BT Group plc

Good morning and welcome everyone to BT Group's results presentation for the full year ended 31st of March 2024. Presenting today is Alison Kirkby, BT Group Chief Executive and Simon Louth, BT Group CFO. A Q&A session will follow the presentation. I'd like to 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. With that, I'll now hand over to Alison.

And just to be clear, that was not a deepfake. That was Mark. He's obviously very shy about speaking in public. So good morning, everyone, and welcome to our full year results presentation. And thank you so much for taking the time to join us today. It's honestly a real honour to present BT Group Results for the first time here as CEO. And by way of an agenda, we'll begin by looking back at some of the progress we've made this financial year before looking forward, outlining our sharpened focus and outlook, and then moving on to Q&A, myself and Simon. So let's start with the full year highlights on slide four. First and foremost, I believe our strategy is the right strategy. It's about building and connecting our customers to next generation networks at pace, creating standout customer experiences and leading the way to a brighter and more sustainable future for BT and all its stakeholders. This strategy has continued to prove itself and has delivered another solid set of results. Our focus to improve customer experience has meant that group NPS trends were positive throughout the year, up one point to 24 overall. and a solid operating and financial performance led to growth in both adjusted revenue and EBITDA. CapEx reduced to £4.9 billion despite record build, driving normalised free cash flow ahead of our guidance to £1.3 billion. And as a result of structural efficiencies, especially in open reach, I'm today announcing that we have now passed peak CapEx. Yes, you read it right earlier and you're hearing it right again. We have now passed peak capex. This, together with ongoing operating efficiencies, means we expect normalised free cash flow to increase from this point on. We also achieved our £3 billion of gross annualised cost savings 12 months early and at a cost of £1.5 billion, which is around £100 million lower than we had forecast. This is a great achievement and I see a huge opportunity for further savings, which I will outline later. Enabled by this performance and demonstrating our confidence in our plans and in line with our progressive dividend policy, we're also increasing our total dividend to eight pence per share. Personally, as you can imagine, I am pleased with these results as they give me confidence in the strategy that has delivered them. However, I do believe that with greater focus, improved operational discipline, and an acceleration of pace of modernization, we can deliver an even brighter future for BT Group faster and more consistently. But more on that in a moment. I first want to reflect on how we've actually performed in each of our CFUs in the recent period. Slide five, Openreach delivered another strong performance with growth in both revenue and EBITDA. Our full fibre footprint today stands at more than 14 million premises and in the fourth quarter, our annualised build rate accelerated to 4 million. Customer demand for full fibre has remained high with just under 5 million premises now connected, which means we have market-leading take-up of 34%, and an excellent Trustpilot rating. Our Ethernet business, often overlooked, is actually more than a £1 billion business in its own right, and it's also growing, with revenue up 11% and ARPU up 6%. And with respect to broadband lines, which I know is a very popular topic of conversation, I'd like to start with my context. We have a significant 74% share of the UK's fixed wholesale broadband lines. And as outlined in the open reach business briefing back in November 21, we always assumed that we would lose some lines, roughly 2% per year. And we have. We did, however, expect market growth to offset some of those losses. But in fact, the market has declined on the back of a downturn in house building and the cost of living crisis hitting broadband adoption. But just to be clear, we are not seeing any meaningful acceleration in competitor losses as they've been broadly flat in recent quarters. In areas where we have built full fibre, our broadband line base has and is growing. And ARPU, given recent inflation, is ahead of expectations, up 10% and rises with the mix improvement to full fibre, which far outweighs the drag from the losses of lower value and higher fault rate copper lines. So we remain very comfortable with the expected returns on our investment. And considering our significant market share, our best defence has been to build full fibre faster and more efficiently than anyone else, which is exactly what we have been and are and will be doing. Finally, I'm really pleased to announce today that the Department for Science, Innovation and Technology has notified Openreach of its preferred bidder status for the Type C project gigabit cross-regional supplier contract, which in the early phases covers over 100,000 hard-to-reach rural premises. The government have currently stated that Type C contracts are up to half a million premises, including £800 million of grant funding. This allows us to build momentum even further in the coming years. So moving to the next slide and consumer, where we delivered another solid performance with growth in both revenue and EBITDA. We continue to connect customers at pace with our full fibre base up 39% and 5G connections up 22%. ARPU for both fixed and mobile has been strong with broadband up 5% to £41 and postpaid mobile up 9% to £19. As anticipated, the gross to net drop through from ARPU to EBITDA reduced to around 30%. And this fiscal year that we're now entering, we expect that drop through to be even lower following the compounding of the high price rises that we've seen over the last two years, and as we rebalance the front and back book before recovering in the second half of the year and again in fiscal year 26. However, despite these significant price rises and the competitive markets that we operate in, we held monthly churn for the year at 1.1% for both our broadband and our mobile bases. This reflects our strength in customer service with both BT and EE off-com complaints equal to or lower than industry average for mobile, broadband and landline. In October, we launched our new integrated EE digital platform to drive performance. This included new connectivity propositions, building on our fibre and 5G leadership, and better tech products and services delivered via a simpler set of digital customer journeys. Overall, it's early days, but it is improving customer experience with those that have migrated showing a higher rate of convergence and a higher NPS, and sets us up for a return to growth in our base, our ARPUs and in the number of services our customers buy from us going forward. Moving to slide seven. In spite of a 2% drop in revenue, business is actually showing the early signs of operational improvement. The trends are clear. They've been there for a while. The market is shifting to next generation products and solutions and we now need to migrate our customers to them at pace. All of them. Full fibre, 5G, voice over IP and secure cloud-based services. Progress, albeit from a low base, has been good this year with our 5G base up 80% and our full fibre connections up almost 60%. We also have over 50% of our customers on voice over IP, so halfway through the PSTN transition. And high NPS scores speak to the relatively seamless way in which we've managed those migrations. In certain revenue streams, business is actually performing even more positively. Such as security, we're up 11%, and the SMB segment, we're up 4%, and we're also seeing improvements in NPS. The biggest challenges for business have been the speed at which we've been able to move off legacy services and the effectiveness of offsetting the rising costs with pricing. Clearly, these legacy pricing and cost pressures combined with the FX headwinds led to a weak EBITDA outcome for the year. But Baz and the team have been working to address these since ripping off the plaster, in his words, late last year. And that effort continues. Now, let me hand you over to Simon, who is going to take you through the numbers.

