BT Group plc

Good morning and welcome everyone to BT Group's results presentation for the half-year ended 30th September 2024. Presenting today is Alison Kirkby, BT Group's Chief Executive and Simon Louth, BT Group's CFO. Following the presentation, we will be having a Q&A session. I would 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.

Good morning, everyone, and welcome again to our half-year results presentation, and thank you for joining us. Back in May, I reconfirmed our five strategic priorities, and I'm pleased that we're making solid progress against all of them. We're accelerating the key foundations that will drive value creation over the mid and long term, specifically doubling down on the UK, fibre build and take up, lower costs, and happier customers. But let me begin with some highlights. Openreach delivered record-building connections in the half and increased its market-leading take-up, outpacing even our own expectations. With lower build costs, we can now go even further and build beyond the original 4 million target that was set for this year, keeping our foot to the floor on one of the country's largest ever infrastructure investments. In consumer, we saw excellent growth in both our 5G and our fibre customer bases as we accelerated the migration of our customers to next generation platforms. And our mobile subscriber base grew for the first time in two years and our converged customer base is starting to grow again too. Customer satisfaction also improved across all three consumer brands for the first time in nearly three years. In business, we accelerated the carve-out of our global segment and started the transition to a simpler, more focused UK business. And while radically modernising, we also improved customer satisfaction. Across the group, structural transformation and improved cost discipline delivered a further £400 million run rate savings. And bringing all of this together, we delivered growth in both EBITDA and normalised free cash flow despite the revenue weakness. which is keeping us firmly on track to meet our EBITDA and our cash flow targets for the year. Finally, we will increase the interim dividend by 4% to 2.4 pence per share in line with our progressive dividend policy. But let me now hand over to Simon to run you through the numbers before I take you back to a more detailed update on each of our units, our transformation agenda and the outlook for the rest of this year.

Well, thank you, Alison, and good morning to everyone. Looking first at our group results on slide seven. So adjusted revenue for the half was 10.1 billion pounds. That's down 3% as challenging conditions in business, particularly outside the UK, and an expected H1 decline for consumer more than offset growth in open reach. Adjusted operating costs before depreciation were down 3%. We have made 433 million pounds of gross annualized savings this half, with £187 million cost to achieve. That's absolutely in line with our target. Before moving on from costs, I wanted to quantify the impact of last week's budget on BT Group. We expect that the additional 1.2% on employers' national insurance contributions, the £4,100 reduction in the NI threshold and the known increase in the national living wage will together cost BT around £100 million per annum from April 2025, of which about 70% will be OPEX. We will intensify our productivity and our cost transformation programs to offset this. Turning now to adjusted EBITDA for H1, this was up 1% to £4.1 billion. Cost transformation and operational efficiency have more than offset the lower revenues. Reported capex came in at just under 2.3 billion for the half. That's down 2% compared with the prior year. This was mainly due to lower non-network infrastructure spend and the decline in IT costs following last year's platform deployment to support the new EE launch. It's worth noting that FTTP CapEx is down 2% in the half, benefiting from lower unit costs as the build has accelerated. Lastly, we're still expecting FY25 cash CapEx to be around £200 million higher than the reported CapEx due to the net impact of grant funding and capital creditors. Normalised free cash flow of £715 million in H1 was up 57% on the prior year. This reflects the benefit of a lower working capital outflow, which was primarily from lower handset stock levels and a net inflow of mid tens of millions of pounds from supply chain finance and handset monetization. We continue to expect a more neutral outturn for working capital for the full year. Separately, we also received a cash tax refund of around £100 million in the second quarter. And as Alison just announced, we're proposing an interim dividend of 2.4 pence per share at an increase of 3.9%. And that's in line with our policy of paying an interim dividend of 30% of last year's total dividend. Moving now to our individual unit results, that's on slide 8. Openreach grew revenue 2% in H1, driven by price increases and strong momentum in FTTP and Ethernet, partly offset by declines in broadband and voice lines. We expect continued momentum on FTTP and Ethernet beyond FY25, broadly offsetting the impact of line losses and the closure of WLR-related revenue streams as we approach the PSDN switch-off. Openreach EBITDA grew by 6% in the half, driven by stronger revenue, improved cost transformation, including around 5,000 fewer FTEs over the past 12 months, and partially offset by pay inflation. Consumer revenue was down 1% for the half, impacted by the expected challenging pricing comparator with the prior year, combined with a lower broadband base. Consumer EBITDA declined by 1% in the half year due to the revenue flow through and higher input costs, partially offset by continued strong cost control and higher equipment margin. In our business division, H1 revenue was down 6%, principally driven by non-UK trading in our global and our portfolio channels. UK revenues saw a small decline, around half of which was due to the change in recognition of £38 million of wholesale managed broadband revenue in Q3 last year, and that impacted the H1 comparative figures. Business EBITDA declined by 7% for the half, reflecting the revenue declines offset by cost control. We expect H2 year-on-year revenue and EBITDA trends to improve versus H1, in part due to a favourable comparator as we lap the impact of last year's £38 million wholesale broadband recognition change and £41 million of billing accuracy adjustment. We also expect the usual B2B pickup in H2, albeit in a tougher CPS trading environment. And on that note, I'll hand back to Alison.

