BT Group plc Results For The First Quarter To 30 June 2009

LONDON, July 30 /PRNewswire-FirstCall/ --

First quarter to 30 June
2009 2008(1) Change
pounds m pounds m %
Revenue 5,235 5,177 1
EBITDA 1,371 1,417 (3)
- adjusted(2)
- reported 1,285 1,317 (2)
Profit before tax 427 519 (18)
- adjusted(2)
- reported 272 497 (45)
Earnings per share 4.2p 5.1p (18)
- adjusted(2)
- reported 2.8p 4.9p (43)
Free cash flow (122) (734) n/m

NOTE:Full version of this announcement is available by contacting BT. Contact
details below.

Key points:
-- Revenue up 1%, down 3% excluding foreign exchange movements and
acquisitions
-- EBITDA(2) decline of 3% due to BT Global Services
-- Rest of the group continues to perform well with EBITDA(2) growth of
6%
-- Sequential improvement in BT Global Services with EBITDA(2) almost
double the previous quarter
-- Reduction of 357m pounds in underlying operating costs and capital
expenditure
-- Free cash flow improvement of 612m pounds compared with the prior
year,
including a tax repayment of 210m pounds

-- BT's retail share of DSL and LLU net additions was 46% in the
quarter

Ian Livingston, Chief Executive, commenting on the first quarter results,
said:

"We have made a solid start to the year against a background of challenging
trading conditions. BT Global Services is making progress although there is
still much to do. The rest of the group continues to perform well generating
EBITDA(2) growth of 6%.

"We are on track to deliver reductions in operating costs and capital
expenditure of well over 1bn pounds and to generate group free cash flow(3) of
over 1bn pounds this year."

(1) Restated for the adoption of IFRS 2 'Share-based Payment -- vesting
conditions and cancellations'. See Note 1 on page 14 for details.
(2) Before specific items, leaver costs and net interest on pensions.
(3) Before any pension deficit payments, but after the cash costs of the
BT Global Services restructuring.

BT Group plc
RESULTS FOR THE FIRST QUARTER TO 30 JUNE 2009

Group results

First quarter to 30 June
2009 2008(1) Change
pounds m pounds m %
Revenue 5,235 5,177 1
EBITDA
- adjusted(2) 1,371 1,417 (3)
- reported 1,285 1,317 (2)
Operating profit
- adjusted(2) 633 726 (13)
- reported 547 626 (13)
Profit before tax
- adjusted(2) 427 519 (18)
- reported 272 497 (45)
Earnings per share
- adjusted(2) 4.2p 5.1p (18)
- reported 2.8p 4.9p (43)
Capital expenditure 559 802 (30)
Free cash flow (122) (734) n/m
Net debt 10,517 10,581 (1)
-------- ------ ------ ----

Line of business results

Operating
Revenue Change EBITDA(2) Change profit(loss)(2) Change
First quarter pounds m % pounds m % pounds m %
to 30 June
-------------
BT Global 2,079 4 62 (66) (124) n/m
Services
BT Retail 2,110 (2) 476 26 359 30
BT Wholesale 1,142 (1) 320 (1) 149 (3)
Openreach 1,306 - 503 2 302 (2)
Other 13 n/m 10 (77) (53) n/m
Intra-group
items (1,415) (2) - - - -
Total 5,235 1 1,371 (3) 633 (13)
----- ----- ---- ----- ---- ---- -----

(1) Restated for the adoption of IFRS 2 'Share-based Payment - vesting
conditions and cancellations'. See Note 1 on page 14 for details.
(2) Before specific items, leaver costs and net interest on pensions.

Notes:
Unless otherwise stated, any reference to earnings before interest, tax,
depreciation and amortisation (EBITDA), operating profit, and operating costs
is measured before specific items and leaver costs. In addition, adjusted
profit before tax and adjusted earnings per share (EPS) is also shown before
net interest on pensions (see Note 7). Unless otherwise stated, the change in
results is year on year. Reported EBITDA, reported operating profit, reported
profit before tax and reported EPS are the equivalent statutory measures.

Underlying revenue, underlying operating costs, underlying EBITDA and
underlying capital expenditure refer to the measure excluding foreign exchange
rate movements and acquisitions. Underlying operating costs are also stated
before specific items, leaver costs and depreciation and amortisation.

The commentary focuses on the trading results before specific items and leaver
costs. This is consistent with the way that financial performance is measured
by management and we believe allows a meaningful analysis to be made of the
trading results of the group. Specific items are defined in Note 5. Leaver
costs are shown in Note 4(b). In addition, adjusted profit before tax and
adjusted EPS is also shown before the net interest on pensions, due to the
volatile nature of this item.

The income statement, cash flow statement and balance sheet are provided on
pages 10 to 13. A reconciliation of EBITDA (as defined above) to group
operating profit is provided on page 20. A reconciliation of adjusted profit
before tax (as defined above) to reported profit before tax is provided on
page 20. A reconciliation of reported EPS to adjusted EPS is provided on page
17. A definition and reconciliation of free cash flow and net debt are
provided on pages 18 to 19.

The line of business commentaries also discuss operating cash flow before
specific items and leaver costs. Operating cash flow is defined as EBITDA less
direct and allocated capital expenditure (net of capital accrual movements),
working capital movements and movements in provisions and other non-cash
items.

The second quarter and half year results for 2009/10 are expected to be
announced on 12 November 2009.

About BT
BT is one of the world's leading providers of communications solutions and
services operating in 170 countries. Its principal activities include the
provision of networked IT services globally; local, national and international
telecommunications services to our customers for use at home, at work and on
the move; broadband and internet products and services and converged
fixed/mobile products and services. BT consists principally of four lines of
business: BT Global Services, BT Retail, BT Wholesale and Openreach.

