BT 2006 Annual Report Download - page 35

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Rate Internet Access Call Origination revenues which have more
than halved to £26 million in the 2006 financial year. Wholesale
access revenues have increased by £142 million in the 2006
financial year as a result of increased volumes from other
service providers.
New wave revenue, including broadband and managed
services grew by 56% to £1,033 million in the 2006 financial
year. Broadband revenues grew by 74% year on year.
Wholesale broadband connections, including LLU lines,
increased to 7.9 million at 31 March 2006, an increase of
2.9 million compared to prior year, with all connections
available at up to 2 Mbit/s.
Internal revenue decreased by 5% to £5,006 million in the
2006 financial year. The reduction reflects both the impact of
lower volumes of calls, lines and private circuits, and lower
regulatory prices being reflected in internal charges.
Gross variable profit increased by 1% to £7,031 million for
the 2006 financial year reflecting volume changes and changes
in the mix towards more profitable products.
In the 2006 financial year, network and selling, general and
administration costs, excluding leaver costs, were 3% higher at
£3,103 million. Leaver costs were £34 million in the 2006
financial year and £62 million in the 2005 financial year.
Activity levels in the network, driven by broadband and LLU
volumes, have increased in the 2006 financial year. The
financial impact of this increased activity has been mitigated by
a series of cost reduction programmes focusing on efficiency,
discretionary cost management and process improvements.
EBITDA at £3,894 million in the 2006 financial year was 1%
higher. EBITDA margins were maintained at 42% across both
financial years.
Depreciation and amortisation were flat in the 2006 financial
year at £1,902 million.
Operating profit at £1,992 million increased by 2% in the
2006 financial year. The operating profit margin increased to
22% compared to 21% in the 2005 financial year.
Capital expenditure on property, plant and equipment and
computer software at £2,013 million increased by 2% in the
2006 financial year. This reflects increased capital expenditure
to prepare for the 21
st
Century Network and to invest in new
systems to ensure compliance with the Undertakings agreed
with Ofcom. Investment in legacy network technologies
continues to be lower than last year.
Following Ofcom’s Strategic Review of Telecommunications,
Openreach, a new line of business responsible for managing the
UK access network on behalf of the telecommunications
industry was launched on 21 January 2006. For the 2006
financial year Openreach’s results are included within BT
Wholesale’s results. For the 2007 financial year Openreach will
be reported as a separate business segment.
BT Global Services 2006 2005
£m £m
Revenue 8,632 7,488
EBITDA 1,001 961
Operating profit 363 411
Capital expenditure 702 605
BT Global Services supplies managed services and solutions to
multi-site organisations worldwide – our core target market is
10,000 multi-site organisations including major companies with
significant global requirements, together with large
organisations in target local markets. We aim to provide them
with networked IT services and a complete range of managed
solutions.
Our extensive global communications network and strong
partnerships enable us to serve customers in the key
commercial centres around the world using a combination of
direct sales and services capabilities and strategic partners.
As well as local, national and international communications
services and higher-value broadband and internet products and
services, a comprehensive portfolio of networked IT services
focused around messaging and conferencing, CRM (customer
relationship management), convergence, outsourcing and
security is offered to customers. Consultancy services are also
provided to help organisations understand network
performance, operate their networks and applications efficiently
and transform their business to gain advantage in the digital
networked economy.
In the 2006 financial year, BT Global Services revenue was
£8,632 million, 15% higher than the 2005 financial year. This
includes revenue of £795 million from the acquisitions of
AIbacom and Infonet which have strengthened our global
networked IT services business. Revenue arising from services
provided outside the UK increased during the 2006 financial
year, demonstrating BT’s transformation into a global
networked IT services company serving multi-site organisations.
Excluding the impact of the Albacom and Infonet acquisitions,
BT Global Services’ revenue was 5% higher than the 2005
financial year.
New wave external revenue grew in the 2006 financial year
fuelled by networked IT services contracts which generated
revenue of £3,732 million in the 2006 financial year, an
increase of 34%. Networked IT services contract wins were £5.4
billion in the 2006 financial year. We believe these wins,
coupled with the £7.7 billion contracts won in the 2005
financial year are building the foundation for future revenue
growth. Included in the contract wins for the 2006 financial year
was a E450 million five year contract with Fiat, as well as a
realigned and extended contract with the Department for Work
and Pensions.
Traditional external revenue, which includes the global
carrier business as well as voice and data revenue from major
corporates, declined by £44 million compared to the 2005
financial year to £3,184 million. This reflects the migration to
IVPNs sold to major corporate customers in the UK and further
reductions in dial IP due to broadband substitution in the UK.
However the decline in traditional revenue was partly offset by a
34% increase in Multi Protocol Label Switching (MPLS) revenue
which exceeded £400 million.
The increase in new wave revenue together with lower
network and sales, general and administrative costs, coupled
with the positive impact of the acquisitions has resulted in an
increase in EBITDA in the 2006 financial year of 4% to
£1,001 million. The 2006 financial year includes leaver costs of
£49 million compared to £59 million in the 2005 financial year.
Depreciation and amortisation costs were £88 million higher
compared to the 2005 financial year. This reflects the
acquisitions and increased investment in our global
infrastructure. These factors have contributed to a decrease in
operating profit of 12% to £363 million.
Capital expenditure for the 2006 financial year was £702
million, an increase of 16% from the 2005 financial year mainly
due to the investment in acquisitions and our global
infrastructure.
OTHER OPERATING INCOME
Other operating income decreased by £324 million to
£227 million in the 2006 financial year, due to the one off
Operating and financial review BT Group plc Annual Report and Form 20-F 2006 33