REG - BT Group PLC - Trading Statement

BTAnnouncement

02/02/2023 07:00

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RNS Number : 6623O  BT Group PLC  02 February 2023

Trading update for the nine months to 31 December 2022

BT Group plc - 02 February 2023

 Philip Jansen, Chief Executive, commenting on the results, said

 "We've grown revenue and EBITDA on a pro forma, like-for-like basis, despite a
 challenging economic backdrop, and we're transforming BT Group for the benefit
 of our customers. We continue to accelerate our investments in the UK's
 leading next generation networks; we're combining our Enterprise and Global
 operations to create BT Business, a single, strengthened B2B unit; and we're
 going further on cutting costs to deliver £3 billion in annualised savings by
 the end of FY25.

 "On full fibre, we're building - and now connecting - like fury: 9.6 million
 premises reached to date, with 29% already connected, and our 5G mobile
 network now reaches 60% of the UK population.

 "In December we awarded a cost-of-living pay rise to 85% of our UK colleagues,
 reaching an agreement with our union partners that we will all lean into our
 ongoing transformation plans. Despite extraordinary energy costs and other
 inflationary headwinds, we are reaffirming our outlook for the year."

Key strategic developments:

•    Announced the merger of Enterprise and Global to create BT Business,
to enhance value for all B2B customers, strengthen our competitive position
and deliver material synergies as part of our £3bn cost-saving target

•    Announced CPI-linked price increases to offset cost inflation and pay
for increased data usage and investment in our next generation networks

•    Additional action taken on operating costs to mitigate unforeseen
energy, pay and equipment costs

•    Record FTTP build of 810k premises passed in the quarter at an
average build rate of 62k per week; 38% of our 25m FTTP build completed

•    Customer demand for FTTP extremely strong with orders up 51% year on
year; take up(3) rate grew to 29% with  net adds of 324k in the quarter;
broadband rental ARPU up 7.6% year on year

•    Openreach announced improved discounts for FTTP connection and rental
charges, from April 2023, to support  accelerated take up(3) of FTTP;
announced the launch of 1.2Gbps and 1.8Gbps products

•    Record quarterly growth in FTTP base in Consumer, up 155k to 1.6m; 5G
ready base now 8.5m; churn remains stable in a competitive market; RootMetrics
named EE the UK's best mobile network for a 19th time running

•    Operational metrics recovering as industrial action ended with cost
of living pay rise

Reaffirmed all outlook metrics despite inflationary headwinds:

•     Revenue £15.6bn, down 1% as price increases and improved trading in
Openreach and Consumer were offset by  lower strategic equipment sales in
Global, migration of a MVNO customer, removal of BT Sport revenue, and
legacy     product declines; on a Sports Joint Venture ('JV') pro forma(1)
basis adjusted revenue was up £65m

•     Adjusted(1) EBITDA £5.9bn, up 3% due to tight cost control and the
removal of BT Sport costs, offset by revenue declines and inflationary cost
pressures; on a Sports JV pro forma(1) basis adjusted EBITDA was up 2%

•    Reported profit before tax £1.3bn, down 15% due to increased
depreciation offsetting EBITDA growth

•    Reported capital expenditure (capex) £3.9bn, up 3% due to increased
Openreach investment in fixed network infrastructure offsetting prior-year
investment in spectrum; capex excluding spectrum payments up 19%; cash capex
was £4.1bn, up 19%; significantly lower capex in Q4 given unwind of Openreach
work in progress

•    Normalised free cash flow(1) £0.1bn, down £0.8bn due to increased
cash capex and adverse working capital phasing primarily driven by collections
timings, partially offset by a tax refund and EBITDA growth

•    Net debt was £19.2bn, £1.2bn higher than at 31 March 2022 with
normalised free cash flow more than offset by pension scheme contributions and
payment of the final dividend

•    Financial outlook reaffirmed; normalised free cash flow heavily
weighted to Q4, reflecting more front-ended capex and back-ended EBITDA and
receivable collections than usual

 

 (1) See Glossary on page 3

 (2) Net debt was £18,009m at 31 March 2022

 (3) FTTP take up defined as customers that have been provisioned on the FTTP
 network

