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BT Group plc (ADR) (NYSE:BT)

2013 Annual General Meeting

July 17, 2013 6:00 am ET


Michael Rake - Chairman, Chairman of Nominating & Governance Committee, Chairman of Committee for Sustainable & Responsible Business and Member of Bt Pensions Committee

Ian Paul Livingston - Chief Executive Officer, Executive Director, Chairman of Operating Committee and Member of BT Pensions Committee

Patricia Hewitt - Senior Independent Director, Chairman of Remuneration Committee, Chairman of BT Pensions Committee, Member of Audit & Risk Committee and Member of Nominating & Governance Committee

Michael Rake

Good morning, ladies and gentlemen. Welcome, and thank you very much for coming to our 2013 Annual General Meeting. It's a particular pleasure to be back here in Edinburgh today. We meet so that the board of BT can report to you on how the company has performed, and the story is a very positive one.

Our financial results have met or exceeded expectations. We have continued to reward you, our shareholders, and we have continued to provide services for a wide array of customers, including very noticeably, last summer, when we helped to deliver a successful Olympic and Paralympic Games. We were both sponsors of and infrastructure provider for this important event. It was BT who helped broadcast video and data to the world. We were able to deliver success here on many other fronts, thanks to the tremendous efforts of our people and the strength of a very talented and dedicated management team.

As many of you know, we announced last month an important change to that team. The change arises because the Chief Executive was asked by the Prime Minister to become the Minister of State for Trade and Investment. Ian's view, which I share, is that it was an honor for him to be asked to serve the nation in this way. He will leave BT in September and commence work as Trade Minister in December after 11 very successful years with this company, the past 5 of them as our Chief Executive. The company has become distinctly stronger on Ian's watch, as we saw in the full year financial results.

But I also want to turn to the appointment of Gavin Patterson as Ian's successor taking over in September. The board was very clear that Gavin is the right person to lead BT in the years ahead. As Chief Executive of our Retail Division, Gavin has become a member of the BT board for the past 5 years. He has a detailed knowledge of all parts of our business. He was involved in creating the strategy, which has delivered BT's recent record of strong performance. He is committed to continuing to develop and implement that strategy, including through the launch of BT Sport, an initiative which he helped to conceive and where his involvement has been critical. As the leader of our Retail Division, Gavin has consistently delivered strong financial and operational results, and the board has every confidence the company will continue to move forward with the relentless execution of our strategy.

Let me now turn to the financial results for the year, which Ian will cover in detail. These showed a very healthy position with regard to cost control, profits and rewards for shareholders and compared very favorably to an industry, which across Europe, has seen profits and cash flows decline. Our financial performance has been such that we proposed a final dividend of 6.5p, taking the total dividend for the year to 9.5p, an increase of 14% on the previous year. That is towards the higher end of the 10% to 15% range, which we promised, reflecting our good performance in the year. And we continue to expect that we'll increase dividend payments by a further 10% to 15%, both this year and next year.

Just as we take seriously our obligation to deliver strong financial results, so we take very seriously all of our wider obligations to society and the communities in which we live, as we do through our people and through our technology. I'm proud that we made time for BT people to spend more than the equivalent of 43,000 days volunteering to help with a huge array of charitable and community projects around the world. During the year, we worked with 856 charities across more than 2,000 projects. Many were small-scale local initiative -- initiatives. Others were higher profile, for example, supporting Children in Need and Comic Relief. On Red Nose Day, hundreds of BT volunteers were the heart and operation, which dealt with more than 450,000 phone calls. Their effort helped Comic Relief raise GBP 75 million, the highest [indiscernible] total in the history of Red Nose Day. In total, BT provided around GBP 30 million in cash for support to good causes in the U.K. and around the world. And our commission-free MyDonate platform for online giving continues to make progress, helping 3,600 charities to raise GBP 25 million over the year. All this is activity which we are very proud, but we never forget we're able to do these things because we are running your company in a manner that delivers financial success.

