BT Group plc

Good morning everyone and welcome to BT Group's results presentation for the year ended 31st of March 2023. Presenting today is Philip Janssen, Chief Executive and Simon Louth, Chief Financial Officer. The presentation today will be followed by a Q&A session. I'd like to also make everyone aware that this event is being recorded for replay purposes. Before we start, I'd like to draw your attention to the usual forward-looking statements in our press release and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the press release and the annual report can be found on our website. And with that, I'll now hand over to Philip.

Thank you, Mark. Good morning, everyone, and thank you for joining us today. By way of agenda, I'll make some brief introductory comments highlighting some of the great progress we've made through the year. And then Simon will talk through the results themselves and our forward guidance. And then I'm going to share some details on how we see the transformation of BT Group shaping up over the longer term before obviously opening up for your questions. So starting with the highlights on slide four. Overall, the business had a strong year and met its financial guidance, despite some significant cost inflation, including increased energy and labor costs. We delivered growth in revenue on a performer basis, more than 7.9 billion pounds of EBITDA and around 5 billion of capital expenditure and 1.3 billion pounds of normalized free cash flow. This performance means that despite investing at unprecedented levels, we're able to maintain our total dividend for the year of 7.7p per share. I'd like to put on record my thanks for the dedication and commitment of my colleagues right across the business, which has underpinned and delivered this fantastic achievement. The world was quite different when we set the 7.9 billion pound EBITDA target and our people have repeatedly risen to the challenges we've encountered along the way. Last year saw some significant progress against our strategy. To give you just a few of the many examples, our FTTP build is up 43% to over 10 million premises with take up of 3.1 million. Customer demand is really strong with consumer FTTP customers up 50% to 1.7 million. That is more than half a million households moving to FTTP in the year. Our leading 5G network now covers 68% of the UK population with 8.6 million 5G connections on the network. Now we continue to transform and simplify the company with the completion of the BT Sport joint venture and by integrating the former enterprise and global divisions into a single CFU business. And we remain laser focused on efficiency and are now more than two thirds of the way towards reaching our target of three billion pounds of gross annualized cost savings by 2025. But we're not stopping there and we are raising the bar again. Looking forward, we will step up the pace of FTTP connections, supported by the introduction of full expensing for qualifying capital expenditure announced in the spring budget. We will continue at pace to move from legacy to next generation networks, delivering better customer experiences and lower costs. We will continue to drive in transformation of BT Group into a lean and agile organization with superior digital, AI and automation capabilities. And we will do all of this whilst remaining a responsible, inclusive and sustainable business. Future BT Group will be a leaner business with a brighter future, delivering sustainable growth and value. Now, more on all of this later, but let me now hand over to Simon, who will take you through the results in a bit more detail.

