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July 31, 2008
First quarter to June 30, 2008 - key points
- Revenue of £5,177 million, up 3 per cent
- EBITDA before specific items1 and leaver costs of £1,433 million, up 1 per cent
- Operating profit before specific items1 and leaver costs of £742 million, up 4 per cent
- Profit before taxation, specific items1 and leaver costs of £613 million, down 7 per cent
- Earnings per share before specific items1 and leaver costs of 6.1 pence, up 2 per cent
- Free cash outflow of £734 million
- 13.0 million broadband end users2 of which BT’s retail share was 35 per cent, with 31 per cent of net additions in the quarter
The income statement, cash flow statement and balance sheet from which this information is extracted are set out on pages 17 to 22 of the attachments.
Chief Executive’s statement
Ian Livingston, Chief Executive, commenting on the first quarter results, said:
“BT has continued to grow revenue, EBITDA3 and earnings per share3 in the first quarter.
BT Global Services has increased revenue by 13 per cent with strong growth of 33 per cent outside the UK. We achieved total contract wins of £8.2 billion over the last twelve months, and the pipeline of new business remains strong.
BT Retail performed well with revenue growth of 3 per cent and double digit profit growth. BT Wholesale has won managed network solutions contracts of £1.2 billion over the last twelve months.
We are committed to delivering long term shareholder value and will continue to invest in the future growth of our business. We have announced plans to invest £1.5 billion to make fibre-based, super-fast broadband available to as many as 10 million homes in the UK by 2012, dependent upon an appropriate regulatory environment.
Our full year guidance remains unchanged - we continue to expect to deliver growth in revenue, EBITDA3, earnings per share3 and dividends per share in this financial year.”
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: expectations of continued growth in revenue, EBITDA, earnings per share and dividends per share; growth in Global Services’ revenue, and EBITDA margin expansion; BT Retail EBITDA growth and improving trends in BT Wholesale; continued growth in the broadband market; further gross cost savings; expectations regarding capital expenditure, and levels of free cash flow; planned investment in fibre-based super-fast broadband; investment in, and the delivery and benefits of, BT’s 21st Century Network and growth of the 21CN Ethernet footprint; and the scope and delivery of next generation services and applications.
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; 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.
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The income statement, cash flow statement and balance sheet are provided on pages 17 to 22 of the attachments. A reconciliation of EBITDA before specific items and leaver costs to group operating profit is provided on page 31 of the attachments. A definition and reconciliation of free cash flow and net debt are provided on pages 28 to 30 of the attachments.
GROUP RESULTS
First quarter ended June 30, 2008
Revenue was 3 per cent higher at £5,177 million in the quarter with continued growth in managed solutions and broadband and convergence revenue. EBITDA before specific items and leaver costs increased by 1 per cent year on year. Earnings per share before specific items and leaver costs increased by 2 per cent to 6.1 pence.
Our BT Global Services business achieved contract wins of £1.9 billion in the first quarter, with £8.2 billion achieved over the last twelve months.
We had 13.0 million wholesale broadband connections (DSL and LLU) at June 30, 2008, including 4.8 million local loop unbundled lines. This represents an increase of 1.8 million wholesale broadband connections year on year. There were 338,000 net additional broadband connections in the quarter. Our retail share of those net additions was 103,000, being 31 per cent, and we remain the UK’s number one retail broadband provider with a customer base of 4.5 million at June 30, 2008, which represents a market share of 35 per cent.
Our BT Wholesale managed network solutions business achieved contract wins of £490 million in the first quarter, with £1.2 billion achieved over the last twelve months.
Revenue
Revenue was 3 per cent higher than last year, including a £93 million favourable exchange rate movement. Managed solutions revenue grew by 21 per cent to £1,408 million, and broadband and convergence revenue increased by 4 per cent to £640 million. Managed solutions includes revenue from our networked IT services, managed network solutions and MPLS. Broadband and convergence revenue includes revenue from broadband, LLU, mobility and convergence solutions. The growth in managed solutions was mainly due to 17 per cent growth in networked IT services and 36 per cent growth in MPLS revenue. This revenue growth in the quarter was partially offset by a 6 per cent decline in revenue from calls and lines to £1,647 million, together with a 7 per cent decline in revenue from transit, conveyance, interconnect circuits, WLR, global carrier and other wholesale products to £827 million.
Revenue from our Major corporate customer segment increased by 12 per cent to £1,961 million, reflecting the increased take up of our networked IT services, the impact of foreign exchange and recent acquisitions by BT Global Services.