British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group
plc and encompasses virtually all businesses and assets of the BT Group. BT
Group plc is listed on stock exchanges in London and New York.

For more information, visit www.btplc.com

GROUP RESULTS
Operating results overview
Revenue was up 1% to 5,235m pounds including favourable foreign exchange
movements of 169m pounds and the impact of acquisitions of 27m pounds.
Excluding the impact of these, underlying revenue decreased by 3%. Adjusted
EBITDA decreased by 3% to 1,371m pounds, held back by BT Global Services. The
rest of the group has performed well with adjusted EBITDA increasing by 6%
driven by growth in both BT Retail and Openreach and an improved performance
in BT Wholesale. This continued good performance in three out of four of our
lines of business is primarily due to the effective delivery of cost savings
and the effect of a one-off revenue and EBITDA benefit in BT Retail. Foreign
exchange movements and the impact of acquisitions had no overall effect on
EBITDA.

With effect from this quarter, the group has adopted a new measure of adjusted
profit before tax and adjusted EPS, which is before specific items, leaver
costs and also net interest on pensions. This is due to the volatile nature of
the non-cash pensions accounting under IAS 19. The notional net interest on
our defined benefit pension scheme in the quarter was an expense of 69m pounds
compared with income of 78m pounds last year, an adverse movement of 147m
pounds. Adjusted EPS decreased by 18% to 4.2p as a result of the year on year
decline in BT Global Services results. A reconciliation of reported EPS to
adjusted EPS is provided in Note 7(b) on page 17.

Other operating income decreased by 11m pounds to 79m pounds, largely due to
some one-off items in the prior year. Group operating costs increased by 2% to
4,726m pounds, due to the impact of foreign exchange movements of 169m pounds
and acquisitions of 27m pounds. Underlying group operating costs reduced by 3%
to 3,747m pounds. Excluding BT Global Services, underlying group operating
costs reduced by 6%. Leaver costs were 45m pounds (Q1 2008/09: 73m pounds).

Our direct staff costs, on an underlying basis, decreased by 12% to 1,216m
pounds largely due to the impact of staff reductions and lower pension
charges. The reduction in pension charges is a result of the implementation of
the pensions review changes from 1 April 2009. The direct staff cost
reductions were offset by an increase in other operating costs which increased
by 7% to 1,703m pounds, on an underlying basis, mainly due to lower contract
costs being capitalised in BT Global Services.

In total, underlying operating costs and underlying capital expenditure
reduced by 357m pounds to 4,295m pounds, a reduction of 8% compared with the
prior year.

Depreciation and amortisation increased by 7% to 738m pounds reflecting the
impact of Ethernet and ADSL2+ assets being brought into use.

Free cash flow was an outflow of 122m pounds in the quarter, an improvement of
612m pounds year on year largely due to improved working capital performance,
lower capital expenditure and a tax repayment of 210m pounds.

Outlook
Our outlook as stated in our full year 2008/09 results announcement remains
unchanged. We continue to expect a decline in revenue of 4% to 5%, a reduction
in capital expenditure and operating costs of well over 1bn pounds and to
generate group free cash flow (before pension deficit payments and after the
cash costs of BT Global Services restructuring) of over 1bn pounds in 2009/10.

Restatements
As described in Note 1, we have adopted the amendment to IFRS 2 'Share-based
Payment - vesting conditions and cancellations' resulting in a change in the
group's accounting policy for share-based payments. Our prior period
comparatives have been restated resulting in a reduction of 16m pounds in
EBITDA for Q1 2008/09 and 110m pounds for FY 2008/09, which is reflected in
the 'Other' segment.

We have also restated our 2008/09 line of business comparatives as a result of
customer account moves and internal trading model changes effective from 1
April 2009 which have no impact on the total group results. The impact of
these restatements on prior period line of business results are provided in
Note 14.

Forward-looking statements - caution advised
Certain statements in this results release are forward-looking and are made in
reliance on the safe harbour provisions of the US Private Securities
Litigation Reform Act of 1995. These statements include, without limitation,
those concerning: revenue, operating cost and capital expenditure reduction,
and free cash flow and EBITDA; progress in Global Services; plans for future
networks and roll out of super fast broadband; and the liquidity and funding
position.

Although BT believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations
will prove to have been correct. Because these statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by these forward-looking statements.

Factors that could cause differences between actual results and those implied
by the forward-looking statements include, but are not limited to: material
adverse changes in economic conditions in the markets served by BT; future
regulatory actions and conditions in BT's operating areas, including
competition from others; selection by BT and its lines of business of the
appropriate trading and marketing models for its products and services;
fluctuations in foreign currency exchange rates and interest rates;
technological innovations, including the cost of developing new products,
networks and solutions and the need to increase expenditures for improving the
quality of service; prolonged adverse weather conditions resulting in a
material increase in overtime, staff or other costs; developments in the
convergence of technologies; the anticipated benefits and advantages of new
technologies, products and services not being realised; the underlying
assumptions and estimates made in respect of major customer contracts proving
unreliable; the aims of the Global Services' revised operating model and
restructuring plan not being achieved; completion of the pension fund
actuarial valuation; and general financial market conditions affecting BT's
performance and ability to raise finance. BT undertakes no obligation to
update any forward-looking statements whether as a result of new information,
future events or otherwise.

CONTACT:
Eileen Connolly
908 410 1419
Eileen.connolly@bt.com

SOURCE BT

Eileen Connolly, +1-908-410-1419, Eileen.connolly@bt.com