Chief Executive's statement


This is the last time I shall be writing to BT’s shareholders as Chief Executive, so I should start off by saying thanks for your support and for the dialogue we have shared over the past six and a half exciting years. During that time, I’ve had the privilege of leading your company on an amazing journey – from a UK-focused lines and calls business to a global communications services company.

 

Leadership has a limited shelf-life. The time comes in any organisation when it is good to refresh the leadership. Well-managed companies plan ahead for a smooth succession to a new leader. And that’s just what we’ve been doing. I have fought a battle between my heart, which tells me to stay with this great company, and my head which says it’s time to go. Finally my head has won!
      I’m particularly proud of the fact that today’s BT is a company with such strength and depth that we have been able to appoint our new Chief Executive – Ian Livingston – internally. Ian is a great guy who is supported by a world-class team and I know I am leaving the company in the best possible hands. New leaders set organisations new challenges and pose new questions. I’m confident that Ian and his team will be doing just that.

Delivery through transformation
By following a consistent strategy we have created a business model in which delivering consistent financial improvement has become a habit. We have delivered 24 consecutive quarters of growth in EPSa (earnings per share). Back in 2002, EPSa was 9.0 penceb per share. Fast forward six years, and that number is 23.9 pence per share. That’s grown more than two and a half times.
      In 2002, recognising that parts of our traditional business were in decline, we adopted the strategy of growing new wave revenue – from broadband, mobility and global networked IT services. In 2008, new wave activities accounted for 39% of total revenue. The new wave really has become business as usual.
      This absolute commitment to delivery has underpinned the transformation of the UK’s communications infrastructure, one of UK plc’s most vital assets.
      Take broadband. In April 2002 when we first set targets for broadband, there were just under 150,000 DSL connections in the UK. When we said we would achieve five million connections in five years people said we were crazy. In the end we achieved ten million.
      Local loop unbundling (LLU) – which enables other communications providers to offer their own services with their own brand and pricing structures over the BT network – has triggered one of the most fundamental changes in the communications industry in a generation. A couple of years ago, we were aiming for a target of 1.5 million unbundled lines for non-BT communications providers. At 31 March 2008 we’d reached 4.3 million.
      Operationally 2008 was a very strong year in which we continued to deliver for customers around the world.

A global company
A year ago I made the point that all our customers are increasingly thinking and acting like global citizens. If BT is to continue to deliver for them we have to be a global business with local presence and insight.
      That means being where our customers want us to be, bringing our customers the best services and technology from around the world, understanding local customs, and thinking global in everything we do. We operate in over 170 countries and are serving customers worldwide. Our non-UK revenue was up 18% in 2008 and accounted for 17% of the group’s total revenue.
      We have a long-established presence in North America and continental Europe, but we’re also increasingly committing to exciting and fast growing markets such as Asia Pacific, Latin America, the Middle East and Africa, and Eastern Europe. We have been building a genuinely global workforce with 17 nationalities represented in the company’s top 200 managers. During the year, we opened new R&D facilities in China and Hungary and a shared services centre in India. And we continued to win and deliver on a wide range of long-term global networked IT services contracts around the world. In Asia Pacific we have witnessed spectacular revenue growth of 66%.

Delivering a better network
Our Openreach access network business may only have been in existence for a couple of years, but it has made great progress in its drive to deliver a better network. Set up to ensure equal access to the first mile of BT’s UK access network, it has been focused on providing a local access environment in which its customers’ businesses can thrive.
      The results speak for themselves.
      During the 2008 financial year, Openreach reduced the average lead times for the provision of services to businesses by 40% and those offered to consumer customers by 54%. Of course, delivery is also about putting things right when they go wrong. Lead times for business repairs improved by 54% and for consumer repairs by 44%.

Transforming our wholesale business
The success of LLU has reshaped the competitive landscape in the UK. It certainly changes the nature of our wholesale business. Wholesale revenue declined in the 2008 financial year, in part as a result of volume decreases resulting from migrations to LLU. This came as no surprise, and we have a strategy in place to deal with the change, seizing the opportunity to reposition ourselves as a leading provider of wholesale managed network solutions.
     As the industry migrates from traditional to next generation services we can help our customers negotiate this transition and transform their businesses. During 2008, we signed a number

a Before specific items and leaver costs.
b From continuing activities before goodwill amortisation and exceptional items, reported under UK GAAP.
 
  Ben Verwaayen   It’s a pretty inspirational
story and I’m very proud
to have been associated
with it.
 Ben Verwaayen              Chief Executive    
       
 

of major managed network services contracts worth a projected total of £1.8 billion over their lifetimes. These range from a major outsourcing contract with the Post Office to providing enhanced connectivity for mobile operators T-Mobile, Orange and Virgin Media.

New communications possibilities
In a highly competitive retail market, we have continued to wow our customers with new communications possibilities. Consumer customers can now choose from an innovative range of broadband services, including BT Total Broadband Anywhere which ensures that the broadband experience is available all the time, at home and on the move. Or they can tune in to new possibilities in entertainment. BT Vision, our next generation TV service, already offers a rich selection of content with much more to come. The emphasis with our SME customers is to help them succeed by letting them do the things they do best while we look after their IT and communications needs. They can run their businesses while accessing the type of IT and communications services previously available only to larger corporations.

The people who make it happen
So, BT is a company with a strong track record of delivery. We have proved that we will deliver what we promise and we have proved that our commitment to innovation really makes a difference for our customers.
     But none of this could have happened without the creativity, skills and enthusiasm of BT people. And I’d like to thank them all for the unwavering support they’ve given me and for their unflagging commitment to our strategy. In one sense the story about the way this business has changed in the past few years has less to do with broadband or LLU or earnings per share. It’s a story about people. Specifically, it’s a story about people who are proud to work for the company, who have dared to dream and who recognise the absolute importance of meeting the needs of their customers now and in the future.
     I think it’s a pretty inspirational story and I’m very proud to have been associated with it. The more that I see the results coming through in this business and the more I see BT people stepping up to the challenge, the more convinced I am that this company will continue to do great things in the future.

Ben Verwaayen
Chief Executive
14 May 2008

  Ian Livingston
  Ian Livingston    
   
 

Message from Ian Livingston
It is a great honour to be taking over from Ben Verwaayen as CEO of one of the world’s great companies. Since joining the BT Board in 2002, I have worked very closely with Ben and have seen up close the passion and leadership he has brought to the job. He has transformed the company, restored the pride of BT people, and placed us on a course towards further profitable growth and a future full of exciting possibilities.
     Looking across the markets in which BT operates there is no shortage of people who are focused on the challenges, but I and the rest of the management team see enormous opportunities ahead.
     Globally we have established ourselves as a world leader, helping multinational organisations transform themselves to get the most out of globalisation. The continuing rapid growth of emerging economies and of world trade puts us in pole position as a provider of networked IT services.
     In the UK, demand for broadband everywhere and for new services to be delivered over broadband means the next five years are shaping up to be just as stimulating and full of commercial opportunity as the last.
     We need to seize these opportunities while keeping a relentless focus on being number one for customer service. We must deliver the financial returns that our shareholders have every right to expect, and work hard to create a regulatory climate in which we can continue to invest for the future.
     I take on my new role very proud of what BT has achieved under Ben’s leadership, and certain that the coming years will be more exciting still.