 

 Nine months to 31 December              2022                                          2021                                        Change
 Reported measures                       £m                                            £m                                          %
 Revenue                                                 15,593                                        15,676                             (1)
 Profit before tax                                         1,307                                         1,537                              (15)
 Profit after tax                                          1,320                                           886                             49
 Capital expenditure                                       3,880                                         3,752                           3

 Adjusted measures
 Adjusted(1) Revenue                                     15,580                                        15,677                             (1)
 Adjusted(1) EBITDA                                        5,880                                         5,708                           3
 Pro forma(1) Revenue                                    15,342                                        15,277                             -
 Pro forma(1) EBITDA                                       5,951                                         5,863                           2
 Capital expenditure excluding spectrum                    3,880                                         3,273                             19
 Normalised free cash flow(1)                                106                                           878                           (88)%
 Net debt(1,2)                                           19,226                                        17,741                      £1,485m

 

 (1) See Glossary on page 3

 (2) Net debt was £18,009m at 31 March 2022

 (3) FTTP take up defined as customers that have been provisioned on the FTTP
 network

Overview of the nine months to 31 December 2022

Customer-facing unit updates

                             Adjusted(1) revenue                   Adjusted(1) EBITDA
 Nine months to 31 December  2022     2021     Change              2022     2021     Change
                             £m       £m       %                   £m       £m       %
 Consumer                    7,431    7,442        -     %         1,964    1,705         15%
 Enterprise                  3,692    3,867         (5)%           1,010    1,252          (19)%
 Global                      2,474    2,525         (2)%           311      321           (3)%
 Openreach                   4,255    4,068       5%               2,570    2,368       9%
 Other                       24       20            20%            25       62             (60)%
 Intra-group items           (2,296)  (2,245)       (2)%           -        -            -%
 Total                       15,580   15,677        (1)%           5,880    5,708       3%

 

 Third quarter to 31 December  2022   2021   Change        2022   2021   Change
                               £m     £m     %             £m     £m     %
 Consumer                      2,439  2,585       (6)%     669    628       7%
 Enterprise                    1,253  1,295       (3)%     350    400          (13)%
 Global                        857    871         (2)%     114    114        -%
 Openreach                     1,419  1,361     4%         859    807       6%
 Other                         10     6           67%      15     11          36%
 Intra-group items             (766)  (749)       (2)%     -      -          -%
 Total                         5,212  5,369       (3)      2,007  1,960     2%

Consumer: Strong performance in tough market conditions, first full quarter
after completion of BT Sport JV

•     Revenue was flat due to the BT Sport disposal offsetting service
revenue(1) growth; on a Sports JV pro forma(1) basis revenue was up 2%, with a
4% growth in service revenue(1) driven by the 2022 annual contractual price
rise which was aided by a higher FTTP base, along with higher roaming, offset
by lower mobile equipment sales due to reduced market activity

•     EBITDA was up 15% due to the BT Sport disposal and increased mobile
and fixed service revenue(1) and tight cost management including lower
indirect mobile commissions; on a Sports JV pro forma(1) basis EBITDA was up
9%

•     Strong demand for next generation products with highest ever
quarterly growth in FTTP base, with an increase of 155k; FTTP base now 1.6m,
5G ready base now 8.5m

•     Churn continues to remain stable in a competitive market

•     Strong support for vulnerable customers with EE launching its first
mobile social tariff in November alongside BT Home Essentials; 3m customers
including customers on social and discounted tariffs excluded from April 2023
price increases

Enterprise: Revenue and EBITDA quarterly progression in FY23 continues

•     Revenue decline due to the migration of a MVNO customer and legacy
product declines, partially offset by growth in SME and SoHo

•      EBITDA decline due to lower revenue and revenue mix, partially
offset by tight cost control and our cost transformation programmes

•     The overall revenue and EBITDA trend continued to improve into
Q3, reflecting continued growth in both the SME and SoHo segments and the
timing of contract revenue recognition in Wholesale and ESN

•     Continued growth in both mobile and VoIP in the year to date,
adding 65k connections to our mobile base and 93k connections to our VoIP base