Well, thank you, Alison, and good morning to everybody. So starting with our individual unit results on slide nine, consumer revenue was up 4% for the year. Service revenue grew by 5%, and that was driven by annual contractual price rise, the higher FTT pace, and higher roaming, partially offset by a decline in voice revenues and the continued handset to SIMO migration. EBITDA grew by 5%, driven by the increased service revenue, partially offset by some high input costs and some prior year one-off items. In our business division, revenue was down 2%. This was driven by declines in high margin legacy products and managed contracts, some foreign exchange impacts, and a 41 million pound revenue adjustment in Q4 that reflects a risk of billing inaccuracy on a small number of products with bespoke pricing. These headwinds were only partially offset by continued growth in our small and medium business segment and in security. EBITDA declined by 16% for the year, and that reflected the low revenue, but also higher input costs, only partly offset by the benefits of our cost transformation. The one-off revenue adjustment also impacted Q4 EBITDA, but it was partially offset by some lower costs. Openreach grew revenue 7% in the year, That was driven by CPI-linked price increases and growing sales of fiber-enabled products and ethernet. This was partially offset by declines in the base of broadband and voice-only lines. The fiber-enabled base grew, offset by declines in the copper base. OpenReach's EBITDA grew by 9%. That was driven by the revenue flow through, but also by improved cost transformation, including 3,500 lower FTE, partly offset by some pay inflation and the higher FTTP provision volumes. OpenReach's Q4 EBITDA was impacted by one-off costs relating to an historical commercial dispute. Absent the one-off, Q4 EBITDA margin would have been consistent with Q1 to 3. Other EBITDA for FY24 was 29 million adverse, driven by exit costs from terminating leases as we continue to rationalize our office estate through our Better Workplace program. Going forward, we expect other EBITDA to outturn closer to zero. Now, moving to our group results on slide 10. Overall, we saw a solid performance, delivering another year of top and bottom line growth. We've achieved our FY24 guidance for revenue in EBITDA, delivering growth on a performer basis. We outperformed on normalized free cash flow. That was driven by CapEx efficiencies across the business. Adjusted revenue for the year was 20.8 billion pounds. That's up 2% on a pro forma basis. Growth in open reach and consumer was offset by a decline in business. Adjusted operating costs before depreciation were up 2% on a pro forma basis. In FY24, the gross benefits from our cost transformation were more than offset by the impacts of inflation, notably two pay rises and some increased business rates and non-commodity charges in energy. We also had some increased sales commissions and network running costs. Adjusted EBITDA for the year was 8.1 billion pounds. That's up 1% on a pro forma basis. Revenue growth combined with cost transformation together more than offset those inflationary pressures. We've recognized a non-cash impairment of goodwill allocated to business of 488 million pounds as a specific item, reflecting the significant decline in profitability in recent years. CapEx, excluding spectrum costs, came in at 4.9 billion pounds for the year. That's down 3% and below our guidance range. This was achieved through a combination of lower FTTP billed unit costs, increased efficiency in our systems and IT delivery, and some more targeted customer contract investments. Cash CapEx for the full year was 5 billion pounds. This was higher than reported capex due to 160 million pounds of grant funding, including for BDUK, partially offset by the timing of capital creditor payments. For FY25, we expect cash capex to be around 200 million higher than reported capex due to the net impact of grant funding and capital creditors. Normalized free cash flow decreased 4% year on year. Now the benefit of EBITDA growth and the lower cash capex is more than offset by working capital timing and of course the 200 million pound tax rebate in the prior year. At a high level, the increased working capital outflow in FY24 was driven by about 100 million pounds of receivables timing, and then a net outflow of £100 million from repayment of supplier financing, handset monetization, and forward copper sales, which net to that £100 million. We paid no UK cash tax in FY24, and we welcome the government's announcement in last year's autumn statement to make full expensing permanent. we will continue to pay no UK cash tax in FY25 through to FY27. From FY28 onwards, we will start to pay UK cash tax as our capex reduces, although we will continue to benefit from the cumulative losses early into the next decade. The IS-19 pension deficit increased by £1.7 billion to £4.8 billion, and that was mainly due to the increase in real interest rates and the narrowing of credit spreads, partially offset by pension contributions. As a reminder, the BT pension scheme hedges on a funding basis, which mechanically means we're over-hedged on an IS-19 basis. Our cash contributions are unaffected by the IS-19 deficit. And as Alison just announced, we're proposing a final dividend of 5.69 pence per share. That's an increase of 3.9%, bringing the full year FY24 dividend to 8 pence per share. And on that note, I'm going to hand back to Alison.