So before I finish, I want to show you this. As this slide shows, over the past year, the average return on shares held in the company listed in the FTSE 100 gave a return of 16%. For European telecommunication companies, the average figure was negative and minus 3%. For BT, by contrast, the return was 55%, and our share price is now the highest it has been for 12 years. As you can see, it is also similar picture for 3 years where BT has achieved 124% return, far outpacing both the FTSE in comparable companies. I think those figures show that the strategy we have for this company continues to be the right one. Our aim remains to drive profitable revenue growth and to increase our profits and cash. We are making the returns we need to invest in your company and make it even stronger for the future. You can see that with our rollout of fiber optic cable for faster broadband, which is one of the fastest rollouts in the world. You can see that with our investment in BT Sports and Television. And you can see that as we continue to drive investment in high-growth areas of the world.

Around 1/4 of our revenues are now outside the U.K., and we are seeing double-digit growth where we've made investments in the high-growth geographies, such as Middle East, Asia Pacific and Latin America. The management team continues to run the business in a manner which enables all of this and enables us to reduce our debt, support the pension fund and pay you, our shareholders, a progressive dividend. As a company, our vision continues to be one of better serving all those who have a stake in the success of BT.

And I'm now going to hand over to Ian, who will go into greater detail about how we are making that vision a reality. Ian?

Ian Paul Livingston

Thank you, Michael, and thank you for coming today. A nice sunny day in Edinburgh is normally like this, I know. Also, I would like to thank all of you, our shareholders. Some of you have come to many of our AGMs, and I'd like to thank you over the years for your help and support. It is very much appreciated.

What I want to do is talk to you today about -- a little bit about how we did last year, a bit about the markets in which we operate, but really concentrate on BT strategy, what is it and how we are doing with it.

First of all, in terms of last year's results. In terms of revenue, our key measure is what we call underlying revenue, which was down 3%. Now we still don't want to see our revenue decline, and we're absolutely investing for growth. But that number represented certainly a number that was -- compared well to our European competitors, and also by the last quarter of the year, we've managed to stabilize the business with no declines. And that decline really reflected price reduction, particularly due to regulation, but also niche of our business, prices often go down in many parts of our business. However, despite the decline in revenue, we actually saw an improvement in earnings per share, up 12%, the key measure of profitability.

Our free cash flow was flat, really maintaining a much higher level. 3 year -- 4 years ago, we were achieving around GBP 700 million odds in free cash flow. Today, GBP 2.3 billion despite substantial investment in a number of areas that will drive our future growth.

Net debt will continue to come down. We reduced our net debt by over GBP 1 billion. And it is very important to us as a management team, I'm sure to you as shareholders, that we actually focus on bringing down net debt, make our company very strong and stable. And it's something that has improved over many, many years, and it's something we are committed to do, a strong company that invests in the future.

Turning a little bit to the markets in which we operate. I know people often like to rubbish the U.K. and say how the U.K. isn't doing so well. It's not true in telecom. It's not true at all. And in fact, often as I go around Europe, I get European commissioners, I get other telecoms company, I get people who are experts in the telecoms industry, praising the U.K. and how we're doing. And you can see these in these charts. These are charts by Ofcom, not from BT. That's from Ofcom. And what they say is that in terms of price, the U.K. is one of the cheapest markets for telecom services, cheaper than Spain, cheaper than Germany, cheaper than France, cheaper than [indiscernible], cheaper than the U.S. Now I don't know how many of you go on holiday to the U.S. ever, but nothing is cheaper in the U.K. than the U.S. But telecom is and significantly so. And that actually reflects competition. And it's not just true in traditional fixed lines. It's not just true in the second chart of broadband, but also superfast broadband, so fiber. You see just how much cheaper U.K. prices are. And that's really put the U.K. in a good position.

And you see that good position isn't just about price. If you [ph] intend to talk about the U.K. being slow, and we know there are some places we're rolling out fiber as fast as we can in some places that doesn't have it. But again, an independent study, not something commissioned by BT, we're now a #2 in the G8 group Of companies for fastest broadband speeds. We're behind Japan, although the topology of Japan, obviously with more people living in apartment blocks, makes it easier in some ways, but we're ahead of our major industrial competitors. And that position is improving all the time with our fast rollout program.

