BT 2016 Annual Report Download - page 85

Overview The Strategic Report Governance Financial statements Additional information
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Transform our costs
Operating costs increased 1% (2014/15: 2% decrease)
with an increase in volumes, pay ination and leaver costs
partly oset by cost eciencies.
This year we:
• improved our processes and invested in new systems and tools
that reduce the number of engineering jobs and unnecessary
customer contacts;
• negotiated improved terms with our key suppliers and insourced
activities where possible. This saves us money and means we can
use our people more eectively;
• transformed our desk-based functions by consolidating our
teams from over 400 locations down to 28 larger ‘centres of
excellence’. This means we can run them more eciently, share
best practice and create better working environments;
• successfully launched the ‘View my Engineer’ tool; and
• worked closely with our suppliers to help reduce the number
of orders awaiting completion.
Invest for growth
We have invested £10.5bn in Britain’s digital
infrastructure in the last ten years, committing over
£3bn to create a fibre broadband network that provides
aordable high-speed broadband to the vast majority
of the UK.
We’ve set out our vision to move the nation from superfast to
ultrafast speeds with an ambition that 12m homes and businesses
will get access to ultrafast services by the end of 2020. We will
deliver ultrafast through a mix of two technologies: G.fast and
FTTP. We launched G.fast trials in Huntingdon, Gosforth and
Swansea, which are progressing well, with homes and businesses
taking part getting speeds of up to 330Mbps. We’ve also
announced additional G.fast pilots in Cherry Hinton and Gillingham
which will cover 25,000 homes and businesses by March 2017.
Finally we’ve introduced several trials across the country to improve
the way we provide FTTP connections. We see FTTP becoming
a much larger part of our network, in particular for new sites,
apartment blocks, small businesses and some rural areas.
We invested 54% more than last year on connecting new sites and
providing Ethernet. We continue to invest to extend, upgrade and
maintain our copper network which underpins most of the services
we provide in the UK. We’ve increased preventative maintenance
spend by 22% year on year. This investment will make our network
less susceptible to faults in future years.
This year we invested in hiring over 1,000 people including around
280 apprentices and graduates.
Financial performance
Year ended 31 March
2016
£m
2015
£m
2014
£m
Revenue 5,100 5,011 5,061
Operating costs 2,4362,411 2,460
EBITDA 2,6642,600 2,601
Depreciation and amortisation 1,301 1,348 1,406
Operating profit 1,3631,252 1,195
Capital expenditure 1,4471,082 1,049
Operating cash ow 1,419 1,502 1,492
This is the first time in four years that Openreach
has delivered revenue growth.
Revenue increased 2% (2014/15: 1% decline) mainly driven
by a 39% increase in fibre broadband revenue. Higher Ethernet
volumes also contributed to the revenue growth, but regulatory
price changes had an overall negative impact of around £130m,
equivalent to 3% of our revenue.
Operating costs were up 1% (2014/15: 2% down) mainly
reecting higher volumes, pay ination and a £29m increase in
leaver costs. There was also no benefit this year from the sale of
redundant copper (2014/15: £29m). These eects were partly
oset by cost eciencies.
The main driver of the Openreach cost base is labour which
makes up over £1bn of variable cost, after deducting own work
capitalised. We reduced our labour costs by 7%, partly by creating
our ‘centres of excellence’.
EBITDA grew 2% (2014/15: at). With depreciation and
amortisation down 3% (2014/15: 4%), operating profit was
up 9% (2014/15: 5%).
Capital expenditure was £1,447m, up £365m or 34% (2014/15:
up £33m or 3%). This consists of gross expenditure of £1,540m
(2014/15: £1,460m) which has been reduced by grants of £93m
(2014/15: £378m) directly related to our fibre broadband network
build in the year. The total amount of grants recognised is lower
than last year as we have deferred £227m of grant income due to
strong levels of fibre broadband take‑up. This is primarily because
we increased our base-case assumption for take-up from 20%
to 33% in BDUK areas and under the terms of the programme,
we have a potential obligation to either re-invest or repay grant
funding depending on factors including the level of customer
take-up achieved.
Operating cash ow decreased 6% (2014/15: 1% increase)
primarily reecting the higher capital expenditure.
Following the appointment of Clive Selley as CEO, our future plans
include:
• achieving our goal of 95% on‑time installations by the end of 2017,
which is ahead of Ofcom’s minimum service level;
• working with government to help take fibre broadband to 95% of the
country by the end of 2017;
• getting ultrafast broadband to 10m premises, with an ambition to get
this to 12m, by the end of 2020;
• recruiting 1,000 frontline engineers to deliver further improvements
in service; and
• working to deploy FTTP using microfibre technology.
Key priorities