BT 2009 Annual Report Download - page 11

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
9BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS
Becoming more agile
Our goal is to combine the strengths of being a large company with
the speed and flexibility of a small company. Our people are
becoming more agile in the way they work together to serve
customers. We are making our company more agile as well, cutting
out any bureaucracy that can slow us down. As a result we will be
more responsive to customer needs.
We are continuing to simplify our business to give people more
authority and to allow them to do their jobs more effectively.
As we become a more agile organisation, we reduce our costs as
well as the number of people we need to employ. In the past year
we have reduced the number of full-time employees by around
5,000. In addition to this, the number of indirect employees
working through agencies or third party contractors was reduced
by around 10,000, giving a reduction in our total labour resource of
some 15,000. We expect further reductions of a similar level in
2010. We have sought to retain our permanent workforce through
redeployment and retraining, and will continue to do so. We
continue our drive to reduce costs across the business, and made
further progress in 2009 towards transforming our cost base.
Three out of four of our lines of business have made a strong
contribution towards the delivery of cost savings, although BT
Global Services still has to control costs more tightly and
deliver greater savings.
Maintaining a sustainable business
BT is committed to contributing positively to the communities in
which it works and to operating in a socially responsible way. We
are using communications technology to help create a better, more
sustainable world. Our goal is to help meet the challenge of climate
change, to promote a more inclusive society and to enable
sustainable economic growth.
We believe that being a recognised leader in the field of
corporate responsibility contributes to shareholder value. It builds
our brand and is central to the way we do business. It encourages
the best people to want to work for BT. It is a powerful reason for
customers to do business with us and stay loyal to us.
We commit a minimum of 1% of our pre-tax profits to activities
that support society. We invested a total of £25m, comprising time,
cash and in-kind contributions, in the community in 2009. Of this
amount, £2.3m was in the form of charitable donations.
Measuring our performance
For 2009, the key performance indicators (KPI) against which we
measured the delivery of our strategy were:
customer service
earnings per share
free cash flow.
Our customer service results were encouraging and we delivered
significant improvements during the year. However, the
unacceptable performance in BT Global Services impacted free cash
flow and earnings per share, which were well below target.
Customer service
We set ourselves a group-wide stretching target in 2009 of
improving right first time by 24%. We achieved an increase of 17%,
compared with 9% in 2008 and we are targeting further
improvements in 2010. We are now delivering excellent customer
service levels in many areas.
Earnings per share
Adjusted basic earnings per sharea,b were 18.4p in 2009, compared
with 23.9p in 2008 and 22.7p in 2007 (see Financial review
page 39). The reported basic loss per share was 1.1p in 2009,
compared with basic earnings per share of 21.5p and 34.4p in
2008 and 2007, respectively.
Free cash flow
Free cash flowbin 2009 was £737m, compared with £1,503m in
2008 and £1,354m in 2007 (see Financial review page 41).
Outlook
We expect revenue to decline by 4% to 5% in the 2010 financial
year, reflecting a continuation of the trends seen towards the end
of the 2009 financial year, the impact of lower mobile termination
rates, together with the impact of refocusing BT Global Services.
We expect to deliver a net reduction in group capital
expenditure and operating costs of well over £1bn in 2010.
Included within this is a reduction in group capital expenditure to
around £2.7bn. As a result, we expect group free cash flow, before
any pension deficit payments, but after the cash costs of the BT
Global Services restructuring charges, to reach over £1bn
in 2010 and beyond.
Earnings per share will be impacted by the movement of the net
finance expense on the pension obligations which moves from a
credit of £313m in the 2009 financial year to a charge of about
£275m in 2010.
The proposed final dividend of 1.1p gives a full year dividend of
6.5p which rebases dividend payments to a level we are confident is
sustainable. The Board is committed to delivering attractive returns
for shareholders and believes that the operational improvements in
the business will generate sufficient cash flow to allow the dividend
to grow at the same time as investing in the business, reducing debt
and supporting the pension scheme.
aItems presented as ‘adjusted’ are stated before contract and financial review charges and specific
items.
bAdjusted basic earnings per share and free cash flow are ‘non-GAAP measures’ provided in
addition to disclosure requirements defined under IFRS. The rationale for using non-GAAP
measures is explained on pages 33, 47 and 48, and a reconciliation of adjusted basic earnings
per share and free cash flow, to the most directly comparable IFRS indicator, is provided on
pages 39 and 41 respectively.