So we do well on cost, well in speed, and also, on overall usage of Internet. The U.K. actually uses Internet a lot. And we're actually ranked, this is a survey by Boston Consulting Group, they are one of the major consulting groups, #1 in the world for the index of Internet strength, so how much people use it, the Internet, and how much it contributes to the economy. So we've got a lot to do in the U.K., and we're doing a lot. But actually, we start from a pretty enviable position. We're building it, recognize our weaknesses, try to build up. But I think particularly with BT and the investment that your company has made, actually it's something to be proud of.

And that really brings us to strategy. Our strategy, and I'll explain it, if you start at the bottom left, starts with customer service delivery. And it starts for 2 reasons there. One for the obvious reason that we know we need to improve our customer service delivery because people rely on our services more and more and more. The second reason also is when something goes wrong, it's also an expensive thing not just for the customers but for us as a company. And therefore, it's one of the major sources of cost in our business. If you can remove failure, we'll reduce our cost base. And that is why customer service delivery leads on to cost transformation. Take the failures of the business, you create better business. And as we create a better business with lower costs, we free up resources to invest in our future, invest in areas such as fiber, in TV, in the fast-growing economies to create a growing, strong business with sustainable, strong and growing cash flows and profits. And that is what all we want to do.

And what I want to do is just to talk you through each of the elements and tell you honestly about how we're doing. Mostly good, and sometimes, we got to do better, and we recognize that as a management team. And probably no area more so than customer service delivery. I could look over the last 4 years and say we've made improvements and we have. It's true. Our consumer complaints are almost down by 2/5. And actually, if you look to our business complaints, they're down by around about 4/5, so a huge improvement. But still too many. But last year, it wasn't so good. We measure something called right first time, and that's a key measure of how we've done things right first time. And it went backwards last year.

And the reason it went backwards after many, many years of improvements, the last 4 or 5 years of improvements, there's a number of reasons. One of them was we have the wettest weather, some of the wettest weather even in the U.K. England had its wettest in record. Scotland was -- we also had a bad winter but not -- a bad winter and summer, but not quite as bad as England did. And that meant we had a lot more repairs. Water levels rose up, affected electricals. We have got a lot more resource into repair. As we had to put it into repair, we had to take resource off, provisioning new lines, and that meant things took longer than we would have wanted. It meant we have more calls to our call centers, and it really did impact the customer service. And we know that, and that showed up in the numbers.

I'll talk shortly about how we're trying to deal with that because we've got to recognize most of our hope not to have the worst weather on record every year. We are recognizing the weather is going to get more variable. Also, we recognized we have to recover from these situations more quickly. And we have started to see a stronger recovery, and we have seen the first quarter of the year, this year, much faster provision, repair times, and that's improved a lot. But we're also planning significant improvement, and I won't cover all of the areas but just to give you a feel of some of the things we're trying to do in making significant further investments in service.

First of this, this starts really when you make a call. I know people hate, and I include myself, the press 1, press 2, press 3. A little bit, it's necessary because we've got to get the right sort of agent with the right sort of skills to handle it. But it takes too long, and there's too many buttons to press. And the more complex our business get, it doesn't get better. Well, one of the things we've done, and it's a really important thing, is we recently introduced actually voice recognition. So if you say, "I want to talk about my bill," it will recognize it, recognize over 9 times out of 10 what you want. And about half our customers are using that now, taking away huge amount of button pressing. Otherwise, we're trying to reduce the number of options, number of menus. We're trying to multiscale our people so we don't have to be so specific about it. And we've taken about a 20% of the time outside the pressing buttons. But there's still work to do, and we know that, but we are working on it.

