REG - BT Group PLC - Half-year Report
07/11/2024 07:00
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RNS Number : 2705L BT Group PLC 07 November 2024
Results for the half year to 30 September 2024
BT Group plc
7 November 2024
Allison Kirkby, Chief Executive, commenting on the results, said
"We have accelerated the modernisation of BT Group in the first half of the
year. We've ramped up our full fibre build and connections, seen further
improvements in customer satisfaction, and our cost transformation contributed
to growth in EBITDA and normalised free cash flow despite revenue declines
driven by our non-UK operations and a competitive retail environment.
"Our nationwide full fibre rollout has set new records, now reaching more than
16 million premises, and we have further extended our industry-leading take-up
rate to 35%. Our cost to build continues to reduce, enabling us to increase
this year's build target to 4.2 million with no additional capex spend. We
also expanded our 5G network to cover 80% of the UK population, more than any
other operator. These investments in the UK's next generation networks are
enabling much better experiences, reflected in our improved net promoter
scores.
"We are confirming our EBITDA, capex and cash flow guidance for FY25, albeit
on lower revenue guidance. We remain firmly on track to meet our long-term
cost savings and cash flow targets, and today announce an interim dividend of
2.40pps. The accelerated modernisation of our operations, combined with a
focus on connecting the UK, puts us in a strong position to generate
significant value for all our stakeholders."
Solid progress on strategic priorities
• Record FTTP build rate of 2.1m in the half with FTTP footprint passing
16m premises, around half of the UK, in October. We have increased our FY25
build target to 4.2m within our existing capex envelope driven by build cost
efficiencies; on track to reach 25m by December 2026
• Strong customer demand for Openreach FTTP with record net adds of 446k
in Q2; total premises connected 5.5m with an increased and market-leading take
up rate of 35%. Growth in FTTP as a proportion of the broadband base
contributed to a reduction in 12-month repair volumes of 0.3m to 3.0m,
supporting growth in margin and EBITDA
• Openreach broadband ARPU in H1 grew year-on-year by 6% to £16, ahead
of the CPI price increases, driven by a greater FTTP take-up and speed mix;
Openreach broadband line losses in H1 were 377k, a 2% decline in the broadband
base - we continue to see moderately higher competitor losses with a weaker
overall broadband and new homes market
• Retail FTTP base grew by 35% year-on-year to 3.0m of which Consumer
2.8m and Business 0.2m; 5G base 12.5m, up 25% year-on-year
• Consumer postpaid mobile base at 13.9m; Consumer broadband base
marginally lower at 8.2m. Consumer ARPUs relatively stable despite lower CPI
benefits
• Business revenue decline due primarily to non-UK trading in our Global
and Portfolio channels
• Cost transformation on track with £433m gross annualised cost savings
during H1 FY25; Total Labour Resource down 2k to 118k and down 4% year-on-year
• BT Group NPS of 25.6, up 3.1pts year-on-year, further improving
customer experience
Continued EBITDA and normalised free cash flow(1) improvement:
• Adjusted(1) revenue £10.1bn, down 3% mainly due to challenging
conditions in Business, principally driven by non-UK trading in our Global and
Portfolio channels. In the rest of the Group, lower CPI benefit and continued