Revenue from our Business customer segment (comprising smaller and medium sized UK businesses) grew by 5 per cent to £661 million, continuing the recent trend. This reflects both organic growth in the UK as well as the contribution from our acquisitions of Lynx and Basilica last year.
Revenue from our Consumer customer segment of £1,228 million was broadly flat year on year, with the impact of call package price reductions and a decline in calls revenue being offset by growth in broadband revenue. The 12 month rolling average revenue per consumer household increased by £4 in the quarter to £278, reflecting the increasing number of customers taking multiple services from BT. Increased broadband revenue and the growth of value added propositions per household, have more than offset the lower call package prices in the quarter.
Wholesale (UK and global carrier) customer revenue decreased by 7 per cent to £1,320 million as a result of the impact of volume and price reductions on DSL broadband and the decrease in low margin transit revenue and conveyance volumes, which was partially offset by growth in managed network solutions revenue, migrations to local loop unbundling (LLU) arrangements, and growth in global carrier revenue of 19 per cent.
Operating results
Group operating costs before specific items and leaver costs increased by 3 per cent to £4,525 million, partly due to exchange rate movements. Staff costs before leaver costs increased by 5 per cent to £1,370 million, largely due to acquisitions made in the past year, with the impact of pay inflation being largely offset by efficiency savings. Leaver costs before specific items were £73 million in the quarter (£8 million last year), mainly due to the earlier timing of leaver programmes this year. Payments to other telecommunication operators decreased by 2 per cent to £1,037 million, with the growth in BT Global Services being more than offset by the decline in transit volumes and prices. Other operating costs before specific items of £1,585 million increased by 6 per cent, reflecting increased costs of sales due to growth in the networked IT services business, as well as the impact of acquisitions and higher energy and fuel costs, and have been partially offset by cost efficiency savings. Efficiency savings were £145 million in the quarter and we have increased our full year target by £100 million to achieve total savings of about £800 million in the year. Depreciation and amortisation decreased by 3 per cent year on year to £691 million, largely as the result of some legacy assets becoming fully depreciated. Other operating income before specific items increased by £23 million to £90 million in the quarter, which included some up front benefits from the transformation of our operational cost base through global sourcing and process improvement, together with income from the sale of scrap materials and cable recoveries.
Group operating profit before specific items and leaver costs increased by 4 per cent to £742 million. Group operating profit margin before specific items and leaver costs increased to 14.3 per cent compared with 14.2 per cent last year, the sixth consecutive quarter of year on year margin expansion.
Earnings
Net finance expense before specific items was £130 million, an increase of £75 million against last year. The increase in net finance expense primarily reflects the higher average net debt, due mainly to the share buyback programme, together with a reduction in finance income associated with our defined benefit pension scheme to £78 million (£105 million last year).
The effective tax rate on the profit before specific items was 22.8 per cent (24.8 per cent last year) compared with the UK statutory rate of 28 per cent (30 per cent last year), reflecting the continued focus on tax efficiency within the group.
Profit before taxation, specific items and leaver costs of £613 million decreased by 7 per cent.
Earnings per share before specific items and leaver costs increased by 2 per cent to 6.1 pence. This is based on average shares in issue of 7,731 million (8,216 million last year) with the reduction due to the shares repurchased under the buyback programme.
Specific items
Specific items are defined in note 4 on pages 26 to 27 of the attachments. Specific items were a net charge before tax of £27 million (£50 million last year) and a net charge after tax of £19 million (£119 million credit last year). Specific items before tax wholly relate to restructuring costs (£49 million last year) incurred on our transformation and reorganisation activities in the quarter which mainly comprised manager leaver costs and transformation programme costs. Last year specific tax items included a £154 million tax credit relating to the re-measurement of deferred tax balances for the change in the UK statutory corporation tax rate to 28 per cent.
Earnings per share after specific items was 5.1 pence in the quarter (7.4 pence last year).
Cash flow and net debt
Net cash inflow from our operating activities in the first quarter decreased to £387 million compared with £848 million last year. This was reflected in free cash flow which was an outflow of £734 million compared with an outflow of £152 million last year. The higher free cash outflow is primarily the result of a higher working capital outflow of £962 million (£691 million last year), which is expected to largely reverse in the second half of the year. In addition there was a higher net cash outflow in respect of net interest paid of £285 million (£182 million last year) as a result of the timing of interest coupon dates on new debt raised in the last year and a one off interest receipt from HMRC last year. In addition, last year free cash flow benefited from the receipt of £504 million from the settlement of open tax years up to and including 2004/5 agreed with HMRC, offset by pension deficiency contributions of £320 million, both of which are non recurring in the current financial year.
