BT 2010 Annual Report Download - page 24

22 BT GROUP PLC ANNUAL REPORT & FORM 20-F
REVIEW OF THE YEAR
contract and financial reviews, charges of £1.6bn were recognised
in 2009, which included £1.2bn relating to two major contracts.
These charges reflected a more cautious view of the recognition of
the expected and future cost efficiencies and revenues and other
changes in underlying assumptions and estimates, particularly in
the light of the economic outlook.
The new management team implemented a number of process
improvements in 2009 and further enhancements have been made
in 2010, as noted below.
The operational review was completed towards the end of 2009
and resulted in a revised operating model and restructuring plan to
reshape and refocus the business, in order to further enhance BT
Global Services’ ability to serve customers and establish a
significantly lower cost base.
In 2009 we said that we expected to incur restructuring charges
of around £420m in 2010 and 2011. In 2010, we have recognised
restructuring charges of £301m (2009: £280m), predominately
comprising network, products and supplier rationalisation charges
and people and property costs. Further restructuring charges of
around £175m are expected to be incurred in 2011, giving a total
charge of around £475m, above our original estimate of £420m.
This increase reflects the complexities of our restructuring
programme. An analysis of these charges is provided in the Specific
items section of the Financial review on pages 45 to 46.
In 2010 we implemented the new operating model in BT Global
Services, which focuses on three customer segments:
seamless global connectivity and networked IT services to
multinational corporations
networked IT services to customers in the UK corporate and
public sectors
networked IT services to corporate and public sector customers
outside the UK.
Other structural improvements have been made to improve the
organisation. During 2010 we significantly improved contract
management, risk management and performance. We have
changed the way we bid for major contracts and also carry out
regular in-life contract reviews to assess commercial risks and
opportunities and to improve contract performance, creating
independent review teams to provide additional assurance on our
most significant contracts.
Sales teams have been realigned to focus on the key customer
segments, and service units have been restructured. We have
brought together all design, programme and technical delivery
people across the wider design organisation to standardise and
create replicable solutions. This has helped us to manage and more
accurately forecast demand and costs. We have continued to
rationalise systems and networks. Strategy, marketing,
propositions, commercial, legal and regulatory functions have also
been realigned.
We have made progress this year but we still have more to do.
Business overview
BT Global Services is a global leader in the provision of networked IT
services to multinational corporations, domestic businesses,
government departments and other CPs in more than 170
countries. We have a strong customer base, global reach, and a
powerful combination of networked IT and professional services
capabilities.
We aim to be the global partner of choice for multinational
corporations, the number one provider to business and public
OUR LINES OF BUSINESS
Our lines of business
BT Global Services
BT Retail
BT Wholesale
Openreach
BT Innovate & Design
BT Operate
Our customer-facing lines of business are BT Global Services,
BT Retail, BT Wholesale and Openreach. They meet the needs of our
different customer groups, supported by two internal service units,
BT Innovate & Design and BT Operate.
The financial performance of each of our customer-facing lines
of business for 2010, 2009 and 2008 is discussed in this section.
We measure the financial performance of BT Global Services, BT
Retail, BT Wholesale and Openreach on an ‘adjusted’ basis, being
revenue, EBITDA and operating profit; all stated before specific
items. For BT Global Services adjusted EBITDA also excludes the
impact of the contract and financial review charges recognised in
2009. For further discussion of these items, see pages 54 to 56. A
reconciliation of adjusted EBITDA to group operating profit (loss) by
customer-facing line of business, and for the group, is provided in
the Segment information, note 1 to the consolidated financial
statements on page 102. The financial performance commentaries
for each customer-facing line of business also discuss movements
in operating cash flow. Operating cash flow is defined as adjusted
EBITDA less direct and allocated capital expenditure, working
capital movements and other non cash items.
BT Global Services
How BT Global Services is changing
In 2009 a combination of higher costs, the slow delivery of cost
reduction initiatives and worsening economic conditions caused
the level of profitability in BT Global Services to fall significantly.
The Board took action as a result of this, including changing the BT
Global Services senior management team.
The new team’s brief was to address the cost base, bring greater
focus to the profitability of new contract wins and reduce shortfalls
in delivery performance on existing contracts.
The management team undertook an extensive review of BT
Global Services’ financial position, contracts and operations. The
financial review covered the financial performance of BT Global
Services and its balance sheet position. The contract reviews
covered the largest and most complex contracts and were
conducted jointly with external advisors. Having completed the