m
Dial IP• Broadband
substitution
Defend Traditional
BT TogetherExpanding the higher value customer base
2003/04 2004/05
• Option 1 customer base now 14.3m
• Option 2 customer base now 1.3m
• Option 3 customer base now 0.5m
• 60% of consumer revenues contracted
21st Century Network
• Will offer:– Businesses: flexibility and competitiveness
– Consumers: new services, personalisation and convergence
• Trials – Softswitches and IP link between metro nodes at Cambridge
and Woolwich now live
– Traffic from 38 local exchanges parented on these nodes to be added in coming weeks
– First fibre to the home connections live - trial to serve 100 homes by January 2005 and 1,500 homes by March
• Local Loop Unbundling
Transforming our networks
Underlying earnings per share*
* before leaver costs, goodwill and exceptionals
Delivering results while transforming the business• Accelerating turnover growth
– Less dependent on traditional products as new wave grows
• Cost savings & reinvestment– Continue to extract efficiency in traditional areas
– Reinvestment in new wave businesses
• EPS– Growth based on financial discipline generating strong free
cash flow
• Transformation accelerates– Growing credibility as an IT services provider
– Well positioned in the digital networked economy
Q2 Results 2004/05
BT Group plc
Ian Livingston, Group Finance Director
Transformationaccelerates
Q2 04/05 – Financial headlines
Group turnover + 0.7% / + 2.1%*
Earnings per share**
Free cashflow £594m
- post leavers + 9%- pre leavers + 7%
Net debt £8.3bn
Profit before tax + 4%**
*adjusted for the impact of mobile termination rate cut**before exceptional items and goodwill
BT Retail• Q2 turnover declined by 2%* year on year
– Traditional down 8%*
– New Wave up 33%
• Gross margin down 1.8 percentage points– changing revenue mix
– acquisition costs associated with broadband and mobility
• SG&A £45m** lower– £74m reduction in Traditional partially offset by increased
investment in New Wave
• Operating Profit down 9%**
*adjusted for the impact of mobile termination rate cut**before exceptional items and goodwill
BT Wholesale
• Q2 external turnover up 17%* year on year
– Traditional +9%* - driven by higher volumes
– New wave +99% - driven by broadband and managed services
• Internal turnover down 5% year on year
• Network and SG&A costs reduced by £7m**
• EBITDA £960m** up 1%
• Operating profit £484m up 1%**
*adjusted for the impact of mobile termination rate cut**before exceptional items and goodwill
BT Global Services
• Q2 turnover up 9% at £1,499m
– Consulting & System Integration up 19%
– Global Solutions up 18%
• EBITDA up 10%** at £129m
• Operating loss £13m** reduced 67%
– Improvements in all business units
• Operating free cash flow £55m lower
– Reflecting increased capex to deliver ICT contracts
**before exceptional items and goodwill
Q2 Group P&LQ2 Group P&L
Turnover
Cost of sales
Gross marginGross margin %
SG&A
Other operating income
Total SG&A
SG&A %
EBITDA pre leaversDepreciation
Total costs (pre leavers & oth. op. income)
Operating Profit pre leaversOperating margin pre leavers %
4,6024,602
(2,073)(2,073)
2,5292,52955.0%55.0%
(1,123)(1,123)
4343
(1,080)(1,080)
23.5%23.5%
1,4491,449(703) (703)
(3,899)(3,899)
74674616.2%16.2%
4,6024,602
(2,073)(2,073)
2,5292,52955.0%55.0%
(1,123)(1,123)
4343
(1,080)(1,080)
23.5%23.5%
1,4491,449(703) (703)
(3,899)(3,899)
74674616.2%16.2%
Q2Q203/04 £m03/04 £m
Q2Q203/04 £m03/04 £m
Q2Q204/05 £m04/05 £m
Q2Q204/05 £m04/05 £m
Better / Better / (Worse) £m(Worse) £m
Better / Better / (Worse) £m(Worse) £m
3434
(98)(98)
(64)(64)
2929
(1)(1)
2828
(36)(36)1919
(50)(50)
(17)(17)
3434
(98)(98)
(64)(64)
2929
(1)(1)
2828
(36)(36)1919
(50)(50)
(17)(17)
4,5684,568
(1,975)(1,975)
2,5932,59356.8%56.8%
(1,152)(1,152)
4444
(1,108)(1,108)
24.3%24.3%
1,4851,485(722)(722)
(3,849)(3,849)
76376316.7%16.7%
4,5684,568
(1,975)(1,975)
2,5932,59356.8%56.8%
(1,152)(1,152)
4444
(1,108)(1,108)
24.3%24.3%
1,4851,485(722)(722)
(3,849)(3,849)
76376316.7%16.7%
*all numbers are before exceptional items and goodwill
Q2 Group operating costs
Cost of Sales
SG&A non-pay
£m
£3,849m
£40m
£62m
£19m
£160m
£3,899m
Q2 04/05Q2 03/04
Depreciation
POLOs
£50m increase year on year*
£69m
SG&A net pay
*before leaver costs and other operating income
Q2 Group P&L
Operating Profit pre leavers
Leaver costs
Operating profit post leavers
Associates and other
Interest
Profit before tax
Tax
Minority interest
Profit attributable to shareholders
Earnings per share (p) pre leavers
Earnings per share (p)
746
(8)
738
18
(207)
549
(141)
1
409
4.9p
4.8p
Q203/04 £m
Q204/05 £m
Better / Better / (Worse) £m(Worse) £m
Better / Better / (Worse) £m(Worse) £m
763
(16)
747
(3)
(216)
528
(148)
1
381
4.6p
4.4p
(17)
8
(9)
21
9
21
7
0
28
0.3p
0.4p
*all numbers are before exceptional items and goodwill
Q2 Group capital expenditure
£m • Q2 Group capex £803m, up £225m year on year
• More balanced phasing
• UK network capex up £137m to £580m in the second quarter
+95%
+64%
+24%
}Network related
-28%
EBITDA post exceptional items
Interest paid (net)
Working capital, tax and other
Capex and financial investments (net)
Free cash flow
Q2 Free cash flow generation
Q2 04/05 £m
1,438
(95)
(25)
(724)
594
Q2 03/04 £m
1,469
(169)
(195)
(520)
585
Better /(Worse) £m
(31)
74
170
(204)
9
International Accounting Standards
• BT timeframe/process– Accounting policy review complete
– 2003/4 and 2004/5 impact quantified
– Embedding IFRS into reporting systems is underway
– 2004/5 IFRS restatement to be published in June 2005
– 2005/6 first full year under IFRS
• Key accounting changes– IAS 32 & 39 Financial Instruments
– IAS 17 Leases
– IAS 19 Pensions
– IFRS 2 Share Based Payments
Transformation accelerates
• Positive momentum on turnover
• Gross margin decline due to investment in new wave and customer acquisition
• Continued cost savings in traditional
• EPS increase
• Strong free cash flow
• Growing dividends
• Ongoing net debt reduction
Q&A
Thank You
Transformationaccelerates