Net cash outflow for the purchase of property, plant and equipment and software was marginally up at £836 million (£819 million last year). The net cash outflow on acquisition of subsidiaries in the quarter was £94 million (£164 million last year) and related principally to the acquisition of Wire One Holdings Inc, a video conferencing company based in the US. During the quarter we raised new long term borrowings of £794 million at an average annualised interest rate of 7.7 per cent. We repurchased 118 million shares (113 million last year) for a total consideration of £257 million (£365 million last year), resulting in a net cash outflow of £271 million (£382 million last year). As announced earlier this month, the share buyback programme is being suspended with effect from July 31, 2008 as a result of our strategic investment in fibre deployment.
Net debt was £10,581 million at June 30, 2008 compared with £8,631 million at June 30, 2007 and £9,460 million at March 31, 2008. Free cash flow and net debt are defined and reconciled in notes 7 and 8 on pages 28 to 30 of the attachments.
Pensions
The BT Pension Scheme IAS 19 valuation deficit at June 30, 2008 was £0.6 billion, net of tax (£0.8 billion gross of tax), compared with a surplus of £1.4 billion at June 30, 2007 (£2.0 billion gross of tax). The BT Pension Scheme had assets of £36.8 billion at June 30, 2008 (£39.5 billion at June 30, 2007).
Next Generation Access
As part of our wider strategy of delivering next generation broadband services nationwide, we recently announced plans to invest £1.5 billion to make fibre-based, super-fast broadband available to as many as 10 million homes in the UK by 2012. A supportive and enduring regulatory environment is essential if this investment is to take place. Therefore we will be discussing with Ofcom the conditions that would be necessary to enable this programme to progress. These include removing current barriers to investment and making sure that anyone who chooses to invest in fibre can earn a fair rate of return for their shareholders.
BT plans to invest around £1.5 billion in total in the programme, of which around £1 billion is incremental to BT’s existing capital expenditure plans. We expect the initial investment in the programme will result in around £100 million of incremental capital expenditure in each of the 2008/9 and 2009/10 financial years, taking the total expected capital expenditure in those years to around £3.2 billion and £3.1 billion, respectively. The remaining £800 million incremental spend will be spread over the following three financial years.
Given the strategic priority of this investment, the board is suspending the current share buyback programme with effect from July 31, 2008. As of this date, we have returned in excess of £1.8 billion of the planned £2.5 billion buyback programme.
21st Century Network
The rollout of our 21st Century Network (21CN) continued during the quarter in line with the deployment approach outlined in the fourth quarter, with a focus on the implementation of new services ahead of replicating legacy services.
We introduced next generation broadband to the wholesale market on April 30, 2008 from 21CN enabled exchanges, supporting an addressable market of some one million UK homes. Availability of the service will rise progressively during the rest of this financial year to reach an addressable market of 10 million homes by April 2009.
BT also launched 21CN Ethernet during the fourth quarter, available from over 100 nodes across the UK. This footprint will rise progressively to over 600 nodes by April 2009, providing BT with the widest national Ethernet footprint in the UK.
The national infrastructure rebuild of metro and core sites in the UK is now complete. For the remainder of this year, the focus will be on the completion of the necessary UK transmission infrastructure.
On July 29, 2008 we announced the acquisition of Ribbit Corporation, a software development company based in the US, for $105 million. The acquisition supports our transformational strategy and will accelerate the evolution of our industry-leading 21CN software development kits by providing an established, easy-to-use network based platform that allows third party developers to create new and innovative voice-enabled applications and services.
Outlook
We expect to see continued strong revenue growth in BT Global Services but EBITDA margins may fall slightly in 2008/9 in part due to currency movements. However, we remain committed to achieving the 15 per cent EBITDA margin target and are creating the foundations this year for future margin expansion. In BT Retail we expect to see solid EBITDA growth this year. In BT Wholesale we expect the trends in the second and third quarters to be similar to those seen in the first quarter, but improving in the last quarter of the year. We expect a stable performance in Openreach for the year.
