BT 2007 Annual Report Download - page 36

New wave external revenue grew in the 2007 financial year
driven primarily by networked IT services contracts, which
generated revenue of £4,048 million in the 2007 financial year,
an increase of 8%. Networked IT services contract wins were
£5.2 billion in the 2007 financial year. We believe that these
wins, coupled with the £5.4 billion contracts won in the 2006
financial year continue to build the foundation for future
revenue growth.
New wave revenue growth in BT Global Services is
underpinned by the strong order intake for networked IT services
contracts over recent years. Many of these contracts are
transformational for our customers and extend over a number of
years, often five years or more. Whilst we expect new wave
profitability will improve and the profits generated from
traditional products and services declines, our continued cost
efficiency programmes should underpin the overall growth in
profitability.
Traditional external revenue, which includes the global carrier
business as well as voice and data revenue from major
corporates, declined by £40 million compared to the 2006
financial year to £3,161 million. This reflects the migration to
IPVPNs 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 31% increase in Multi Protocol Label Switching (MPLS)
revenue to £556 million.
The increase in new wave revenue, together with lower
network and sales, general and administrative costs, has resulted
in an increase in EBITDA in the 2007 financial year of 5% to
£968 million. Driving the cost reductions are initiatives such as
the sourcing of roles globally and the streamlining of customer
processes. Leaver costs of £52 million were incurred in the 2007
financial year, compared with £49 million in the 2006 financial
year. Depreciation and amortisation costs were £37 million
higher compared to the 2006 financial year, reflecting the
increased investment in our global infrastructure and bringing
NHS London assets into use. Together, these factors have
contributed to an increase in operating profit of 2% to
£293 million.
Capital expenditure for the 2007 financial year was
£695 million, broadly flat compared with the 2006 financial year
reflecting the continued investment in global infrastructure to
expand our global reach capabilities and support our customers.
BT Retail 2007 2006a
£m £m
Revenue 8,414 8,507
Gross margin 2,350 2,229
Sales, general and administration costs 1,481 1,491
EBITDA 845 716
Operating profit 674 569
Capital expenditure 166 153
aRestated to reflect the creation of Openreach.
BT Retail’s results reflect the strategic shift towards growing new
wave products and services while defending traditional revenue
streams. Revenue from networked IT services, broadband
products and other new wave services all increased, whilst
traditional revenue was successfully defended through changes
in pricing structure, introduction of packages that benefit
frequent and high value users and marketing campaigns aimed
at delivering key customer service promises. Following the
relaxation of the regulatory environment, we introduced our
biggest ever cuts to all inclusive call packages. In the consumer
market the prices of BT Together Options 2 and 3 were reduced
by almost one third. As at 31 March 2007, 15.1 million
consumer customers were on BT Together packages. In the SME
UK business market the focus remains on placing customers on
commitment packages whereby lower call prices are received for
annual committed spend. By 31 March 2007 there were
598,000 Business Plan sites, up 16% in the year. Cost
transformation programmes continued to successfully reduce the
cost base of the traditional business, allowing investment in new
wave products and services.
BT Retail’s revenue declined by 1% in the 2007 financial year
to £8,414 million, an improvement on 2006. Growth in new
wave revenue of 31% in the 2007 financial year continued to
reduce our dependence on traditional revenue. This decline was
driven by substitution to new wave services and competition.
Revenue for the two years is summarised as follows:
2007 2006a
£m £m
BT Retail revenue
Traditional 6,630 7,143
Networked IT services 375 363
Broadband 946 730
Mobility and other 463 271
New wave 1,784 1,364
Total 8,414 8,507
aRestated to reflect the creation of Openreach.
BT Group plc Annual Report & Form 20-F 35
Operating profit (loss)
before specific items Depreciation
Amortisation of
intangible assets
EBITDA before
specific items
2007 2006b2007 2006b2007 2006b2007 2006b
£m £m £m £m £m £m £m £m
293 288 494 555 181 83 968 926 BT Global Services
674 569 128 120 43 27 845 716 BT Retail
724 759 1,102 1,008 96 94 1,922 1,861 BT Wholesale
1,177 1,183 663 770 44 30 1,884 1,983 Openreach
(155) (166) 149 181 20 16 14 31 Other
–––––––– Intra-group
2,713 2,633 2,536 2,634 384 250 5,633 5,517 Group totals
Report of the Directors Financial