BT 2007 Annual Report Download - page 39

38 BT Group plc Annual Report & Form 20-F
LINE OF BUSINESS RESULTS FOR 2006 AND 2005
In the following commentary, we discuss the operating results of
the group for the 2006 and 2005 financial years in relation to
the lines of business.
Prior to the 2007 financial year, the group was organised into
three primary segments; BT Global Services, BT Retail and BT
Wholesale.
In order to assist the reader in understanding the year on
year performance, additional disclosures have been included
below showing the previously reported segmental data for the
2006 and 2005 financial years in respect of the group’s three
primary businesses; BT Global Services, BT Retail and BT
Wholesale, prior to the creation of Openreach. As noted above,
the 2005 results have not been restated to reflect the creation
of Openreach because it is impracticable to do so.
BT Global Services 2006 2005
£m £m
Revenue 8,632 7,488
EBITDA 1,001 961
Operating profit 363 411
Capital expenditure 702 605
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 strengthened our global networked
IT services business. Revenue arising from services provided
outside the UK increased during the 2006 financial year,
demonstrating BT’s continued 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
IPVPNS sold to major corporate customers in the UK and further
reductions in dial IP due to broadband substitution. 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.
BT Retail 2006
£m
2005
£m
Revenue 8,452 8,698
Gross margin 2,354 2,354
Sales, general and administration costs 1,563 1,600
EBITDA 791 754
Operating profit 644 607
Capital expenditure 153 170
BT Retail’s results demonstrated a continued strategic shift
towards new wave products with growth in broadband,
networked IT services and mobility revenues. Despite the
substitution by new wave products, traditional revenue was
defended by changes in pricing structure and packages to
benefit frequent users and marketing campaigns focusing on key
customer service promises. BT Privacy, a service to address the
problem of unwanted calls by giving customers greater control
over the calls they receive, was launched on 1 July 2005, with
3.7 million customers registered by 31 March 2006. As at
31 March 2006, 16.2 million 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
2006 there were 513,000 Business Plan sites, up 15% 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 decreased by 3% in the 2006 financial
year to £8,452 million. The growth in new wave revenue of
38% in the 2006 financial year continued to reduce our
dependence on traditional revenue, the decline in which was
driven by the impact of regulation and competition. After
adjusting for the regulatory impact of the reduction in mobile
termination rates, revenue declined by 2% in the 2006 financial
year. Revenue for the two years is summarised as follows:
2006 2005
£m £m
BT Retail revenue
Traditional 7,088 7,712
Networked IT services 363 304
Broadband 730 502
Mobility and other 271 180
New wave 1,364 986
Total 8,452 8,698
Traditional revenue comprises calls made by customers on the BT
fixed line network in the UK, analogue lines, equipment sales,
rentals and other voice products. Overall revenue was 8% lower
in the 2006 financial year. The reduction includes the effect of
continued high levels of migration to broadband which is
reflected in a 46% fall in dial up minutes over the year, a
reduction of 10% in ISDN lines and general competitive
pressure. The decline in private circuits and ISDN reflects
customers migrating to new wave products and services,
including broadband and IPVPN.
New wave revenue grew by 38% to £1,364 million in the
2006 financial year driven primarily by broadband, mobility and
networked IT services. New wave revenue comprised 16% of
Report of the Directors Financial review