Thank you, Simon. So going back to the units in a bit more detail, Openreach delivered another stellar performance with growth in revenue, EBITDA, fibre build and fibre take-up. We built fibre to a record 2.1 million premises in the half, a 30% year-on-year growth, taking our footprint to 16 million or around half the country, while also driving down our build costs. This strong operational delivery gives us the confidence to now increase our build target this year to 4.2 million, which we will achieve within our existing CapEx envelope. Customer demand for full fibre continues, with 5.5 million premises now connected, a record for connections in the half, and our take-up rate is now a market-leading 35%, showing that we're not only building, but we're also connecting at pace. In our operations, our repair volumes decreased around 10% over the last year, driven by the shift to full fibre, where the fault rate is 60% lower than copper. Fault volumes will continue to fall as fibre expands, benefiting our customers and our OPEX going forward. Our service also remains best in class, achieving all of Ofcom's quality of service measures for both copper and ethernet, and contributing to NPS growth of 4.3 points year on year. Broadband line losses in Q2 were similar to Q1 and are at 377,000 for the half, driven by the same factors as I said earlier in the year, moderately higher competitive losses and a weaker broadband and new homes market. More than 80% of our losses occur in areas where we don't have full fibre. So I'm confident that our best defence is to keep building at pace and stimulating take-up in the way we've been doing, which is why we invest every pound we save on our build back into growing our network. This ever-expanding open reach footprint, combined with an expected recovery in new homes that will come, and the market, will enable us to reduce these losses over the medium term. So overall, Solid take-up of fibre and strong operational momentum, together with ARPU growth from indexation and product mix, underpins the targeted return on our fibre investment, which very much remains on track. Moving to the next slide. Our consumer business is performing well in what is a competitive environment. Revenue and EBITDA were both down a percentage point, as we expected, driven by a tougher pricing comparable in the first half and a slightly lower broadband base. Nevertheless, ARPUs for both fixed and mobile grew. And on broadband, our market share was broadly stable with our full fibre base growing 33% to 2.8 million nationally and market share growing in urban areas where we're already rolling out fibre. We see higher churn where we don't have fibre, but as Openreach continues to build fibre nationwide, we expect our churn to improve. In the quarter, we also launched the UK's first Wi-Fi 7 service, strengthening our premium broadband position and our ability to drive positive RQ development in the future. Moving to mobile, the postpaid mobile base grew for the first time in two years and churn improved to an industry-leading 0.9%. 5G connections were up 17%, with the base now at 10.5 million connections, all underpinned by what RootMetrics have named the best mobile network for the 11th year in a row. In the quarter, we further strengthened our leadership position with the launch of 5G standalone in 15 cities across the UK, which will increase to 30 major towns and cities within the next two months. Moving to convergence and new EE, we have two priorities to drive household penetration and customer lifetime value. Fixed mobile convergence, and family or household tariffs. Early signs indicate that new EE is doing better than our previous best of both dual brand approach, with more than half of new EE broadband customers now taking a postpaid mobile contract. Consumer NPS, as I said earlier, remained strong and improved 4.2 points year on year. And as I also said earlier, that was across all three of our consumer brands. As the market leader, it's also important to me that we have taken a stance on the dangers of social media for young children. And we were the first operator to advise parents against giving smartphones to under 11s. This is a great example of us living our purpose. We connect for good. And it's very much appreciated by both parents and regulators alike. Back to the results. With the progress made in the first half and the run rate we are now seeing, we remain confident that consumer will return to growth in the second half. So let's now move to business, which