BT Group plc

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• BT Group plc
• Ben Verwaayen - CEO

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Forward-looking statements - caution

• 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 cash flow, earnings per share,
  customer satisfaction and debt reduction targets
  dividend policy and intentions regarding
  increased dividend payout ratios expectations
  regarding broadband growth and revenues from new
  wave initiatives and consumer mobile the
  possible or assumed future results of operations
  of BT and/or its lines of business expectations
  regarding revenue growth, capital expenditure,
  investment for the future whilst increasing
  returns to shareholders and managing an efficient
  balance sheet and enhanced shareholder value,
  cost efficiencies and the benefits of cost/capex
  savings programmes, including the 21st Century
  Network.
• 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 and its
  lines of business future regulatory actions and
  conditions in BT's operating areas, including
  competition from others in the UK and other
  international communications markets 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 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, including broadband and
  other new wave initiatives, not being realised
  the timing of entry and profitability of BT and
  its lines of business in certain communication
  markets significant changes in market shares for
  BT and its principal products and services to
  the extent that BT chooses to sell assets or
  minority interests in its subsidiaries,
  prevailing market levels for such sales general
  financial market conditions affecting BT's
  performance. 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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More questions than answers?
Cost cutting cant go on forever
BT cant grow

The core business is under threat
BT has no mobile business
Competition and Regulation is increasing
Dividend is not high enough
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Delivering Shareholder Value
Long term

• Defend traditional
• Improved service
• Aggressive creative marketing
• Price innovation
• Reduce costs / improve margin

partnership
with our
customers

• Grow New Wave
• Broadband
• Mobility
• ICT
• Global Solutions

21st
Transformation
Century
Network
Services, Relationship, Efficiency...
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Financial summary H1
Group turnover 9.2bn 1
Earnings per share 8.5p 37
Free cash flow 1.2bn 59
Interim dividend 3.2p 42
Net debt 8.8bn 33
Before exceptional items and goodwill
6
H1 Turnover - Traditional decline / advance in
new
- 1
9.5
Total Revenue bn
9
1.2
8.5
23
1.5
New wave
New wave
8
7.5
7
8.1
6.5
7.7
6
- 5
Traditional
Traditional
5.5
5
H1 02/03
H1 03/04
New wave BT Retail and Wholesale new wave plus
Syntegra and Solutions revenue
7
Q2 Revenue by customer group
New Wave Proportion for Q2
03/04 02/03 Consumer
3 1 Business
12 9 Major Corporate 39
34 Wholesale/Carrier 7 5
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Consumer
Access lines increased over 200k since Sep 02
Primary lines 12k Retail DSL 305k Second
lines 77k ISDN lines 39k
Net average revenue per customer household
271 up 1 year-on-year

• rolling 12 month average net of
• payments to mobile operators

Access lines by type
20.5m
Net average revenue per customer household
280
60
20.0m
19.5m
58
260
19.0m
56
18.5m
18.0m
240
54
Jun-
Sep-
Dec-
Mar-
Jun-
Sep-
Dec-
Mar-
Jun-
Sep-
Dec-
Mar-
Jun-
Sep-
Q1
Q2
Q3
Q4
Q1
Q2
00
00
00
01
01
01
01
02
02
02
02
03
03
03
02/03
02/03
02/03
02/03
03/04
03/04
Primary lines
Second lines
ISDN
Retail DSL
Traditional
New wave
contracted
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BT Together pricing - simple and complete
Monthly Fee 2.00 8.00 19.00
Evening Weekends 6p per call No
charge No charge
Daytime 3p per minute 3p per
minute No charge
Package (customers) Option 1 (5.3m) Option 2
(1.2m) Option 3 (200k)
And great value...
plus standard monthly rental 9.50, for a
call up to an hour long, minimum charge 5p
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Business / Major Corporate

• Turnover flat yr on yr and vs Q1
• Business down 4
• Major Corporates up 1
• driven by new wave
• UK fixed voice minutes
• Overall calls market down 6 yr on yr
• Migration to new wave IPVPNs impacting
• Calls market share down 0.8 to 41.2 since Q1

CPS growth is largelyat the expense of IA
Min (m)
800
600
400
200
0
-200
-400
-600
02/03 Q2
02/03 Q3
02/03 Q4
03/04 Q1
03/04 Q2
IA
CPS
IA CPS
And net impact reducing
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Business Major Corporates

• BT Business Plan - up 50
  in 3 months
• 154k locations
• 98k customers
• BT Local Business update
• 33 live BTLBs covering 500,000 customers
• 230 sales professionals facing customers locally
• c500m annual billed turnover now under
  management
• Broadband / ICT
• now have 184k broadband lines
• New wave growth 27

Record Order intake of 5.3bn in last 12 months
including Unilever 1bn, 7yrs Royal Mail 400m,
10yrs National Bank of Australia 145m, 5
yrs and Bavarian State Government Spanish
Ministry of Public Admin Average contract term c
6yrs almost 75 is new business 15 of wins from
outside UK
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NEW WAVE ...

