BT Group plc

Q4 and preliminary 2007/8 full year results

BT Group plc

Sir Michael Rake - Chairman

Forward-looking statements - cautionCertain statements in this presentation 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 continuing growth in revenue, EBITDA, earnings per share and dividends per share; levels of free cash flow; continued growth in Global Services’ revenue and EBITDA margins; growth in new wave revenue, mainly from networked IT services and broadband; continued growth in the broadband market; cost efficiencies and reduced capital expenditure; investment in, and the delivery and benefits of, BT’s 21st Century Network and the expected cost savings; and the scope and delivery of next generation services.

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 of the appropriate trading and marketing models for its products and services; technological innovations, including the cost of developing new products, networks and solutions and the need to increase expenditures to improve the quality of service; the anticipated benefits and advantages of new technologies, products and services, including broadband and other new wave initiatives, not being realised; developments in the convergence of technologies; fluctuations in foreign currency exchange rates and interest rates; prolonged adverse weather conditions resulting in a material increase in overtime, staff or other costs; the timing of entry and profitability of BT in certain communications markets; 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.

Consistent strategy …

– Improved service– Price innovation– Reduce costs /

improve margin– Aggressive & creative

marketing

– NetworkedIT services

– Broadband– Mobility solutions

21st Century Network

Long-term Partnership

with our customersDefend traditional

Grow new wave

… evolving to meet our customers needs

Earnings per share (1) 23.9p

Group revenue £20.7bn

EBITDA (1) £5.8bn

FY 2007/8 – Group financial headlines

(1) Before specific items

11%

3%

2%

5%

Free cash flow £1.5bn

5%Dividend 15.8p

0

2

4

6

8

10

12

14

16

2003/4 2004/5 2005/6 2006/7 2007/8

Interim Final

FY 2007/8 – final dividend 10.4p

pence

Full year dividend 15.8p up 5%

Customers

Globalisation

Investment & returns

People

Opportunities and priorities

Continue to deliver for customers and shareholders

BT Group plc

Ben Verwaayen - CEO

Earnings per share (1) 7.0p

Group revenue £5.4bn

EBITDA (1) £1.6bn

Operating profit (1) £0.8bn

Free cash flow £1.7bn

Q4 2007/8 – Group financial headlines

(1) Before specific items and leavers

11%

2%

2%

7%

9%

Q4 2007/8 – revenue by customer

40%

12%23%

25%

Corporate

Consumer Business

Carrier

Strength in mix of customers and businesses

Corporate

Q4• 28% growth in non-UK revenue

• Further improvement in Global Services EBITDA* margin,13.7%

• Order intake £2.8bn

Key business trends• Globalisation• Convergence• Right sourcing• Capabilities

Corporate revenue growth

0%

2%

4%

6%

8%

10%

Q1 06

/07

Q2 06

/07

Q3 06

/07

Q4 06

/07

Q1 07

/08

Q2 07

/08

Q3 07

/08

Q4 07

/08

0%

2%

4%

6%

8%

10%

Q1 06

/07

Q2 06

/07

Q3 06

/07

Q4 06

/07

Q1 07

/08

Q2 07

/08

Q3 07

/08

Q4 07

/08

Re

ute

rs

2005/62004/5 2006/7

£m

2007/8

DF

TS

BT Global Services – £2.8bn order intake in Q4

Other orders

Networked IT services

Rolling 12 months order intake £8bn

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

BT Global Services – customer diversity

Q4 2007/8 order intake

Business

Q4• Value packages

- 39% increase in take-up

• Continued strong revenue growth

– New wave up 33%– Basilica and Lynx boost

service portfolio

Developing our portfolio• Expansion of capabilities into

adjacent markets

• Niche business units complement overall strategy for SMEs

Business revenue growth

-7%

-5%

-3%

-1%

1%

3%

5%

7%

9%

11%

BT Group plc

Running VT

Consumer

Q4• Revenue down 4%

– Impact of free evening and weekend calls

– New wave up 19%

• Household ARPU £274 up £1

• UK’s No.1 retail broadband provider

– 4.4m connections– 30% of net adds*

Customers demand• Value packages• Innovative products• Converged services

Consumer household ARPU£

* DSL & LLU

200

220

240

260

280

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Traditional New wave

Gaming

Wireless Networks

Monitoring and Control

Home IT advisor

BT BroadbandTalk

BT ToGo

BT Total Broadband – work, rest and play

Security & Storage

“Go messenger”now has 300k users

250Kcustomers now

Openzone c.1m minutes

of usage per day

> 2m users

All calls to our Helpdesks

are now free

Entertainment

Launched May 7th

> 600k users

BT Group plc

Running VT

Gaming

Wireless Networks

Monitoring and Control

Home IT advisor

BT BroadbandTalk

BT ToGo

BT Total Broadband – work, rest and play

Security & Storage

“Go messenger”now has 300k users

250Kcustomers now

Openzone c.1m minutes