competitive markets in Consumer were broadly offset by growth in Openreach due
to the benefit of price increases, Ethernet base growth and improving FTTP
volume and mix; reported revenue £10.1bn, down 3%
• Adjusted(1) EBITDA £4.1bn, up 1%, with revenue flow through more than
offset by cost transformation
• Reported profit before tax £1.0bn, down 10% primarily due to lower
revenue, higher specific costs and higher net finance expenses, partly offset
by reduction in reported operating costs
• Capital expenditure ('capex') £2.3bn, down 2% with peak reported
capex passed in FY24, primarily driven by lower networks spend despite higher
FTTP build due to reduced unit costs and efficiencies; cash capex of £2.5bn
in line with prior year
• Net cash inflow from operating activities £3.0bn; normalised free
cash flow(1) £0.7bn, up 57% due to higher EBITDA, working capital timing and
a tax refund
• Net debt £20.3bn (31 March 2024: £19.5bn), increased mainly due to
our scheduled pension scheme contributions of £0.8bn with cash inflow offset
by payment of the final dividend
• Gross IAS 19 pension deficit of £4.3bn, a decrease from £4.8bn at 31
March 2024 mainly due to scheduled contributions, partly offset by lower than
required asset returns in the period
• Interim dividend of 2.40 pence per share (pps) up from 2.31pps in H1
FY24 in line with our policy of paying 30% of prior year's full year dividend
pps. FY24 final dividend paid in September was fully covered by normalised
free cash flow(1)
• FY25 Outlook: FY25 guidance reiterated for adjusted EBITDA(1), capital
expenditure and normalised free cash flow(1). FY25 revenue guidance revised
to down 1-2% primarily reflecting weaker non-UK trading including reduced
low-margin kit sales, along with a softer environment in Corporate and Public
Sector
• Mid-term guidance: Sustained adjusted(1) revenue growth and EBITDA
growth ahead of revenue, enhanced by cost transformation from FY26 to FY30;
capital expenditure excluding spectrum less than £4.8bn until FY26, reducing
by c. £1bn post peak FTTP build; normalised free cash flow of c. £2.0bn in
FY27 and c. £3.0bn by the end of the decade
( )
( )
(1) See Glossary on page 9.
Half year to 30 September 2024 2023 Change
Reported measures £m £m %
Revenue 10,117 10,407 (3)
Profit before tax 967 1,076 (10)
Profit after tax 755 844 (11)
Basic earnings per share 7.8p 8.6p (9)
Net cash inflow from operating activities 3,009 2,324 29
Half year dividend 2.40p 2.31p 4
Capital expenditure 2,269 2,321 (2)
Adjusted measures £m £m %
Adjusted(1) Revenue 10,138 10,414 (3)
Adjusted(1) EBITDA 4,132 4,094 1
Adjusted(1) basic earnings per share 10.7p 10.3p 4
Normalised free cash flow(1) 715 456 57
Net debt(1, 2) 20,267 19,689 £578m
Customer-facing unit updates
Adjusted(1) revenue Adjusted(1) EBITDA Normalised free cash flow(1)
Half year to 30 September 2024 2023 Change 2024 2023 Change 2024 2023 Change
£m £m % £m £m % £m £m %
Consumer 4,836 4,903 (1) 1,330 1,347 (1) 817 798 2
Business 3,865 4,100 (6) 747 806 (7) (12) (65) 82
Openreach 3,118 3,053 2 2,059 1,936 6 355 152 134
Other 5 8 n/m (4) 5 n/m (445) (429) (4)
Intra-group items (1,686) (1,650) (2) - - - - - -
Total 10,138 10,414 (3) 4,132 4,094 1 715 456 57
Second quarter to 30 September 2024 2023 Change 2024 2023 Change
£m £m % £m £m %
Consumer 2,437 2,480 (2) 671 674 -
Business 1,932 2,073 (7) 369 420 (12)
Openreach 1,560 1,527 2 1,038 971 7
Other 2 3 (33) (7) (4) (75)
Intra-group items (845) (833) (1) - - -
Total 5,086 5,250 (3) 2,071 2,061 -
(1 ) See Glossary on page 9.