For the year, we expect the group to continue to deliver revenue growth as we continue our transformation from a fixed-line business into a software-driven communications services company. We remain focused on driving efficiencies across the group and have increased our gross cost savings target from £700 million to some £800 million, which will contribute towards growth in EBITDA before specific items and leaver costs. We expect to continue to increase our earnings per share before specific items and leaver costs, despite the year on year reduction in net finance income associated with the pension scheme.
As a result of our additional investment in a fibre-based next generation access network, we expect capital expenditure to be about £100 million higher than our previous targets in each of the 2008/9 and 2009/10 financial years, taking the total expected capital expenditure in those years to around £3.2 billion and £3.1 billion, respectively. The remaining incremental spend of £800 million will be spread over the following three financial years. As announced on July 15, 2008 with our investment in Next Generation Access, free cash flow in 2008/9 will reflect the £100 million incremental capital expenditure and is expected to out turn at around £1.4 billion.
We remain committed to delivering value for shareholders and expect to increase dividends per share in 2008/9.
LINE OF BUSINESS RESULTS
BT Global Services
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Revenue from our BT Global Services business increased by 13 per cent year on year, the highest quarterly growth for over two years, driven by continued strong performance outside the UK, with revenue growth accelerating to 33 per cent and MPLS revenue growth of 36 per cent. MPLS revenue growth has been driven by new customer connections which increased to over 3,500 per month during the quarter (averaging 3,100 per month last year). During this quarter we also achieved a major milestone by delivering the 10,000th service connection for Thomson Reuters, our largest global contract.
Approximately one third of the increase in revenue was due to exchange rate movements, mainly the strengthening of the Euro, the impact of which on EBITDA before leaver costs was broadly neutral. The increase in SG&A costs is partly due to the impact of acquisitions and foreign exchange. EBITDA before leaver costs increased by 10 per cent, continuing the growth trend of the last two years. EBITDA margin has declined from 9.8 per cent to 9.5 per cent due to the foreign exchange impact on revenue, and the accelerated decline in high margin UK calls and lines revenues offset by growth in MPLS. Excluding the impact of foreign exchange, the EBITDA margin was 9.9 per cent, slightly ahead of last year. Depreciation and amortisation charges increased by 9 per cent due to prior year business acquisitions and capital expenditure. Overall, this resulted in a £2 million increase in operating profit before leaver costs.
Total orders in the quarter amounted to £1.9 billion, up 12 per cent year on year, bringing the value of orders achieved over the last twelve months to £8.2 billion. Networked IT services contract orders of £1.2 billion were won in the quarter, up 34 per cent year on year. These included a seven-year outsourcing deal with Nationwide Building Society to manage its networked IT services. As part of the contract, we will deliver a service transformation programme under which we will consolidate Nationwide’s multiple networks onto our 21CN global network which will support both voice and data services on a single converged platform. We will also deliver enhanced remote access facilities to Nationwide’s non-office based employees. In addition, we won a five-year contract worth $650 million with Procter & Gamble (P&G) where we will provide and manage P&G's local and wide area network infrastructure across more than 1,100 locations in more than 82 countries. We will migrate these services to an IP-based global MPLS infrastructure and also provide and manage perimeter security and firewall services, conferencing, remote access, voice and IP telephony services, and internet services to support P&G's IT requirements. In total, 124 new customers, excluding acquisitions, outside the UK signed orders with us in the quarter, which included such customers as Canal Don Benito (Spain) and Bluevoice (Italy).
In the UK, we have continued to help healthcare professionals deliver better, safer care to patients through the National Programme for IT in the NHS. In London, we have now installed major IT systems into four acute trusts including Barts and The London NHS Trust, and Royal Free Hampstead NHS Trust - two of the largest teaching hospitals in the country. We also delivered two further major software releases on the Spine, the secure database and messaging system we have built and are managing for the NHS, representing some significant improvements to Spine services.
As part of our continuing investment in BT Global Services, in June we agreed to acquire Stemmer GmbH and SND GmbH, both German companies constituting the enterprise IT services segment of net AG, listed on the Frankfurt Stock Exchange. The acquisitions will strengthen our skills and capabilities to service our corporate customers in Germany and globally.
In Asia Pacific BT continues its strong performance and has been named Data Communications Service Provider of the Year - 2008 in the Frost & Sullivan Asia Pacific ICT Awards.
