BT 2008 Annual Report Download - page 45

44 BT Group plc Annual Report & Form 20-F
communications providers switching to LLU provided by
Openreach (£81 million reduction).
Revenue from our traditional products decreased by 6% to
£2,786 million in 2008, (2007: £2,977 million, 2006: £2,986
million). The reduction in revenue was largely due to the decline
in transit and premium rate service volumes and traditional
circuits. The reduction in transit revenue is due to
communications providers building their own networks and
bypassing our network. Our internal revenue fell 2% to
£1,252 million in 2008 (2007: £1,277 million, 2006:
£1,237 million) driven by reduced line card access electronic
sales to Openreach.
Although we continue to defend our traditional business and
strengthen our position in supporting the mobile sector, our
focus is increasingly on the provision of innovative managed
network solutions. As our customers transform their businesses
we are supporting them, and delivering our own growth,
through the delivery of long-term managed solutions. These
solutions enable our customers to avoid the capital and
operational risk associated with upgrading to next generation
networks and services.
Gross profit decreased by 8% to £1,650 million in 2008
(2007: £1,796 million, 2006: £1,754 million) reflecting the
impact on our business of market factors discussed above. We
reduced the gross margin impact of our revenue declines
through focused margin management initiatives. The impact of
some of the downward trends on our revenue and profit margin
has been offset by our continued focus on reducing costs. In
2008, S,G&A costs decreased 14% to £255 million (2007:
£296 million, 2006: £307 million) compared with a decrease of
4% in 2007. The reduction in costs is the result of an ongoing
drive for headcount and associated efficiencies as we continue
our journey to having a world class cost base. Savings have been
delivered through focused and specifically targeted projects,
which have eliminated duplication and complexity in the
business. We also continue to align our resources more
effectively with the evolving needs of our customers.
EBITDA was £1,395 million in 2008 (2007: £1,500 million,
2006: £1.447 million) a decrease of 7%. In 2008, 2007 and
2006 we maintained a flat EBITDA margin at 28%.
Depreciation and amortisation decreased by 2% in 2008 to
£893 million (2007: £908 million, 2006: £838 million).
Operating profit decreased by 15% to £502 million in 2008,
compared with a decrease of 3% to £592 million in 2007
(2006: £609 million).
Openreach
2008 2007a2006a
£m £m £m
................................................................................................................
Revenue 5,266 5,223 5,188
Revenue from other BT
lines of business 4,380 4,528 4,870
External revenue 886 685 318
EBITDA 1,911 1,927 2,028
Operating profit 1,222 1,220 1,228
aRestated to reflect the reorganisation of the group.
In 2008, revenue from Openreach increased by 1% to
£5,266 million (2007: £5,223 million, 2006: £5,188 million),
consistent with the 1% increase in 2007. The increase in both
years is despite the regulatory price cuts on WLR and LLU made
during 2006 and 2008. LLU now forms over 20% of our
revenue, with WLR at 60%, reflecting the change in mix
compared with 2006 when 10% of our revenue was from LLU
and 70% was from WLR. This is the result of growth in the LLU
market and unbundling activity taking place within the
exchanges.
External revenue was £886 million in 2008 an increase of
29% (2007: 115% increase), and reflects the strong growth of
the broadband market and active competition among
communications providers. The significant growth in 2007 was
the result of the creation of Openreach and the regulatory price
changes, leading to a significant increase in unbundling activity
by communications providers. External revenue now forms 17%
of our revenue compared with 13% in 2007 and 6% in 2006.
At 31 March 2008, we had 4.3 million external LLU lines, a
2.4 million increase in the year. External WLR lines and channels
have increased by 0.4 million to 4.7 million at 31 March 2008.
We currently have over 450 active communications providers as
our customers.
Revenue from other BT lines of business decreased by 3% to
£4,380 million in 2008 (2007: £4,528 million, 2006:
£4,870 million) compared with a decline of 7% in 2007. These
reductions reflect the shift of WLR volumes from other BT lines
of businesses to external communications providers, and also the
impact of various price cuts. This impact has been partially
mitigated by the growth in the backhaul Ethernet portfolio.
Operating costs increased by 2% in 2008, compared with an
increase of 4% in 2007. This was despite significant investment
in delivering the Undertakings, improving our service and
inflationary pressures and reflects the success of our cost
efficiency initiatives.
Over the past few years, we have made significant investment
in delivering the Undertakings and more recently in improving
our service. On the Undertakings, we have delivered Equivalence
of Inputs for WLR this year and LLU in the prior year as well as
a number of other key milestones. On service, we have invested
Report of the Directors Financial review
.............................................................................................................................................................
2006 2007 2008
Number of installed external WLR and LLU lines
at 31 March (000s)
0
1,000
2,000
3,000
4,000
5,000
LLU
WLR