BT 2007 Annual Report Download - page 38

year with broadband revenue growing by 26% year on year.
Wholesale broadband connections, including LLU lines, increased
to 10.7 million at 31 March 2007, an increase of 2.6 million
compared to the prior year.
Internal revenue increased by 3% to £3,527 million in the
2007 financial year. The growth was driven mainly by increased
broadband sales through internal channels. This was offset by
the impact of lower volumes of calls and private circuits, and
lower regulatory prices being reflected in internal charges.
The profit margins generated by certain new wave activities
are currently lower than those from the BT Wholesale’s
traditional product and service offerings. Any negative impact in
Wholesale’s overall profitability has been offset by the overall
growth in revenues and our cost efficiency programmes which
achieved savings of over £80 million in the 2007 financial year.
We expect to continue to pursue profitable growth in new wave
markets, defend our traditional business and generate
sustainable cost savings.
Gross variable profit increased by 3% to £3,736 million in the
2007 financial year reflecting volume changes and changes in
the mix towards more profitable products.
In the 2007 financial year, network, selling, general and
administration costs, excluding leaver costs, were 3% higher at
£1,775 million. Leaver costs were £39 million in the 2007
financial year, compared with £31 million in the 2006 financial
year. Activity levels in the network, mainly driven by broadband
and LLU volumes, have increased. In addition, there has been
increased 21CN related activity in the 2007 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 £1,922 million in the 2007 financial year was 3%
higher. EBITDA margins were maintained at 25% across both
financial years.
Depreciation and amortisation increased by 9% in the 2007
financial year to £1,198 million, due to the shortening of the
useful economic lives of legacy transmission assets to be
replaced by 21CN assets.
Operating profit at £724 million decreased by 5% in the 2007
financial year mainly as a result of the increase in depreciation.
The operating profit margin remained flat year on year at 10%.
Capital expenditure on property, plant and equipment and
computer software at £1,017 million increased by 4% in the
2007 financial year. This reflects increased capital expenditure to
prepare for the 21CN and investment in new systems to ensure
compliance with the Undertakings. Investment in legacy network
technologies continues to be lower year on year as the 21CN
activity expands and legacy networks are replaced.
Openreach 2007 2006
£m £m
Revenue 5,177 5,142
EBITDA 1,884 1,983
Operating profit 1,177 1,183
Capital expenditure 1,108 1,038
Openreach is a new line of business created within BT following
Ofcom’s strategic review of telecommunications. It was launched
operationally on 21 January 2006 and was separately reported
within BT’s results for the first time in the 2007 financial year.
Openreach manages the ‘first mile’ of the UK access network on
behalf of the telecommunications industry. It operates and
delivers ubiquitous services on an open and even-handed basis,
to any and all communications providers, including to BT’s own
downstream divisions. It also strives not just to provide, maintain
and repair the access infrastructure, but to continually improve
both service and reliability.
In the 2007 financial year, revenue was £5,177 million, an
increase of 1%. This increase is despite £170 million of
regulatory price cuts on WLR and LLU made in March 2005 and
August 2006.
External revenue increased by 115% to £685 million in the
2007 financial year. This reflects the strong growth of the
broadband market and active competition among
communications providers. External LLU lines were 1.9 million at
31 March 2007, an increase of 1.6 million in the year. External
WLR lines and channels have increased by 1.4 million to
4.2 million at 31 March 2007.
Revenue from other BT lines of businesses decreased by 7%
to £4,492 million in the 2007 financial year. This reduction is
mainly driven by the WLR regulatory price reductions and the
shift of the WLR volumes from other BT lines of businesses to
external communications providers.
In the 2007 financial year, operating costs, excluding leaver
costs, were 4% higher at £3,289 million. Activity levels in the
network, driven by broadband and LLU volumes, have increased
in 2007 along with the investment in improving service levels.
There have also been new ongoing infrastructure costs of
supporting Openreach and the Equivalent Management Platform
(EMP) which enables Openreach to manage all communication
providers’ orders, both external and from other BT lines of
business, on an equivalent basis. These increases have been
partially offset by cost efficiencies made within the business. The
investment in service and equivalence has resulted in the
headcount increasing by around 2,000 in the year to 33,265.
EBITDA at £1,884 million in the 2007 financial year was 5%
lower as a result of the higher operating costs. This includes
leaver costs of £4 million in the 2007 financial year, an increase
of £1 million.
Depreciation and amortisation was £707 million in the 2007
financial year, 12% lower than 2006. The decrease which is
mainly driven by the extension to the asset life of copper and
duct consistent with Ofcom’s review, partially offset increased
LLU depreciation.
Operating profit at £1,177 million in the 2007 financial year
was broadly flat year on year, with operating profit margins level
at 23% for both years.
Capital expenditure on property, plant and equipment and
computer software was £1,108 million, an increase of 7% in the
2007 financial year. This reflects significant investment in new
systems to ensure compliance with the Undertakings and
increased spend to meet LLU demand.
BT Group plc Annual Report & Form 20-F 37
Report of the Directors Financial