BT Retail
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BT Retail’s revenue increased by 3 per cent to £2,109 million, driven by a 38 per cent increase in networked IT services and a 14 per cent increase in broadband and convergence revenue, being partially offset by a 4 per cent decline in calls and lines. Gross margin improved by 0.6 percentage points to 36.8 per cent as a result of increased added value sales, improved product mix, and cost efficiencies. SG&A costs were held broadly flat in the quarter. EBITDA before leaver costs grew 11 per cent year on year and operating profit before leaver costs increased by 17 per cent.
Revenue from our Consumer business unit was broadly flat against the same quarter last year, reflecting a decrease in call revenue and the impact of call package price reductions, which were offset by the growth in broadband. In one of the lowest priced, most competitive markets in the world, our Free Evening and Weekend call plans are at the heart of our competitive stance, combining value with great service. The emphasis we have placed on getting things ‘right first time’ for our customers has helped reduce complaint volumes by one third and we expect to make further improvements throughout this year.
Broadband revenue grew by 17 per cent year on year, with net additions of 103,000, taking us to 4.5 million customers, and retaining our status as the UK’s most popular broadband supplier. BT’s retail market share of net additions of DSL and LLU connections in the quarter was 31 per cent, the eighth consecutive quarter of achieving 30 per cent market share or more. The BT Total Broadband offering was further enhanced in July with the launch of the next generation Hub 2.0, offering our customers the latest wireless functionality and increased security. In addition, we launched the BT Total Broadband Anywhere package in May, combining BT ToGo and BT Total Broadband services in the home. The installed base of BT ToGo customers was 34,000 by June 30, 2008.
The roll out of our next generation television service, BT Vision, continued during the quarter, with customer numbers reaching 282,000 at June 30, 2008. Of the 68,000 net additions in the quarter, the subscription attachment rate at point of sale averaged over 80 per cent. We announced in July that BT Vision customers can chose to receive Setanta Sports 1 for free with a package. In addition we have made other sports content enhancements such as increased coverage of the Scottish Premier League.
This quarter saw us achieve over 121,000 members of BT Fon in the UK, the world’s largest Wi Fi community, where members share part of their broadband connection to establish a network of wireless hotspots. Openzone usage continued to grow strongly, averaging 1.1 million minutes per week day. During the quarter we expanded the number of UK Openzone hotspots, which now stands at more than 3,000, by completing a deal with the Brend Hotels chain, building on our established partnerships in the hotel sector. We have also announced the expansion of our wireless cities programme with a second London Borough, Waltham Forest, following last year’s launch in Westminster.
Our BT Business division achieved revenue growth of 7 per cent in the quarter. BT Business One Plan continues to be the package of choice for businesses in the UK with over 35,000 additions since the last quarter, an increase of 70 per cent. BT Business is dedicated to delivering expert IT and communications services designed exclusively to meet the requirements of SMEs, the success of which is demonstrated by the 38 per cent growth in networked IT revenues, over the same quarter last year. This reflects both organic growth as well as the contribution from our acquisitions of Basilica and Lynx made last year. The number of customers registered on Tradespace, our online community and marketplace for UK SMEs, grew 45 per cent against the prior quarter to over 131,000.
The Enterprises division delivered good revenue growth of 4 per cent, due to growth within BT Conferencing and dabs.com. BT Conferencing’s video conferencing capability has been further enhanced this quarter by the completion of the acquisition of Wire One Holdings Inc. in the US. BT Conferencing is now a worldwide leader of video conferencing, with services extending to 170 countries.
BT Ireland recorded a good performance in the quarter, with revenue increasing by 4 per cent. Growth in mobility and convergence was further boosted by a new partnership agreement with O2 Ireland that enables BT to bring fixed line, mobile and IT services together for smaller business customers in the Republic of Ireland. We continued to extend our footprint into the private and public sectors through key contract wins including Bank of Ireland, Bristol Myers Squibb, EMC, Northern Ireland Department of Finance & Personnel and the Police Service of Northern Ireland.
BT Wholesale
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BT Wholesale’s total revenue declined by 12 per cent to £1,156 million, mainly due to declines of £83 million in low margin transit revenue, as well as £26 million in conveyance revenue, and reductions in broadband revenue of £46 million as a result of planned price reductions and volume decreases due to continued migrations to LLU. We expect a continued decline in transit revenues for the next few quarters, as other communications providers (CPs) interconnect directly. Following a number of new contract wins in recent quarters, revenue from our managed network solutions grew 27 per cent year on year and represented around 10 per cent of our external revenue in the quarter. We have signed over £1.2 billion of managed network solutions contracts over the past twelve months. Internal revenue was broadly flat at £307 million.
