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Q1 Results 2004/05
Welcome
Q1 Results 2004/05
BT Group plc
Ben Verwaayen, CEO
Forward-looking statements - cautionForward-looking statements – caution advised Certain statements in this results release 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: capital expenditure, cash flow, earnings per share and cost savings; expectations regarding broadband, ICT and mobility solutions growth, broadband roll out, investment in new wave and new wave revenue growth; and the possible or assumed future results of operations of BT and/or its lines of business. 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; 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.
Key deliverables
• Build on network centric ICT capability
• Create convergent MOBILITY solutions
• Deliver on BROADBAND
• Defend TRADITIONAL business rigorously
• Drive for COST LEADERSHIP
Q1 - Turnover transformation
+ 32%
- 5% *
New wave New wave
Traditional Traditional
TotalRevenue
£bn
New wave : BT Retail and Wholesale new wave plus Syntegra and Solutions revenue* excluding the impact of the mobile termination rate reduction
+ 0.8% *
Strong New Wave growth
2003/04
+ 23% + 25%
+ 31%
+ 38%
+ 20%
+ 32%
2004/05
ICT / Solutions / BT
Syntegra
Mobility
Broadband
Other Inc. Classifieds & Wholesale
Managed Services
New Wave turnover£m
£710m
£936m
Q1 04/05Q1 03/04
+ £82m
+ £94m+ £27m
+ £23m
+ 102% + 46%+ 169%+ 15%
+ 32%
Build ICT
ICT growth - building for the future
£m
Rolling 12 month order intake*
2003/042002/03 2004/05
• ICT order intake £1.3bn– HP £427m, 7 years – Suffolk Council £324m, 10 years– 35 Solutions contracts worth between £1m & £5m, one third of
which are non-uk
* Sales Order Value of contracts won by Solutions and Syntegra quarterly
Broadband
Wholesale DSL end user base
Wholesale end user connections as at 30.06.04 - 2.7m472k net additions in the quarter is the highest ever
Deliver on Broadband
Deliver on Broadband
Retail Broadband
• Retail market share of DSL 41% as at end Jun ‘04– Highly competitive market– 29% of net additions in Q1
Our response• New prices launched on 01/07/04, cuts of up to 25%• BT Communicator with Yahoo! Messenger launched 15/07/04
– Phone calls, texts, webcam and instant messaging over your PC– Free calls PC to PC, or off-net at your BT Together package rate
Retail DSL end user base now > 1.1m
Create Mobility Convergence
MobilityDriving growth• Net additions (post-pay) up 70k vs Q4, consumer more than doubled• Orange 38k / Vodafone 53k / mm02 149k Apr-Jun UK net post-pay additions
Project Bluephone - world leading• Class 1 handset in development• BT championing global standards • Target launch Spring 2005
Post-pay subscriber growth
Defend Traditional
Reduced Traditional turnover decline*
2003/04
- 2.4%
- 4.5%
- 6.5%- 5.8%
- 1.0%
* excluding the impact of the mobile termination rate reduction
- 4.9%
2004/05
Defend Traditional
Traditional turnover£m
£3,876m
£3,631m
Q1 04/05Q1 03/04
- £57m
- £26m- £118m
Mobile Termination
Private Circuits Calls Lines Other
- £31m- £4m
No effect on profit
Substitution by New Wave
+ WLR+ Interconnect- Forex- Payphones
Adj’d Q1 03/04
£3,819m
- £9m
DQ
Market decline
DSL & WLR substitution
- 8% - 3%- 7% - 15% - 29% 0%
- 5% *
* excluding the impact of the mobile termination rate reduction
Calls decline - 5 main factors
• Dial IP - Market declines, driven by Broadband
• Price - Market trend and timing of price cuts on BT Together Options 2 &
3
• Calls to mobile - Market now in decline, greater price awareness?
• Voice market* - 2-3% decline continues
• Market share* - Consumer, down 1.5% Business, down 0.3%*
Defend Traditional
* BT estimates based on latest Ofcom data : Local, national, international and non-geographic voice minutes
Calls - consumerFixed voice* quarter on quarter market share loss
2003/042002/03
Q1 market share 66%
2004/05
Average monthly customer loss to CPS**
* BT estimates based on latest Ofcom data : Local, national, international and non-geographic voice minutes
** BT estimates
Defend Traditional
Defend Traditional
BT TogetherExpanding the higher value customer base
2003/04 2004/05
• Option 3 customer base grew 34% in the quarter
• Option 2 customer base up 32k in three months
• 9.2m customers migrated onto Option 1 on the 1.7.04
* no longer available for new supply
Defend Traditional
Calls - businessFixed voice* quarter on quarter market share loss
2003/042002/03
Q1 market share 43%
2004/05
Quarterly LNI voice minute loss to CPS**
* BT estimates based on latest Ofcom data : Local, national, international and non-geographic voice minutes
** BT estimates : Local, national and International calls only
Cost Leadership
Group operating margin*
* before leaver costs
Underlying earnings per share*
* before leaver costs
Q1 - continuing the trends from Q4
• Group turnover growth*
• Strong New Wave growth
