BT 2008 Annual Report Download - page 43

42 BT Group plc Annual Report & Form 20-F
BT Global Services
2008 2007a2006a
£m £m £m
................................................................................................................
Revenue 7,889 7,312 7,013
Gross profit 2,839 2,759 2,707
S,G&A costs 1,978 2,024 2,007
EBITDA 861 735 700
Operating profit 117 70 85
aRestated to reflect the reorganisation of the group.
In 2008, BT Global Services revenue increased by 8% to
£7,889 million (2007: £7,312 million, 2006: £7,013 million),
compared with growth of 4% in 2007. The acceleration in
growth is due to strong performance outside of the UK where
revenue grew by 21%. Through organic and inorganic growth,
we are able to provide complementary services worldwide and
benefit from additional scale within our emerging markets.
Revenue from outside the UK has increased to 40% of BT Global
Services total revenue (2007: 36%, 2006: 35%) through growth
with our existing customers, winning new customers and
acquisitions.
Our strategy of getting closer and becoming more important
to our customers by offering high value propositions and
services that can directly improve their business performance has
delivered good growth in revenue. Revenue from networked IT
services contracts grew by 9% to £4,385 million in 2008. This
compares with an increase of 8% to £4,025 million in 2007
(2006: £3,713 million). During the year, we won new networked
IT services contracts worth £5.0 billion (2007: £5.2 billion,
2006: £5.4 billion). These networked IT services contracts
represent over 60% of our total order value of £8.0 billion
(2007: £9.3 billion, 2006: £9.0 billion).
By focusing on enhancing the quality of our flagship global
MPLS network service, revenue from MPLS has grown by 25%
to £815 million in 2008 (2007: £651 million, 2006:
£423 million), with on average over 3,100 customer sites
installed per month. Our MPLS coverage and support in 172
countries further demonstrates our aim to be where our
customers need us to be.
Gross profit increased by 3% to £2,839 million in 2008
(2007: £2,759 million, 2006: £2,707 million), compared with an
increase of 2% in 2007. This improvement was driven by the
maturity of some of our large long-term contracts and an
improving cost base, together with the impact of recent
acquisitions. Gross profit is revenue less costs directly
attributable to the provision of products and services reflected in
revenue in the period. Selling, general and administrative costs
(S,G&A) are those costs that are ancilliary to the business
processes of providing products and services and are the general
business operating costs.
S,G&A costs decreased by 2% to £1,978 million in 2008 (2007:
£2,024 million, 2006: £2,007 million). Excluding leaver costs of
£22 million (2007: £41 million, 2006: £38 million), S,G&A costs
were £1,956 million (2007: £1,983 million, 2006: £1,969
million). This compares with an increase in S,G&A costs of 1% in
2007. The reduction in S,G&A has resulted from our
transformational cost savings initiatives, including the formation
of captive operational centres in low cost economies, global
sourcing, network transformation and the de-layering of our
management structures, partly offset by the impact of recent
acquisitions. Overall S,G&A excluding leaver costs represented
25% of revenue in 2008 compared with 27% in 2007.
The increase in gross profit together with lower SG&A costs,
has resulted in an increase in EBITDA of 17% to £861 million
(2007: £735 million, 2006: £700 million). Excluding leaver costs
of £22 million (2007: £41 million, 2006: £38 million), EBITDA
was £883 million in 2008 (2007: £776 million, 2006:
£737 million), resulting in an EBITDA margin before specific
items and leaver costs of 11.2%. This represents an increase of
0.6 percentage points compared with 2007, when the EBITDA
margin before specific items and leaver costs was 10.6% (2006:
10.5%). BT Global Services is targeting an EBITDA margin before
specific items and leaver costs of 15% in the medium term. The
EBITDA margin after leaver costs was 10.9% (2007: 10.1%,
2006: 10.0%). The improvement in EBITDA was driven by the
maturity of some of our long-term contracts and benefits from
the transformation of our operational cost base through global
sourcing and process improvements.
Depreciation and amortisation was £744 million in 2008
(2007: £665 million, 2006: £615 million), an increase of 12%
compared with 2007. This reflects the increased investment in
our global infrastructure, customer related capital expenditure
and expansion of our business through acquisitions. The increase
in depreciation and amortisation in 2008 is consistent with prior
years; in 2007 depreciation and amortisation increased by 8% to
£665 million from £615 million in 2006.
Growth in operating profit of 67% to £117 million is the
result of strong organic growth, together with ongoing
improvements in our operational cost base and strategic business
acquisitions. This compares with a decline of 18% in 2007.
BT Retail
2008 2007a2006a
£m £m £m
................................................................................................................
Revenue 8,477 8,346 8,447
Gross profit 3,116 2,940 2,843
S,G&A costs 1,621 1,583 1,617
EBITDA 1,495 1,357 1,226
Operating profit 1,050 912 814
aRestated to reflect the reorganisation of the group.
Report of the Directors Financial review
.............................................................................................................................................................
2006
0
1,000
2,000
3,000
4,000
5,000
6,000
8,000
7,000
9,000
2007 2008
65%
35%
64%
36%
60%
40%
UK
Non UK
BT Global Services revenue – UK and non UK
(£m) 11.2%
BT Global Services
EBITDAa margin in 2008
aBefore specific items and leaver costs