Gross profit decreased by 16 per cent to £357 million, principally reflecting the impact of LLU migrations and price reductions on our broadband revenues. The gross margin impact of our revenue decline was reduced through cost reduction initiatives. We continued to benefit from our headcount driven efficiency activities in the quarter, which contributed to a reduction in SG&A costs of 27 per cent (£13 million).
In addition, continued improvements in operational performance, and our focus on getting things ‘right first time’ is helping to eliminate costs through improved quality of service. We expect to benefit from further improvements in this area during the remainder of the financial year.
EBITDA before leaver costs decreased by 14 per cent to £322 million. Depreciation and amortisation decreased by 6 per cent year on year to £197 million. Operating profit before leaver costs was £125 million in the quarter.
During the quarter, we signed new managed network solution contracts worth £490 million including a long term deal with Sky. The outlook for securing further future contract wins in the managed solutions space remains strong with a £2.7 billion order pipeline. Under the agreement with Sky, we are providing voice services to 1.1 million Sky Talk customers with migration of Sky Talk customers to the BT Wholesale platform having already begun. By the time all customers under our existing white label agreements are migrated to the BT Wholesale platform, expected to be completed this autumn, we will have approaching 3 million UK homes on our white label platforms.
We continued the roll out of our next generation broadband and Ethernet services during the quarter, both services delivered over BT’s 21CN.
The next generation broadband service is currently available to more than five per cent of the addressable UK market. By April 2009, the footprint for the new service will rise to around 40 per cent of the UK market.
The next generation Ethernet progression has also continued. To date, significant long term contracts have been signed with a number of mobile operators who are using the service to underpin the rapid growth of mobile broadband services. In addition, the business is actively addressing a rapidly growing demand for the new service from our fixed line CP customers.
Openreach
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Openreach’s external revenue continued to increase, and at £234 million was £23 million higher than the prior year. This has been driven by the increase in the provision of backhaul services and the external migration of lines to LLU and WLR by external CPs. At June 30, 2008 we had 4.8 million external LLU lines (net additions of 0.5 million in the quarter) and 4.9 million WLR lines and channels.
Revenue from other BT lines of business decreased by 3 per cent, primarily due to lower connections and the impact of the continued migration to LLU and WLR by external CPs. At June 30, 2008 we had 8.3 million LLU lines, and 21.5 million WLR lines and channels with other BT lines of business which are both slightly down in the quarter due to the volume shift from wholesale broadband to LLU. Our total revenue, at £1,306 million in the quarter, has decreased by 1 per cent compared with the prior year, mainly driven by lower connection activity in the market.
Operating costs decreased by £24 million to £815 million in the quarter. Our investment in service has led to continued improvements in lead times, which reduced by one quarter, and the number of access faults decreasing by 16 per cent compared with the prior year. The benefits from this investment and the associated costs in the prior year have more than offset the effects of inflation, resulting in an overall 3 per cent reduction in operating costs.
Following negotiations with Ofcom and our commitment to service levels, we have implemented a new process where, from the end of June 2008, we are actively monitoring failures across a range of products and services and are proactively reimbursing our customers if service level commitments have not been met.
Overall EBITDA before leaver costs increased by 2 per cent year on year to £491 million. Depreciation and amortisation costs increased by £3 million to £184 million due to increased depreciation on LLU assets, 21CN and equivalent systems driven particularly from the high level of capital investment in prior periods. Operating profit before leaver costs increased by £6 million to £307 million.
At the end of June, we launched Generic Ethernet Access (GEA), our first deployment of fibre to residential customers on a new build site. GEA will be available to order for Openreach’s fibre to the premises pilot site at Ebbsfleet, Kent from August 2008.
1Specific items are significant one off or unusual items as defined in note 4 on pages 26 to 27 of the attachments.
2DSL and LLU connections.
3Before specific items and leaver costs.
4Includes tax receipts of £504 million and payment of pension deficiency contributions of £320 million.
BT’s final dividend of 10.4 pence per share will be paid on September 15, 2008 to shareholders on the register on August 22, 2008. The ex-dividend date is August 20, 2008.
The second quarter results for 2008/9 are expected to be announced on November 13, 2008.
The full release and financial accounts are available to download as a PDF documents. 
Full financial release
Group income statement
Group statement of recognised income and expense
Group cash flow statement
Group balance sheet
Notes
Independent review report to BT Group plc on the interim financial information
Forward-looking statements - caution advised