We're also investing in servicing a number of areas. We've recruited, for instance, 1,600 engineers to help with fiber rollout but also to help with the repair situation, to make sure we can manage spikes in our repair, looking -- working with more flexibility so we can bring on more people when we really need it. But also, we've invested in contact centers so we can handle our calls. And over the last few years -- last year, 18 months, we've opened contact centers in South Tyneside, in Belfast, in Accrington, in Sandwell, which is in the Midlands. And we created jobs in the U.K. in doing that. Also, these people have multiple skills. So again, that helps. And the terms and conditions are more flexible. It allows us to provide service when you need it. And that's something we want to continue. We are still looking to see how we continue that. Whilst around about 80% of our call centers are in the U.K., we want to carry on increasing that, and we'll work with the unions to see how can we provide people at the times our customers need them in a flexible and competitive way. And if we can do that, I think we can have more call centers opening up in the U.K., expanding a number of existing call centers and creating more jobs. And that's something that I know Gavin and the team will be working on over the course of the next year.

But also, it's about diagnostics because people often say to me, "Okay, send an engineer." Now sending an engineer when an engineer isn't the right answer is as bad, frankly, as not sending an engineer when an engineer is the right answer. And it's really important to have better diagnostics to help you and your home so you know when maybe you've got to call us or something, maybe you can sort it yourself because you need to just -- you can identify what the issue is, maybe sign with the internal wiring, but also identify for us whether it may be in the exchange, whether some of the installed copper lines, and we put a lot of investment into trying to stop that happening, or whether it's somewhere else in the network.

We've also given our engineers better tools. So you'll see a number of engineers. So they're actually carrying iPhones. It's not because they choose to carry iPhones for personal use. Because we can give them a wealth of information. And actually, it's one of the largest installations of iPhones in business anywhere in Europe. And it's really helping our engineers do things more quickly, reduce the task time and give them better information. So there's a number of things we are doing. But we know, and we absolutely know, there is more to do. And we're really focusing on making sure this year is significantly better than last year, and frankly, the year after, better still.

Now turning away from customer service to cost transformation. This has been a big success in making our business more efficient, and it's vitally important. It's a quicker business. It's one that has less failures in it. And we've reduced our cost by GBP 4.7 billion over the last 5 years -- about the last 4 years. And that represents over 20% of our cost base. So really, really significant reduction. And this is a more competitive business. It's vital. If we don't have a competitive cost base, if we're not agile, we're not quick, we just won't win business. So it's been really, really important. And that has released investment funds, not just cash but also people's tying systems, focus, to allow us to build new streams of business, which I'm going to talk about in a second.

But one of things we're very conscious of, as you become more efficient, you need less people. What we try to do is protect the jobs of our permanent people where we can. And we can't always do it, but we've retrained and redeployed tens of thousands of people over the last 5 years. In the last year alone, we've in-sourced 4,000 roles. And that's really important. I think one of the jobs of, as the board, is try and protect as much as we can our full-time employees, our permanent employees. And we see a substantial reduction in number of agency staff and temporary workers working for us and actually managed to maintain the jobs far better of BT people, permanent BT people, and I'm delighted about that.

So we think we've got more to do. We're still not as efficient a business as we want to be, but we'll carry on doing that. We'll carry on being more efficient. We'll carry on being a quicker business, and we'll carry on finding ways in which we can protect and enhance the job for our people and hopefully recruit more as well.

So that turns me to investments for the future because all of these release of funds allows us to invest in the future. And there's a number of areas we're doing it, the areas such as fiber, TV and sport, IT services and the area of mobility. And I'll talk about each of these through the slides.

The first area of our strategy is what we call growing broadband-based consumer services, so basically, broadband for consumers. And first of all, we're being reasonably successful. If you look at the chart on the right-hand side, what you see is a market share of installed broadband. And that's for BT Retail. That's gone up, if you notice, over the last 5 years, every single year, 27, 28, 29, 30, 31. And the reason it's gone up is we've had last year around about a 50% of that, slightly more than 50% share of broadband net additions. So all of people making decisions to buy broadband, slightly over half of them come to BT. So that's a success and something we want to build on. And the reason we're having that success is a number of areas.

First of all, fiber. I'm going to talk more about our rollout of fiber. But we have well over 1 million fiber customers, and it's a pretty new thing, and that's a great take up rate. And that's double just in the course of the last year.

