BT 2011 Annual Report Download - page 48

45BT GROUP PLC ANNUAL REPORT & FORM 20-F 2011
FINANCIAL REVIEW
FINANCIAL REVIEW
INTRODUCTION FROM THE GROUP FINANCE DIRECTOR
How we performed in 2011
2011 performance against our financial outlook
In May 2010 we set out our financial objectives for the three-year
period to 2013. We said we expected to improve our revenue
trends and to grow EBITDA and free cash flow, while investing in
the business, reducing net debt, supporting the pension fund and
paying progressive dividends.
In 2011 we have made good progress towards achieving these
objectives and have delivered full year results in line with or ahead
of our outlook for the year. Market conditions remain challenging,
with the UK telecoms market being one of the most competitive in
the world. However, we have delivered some significant milestones
in 2011 and have exited the year in the right place to continue to
deliver against our financial objectives over the next two years.
Revenue trends
Revenue declined by 4% to just over £20bn in 2011. Excluding
foreign exchange movements and the reduction in low-margin
transit revenue which includes the impact of mobile termination
rate reductions, underlying revenue excluding transit was down
3% in 2011.
Growing EBITDA and earnings per share
The execution of our cost transformation programmes have helped
deliver over £1bn of operating cost reductions in 2011, ahead of
our outlook for the year. Overall, adjusted EBITDA grew by 4% to
£5,886m in 2011, also ahead of our outlook for the year.
Higher operating profit and lower finance expense increased
adjusted earnings per share by 21% to 21.0p in 2011.
Growing free cash flow
We generated adjusted free cash flow of £2.2bn in 2011, well
ahead of our initial outlook of around £1.8bn for the year. This
reflects our improved profitability and working capital performance
and is after investing £2.6bn in capital expenditure. BT Global
Services achieved their operating cash flow positive milestone a
year ahead of expectations.
Investing in the business
The savings we have made in operating costs and working capital
improvements have enabled us to invest in the future of our business
both in terms of capital and operating expenditure. Our fibre roll-out
is one of the most rapid in the world and we are on track to pass 5m
premises by spring 2011. We have significantly increased the number
of customers enjoying next generation broadband services and have
invested in reducing the number of faults in our network and getting
things ‘right first time’ for our customers.
Reducing net debt and supporting
the pension fund
Net debt has reduced by £467m to £8,816m, in line with our
outlook to be below £9bn by 31 March 2011. This is after making
pension deficit payments of £1,030m, including £505m brought
forward from December 2011. We also repaid maturing debt of
£2.5bn from our existing cash and investment balances and agreed
a new five-year £1.5bn committed facility. There are no further
significant debt maturities until 2013. The IAS 19 net pension
position has significantly reduced by £4.3bn to a deficit of £1.4bn,
net of tax, at 31 March 2011.
Progressive dividends
As we stated in 2010, the Board is committed to paying progressive
dividends, whilst balancing the need to invest in the business,
reduce our net debt and support the pension fund. Taking these
considerations into account, the Board is proposing a full year
dividend of 7.4p, up 7%.
Outlook
We expect underlying revenue excluding transit to grow in 2013.
Adjusted EBITDA is expected to show further growth in 2012 and
to be above £6.0bn in 2013. We expect adjusted free cash flow to
be above the 2011 level in 2012 and 2013, with BT Global Services
generating operating cash flow of around £200m in 2012.
Tony Chanmugam
Group Finance Director
11 May 2011
Our financial objectives
INVEST IN
BUSINESS
REDUCE NET
DEBT
SUPPORT
PENSION
FUND
PROGRESSIVE
DIVIDENDS
2011 2013
IMPROVING REVENUE TRENDS
GROW EBITDA
GROW FREE CASH FLOW
Tony Chanmugam
Group Finance Director
How we performed in 2011
Outlook
May 2010 Result
Revenue c.£20bn £20.1bn
Operating cost savings c.£900m £1.1bn
Adjusted EBITDAain line with 2010b£5.9bn
Adjusted free cash flowa,c c.£1.8bnb£2.2bn
Net debta<£9bn £8.8bn
aAdjusted EBITDA, adjusted free cash flow and net debt are non-GAAP measures. See pages 56 to 58
for details.
b Adjusted EBITDA and adjusted free cash flow outlook updated in November 2010 to be around £5.8bn
and £2bn.
cBefore pension deficit payments.
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