•      Retail order intake was £2.8bn on a 12-month rolling basis, up
4% reflecting growth in new business partially  offset by contract re-signs;
Wholesale order intake was £0.7bn, down 28%

•     Official opening of new cyber Security Operations Centre in
Belfast following contract win with the Department of Finance, Northern
Ireland

•     Contract wins with HMRC to replace its existing in house IT
services provider with a managed networks solution and the Ministry of Defence
to upgrade its legacy Broadband and ADSL estate

 

Global: Financial performance continues to stabilise as improved growth
portfolio and strong cost transformation offset lower equipment sales and
inflationary pressures

•     Revenue decline mainly due to lower strategic equipment sales and
the impact of prior year divestments, partly offset by a £95m positive
foreign exchange movement; revenue excluding divestments, one-offs and foreign
exchange was down 5%

•     EBITDA decline reflected lower revenue and inflationary
pressures, partly offset by lower operating costs from ongoing modernisation,
cost control and one-offs; EBITDA excluding divestments, one-offs and foreign
exchange was down 5%

•     On a rolling 12-month basis order intake was £2.9bn, down 10%;
the proportion of our growth product portfolio represents 53% of total orders
won in the year

•      During the quarter we launched new digital tools to help
customers monitor and optimise energy and carbon use across multi-cloud
networks

 

Openreach: Revenue and EBITDA growth; FTTP connections continue to grow

•     Revenue growth due to price increases and increased sales of
fibre-enabled products and Ethernet, partially offset by decline in physical
lines and decrease in chargeable repairs due to lower repair volumes

•      EBITDA growth from revenue flow through and lower operating costs
driven by improved repair and efficiency programmes partially offset by higher
FTTP provisioning activity, and pay inflation

•     Broadband base down 10k in Q3 (Q3 FY22: 45k growth) with YoY
position impacted by reduced broadband market growth; competitor churn
continues to be in line with our expectations and average monthly rental ARPU
grew by c.£1 YoY (7.6%) due to increased volumes of FTTP

•     Record FTTP build of 810k premises passed in the quarter at an
average build rate of 62k per week; we have completed 38% of our 25m build

•     Customer demand for FTTP extremely strong with orders up 51% year
on year; take up rate grew to 29% with net adds of 324k in the quarter; base
now c.2.7m (29% of premises passed)

•     Almost 50% of the Openreach broadband base where we built network
24 months ago are now on FTTP

•     Announced improved discounts for FTTP connection and rental
charges, from April 2023, to support accelerated take up(2) of FTTP; announced
the launch of 1.2Gbps and 1.8Gbps products

•     FTTP footprint of 9.6m with a further 6m where initial build is
underway; now passed 3m premises in rural locations

 

(1) See Glossary on page 3. Commentary on revenue and EBITDA is based on
adjusted measures.

(2) FTTP take up defined as customers that have been provisioned on the FTTP
network.