BT Wi-fi, we have the largest WiFi hotspots. If you ever login, you can see BT Wi-fi signal many places around town and in public places, train stations, hotels and the like. We actually have the largest state of WiFi hotspots in the world. 5 years ago, people spend about 250 million minutes on this. So that's a big number, 250 million minutes. Last year, over 13 billion -- 13 billion minutes. That shows the explosion of growth. That's a very important part of our offering because that service is free to BT broadband customers. Also free to BT broadband customers like our SmartTalk. On a lot of your smartphones, you can download this application. About 250,000 people have done it. And you can make calls from anywhere in the world as if you were using your home phone with BT. It saves you a lot of money in roaming charges. If you're going on holiday this year, I'd really encourage you to try and download this application. You got an Android phone or an Apple phone, it works very, very well. You can save a lot of money, and it's now a service from BT.

And also BT TV. It's growing faster than Sky or Virgin. And we'll be adding new programming, new capabilities. But I guess the thing that's had the most focus has been BT Sport. And we're launching just a few weeks from now BT Sport 1, BT Sport 2 and ESPN. And it's going to have great content. It's going to have Scottish Premier League. It's going to have the Scottish Football League. I think it's -- I think English Premier League, they call it. And we'll have a number of great content in terms of football, but also the league, Germany, Italy, the U.S., France, Brazilian league. Not just football, women's tennis. And tennis is obviously becoming more and more popular. So we have WTA tournaments. You'll have a lot of rugby on it. You'll have World 7s and English and French rugby leagues on it. And we hope also to have the European leagues on it and also things like Moto GP. So a whole range of sports and great traffic and great presenters. And we're delighted to announce today that we have just renewed our rights for the FA Cup. So we were showing the English FA Cup for the 4 years. So that would be 5 years in total. So a great range of sports. it's going to be great quality of investing in new stream of deals. We've got a great lineup of talent. This is going to be very, very good. But it's also going to be free. BT broadband customer, and as I said, consumer, so consumer broadband customer, it will be free, and that's a great price. It's a service from BT. And what we think this would do, it will encourage more and more people to take our broadband services. 80% of people in the U.K. today don't pay for Sport. It doesn't mean that 80% of people aren't interested in Sport. It's just it's too expensive. We're giving them another option. So we think it's going to be very good for people. We think it's going to encourage them to take broadband. We think it's going to encourage them to take Infinity. And as you hopefully have seen, we've been advertising it, not just English games but also Scottish games. So perhaps may be you might see this advert, some characteristics you recognize from around these parts.


Ian Paul Livingston

Looking forward to start. Turning away from the consumer business to our business of servicing small- and medium-sized businesses, over a million small- and medium-sized businesses in the U.K. We have a simple aim here, is we recognize that these businesses require a number of specifically just services, ranging from broadband to mobile to IT services like servers, licenses and cloud services. But they don't have the time, or sometimes expertise, to go and search in different companies for them, and they also don't, like we like to say, have a single brand for business, their go-to brand. Very simply, we want to be that brand, the place that small businesses go for all the IT and communications services. And we're doing pretty well with that. Of course, the small- and medium-sized business market has been very difficult. Of course, it's been declining. But despite it's been declining, we've held our market share in our traditional business of making calls and lines. But we're seeing a huge growth in our market share, actually, in IT services, providing the things that go around it. And we've actually seen double-digit growth. And that's really allowed us, first of all, to stabilize and we hope going forward to grow that business. We think it's a real opportunity for hundreds of million pounds of additional revenue by actually being the brand for business and provide the services. That position is open, and BT absolutely intends to fill it. And in doing that, we will also not just provide general services but also have intimate focus in certain markets.

So for instance, we recently bought a business called Tikit. Now Tikit is -- what it does is provide software and IT services for legal firms and accountancy firms professional services. They have a lot of small- and medium-sized businesses in that area. Industry expertise, as we've done, for instance, in the area such as retailing already, add that together with our general capability. And we think there's a real opportunity for us as a company to serve our customers and actually make good revenue, good profits from it.