• Reduced decline in Traditional*
• Gross margin lower
• SG&A % of turnover reduced
• EBITDA lower**
• Operating margin increased**
• Interest cost reduced
• Tax rate reduced to
+1.4%
+38%
-6%
-1.2pp
-0.7pp
-1%
+0.3pp
-17%
26.8%
+0.8%
+32%
-5%
-0.9pp
-0.5pp
-2%
+0.2pp
-9%
26.5%
Q1 04/05 Q4 03/04
*adjusted for the impact of mobile termination cut** before leaver costs, exceptional items and goodwill
Q1 Results 2004/05
BT Group plc
Ian Livingston, Group Finance Director
Q1 – headlines
1 pre goodwill and exceptional items*adjusted for the impact of mobile termination cut**before leaver costs, exceptional items and goodwill
Group turnover - 0.4% / + 0.8%*
Total costs - 1%**
Earnings per share1
Free cashflow £157m
- post leavers - 10%- pre leavers + 10%
Net debt £8.3bn
Operating profit + 1%**
BT Retail
• Q1 turnover declined by 1%* year on year– Traditional down 6%*
– driven by calls / lines / private circuits
– New Wave up 31% – driven by ICT, Broadband and Mobility
• Gross margin down 0.5 percentage points– reflecting the changing revenue mix
– Traditional and New Wave gross margin have both improved
• SG&A £7m** higher– £13m reduction in Traditional more than offset by increased
investment in New Wave
• Operating Profit down 8%**
*adjusted for the impact of mobile termination rate cut**before leaver costs, exceptional items and goodwill
BT Wholesale
• Q1 External turnover up 10%* year on year– Traditional +4%* - driven by higher volumes
– New wave +81% - driven by broadband and managed services
• Internal turnover down 5% year on year
• Network and SG&A costs reduced by £28m**
• EBITDA maintained**
• Operating profit down 1%**
*adjusted for the impact of mobile termination rate cut**before leaver costs, exceptional items and goodwill
BT Global Services
• Turnover up 5% at £1,411m – despite £20m negative impact of exchange rates
• EBITDA up 12%** at £115m
• Operating loss reduced by 47%**– £20m improvement
**before leaver costs, exceptional items and goodwill
Group P&LGroup 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 %
4,5674,567
(2,098)(2,098)
2,4692,46954.1%54.1%
(1,066)(1,066)
4141
(1,025)(1,025)
22.4%22.4%
1,4441,444(699)(699)
(3,863)(3,863)
74574516.3%16.3%
4,5674,567
(2,098)(2,098)
2,4692,46954.1%54.1%
(1,066)(1,066)
4141
(1,025)(1,025)
22.4%22.4%
1,4441,444(699)(699)
(3,863)(3,863)
74574516.3%16.3%
Q1Q103/04 £m03/04 £m
Q1Q103/04 £m03/04 £m
Q1Q104/05 £m04/05 £m
Q1Q104/05 £m04/05 £m
Better / Better / (Worse) £m(Worse) £m
Better / Better / (Worse) £m(Worse) £m
(19)(19)
(34)(34)
(53)(53)
3838
(11)(11)
2727
(26)(26)3131
3535
55
(19)(19)
(34)(34)
(53)(53)
3838
(11)(11)
2727
(26)(26)3131
3535
55
*all numbers are before exceptional items and goodwill
4,5864,586
(2,064)(2,064)
2,5222,52255.0%55.0%
(1,104)(1,104)
5252
(1,052)(1,052)
22.9%22.9%
1,4701,470(730)(730)
(3,898)(3,898)
74074016.1%16.1%
4,5864,586
(2,064)(2,064)
2,5222,52255.0%55.0%
(1,104)(1,104)
5252
(1,052)(1,052)
22.9%22.9%
1,4701,470(730)(730)
(3,898)(3,898)
74074016.1%16.1%
Group operating costs
Other Operating Costs
Net Pay : CoS
£m
£3,898m
£29m
£51m
£31m
£75m
£3,863m
Q1 04/05Q1 03/04
Depreciation
POLOs
£35m reduction year on year*
£57m
Net Pay : SG&A
*before leaver costs and other operating income
Other operating costs
Cost of sales : mainly ICT & other New Wave
R&D
£m
£1,226m
£21m£32m
£18m£88m£1,301m
Q1 04/05Q1 03/04
Other SG&A
£75m higher year on year
Cost of sales : Network costs
£16m
Marketing
Group P&L
Operating Profit pre leavers
Leaver costs
Operating profit post leavers
Associates and other
Interest
Profit before tax
Tax
Minority interest
Profit after tax
Earnings per share (p) pre leavers
Earnings per share (p)
745
(102)
643
(5)
(204)
434
(115)
0
319
4.6p
3.7p
Q103/04 £m
Q104/05 £m
5
(91)
(86)
(2)
21
(67)
38
(6)
(35)
0.4p
(0.4p)
* all numbers are before exceptional items and goodwill
740
(11)
729
(3)
(225)
501
(153)
6
354
4.2p
4.1p
Better / Better / (Worse) £m(Worse) £m
Better / Better / (Worse) £m(Worse) £m
Capital expenditure£m BT Group Q1 Capex
• Q1 Group capex £694m, up £142m year on year
• UK network capex up £120m to £512m in the first quarter driven by
– HOAN
– Broadband
• More balanced phasing
• 2004/05 capex within £3bn envelope, but higher than 2003/04
+28%
+35%
+9%
+43%
- 32%
EBITDA post exceptional items
Interest paid (net)
Tax paid
Working capital & other
Capex and financial investments (net)
Free cash flow
Free cash flow generation
Q1 04/05 £m
1,325
(302)
(41)
(119)
(706)
157
Q1 03/04 £m
1,459
(290)
(8)
50
(593)
618
Better /(Worse) £m
(134)
(12)
(33)
(169)
(113)
(461)
Delivering on our strategy...
• Continuing the trends from Q4
• Further investment in New Wave
• Improvement in efficiency
• Growth in underlying turnover* and EPS**
*adjusted for the impact of mobile termination rate cut** before leaver costs, exceptional items and goodwill
…transformation continues
Thank You