Glossary

 Adjusted                   Before specific items. Adjusted results are consistent with the way that
                            financial performance is measured by management and assist in providing an
                            additional analysis of the reporting trading results of the group.
 EBITDA                     Earnings before interest, tax, depreciation and amortisation.
 Adjusted EBITDA            EBITDA before specific items, share of post tax profits/losses of associates
                            and joint ventures and net non-interest related finance expense.
 Free cash flow             Net cash inflow from operating activities after net capital expenditure.
 Capital expenditure        Additions to property, plant and equipment and intangible assets in the
                            period.
 Normalised free cash flow  Free cash flow (net cash inflow from operating activities after net capital
                            expenditure) after net interest paid and payment of lease liabilities, before
                            pension deficit payments (including their cash tax benefit), payments relating
                            to spectrum, and specific items. It excludes cash flows that are determined at
                            a corporate level independently of ongoing trading operations such as
                            dividends paid, share buybacks, acquisitions and disposals, repayment and
                            raising of debt, cash flows relating to loans with joint ventures, and cash
                            flows relating to the Building Digital UK demand deposit account which have
                            already been accounted for within normalised free cash flow. For non-tax
                            related items the adjustments are made on a pre-tax basis.
 Net debt                   Loans and other borrowings and lease liabilities (both current and
                            non-current), less current asset investments and cash and cash equivalents,
                            including items which have been classified as held for sale on the balance
                            sheet. Currency denominated balances within net debt are translated into
                            sterling at swapped rates where hedged. Fair value adjustments and accrued
                            interest applied to reflect the effective interest method are removed. Amounts
                            due to or from joint ventures held within current asset investments or loans
                            and borrowings are also excluded.
 Service revenue            Earned from services delivered using our fixed and mobile network
                            connectivity, including but not limited to, broadband, calls, line rental, TV,
                            residential BT Sport subscriptions, mobile data connectivity, incoming &
                            outgoing mobile calls and roaming by customers of overseas networks.
 Sports JV pro forma        On 1 September 2022 BT Group and Warner Bros. Discovery announced completion
                            of their transaction to form a 50:50 joint venture (JV) combining the assets
                            of BT Sport and Eurosport UK. Financial information stated as pro forma is
                            unaudited and is presented to estimate the impact on the group as if trading
                            in relation to BT Sport had been equity accounted for in previous periods,
                            akin to the JV being in place historically. Please refer to the press release
                            on 3 November 2022 for a bridge between financial information on a reported
                            basis and a Sports JV pro forma basis at the half year to 30 September 2022.
 Specific items             Items that in management's judgement need to be disclosed separately by virtue
                            of their size, nature or incidence. In the current period these relate to
                            changes to our assessment of our provision for historic regulatory matters,
                            restructuring charges, divestment-related items and net interest expense on
                            pensions.

 

 

Our commentary focuses on the trading results on an adjusted basis, which is a
non-GAAP measure, being before specific items. The directors believe that
presentation of the group's results in this way is relevant to an
understanding of the group's financial performance as specific items are those
that in management's judgement need to be disclosed by virtue of their size,
nature or incidence. This is consistent with the way that financial
performance is measured by management and reported to the Board and the
Executive Committee and assists in providing a meaningful analysis of the
trading results of the group. In determining whether an event or transaction
is specific, management considers quantitative as well as qualitative factors
such as the frequency or predictability of occurrence. Reported revenue,
reported operating costs, reported operating profit and reported profit before
tax are the equivalent unadjusted or statutory measures.

 

Enquiries
 Press office:        Tom Engel            Tel: 07947 711 959

                      Richard Farnsworth   Tel: 07734 776 317
 Investor relations:  Mark Lidiard         Tel: 0800 389 4909

 

We will hold a conference call for analysts and investors in London at 10am
today and a simultaneous webcast will be available at www.bt.com/results
(file:///C%3A/Users/614526583/Downloads/www.bt.com/results) .

We are scheduled to announce the full year results for FY23 on 18 May.

 

Forward-looking statements - caution advised

Certain information included in this announcement is forward looking and
involves risks, assumptions and uncertainties that could cause actual results
to differ materially from those expressed or implied by forward looking
statements. Forward looking statements cover all matters which are not
historical facts and include, without limitation, projections relating to
results of operations and financial conditions and the Company's plans and
objectives for future operations. Forward looking statements can be identified
by the use of forward looking terminology, including terms such as 'believes',
'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'plans',
'projects', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or
'should' or, in each case, their negative or other variations or comparable
terminology. Forward looking statements in this announcement are not
guarantees of future performance. All forward looking statements in this
announcement are based upon information known to the Company on the date of
this announcement. Accordingly, no assurance can be given that any particular
expectation will be met and readers are cautioned not to place undue reliance
on forward looking statements, which speak only at their respective dates.
Additionally, forward looking statements regarding past trends or activities
should not be taken as a representation that such trends or activities will
continue in the future. Other than in accordance with its legal or regulatory
obligations (including under the UK Listing Rules and the Disclosure Guidance
and Transparency Rules of the Financial Conduct Authority), the Company
undertakes no obligation to publicly update or revise any forward looking
statement, whether as a result of new information, future events or otherwise.
Nothing in this announcement shall exclude any liability under applicable laws
that cannot be excluded in accordance with such laws.

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