Moving up the scale and size to BT Global Services. BT Global Services provides network capability to governments and companies around the world. You would know the names. 94% of the FTSE 100 companies, you would guess, we're a big U.K. company, but also 74% of Fortune 500 companies. That's the biggest companies around the world. Some of the names you'll know. Some of the names are local. Let me just give me you a feel for that, ranging from Rolls-Royce, Novartis, Unilever, Brazilian companies, Italian companies, here, the EU, we're a big supplier to, like I said, NATO, Tesco. And then some more local entities. Of course, in Edinburgh, we've got a lot of services there. [indiscernible] as well. And we've got work in pensions. We are today ranked by Gartner, which are the industry guru for IT directors. We are recognized as being the #1 provider of this in the world. So bigger than the AT&T -- or consider as actually better by customer than the AT&T, Verizon, Cable & Wireless, Orange Business Services, France Telecom, a very success story. And as the Chairman said, about 25% of our revenue is now outside the U.K. About half of Global Services is. We made good progress in customer services there. Actually, we're recognized again as being the top of what we do in customer services. We've seen strong growth in Asia, Latin America. So we look after the Brazilian Post Office for instance. We also have seen improvements in our cost transformation, which is really important. And Global Services is a business that achieved, on one hand, half of what it set out to be, to be the global leader. What it hasn't done but is working on very hard, and we're seeing earlier results from that, is have the financial results to match. And that's very important because ultimately, that's what we need to do. And we're seeing improvements, but the real focus is being able to do the cost transformation, so it's financial results can match its overall.

Turning now to the fourth or fifth part of our growth area, wholesale. We provide wholesale services to other telecoms companies around the world. We are the largest in Europe at doing that. And that's being a difficult business with regulation and a lot of technology changes. They started to grow on an underlying basis. And we saw our EBITDA, underlying profits and revenue up 2% last quarter, so a big improvement. We see our order book boom, with GBP 700 million a year ago, but the year we just finished, GBP 2 billion worth of orders, so increase of 3x. And investments we made a few years ago are coming to fruition. Something called IP Exchange versus about taking IP voice traffic and things like Skype, and in fact, BT SmartTalk, for instance, from one operator and send it to another, acting as sort of an exchange for it. Well, we set up that business. It didn't exist 3 or 4 years ago. Today, it's GBP 100 million business. In the medium term, we think it could be a GBP 500 million business. Investment we've made in the past is now delivering. In the same way as we're making investments now that we expect to deliver in the future. And the big one of those investments is in being the best network provider. Now that really comes into 2 bits. First of all, I'll talk about fiber, and now I'll talk about our investment in 4G and in mobile sector.

On fiber, as the Chairman said, we have one of the fastest rollouts, if not the fastest rollout, anywhere in the world of fiber. We passed significantly more than 15 million households. We said originally, in a number of years ago at the AGM we said, we expect to do 2/3 of the U.K. by the end of 2015. And a lot of the industry analysts said, "You'll never do it. It's going to cost you more. You'll never do it." Well, the news is it isn't costing us more, and we're going to do it by the spring of April 2014. But we're not going to stop there. That's what we call as commercially right. We can do it around. We've also been working with government, absolutely up and down the U.K., deliver more than that. And we believe that we can deliver over 98% of premises with fiber over the next 2 to 3 years. We think there's a real opportunity to do that, and we are working with what's called BDUK to do that. If you look at the green on the map, these are all the areas that we contracted to provide fiber, usually to 90%, 90-odd percent of the population in that area. And we're delighted over the recent weeks, we've announced big investments in the households in the rest of Scotland. More than GBP 400 million of government and BT investment that we think we'll provide over by 2017, provide fiber to well over 90% of people in Scotland. So really hard to reach places, islands in particular. There's a lot of undersea cable going on. There's a lot of engineering work. One of the most complex projects. I think it's going to be tremendous for Scotland. It's going to make a change for the people in Scotland. So it's not just homes in cities. and today it's not just homes in cities, but we're filling in the map of the country.

I mentioned the other area. It's not just fiber. We invested GBP 200 million in new mobile spectrum. The reason we've done that is we recognize that mobile is another area where you can use your iPad, you can use your mobile phone and you create data. And you know what it's like when you're in your house, often you can't get a mobile signal. But what we're going to do is say, well, everyone else is building all these mass all around the place. I'd say we're not going to do that. What we're going to do is your capability user broadband lines we've got coming to the house and help us create little micro stations in your home hub that you got already. That will allow you to get great indoor signal for your mobile phone for data and voice. We're going to start in the business market and then move to consumer market. But when everyone else is building these things outside, we're going to build it inside. You can still go out and about and roam on to networks, and you'll be able to do that as BT customer. But it's going to make the best connect. So whether you're in business or whether you're in the household, you'd be best connected.

