BT 2006 Annual Report Download - page 5

The news on dividends is again positive. Your Board is
recommending a full-year dividend of 11.9 pence per share –
a pay out ratio of 61% of earnings before specific items,
compared with 57% last year. We continue our progressive
dividend policy and expect our pay out ratio to rise to around
two-thirds of earnings in the 2008 financial year.
We operated our share buy back programme again in the
2006 financial year. This is being funded from cash generated
over and above that required for servicing our debt, which
remains below £8 billion.
BUSINESS PROGRESS
We continued to implement our strategy of growth through
business transformation. Your Board has given its backing to
targeted acquisitions that will help us confirm our status as a
leading player in the global networked IT services market. In the
2006 financial year, we acquired Atlanet in Italy (as part of a
major deal with Fiat), Cara Group in Ireland and Total Network
Solutions in the UK. And in the UK, we now have almost eight
million broadband lines over which we are able to offer
customers exciting, next-generation voice and entertainment
services. New wave revenue grew by 38% to £6.3 billion, and
accounted for around one-third of our total business.
REGULATION
We believe that a fair and flexible regulatory regime is vital for
our industry, for ensuring that we can meet customers’ growing
needs and for encouraging investment. We were pleased that,
following its strategic review of telecommunications, Ofcom
accepted the set of legally-binding Undertakings that BT
proposed in order to transform the regulatory landscape in the
UK. We believe that the impact of these Undertakings will be to
focus regulation where it remains necessary at the same time as
stimulating de-regulation wherever possible.
PENSIONS
BT stands fully behind its pension promise to pensioners and
members of the BT Pension Scheme (BTPS). The scheme is
well-managed and its assets have grown very significantly in
recent years, from £23 billion at the end of 2002 to more than
£35 billion currently. The accounting deficit has almost halved
in the last year alone. With the Trustees of the BTPS, we are
continuing discussions on the triennial funding valuation of the
scheme. In particular, we aim to review recent pensions
legislation and guidelines, and examine the implications and
extent of the Crown Guarantee given on privatisation in 1984.
The Crown Guarantee, which applies to liabilities assumed by
BT in 1984 and only in the event of insolvency, is an extra layer
of security for BT pensioners.
THE BOARD
There were a number of changes to your Board during the year.
I would like to welcome Matti Alahuhta and Phil Hodkinson as
non-executive directors. Matti has been President of Kone
Corporation since January 2005 and was previously at Nokia;
Phil is Group Finance Director of HBOS. Both bring a wide
range of commercial and senior management experience to
your company. I would also like to thank Lou Hughes who
stepped down as a non-executive director on 31 March 2006 for
his excellent contribution over more than six years. I’m pleased
that his experience is not lost to us: he has joined our Americas
Advisory Board.
OUR WIDER RESPONSIBILITIES
Our aim as a communications company is to operate in a
socially responsible and sustainable way and to ensure that we
help everyone benefit from improved communications and
enhanced connectivity. I’m very proud of the fact that, for the
fifth year in a row, BT was the highest placed
telecommunications company in the Dow Jones Sustainability
Index.
Climate change has been moving inexorably up the social
and corporate agendas for a number of years now. Although
telecommunications technology is environmentally friendly, BT
is one of the largest companies in the UK and one of the largest
consumers of electricity. Our operations inevitably have an
impact on the environment and we take the job of managing
that impact seriously. We are now, for example, meeting almost
all our UK electricity needs from environmentally friendly
sources, including wind generation, solar, wave and
hydroelectric schemes.
LOOKING FORWARD
I am very grateful to our shareholders and our customers for
their continued loyalty and the confidence that they have shown
in BT’s programme of transformation. I’d like to thank our
employees for making that programme happen.
Your company is well set for continued success in the years
ahead. Our performance underpins our confidence that we can
continue to grow revenue, EBITDA, earnings per share and
dividends over the coming year, and accelerate the strategic
transformation of the business.
Sir Christopher Bland
Chairman
17 May 2006
Our results for the 2006 financial year were excellent.
Earnings per share before specific items grew by 8% to
19.5 pence. We continued to invest significantly in
technologies and systems designed to transform our
customers’ experience, at the same time as generating free
cash flow of £1.6 billion.
CHAIRMAN’S MESSAGE
Chairman’s message BT Group plc Annual Report and Form 20-F 2006 3