of usage per day

> 2m users

All calls to our Helpdesks

are now free

Entertainment

Launched May 7th

> 600k users

000sInstalled customer base Installed base

• 214k at the end of March• Now over 250k

Q4 net adds

94k 56k 37k

• 68% of new customers chose a subscription package at point of sale

Usage • 4,660hrs of VoD content now available

• The average number of views per subscriber, per month, was 29

– that’s entertainment

0

20

40

60

80

100

120

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160

180

200

220

240

260

06

-Ap

r2

7-A

pr

18

-Ma

y0

8-J

un

29

-Ju

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0-J

ul

10

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1-A

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21

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2-N

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23

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an

15

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7-M

ar

28

-Ma

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pr

09

-Ma

y

Carrier – BT Wholesale

Q4• £1bn of contracts signed• Operational trends continue as

expected– Low margin transit and PRS

revenue decline continues

– Ongoing migration from IPstream to LLU and price reductions

• Introduced family of 21CN ‘smart’ broadband services

– Higher speeds

– Flexible bandwidth

– Quality control for video

• Launch of next generation Ethernet

Growth• Continued success in long term

managed solutions – £750m of managed access on

next generation Ethernet signed in 2007/8

• Agreements signed during the quarter include

Carrier – Openreach

Q4

• External revenue up 22% driven by LLU growth

• Operating cost down 2% due to previous investment in service

– Average lead times on provision and repair improved by over 40%

Market fundamentals• LLU business model evolving

• Financial Framework Review due soon for public consultation

000’sADSL Broadband

0

2000

4000

6000

8000

10000

12000

14000

Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08

external LLU

BT Wholesale (external sales)

BT Retail

0

2000

4000

6000

8000

10000

12000

14000

Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08

external LLU

BT Wholesale (external sales)

BT Retail

14000

14500

15000

15500

FY 2006/7 Pay inflation Acquisitions Volumegrowth

CostEfficiencies

Re-investment FY 2007/8

Transforming the cost base – FY 2007/8

£304m

£625m£386m

£260m

£148m

£15,

152m

£m

Systems & processesGlobal propositions21CN programmesCustomer service

BT Vision£14,

679m

FY2008/9 target of £700m

£625m of cost efficiencies

21CN – objective remains unchanged

Legacy network 21CN platform

17 networks to ONE global platform

PSTN Migration Converged Core

EndUser

~5knodes

~100nodes

DSLIP-MPLS-WDM

Content ISP

WWW

Class 5 Call ServerFibre or

Copper

21CN – faster, better, cheaper services

21CN now customer led

Speed to Market

Power to Customers

Cost Transformation

Next Generation

Services

Scope extended to include• 21CN Ethernet• 21CN “Smart” Broadband• Software Development Kits (SDK)

21CN – progress to date

• 58% of UK national core infrastructure built

• 21CN “Smart” Broadband – Available from exchanges serving

1m homes and businesses

• 21CN Ethernet – Available to c. 20% of UK business market by the

end of May 2008, rising to 80% or more in 12 months

• 21CN Global Platform – Available in 172 countries

• BT’s Software Development Kits (SDK) now in use – 11,000 downloads

– 500 applications in production

– 5,000 in testing

21CN – SDK, what developers say

“We are very pleased with how rapidly we were able to add the voice and SMS capabilities into the BT BizBox solution…if it weren’t for BT’s SDK we would not have been able to do this so quickly.”

Sarah Laylock, COO of TierLinear

“BT says that it takes one line of code to add voice to an application and it’s true. This functionality is easily accessible and doesn’t require a large budget. Because we are leveraging the power of BT’s global network we know our applications can scale to handle high volumes if needed. This lets us focus on what we do best – building great applications.”

Miha Lesjak, co-founder of Inova IT and inventor of Click2Call.

21CN – forward view

• 21CN “Smart” Broadband– available to over 10m homes

and businesses by April 2009

• 21CN Gigabit Ethernet– rising to c600 nodes by April 2009 – Gigabit speeds will be available

• Converged broadband & voice – Trials 2008, launch 2009

… upcoming in 2008/9• Substantial cost savings

already delivered > £200m pa cost savings > £400m pa, legacy capex savings

• Total cash cost savings will exceed £1bn - Opex savings increase - Capex will be reduced over time

• Revenue opportunities available much earlier

… financials

Business case remains strongly NPV positive

The trends ARE your friends!