The last part of our strategy isn't so much about direct growth. It's something the Chairman mentioned. It's about a position that's being responsible and sustainable for business leader. And we set in our strategy 3 what we call North Star Goals, goals creating a better future because we believe in a better future, not just for our business but also the societies in which we operate. And there are things that we believe that only BT can do, and that's very important. And the first of these actions I just referred to is helping society better connected.

We aim to deliver fiber to 9 -- to more than 9 out of 10 households, make it available to them by more than 9 out of 10 households by 2020. Actually, I think we'll do it well before 2020, but that's our aim.

Our second aim is what we call Net Good. Now you hear Phil talking about carbon emissions, and many companies aim to be carbon neutral. We don't think that's good enough. We are aiming to save 3x as much carbon in our customers as we use ourselves. So areas, for instance, such as conferencing, providing conferencing services safety while traveling. So if you can use conference, videoconferencing, you don't have to travel. You can speak to people very often over high-quality video screens, providing smart meters in the home, providing data centers that use a lot less power than the old ones used to. Our aim is to both reduce our carbon usage. For instance, almost all of the electricity we buy to date is from green sources. But also save our customers carbon usage to the extent 3x as much save as we use. And we're getting someone independent to verify our effort. It's a big task. It's a big aim. It's what we've been trying to do by 2020.

And the final area again is something the Chairman referred to. We aim to raise GBP 1 billion for good causes using our platforms and unique capability of our people. What do we mean by that? Well, for instance, BT MyDonate, commission-free unlike some of the other sites, unlike most of the other sites. If you're assessing up a charitable donation, you go on that, we take the cost everything apart from credit card commission, which we can do much about, and you got 100% back of the thing. We don't take anything out. We take the costs, but BT uses technological capabilities. We're raising tens of millions of pounds a year and saving charities a lot of money. We're doing the same thing for Disasters Emergency Committee, DEC. We're working with people like ChildLine, for instance, and Red Nose Day and telethons. So Red Nose Day telethon, you will see BT Tower, hundreds of volunteers. In fact, we have thousands of volunteers all around the country, raising money for charity, answering phones but also using our network to do so. So our aim is to use BT resources to raise GBP 1 billion for good causes by 2020.

So 3 big aims. But we think it's very important and key to our strategy and key to the way that both our customers and our people feel about our company, that we are responsible and positive systems [ph] in the society in which we operate in.

So over the last few years, we've made progress. There's no question about it. I think we've got the right strategy. And I think we're showing we're delivering reasonably well against it. We know we've got more to do on customer service. The truth is we've got more to do in everything, and we're working to do that. We've made a lot of investments for the future. Today's profits could be higher if we weren't investing in fiber, if we weren't investing in sports. But we believe we can deliver profits today and dividends today, and at the same time, create the sort of business that when AGMs in 4 and 5 and 6 years' time, we will be talking about the growth in what we're achieving. And you see that growth. You see it in growth and in dividends.

Now this is my last AGM, and that Gavin and Tony and the rest of the team will be taking over. You've got a great team taking over. I've worked with Tony and Gavin for a long time, and they -- I know they'll take this on. BT has had a great path, the path that we're be proud of. I believe in particular that this team has got an even more exciting future. Thank you, once again, for all your support, and I look forward as much as you do to seeing that exciting future. Thank you.

Michael Rake

Ian, thank you very much. Before we move to the formal business of the meeting, I would like to ask Patricia Hewitt, Chair of the Remuneration Committee, to say a few words about BT's Executive Remuneration. Patricia?