(2 ) Net debt was £19,479m at 31 March 2024.
n/m: comparison not meaningful
Overview of the half year to 30 September 2024
Our strategic priorities
Our five priorities support our mission to become the UK's most trusted
connector of people, devices and machines, while creating significant growth
for all our stakeholders - our colleagues, our customers, the country and our
investors:
• Deliver Openreach growth and strong returns on FTTP
• Drive Consumer growth through converged solutions
• Capitalise on Business' unrivalled assets to restore growth
• Digitise, automate and reskill to transform the cost base and improve
productivity
• Optimise the business portfolio and capital allocation
In May 2024 we sharpened our focus to accelerate the modernisation of our
operations, and deliver growth for all our stakeholders:
• Leveraging our significant investments into our networks and platforms
to accelerate migrations and deliver the best converged customer experience
• Focusing on the UK where we have a strong competitive advantage. While
our global business sits outside this strategy, it shows strong commercial
opportunity as we roll out Global Fabric, our network-as-a-service. We will
explore ways to optimise the business and potentially partner to achieve scale
• Accelerating transformation; in May 2024 we announced a further target
of £3bn gross annualised cost savings by the end of FY29, at a cost to
achieve of £1.0bn
• Peak capex has passed as a result of improved efficiency and a clear
focus on connectivity in the UK
This sharpened focus allows a clearer path to significant cash flow expansion
in the short-term, and a doubling of normalised free cash flow by the end of
FY29.
Strategic priorities and transformation
During H1 FY25, we made strong progress against our strategic metrics for
FY28-FY30:
• FTTP premises passed increased by 2.1m to 15.9m; target of 25-30m
• Openreach take-up increased to 35% and retail take-up increased by
0.4m to 3.0m; targets of 40-55% and 6.5-8.5m respectively
• 5G UK population coverage increased to 80% and 5G retail connections
increased by 1.1m to 12.5m; targets of >98% and 13.0m-14.5m respectively
• Total labour resource decreased by 2k to 118k; target of 75-90k
In May 2024, we announced a further cost transformation target of £3bn gross
annualised cost savings by the end of FY29 at a £1.0bn cost to achieve, after
successfully delivering on a previous £3bn gross annualised cost savings
target 12 months early. We are on track to deliver on this, with £0.4bn gross
annualised cost savings achieved in H1 FY25 at a cost of achieve of £0.2bn.
We expect c. 40% of the £1.0bn cost to achieve in FY25 as we complete the
final year of our previous five-year modernisation programme, with the
remainder spread across the remaining years.
Financial outlook
• FY25 guidance reiterated for adjusted EBITDA(1), capital expenditure
and normalised free cash flow(1). FY25 revenue guidance revised to down 1-2%
primarily reflecting weaker non-UK trading including reduced low-margin kit
sales, along with a softer environment in Corporate and Public Sector.
• From FY26 to FY30, we expect sustained adjusted(1) revenue growth
and EBITDA growth ahead of revenue enhanced by cost transformation. Capital
expenditure will remain at less than £4.8bn until FY26 before reducing by c.
£1bn post peak FTTP build. We expect to deliver c. £2.0bn in normalised free
cash flow in FY27 and c. £3.0bn by the end of the decade.
FY25 outlook End of decade
Change in adjusted(1) revenue Down 1-2% Sustained growth
Adjusted(1) EBITDA c. £8.2bn Consistent and predictable growth ahead of revenue enhanced by cost
transformation
Capital expenditure(1) <£4.8bn <£4.8bn to FY26
Reduces by c. £1bn post peak FTTP build rate
Normalised free cash flow(1) c. £1.5bn c. £2.0bn in FY27
c. £3.0bn by end of decade
(1) See Glossary on page 9.
Dividend
• In line with our policy, we are today declaring an interim dividend
of 2.40 pence per share (pps) (H1 FY24: 2.31pps), which is 30% of last year's
full year dividend, in line with our policy
• We reconfirm our progressive dividend policy which is to maintain or
grow the dividend each year whilst taking into consideration a number of
factors including underlying medium-term earnings expectations and levels of
business reinvestment
• The Board expects to continue with this policy for future years, and
to declare two dividends per year with the interim dividend being fixed at 30%
of the prior year's full year dividend
• The dividend will be paid on 5 February 2025 to shareholders on the
register of members on 27 December 2024. The ex-dividend date is 24 December
2024
Principal risks and uncertainties
A summary of the group's principal risks and uncertainties is provided in note
15.
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