Revenue

* Before specific items and leavers

17th quarter of growth

EBITDA*9th quarter of growth

EPS*24th quarter of growth

Dividends

(1.5%)

(1.0%)

(0.5%)

0.0%

0.5%

1.0%

1.5%2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

3.0

4.0

5.0

6.0

7.0

Q1 Q2 Q3 Q4

2002/3 2003/4 2004/5 2005/6 2006/7 2007/80

2

4

6

8

10

12

14

16

2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Final

Interim

BT Group plc

Hanif Lalani – Group Finance Director

Q4 2007/8 – lines of business dashboard

* External revenue

(1) Before leavers

Global Retail Wholesale OpenreachGroup

13%EBITDA(1) 8% 14%2% 0%

10% 2% 12%2% 22%*Revenue

Global Retail Wholesale OpenreachGroup

BT Global Services

10%

Q4Revenue

13.7%

EBITDA

EBITDAmargin

13%

Revenue £2,226m• 19% growth in MPLS

EBITDA £304m with margin improving by 40bp

– Maturing contracts– Global sourcing– Process improvement– SG&A reduced by 1%

Delivered H2 margin expansion

Operating profit up 30%EBITDA margin progression

H1 9.6% 9.8%

H2 11.5% 12.4%

%

7

8

9

10

11

12

13

14

Q1 Q2 Q3 Q4

2006/7

2007/8

2%

8%

BT Retail

EBITDA

£m

Revenue £2,158m• New wave revenue up 24%

– 27% of total revenue

Gross profit up 4%• Margin improved 80bp to

36.5%

EBITDA £391m

Operating profit up 12%

Q4Revenue

EBITDA

200

250

300

350

400

Q1 Q2 Q3 Q4

2006/7

2007/8

BT Wholesale

External revenue mix

£m

Revenue £1,180m• Transit and PRS –

down £97m

• Broadband - down £54m (volume and price cuts)

• £1bn of orders signed in Q4

EBITDA £320m• SG&A reduced by 9%• Headcount reduced by 13%• Process improvements

helping to drive costs down

12%

Q4Revenue

EBITDA

14%

0

300

600

900

1200

Q106/07

Q206/07

Q306/07

Q406/07

Q107/08

Q207/08

Q307/08

Q407/08

Transit & InterconnectPCs & OtherBroadband

External volumes

1%

Q4Revenue

EBITDA

0%

Revenue £1,320m• External revenue up 22%

• Sales to other lines of business down 5%

EBITDA £496m• Operating costs reduced

by £15m

• Record levels of service improvement

Operating profit up 1%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

WLR

LLU

RevenuePOLOsRevenue (net)EBITDA (pre leavers)Depreciation & amortisationOperating profit (pre leavers)Operating margin

Leaver costs Finance costs (net)Profit before taxTax Profit for the period

Earnings per share (post leavers)Earnings per share (pre leavers)

5,4221,0984,3241,569(755)

81415.0%

(56)(97)658

(147)511

6.5p7.0p

Q4 2007/8 results Q4 2006/7Q4 2007/8 Change

5,2921,0714,2211,537(773)

76414.4%

(63)(70)632

(155)477

5.8p6.3p

Note: all numbers are before specific items. Q4 2007/8 specific charge £85m post tax.

2%

2%

7%

5%

11%

£m

3.0

4.0

5.0

6.0

7.0

Q1 Q2 Q3 Q4

2002/3 2003/4 2004/5 2005/6 2006/7 2007/8

Earnings per share

* before exceptional items and goodwill from continuing activities** before leavers and specific items

pence * * *** ****

1,537

212

(836)

713

(68)

1,558

7,914

1,569

(159)

(759)

1,195

(141)

1,705

9,460

Free cash flow

EBITDA*(post leavers)

Interest & Tax

Capex

Working capital

Other (incl specific items)

Free cash flow

Net debt

Q4 2007/8 £m

32

(371)

77

482

(73)

147

1,546

Change £m

* Before specific items

Q4 2006/7 £m

Pension

IAS 19 pre tax£bn

• BT Pension Scheme £2.9bn pre tax in surplus based on IAS19 valuation

• Next triennial funding valuation begins after 31/12/2008

• Pension scheme asset mix– 45% in equities

Pension interest credit • 2008/9 £313m v £420m 2007/8

– but EBITDA benefits from a lower pension scheme service charge-9.0

-7.5

-6.0

-4.5

-3.0

-1.5

0.0

1.5

3.0

2002

/3 Q

1

2002

/3 Q

2

2002

/3 Q

3

2002

/3 Q

4

2003

/4 Q

1

2003

/4 Q

2

2003

/4 Q

3

2003

/4 Q

4

2004

/5 Q

1

2004

/5 Q

2

2004

/5 Q

3

2004

/5 Q

4

2005

/6 Q

1

2005

/6 Q

2

2005

/6 Q

3

2005

/6 Q

4

2006

/7 Q

1

2006

/7 Q

2

2006

/7 Q

3

2006

/7 Q

4

2007

/8 Q

1

2007

/8 Q

2

2007

/8 Q

3

2007

/8 Q

4

2008/9 outlook

* Before leavers and specific items

Revenue, continued growth expected

Costs, £700m of efficiencies to be delivered

EBITDA*, growth underpinned by cost transformation

Earnings per share*, growth driven by operational performance

Capex, reduces to around £3.1bn

Free cash flow, similar level to 2007/8

Dividends per share, will also grow

Continue to deliver for shareholders and customers

BT Group plc

Ian Livingston

BT Group plc

15 May 2008