BT 2010 Annual Report Download - page 30

REVIEW OF THE YEAR OUR LINES OF BUSINESS
28 BT GROUP PLC ANNUAL REPORT & FORM 20-F
Financial performance
2010 2009a2008a
£m £m £m
Revenue 8,297 8,663 8,682
Net operating costs 6,447 6,999 7,153
Adjusted EBITDA 1,850 1,664 1,529
Depreciation and
amortisation 459 426 445
Adjusted operating profit 1,391 1,238 1,084
Capital expenditure 417 471 579
Operating cash flow 1,640 1,064 1,011
aRestated. See page 101.
In 2010 revenue decreased by 4% to £8,297m (2009: flat).
Revenue benefited from favourable foreign exchange rate
movements of £31m, acquisitions of £18m and a one-off benefit
of £40m relating to prior periods. Excluding these, revenue
declined by 5%.
BT Consumer and BT Business revenue decreased by 3% and 9%,
respectively (2009: 4% decrease and 1% increase, respectively),
reflecting the continued reduction in calls and lines revenue. Both
the BT Consumer and BT Business divisions faced challenging
market conditions throughout 2010, arising from a combination of
the economic climate, particularly in the business market where the
level of insolvencies has remained high, and competitive pressure.
2010 2009a2008a
£m £m £m
Products and services
Calls and lines 5,031 5,422 5,745
Broadband and convergence 1,316 1,313 1,201
Managed solutions 588 599 530
Other products and services 989 986 941
External revenue 7,924 8,320 8,417
Internal revenue 373 343 265
Total 8,297 8,663 8,682
aRestated. See page 101.
Calls and lines revenue decreased by 7% in 2010 (2009: 6%
decrease) reflecting the economy and the increasingly competitive
market environment.
Broadband and convergence revenue remained broadly flat
(2009: 9% increase) in 2010, reflecting the successful retention of
customers in the maturing broadband market, together with
revenue from services such as BT Vision and mobility.
Managed solutions (ICT) revenue decreased by 2% in 2010
(2009: 13% increase) reflecting the economic conditions in the
business market compared with 2009.
Other products and services revenue, which principally comprises
our Enterprises division, remained broadly flat in 2010 (2009: 5%
increase).
Net operating costs decreased by 8% (2009: 2% decrease).
Excluding the impact of unfavourable foreign exchange movements
of £27m, acquisitions of £16m and a favourable one-off internal
rebate of £15m relating to prior periods, underlying costs reduced
by 8%. The decrease reflects the reduction in revenue but also the
success of our cost saving initiatives which focused on labour
productivity and supplier management.
The above factors contributed to an 11% increase (2009: 9%
increase) in adjusted EBITDA in 2010, including one-off benefits of
£55m.
Depreciation and amortisation increased by 8% to £459m (2009:
4% decrease) due to higher value and shorter-lived assets being
brought into use in recent years.
Adjusted operating profit increased by 12% to £1,391m in 2010
(2009: 14% increase).
Capital expenditure decreased by 11% to £417m in 2010 (2009:
19% decrease), due to improved procurement and management of
capital expenditure.
Operating cash flow increased by 54% to £1,640m, a significant
improvement compared with a 5% increase in 2009. This reflects
the higher EBITDA, improved customer cash collections and lower
capital expenditure.
BT Wholesale
Business overview
BT Wholesale provides products and solutions to CPs in the UK and
worldwide. It meets the wide-ranging needs of more than 1,000
CPs in the UK, as well as worldwide through a working relationship
with Global Telecoms Markets, the wholesale arm of BT Global
Services.
We provide our customers with access to BT’s platforms, skills and
technology, making BT’s investments and economies of scale work
for their benefit, both in the UK and across the globe.
We provide communications services and partially or fully
managed solutions for customers ranging from mobile and fixed
line operators to internet services providers, broadcast
organisations and smaller resellers.
We offer wholesale products but can also manage a customer’s
network infrastructure via our MNS solutions, as we do for
customers like Virgin Media and KCOM Group. Our white label
managed services are designed for customers who have not
invested in fixed line infrastructure or want to enter the fixed line
communications market for the first time. Customers like the Post
Office and Scottish and Southern Energy, as well as Vodafone and
O2’s fixed line businesses, fall into this category.
We support the mobile industry with fixed line services that
connect thousands of base stations across the UK to the mobile
network operators’ core networks, without the capital investment
and time to market that a self build option would require. We have
managed services contracts in place with all of the UK’s mobile
network operators to help them manage the growth in mobile data
and video content volumes generated by 3G services as well as
national wi-fi access through BT Openzone.