Patricia Hewitt

Thank you, Chairman. Good morning, ladies and gentlemen. Resolution 2 is to approve BT's remuneration report, which sets out the remuneration policy and pay for our directors and senior executives. As a board, we believe in pay for performance. Our objective is to ensure that executive directors' total pay is set at levels that are fair to everyone. We don't want to pay executives more than is necessary, but we must make sure that we pay them at levels that allow BT to attract and retain the right people to lead the company and deliver sustained improvements and performance so that we can pay good progressive dividends to our shareholders and continue, as Ian has described, to invest in the business.

As you've heard from both Sir Mike and Ian, BT's performance has again been strong, and that's reflected in the remuneration received by executive directors in 2013. The details are all set out in the remuneration report. But despite the company's strong performance, executive directors actually received a lower bonus in 2013 than they received in 2012. And those reductions reflect the very demanding target that we set on the remuneration committee, as well as the impact of the unprecedentedly bad weather last year, which meant that some customers waited longer than they should have done for repairs and provision. And because customer service improvement is so important to all of us on your board, it's one of the key measures that we set for executive directors' bonuses.

Turning to the long-term share element of executive pay. Up until last year, the incentive share plan haven't vested any shares at all since 2008 because the, again, stretching performance targets that we've set haven't been met. But I'm delighted to say that following strong financial results that were delivered again this year, the incentive share plan for the period from April 2010 to March 2013 has paid out in full, as it did the previous year. It's only the second time that this has been achieved. 50% of that payout was based on total shareholder return performance. And there, BT was ranked second out of 25 companies. The other half was based on a cumulative free cash flow measure where we generated GBP 6.6 billion over the 3-year period. And that was against a stretching target range that we've set a GBP 5.1 billion to GBP 6.1 billion. And when we set that target in 2010, we considered it very demanding indeed. And the fact that it's been surpassed is a real tribute not just to our Executive Team, but in fact, to all our people. The 3-year performance has also benefited over 17,000 of our employees who participated in our 3-year and 5-year share save plans that will mature next month.

Turning to base salaries. The executive directors asked not to be considered for an increase during the last financial year, and we on the committee endorsed that request. For 2013, and again requested that he receive no increase, and the committee agreed. For Gavin Patterson, in his present role as CEO of BT Retail, and Tony Chanmugam, the committee agreed increases of 2.8% for Tony, 2.6% for Gavin, broadly in line with those of our other U.K. employees. But in both cases, their base salaries remained well below the median for our comparable companies.

So Mike has already referred, of course, to the change in Chief Executive that we announced last month, and I would like to endorse his thanks to Ian for your exceptional contribution to BT.

As we announced in the remuneration report, we'll be consulting with major shareholders during the coming months on our executive pay structure so that we make sure that our executive pay continues to align with your long-term interest as shareholders and our strategic aim of achieving profitable revenue growth. We'll maintain our long-established policy of setting salaries for executive directors below the median of our comparator group with a significant proportion, in fact, a majority of total potential pay based on performance against challenging targets. We'll agree on appropriate package for Gavin as our new Chief Executive in line with those principles.

Finally, as I'm sure you know, the government has made a number of changes to the way that companies report and shareholders vote on executive pay. As a company, we've been closely involved in consultations on those changes, which come into effect from October this year. Now those regulations increased the information available to shareholders, and so this year's report already reflects a number of the new requirements. And for instance, we've disclosed for the first time the forward-looking targets for the next incentive -- the long-term incentive awards. We are also disclosing what executive pay would be under different performance scenarios. I welcome that increased transparency, which will help our shareholders to exercise informed judgments on whether we're getting executive pay right. BT, of course, will fully comply with all the new regulations as they come into effect. And in future, as well as the advisory vote on the way we've implemented remuneration policy over the previous financial year, the pay that we are giving our executive directors, shareholders will also, in future, cast a binding vote on the remuneration policy that will apply in future years. And for BT, that first binding vote will take place at next year's AGM.

Ladies and gentlemen, I think BT is a company that genuinely pays for performance and ensures that all our stakeholders, particularly our investors and our employees, benefit from and share in our strong performance. So I ask you to approve the directors remuneration report and commend the resolution to the meeting.

Michael Rake

Okay. Thank you very much, Patricia. And now to the formal business of the meeting. Details...


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