BT 2009 Annual Report Download - page 19

ADDITIONAL INFORMATION FINANCIAL STATEMENTS REPORT OF THE DIRECTORS BUSINESS AND FINANCIAL REVIEWS OVERVIEW
BUSINESS AND FINANCIAL REVIEWS BUSINESS REVIEW
17BT GROUP PLC ANNUAL REPORT & FORM 20-F
BUSINESS AND FINANCIAL REVIEWS
and flexibility. At 31 March 2009, 21CN Ethernet was available
from more than 600 nodes throughout the UK.
Wholesale broadband
We continued to develop a variety of tools and techniques to help
our customers deliver an excellent broadband experience to end
users and get more from their broadband connections. The I-Plate,
for example, is a self-installable device that can be fitted to an end
user’s master telephone socket to improve broadband speeds by
eliminating electrical interference.
Wholesale Broadband Connect, our next generation 21CN
broadband service, offers customers average speeds of around
10Mb, guaranteed service level agreements, the ability to trade
speed for stability, and enhanced line diagnostics. At 31 March
2009, less than a year after it was first introduced, this service was
available from exchanges serving more than 10m homes and
businesses, around 40% of the UK addressable market.
Capacity and call-based products
We continue to sell a wide range of capacity and call-based
products and services, including regulated interconnect services
and new, non-regulated products and services. As we refresh our
core portfolio with next generation replacements, we will, over
time, migrate these services to 21CN, enabling the
decommissioning of certain parts of our legacy systems.
Efficiency
In 2009, we maintained our focus on the cost reduction
opportunities that arise as our business changes. We reduced BT
Wholesale’s cost base by 19% through headcount reduction (down
17% in the year on a like-for-like basis), eliminating duplication,
achieving further operational efficiencies and aligning our resources
more effectively with the evolving needs of our customers. By March
2009, 99% of broadband circuits were delivered to customers by
the day promised, our best ever performance.
Financial performance
2009 2008 2007
£m £m £m
Revenue 4,658 4,959 5,386
Internal revenue 1,228 1,252 1,277
External revenue 3,430 3,707 4,109
Gross profit 1,427 1,593 1,796
SG&A costs 161 198 296
EBITDA 1,266 1,395 1,500
Operating profit 580 502 592
In 2009, BT Wholesale revenue declined by 6% to £4,658m (2008:
£4,959m, 2007: £5,386m), an improvement in the rate of decline
compared with the previous year (2008: 8%). Broadband revenue
decreased by 23% to £482m (2008: £624m, 2007: £771m)
primarily due to the continued trend of CPs switching to LLU
provided by Openreach. Revenue from the transit business declined
by 16% to £1,134m (2008: £1,349m, 2007: £1,485m), compared
with a decline of 9% in 2008. The decline in the transit business has
arisen as mobile operators build their own networks and are able to
bypass BT. These declines, however, have been partially offset by
growth in the managed network solutions business, where revenue
increased by 76% to £518m (2008: £295m, 2007: £306m),
principally due to new contracts signed in the year.
Gross profit decreased by 10% to £1,427m in 2009 (2008:
£1,593m, 2007: £1,796m), a marginal improvement in the rate of
decline compared with the previous year (2008: 11%). BT
Wholesale reduced the gross margin impact of the revenue declines
through focused margin management initiatives. The impact of
some of the downward trends on our revenue and gross margin has
been offset by our continued focus on reducing costs. In 2009,
SG&A costs decreased 19% to £161m (2008: £198m, 2007:
£296m) compared with a reduction of 33% in 2008. BT Wholesale
has benefited from continued cost efficiency programmes including
the ‘right first time’ initiative, which aims to reduce or eliminate the
cost of failure from existing processes.
EBITDA decreased by 9% to £1,266m in 2009 (2008: £1,395m,
2007: £1,500m), compared with a decrease of 7% in 2008.
EBITDA margin in 2009 was 27%, compared with 28% in 2008 and
2007. Depreciation and amortisation decreased by 23% to £686m
as a result of lower depreciation on legacy assets (2008: £893m,
2007: £908m). Largely due to lower depreciation and
amortisation, operating profit increased by 16% to £580m in 2009,
compared with a decrease of 15% to £502m in 2008 (2007:
£592m).
Openreach
Business overview
Openreach is responsible for the crucial ‘first mile’ of the
telecommunications network in the UK. It offers all CPs (currently,
more than 420) – including other BT lines of business – fair, equal
and open access to our access and backhaul networks.
One of the UK’s vital infrastructure assets, this first mile connects
millions of homes and businesses to local telephone exchanges, via
fixed-line local and backhaul connections.
Openreach’s 21,000 field engineers work on behalf of all CPs,
enabling them to provide their customers with a range of services
from analogue telephone lines to complex networked IT services. It
is committed to delivering a better network and an environment in
which its customers can thrive.
Our strategy in 2009 was to continue to deliver and comply with
the Undertakings made to Ofcom, while driving efficiencies,
providing the right levels of resourcing and enhancing service
levels.