BT Group plc Q3 2013 results 1 February 2013
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: current and future years’ outlook, including revenue trends, EBITDA and normalised free cash flow; the impact of regulation and regulatory decisions; our fibre roll-out programme; our group-wide restructuring; continuing cost transformation and efficiencies in our BT Global Services business; IP Exchange revenue; effective tax rate; and liquidity and funding. 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; fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing new products, networks and solutions and the need to increase expenditures for improving the quality of service; 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, and demand for bundled services, not being realised; the timing of entry and profitability of BT in certain communications markets; significant changes in market shares for BT and its principal products and services; the underlying assumptions and estimates made in respect of major customer contracts proving unreliable; the aims of the group-wide, and BT Global Services restructuring programmes not being achieved; 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. 2 © British Telecommunications plc
BT Group plc Tony Chanmugam, Group Finance Director 3
Q3 2013 income statement £m Q3 2013 Change Key points transit down £66m 1 Revenue4,510 (6%) £50m negative FX impact macro conditions, regulation - underlying ex transit(3%better Global Services & Wholesale ) performances 1 EBITDAlying costs down 7% 1,548 2%under 1 Olower depreciation perating profit842 7% 1 Profit before tax675 7% 1 8% oric Ethernet pricing, restructuring Specific itemshist (38) n/m 1 before specific items 4 © British Telecommunications plc
Q3 2013 free cash flow £m Q3 2013 Change Key points 1 EBITDA1,548 24 higher PY spend on Wholesale Capex (586) 53 Broadband Connect Interest (210) (10) timing of coupons Tax (168) (5) Working capital & other 223 111 timing of customer receipts 2 Normalised FCF807 173 Cash tax benefit of relating to £2bn pension payment 157 157 pension deficit payments in March 2012 1 Adjusted FCF964 330 Specific items (96) (48) historic Ethernet pricing, restructuring Reported FCF 868 282 Net debt 8,140 (404) down £897m in quarter 1 before specific items 2 before specific items, pension deficit payments and cash tax benefit of pension deficit payments5 © British Telecommunications plc
Q3 2013 cost transformation£3,343m £50m Global Services £132m –improved terms with suppliers Transit Non-consumer faults process £42m –migrating to shared service £50m centres £3,069m –earlier fault resolution and fewer hand-offs Down 7% Openreach engineer productivity –c.£30m opportunity from better Q3 2012FX &Transit/Net labourOtherQ3 2013resource management opexdisposalsPOLOscostsopex£274m opex reduction in Q3 >£1bn opex reduction YTD Opex = operating expenditure before specific items, depreciation & amortisation and other operating income 6 © British Telecommunications plc
Cost transformation Group-wide restructuring programme including: –migration of BTID & BTO into BT TSO & lines of business –rationalisation of Global Services processes, resources, networks & systems –transformation of group-wide support functions Additional restructuring costs over Q4 & FY2014 Future cost savings and improved customer service delivery 7 © British Telecommunications plc
Q3 2013 other financial information 1 Maturity of term debtIAS 19 deficit £ net of tax Average (Q2: £) % % % % % % 2coupon 1,500–increased deficit reflects higher inflation assumption 1,250–assets increased by £ 1,000£m 750Cash & investments of £ as500 at 31 Dec 2012 250–£ of term debt repaid in January 02013201420152016201720181 carrying value at 31 December 2012, assuming no renewal or new facilities. Carrying value reflects final principal repayments at hedged rates 2 weighted average coupon of term debt maturing in year (including swap rates), based on carrying value of debt at hedged rates at 31 December 2012 8 © British Telecommunications plc
BT Group plc Ian Livingston, Chief Executive 9
Q3 2013 line of business overview Global Services Q3 2013 Change Revenue £1,746m (8%) - underlying revenue ex transit (5%) EBITDA £163m 13% Underlying revenue ex transit down 5% Contracts signed in quarter −continued tough conditions in Europe & financial services sector 1−double digit growth in high-growth regions Order intake £, up 17% Underlying operating costs ex transit down 7% Underlying EBITDA up 17% −timing of costs in year, down 1% YTD EBITDA less capex of £42m (Q3 2012: £5m) Cash flow £46m lower reflecting working capital 1 Asia Pacific, Latin America, Middle East, Africa & Turkey 10 © British Telecommunications plc
Q3 2013 line of business overview Retail Q3 2013 Change Revenue £1,793m (3%) EBITDA £474m 5% Financial Operational Consumer revenue down 3% 44% market share of broadband 1net adds –lower calls & lines revenue –growth in broadband BT Retail fibre Business revenue down 3% –200,000 net adds –lower calls & lines revenue –>1 million customers –growth in IT services Wi-fi minutes trebled to Ireland revenue up 5% ex FX –50% of NI retail broadband base now SmartTalk app launched on fibre –allows customers to make cheaper smartphone calls Net operating costs down 6% 1 11 DSL and fibre, excluding cable © British Telecommunications plc
Q3 2013 line of business overview Retail - TV BT multicast channels BT Vision –21,000 net adds –now >60,000 customers with YouView boxes Multicast being rolled out –18 SD channels plus 4 HD –available from an additional £2 per month BT Sport –4 year rights deal with Women’s Tennis Association –Clare Balding weekly chatshow –production home at Olympic Park –Sunset+Vine chosen as lead production partner 12 © British Telecommunications plc
Q3 2013 line of business overview Wholesale Q3 2013 Change Revenue £890m (9%) - underlying revenue ex transit (3%) EBITDA £289m (5%) 12 month rolling order intakeExcluding ladder pricing 1,600−underlying revenue ex transit down 1% 1,400−EBITDA down 1% 1,200Net operating costs ex transit down 2% 1,000£m −reduction in labour costs 800600Order intake c.£400m 400200IP Exchange minutes up >80% 0 Q1Q2Q3Q4Q1Q2Q32012 2013 13 © British Telecommunications plc
Q3 2013 line of business overview Openreach Q3 2013 Change Revenue £1,274m (2%) EBITDA £579m (2%) QoQ change in physical lines Revenue down 2% –c.£50m impact of regulatory price 100changes 50–growth in Ethernet & fibre 0Net operating costs down 2% ‘000 –despite additional engineering resource -50EBITDA down 2% -100-15048,000 increase in physical lines Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q312010 2012 20112013 281,000 broadband net adds, up 7% 1 DSL and fibre, excluding cable 14 © British Telecommunications plc
Q3 2013 line of business overview Fibre 1 Fibre in the ‘final third’>13m premises passed Contract signed premises now connected Preferred bidder –,000 connected in Q3 BDUK progress –11 BDUK bids won to date –Contracts signed in Q3 –Cumbria –Herefordshire & Gloucestershire –Norfolk –Suffolk –Preferred bidder awarded in Q3 –Devon & Somerset –Wiltshire & South Gloucestershire 1 15 As at 31 December 2012 © British Telecommunications plc
SummarySolid financial performance Operational progress, but more to do Fibre roll-out continues at pace BT Sport plans progressing well On track for full year Detailed business update with FY results 16 © British Telecommunications plc
BT Group plc Q&A 17