Thank you, Philip, and good morning to everyone. So starting with our financial performance on slide six, which I'm going to talk to on a pro forma basis, assuming that the sports joint venture had been in place since the beginning of last year. So I'm really pleased to say that despite all of the known headwinds, we have grown both revenue and EBITDA for the first time in six years. This has been a great effort by everybody in the company, and I'd really like to reiterate Philip's comments and thank everybody who contributed to this result. We've achieved our FY23 guidance for revenue and for EBITDA. And as we guided at H1, we delivered normalized free cash flow in the lower end of our range with higher capex in FTTP build, including work in progress, and FTTP provisioning, only partially offset by the tax refund. Moving to the details. Adjusted revenue for the year was 20.4 billion pounds. That's up 1%. There's growth in open reach and consumer. It was offset by declines in our enterprise businesses. Adjusted operating costs before depreciation were down 1%. Cost savings generated through our cost transformation program more than offset inflationary impacts, including inflation of wages and of energy. We're well on our way to achieving our 3 billion pound gross annualized cost savings target by the end of FY25, with 2.1 billion pounds achieved to date at a cost of 1.1 billion pounds. Increased revenue and lower costs led to adjusted EBITDA for the year of 8 billion pounds, that's up 3%. CapEx, excluding spectrum costs, came in at 5.1 billion pounds for the year, up 5%, primarily reflecting the ongoing investment in our FTTP program and the 5G network build. Now, this was slightly above our updated 5 billion pound outlook due to the accelerated FTTP provisioning, which grew by over 70% to 3.1 million. CapEx in the final quarter was down 23% year-on-year, driven by the unwind of the FDTP work in progress. Cash CapEx for the full year was £5.3 billion, higher than reported CapEx due to a reduction in the capital creditors' balance over the year. Normalised free cash flow was down 5% on last year. This was due to the increased cash capex, some adverse working capital movements, offset by the EBITDA growth, the tax refund and low interest due to timing. We expect our interest costs to normalize next year. Significant growth in Q4 normalized free cash flow was, as expected, driven by improved EBITDA, the timing of receivables and lower cash capex. We're proposing a final dividend of 5.39 pence, bringing the FY23 full year dividend to 7.7 pence per share. This is flat year on year, given our current elevated level of capex, but it is in line with our progressive dividend policy to maintain or grow future dividends. Moving to slide seven for our individual unit results and starting with consumer, revenue was up 2% for the year. Service revenue grew by 3% driven by the 2022 annual contractual price rise and supported by a higher FTTP base and higher roaming. Increased service revenue and tight cost management, including lower indirect mobile commissions, drove strong EBITDA growth, was up 9%. In our enterprise division, revenue was down 4% as continued declines in legacy products and the ending of some legacy contracts, including the migration of a large MVNO customer, offset continued growth in SME and SOHO. EBITDA declined by 15% for the year, reflecting the lower revenue, the lower legacy product mix, only partly offset by the benefits from our cost transformation program. Moving on to global. Revenue declined 1% in the year due to lower equipment sales and the impact of prior year divestments, offset by a £131 million positive foreign exchange movement. EBITDA was flat, driven by ongoing cost transformation and rigorous cost control, offset by lower revenue and inflation. Excluding divestments, one-offs and foreign exchange, EBITDA was flat. In both enterprise and global, we signed some significant new customer and partner contracts in the final quarter, including a global networking contract with Rio Tinto, the SWAN contract to provide connectivity to the public sector in Scotland, and a partnership with AWS to bring edge computing to our customers. These contracts provide early momentum to our new business division. Lastly, Openreach grew revenue 4% in the year, driven by growing sales of fibre-enabled products and ethernet, and by increased price. This was partially offset by declines in legacy copper products and an expected decrease in chargeable repairs due to the lower repair volumes. EBITDA grew 8%, driven by the revenue flow-through, low repair costs, and by efficiency programs that were partially offset by inflation. I should note that broadband line losses did increase in the fourth quarter to 68,000, bringing the full year total to 210,000. We've not yet seen any meaningful recovery in the UK broadband market or the rate of new home construction. And as you'd expect, we have seen modest growth in competitor losses. And we do expect losses to peak this year at around 400,000. We're not expecting any change in the overall market environment, but as we move to FTTP, we are aware of a small number of NPF lines that have been used by CPs for voice services alongside an FTTP line ahead of implementing a voice over IP solution. So these are likely to be removed from our base over the next 12 months or so, artificially accelerating the losses. This makes up around half of the 400,000 broadband line losses. But don't forget, our strategy is all about building and upgrading customers to FTTP to benefit from increased ARPU and margins whilst reducing churn. And this strategy is working. with ARPU up around 8% in the year, well ahead of the average 4% price increase in open reach and far offsetting the 1% reduction in broadband lines over the year. Moving to slide eight on our outlook for FY24 and beyond. As context for our outlook, we expect to be a significant beneficiary of the government's full expensing scheme from FY24 to FY26, and we expect to pay no UK cash tax for the next three years. Now, this means that our normalised cash tax will reflect just our overseas tax as it has done for the past couple of years. With demand for full fibre well ahead of our expectations, We will reinvest this benefit into further accelerating our FTTP connections and absorbing inflation while remaining committed to our target of building to 25 million premises by December 2026. So this brings our CapEx outlook to 5 to 5.1 billion pounds for each of the next three years from our previous guidance of 4.8 billion pounds. We do expect take-up to accelerate beyond 30% while maintaining our build cost envelope of £250 to £350 per premise. So turning then to our guidance for FY24, we continue to expect both adjusted revenue and adjusted EBITDA growth on a pro forma basis, with the growth driven by CPI-linked pricing on around two-thirds of our revenue before eliminations. That's primarily in consumer open reach and by the impacts from our cost transformation program. This is despite headwinds from cost of living pressures, cost inflation, including energy. Normalised free cash flow for FY24 is expected to be between £1 billion and £1.2 billion as the tax benefit from full expensing will be offset by the higher capex. Cash capex in FY24 may be up to £200 billion higher than reported CapEx of five to 5.1 billion pounds due to the repayment of government grants resulting from higher than expected fiber take up on the BDUK programs. Beyond FY24, we continue to expect consistent and predictable revenue in EBITDA growth driven by CPI link pricing and by cost transformation. We remain confident in expanding normalized free cash flow by at least 1.5 billion pounds when compared with FY22 by the end of the decade. This comes from lower capex and lower opex as we move past peak capex and towards an all-fiber, all-IP network. Before I conclude, following the formation of business, we will provide pro forma figures for the new entity in the coming months. At the same time, we're taking the opportunity to refresh and improve our KPIs and to revise some central cost allocations to better reflect usage across the group. Finally, we will also be simplifying our quarterly disclosures from Q1 FY24 onwards, including the removal of our quarterly KPIs. And on that note, I'll hand back to Philip.