• Broadband
• Mobility
• ICT
• Global Solutions

Opportunities abound
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Broadband

• Q2 revenues gt 100m
• Reach extended to exchanges serving 80 of UK
  homes triggers now set for 90 of exchanges
• DSL market share of Broadband
• Total 52
• Q2 adds 67
• Orders per week gt 40,000
• More than just access

End user connections as at 31st October 2003
1,500,000
Including OLOs Midband customers (BT estimates)
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Mobility

• Technology
• WiFi over 1,700 Openzone hotspots live
• Bluephone trials ongoing, positive progress
• Mobile Office service for corporates offering
  converged WiFi/GPRS/PSTN/Broadband
• Service Provider
• Business - increasing number of Corporate
  customers
• Consumer - launched 31/10/03, ready Christmas

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ICT

• Opportunities in the UK
• 23bn market growing at 7
• BT grew market share by 1 last year, to c10

• Opportunities in Europe
• 75bn market in Western Europe (ex-UK), growing
  at 9
• BT share lt 2
• Global Solutions (non UK) order intake c600m
  in last 18 months
• BT is growing twice as fast as the market

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Global Services (including Solutions)

• Q2 Results
• Turnover 1,381m up 5
• EBITDA up 91 (pre leavers)
• Operating losses cut by 61
• Free cash flow positive this quarter (post
  leavers)
• Recognised as a leader amongst pan European
  network operators and service providers
• Market leading VPN growth, driven by MPLS revenues

400m
EBITDA rolling 12 months
300m
200m
100m
0m
Q4
Q1
Q2
Q3
Q4
Q1
Q2
(100m)
2001/02
2002/03
2003/04
Q4
Q1
Q2
Q3
Q4
Q1
Q2
0m
(300m)
(600m)
Operating FCF rolling 12 months
Gartner European Data Services Magic Quadrant -
Aug03
(900m)
All numbers are post leavers
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Costs efficiency, achieved targeted

• BT Retail
• - SGA (traditional) to reduce by 800m 00/01 -
  04/05
• 800m will be reached a year early in
  2003/04
• BT Wholesale
• - Cash cost efficiencies of 650m 01/02 - 04/05
  75 Achieved by 03/04
• BT Global Services
• - European ops to EBITDA positive by Mar 03
  Achieved
• - Ex-Concert EBITDA breakeven Dec 03
  Achieved early

• gt 1bn further cost efficiencies over next 3
  years
• Wholesale Process improvement
• Netcentricity
• Duplication Removal
• 21C Network
• Standardisation
• Reduction in support costs
• And 21CN benefits continue to accrue beyond
  2006/7

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21st Century Network

• What?
• IP Centric
• MPLS Core
• Multi-function voice and data network

• Why?
• Lower Cost
• Flexibility to Empower customers
• Speed to market

• How?
• Aggregation at access network edge
• Simplification of architecture
• Sealed access network

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Profits and cash during transformation
Earnings per Share Rolling 12 months
Free cash flow (before dividend) Rolling 12
months
bn
Pence
18
2.0
16
1.6
14
1.2
12
0.8
10
8
0.4
6
0.0
4
(0.4)
2
(0.8)
0
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2002/03
2001/02
2003/04
2001/02
2002/03
2003/04
FCF for 2001/02 excludes the property
transaction and includes pension payments,
demerged and discontinued activities
EPS is before exceptional items and goodwill
amortisation
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Increasing returns to shareholders

• Net Debt
• Target around 7bn in 2006/07
• Dividend policy
• c50 pay-out ratio for 2003/04
• Progressing to c60 for 2005/06
• Share buy-back
• Commence an ongoing programme
• Funded from cash flow after debt reduction,
  dividends, acquisitions and disposals

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Remember when ...
FRS 17 pension deficit
Debt

Global will never turnaround
No Free Cash Flow
1m Broadband a pipe dream
Low EPS
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Transformation strategy is on track

• From traditional to new wave
• Network investment and process improvement to
  deliver efficiency and new services
• Customer focus
• Strong financial discipline
• Broadband at the heart of BT
• Increasing returns to shareholders

Delivering today AND investing for tomorrow
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QA

• BT Group plc