is on slide 12. As Simon said, revenue and EBITDA were down 6% and 7% respectively in the half, principally driven by non-UK trading in our global and portfolio channels. Meanwhile, our UK channels make up two-thirds of our overall business revenue. And within these, managed services grew by 3%, while fixed and mobile connectivity declined by 6%, but with around half of that decline due to a prior period revenue reclassification in the wholesale broadband segment. So underlying, the UK business declined by just under 2%, so not too dissimilar to what we saw in consumer. As you all know, we are in the midst of a radical modernisation and turnaround of BT business, touching all our products, all our platforms and our geographies. in order to drive the right long-term customer and shareholder value. And as in the consumer market, we are seeing strong demand for those next-generation products and solutions that we are evolving to, with full-fibre customers up 57% year-on-year and our 5G base up 86%. In areas where we have fibre, we have over 50% of our customers take it. So as Openreach expands its footprint, as it's doing, we expect to see further growth momentum. Customers on voice over IP also grew 8% year on year and now make up around two thirds of our voice base. Customer satisfaction improved as we are successfully managing these migrations to new platforms and increasingly putting security and trust at the heart of the refreshed better on BT business brand. And looking forward, an assignment also outlined EBITDA trends should improve in the second half. Let's now move to transformation, which is on slide 13. As you've seen, we're making solid progress against a massive agenda. This includes over £400 million run rate savings delivered in the past six months, keeping us firmly on plan to deliver our £3 billion ambition by the end of fiscal year 29. To recap, we're driving most of the cost savings from four key programmes. Shutting down legacy networks and applications, simplifying our products, scaling the use of fewer shared platforms, and deepening our data and AI capabilities. With respect to what we saw in the first half, let me bring to life how these savings have been realized. Well, we migrated over 1 million customers away from legacy, energy-hungry fixed and mobile networks, and the network decommissioning that follows enabled tens of millions in cost savings, reducing our energy consumption by 10 gigawatt hours. This is around a quarter of of our total energy reduction over the past six months. Digital transformation also delivered tens of millions in savings. We've cut the number of applications we use by more than 20%. And our AI-enabled chatbot, Amy, is transforming service, reducing inbound calls, and improving customer experience. Openreach is also using AI to reduce its cost to build, improving planning processes, helping avoid multiple truck rolls and street works, as well as reducing downtime between jobs. And partly as a result of all of these initiatives, our total labour resource dropped by around 2,000 and a half and 5,000 over the past 12 months. Most of this reduction was seen in open reach and business, thanks to fewer faults on fibre and the continued transformation of the business unit. It's also due to increased efficiency across the company through the smarter use of technology. So clearly, I'm pleased we've made solid progress here today, and I do see lots more to go after. As Simon just mentioned, we will now intensify our cost transformation so that along with workforce productivity and other levers, we will offset the increased national insurance burden now on us. Moving to our outlook here on slide 14. Back in May, when we announced our group revenue outlook for fiscal year 25 of 0% to 1% growth, I set out our expectation that half one would be much tougher year on year than half two. Half one revenue was indeed tougher, it was down 3% on last year, and it's been tougher than we anticipated. We therefore now expect group revenue for the full year, 25, to be down between 1% and 2%, primarily reflecting that weaker trading outside the UK, driven very much by reduced low margin equipment sales, along with a softer macro environment impacting our UK corporate and public sector channel in particular. Of course, this still implies a better relative performance in the second half, especially in consumer, where we expect both service and equipment revenues to grow. Beyond revenue, we are confident in reconfirming our fiscal year 25 EBITDA guidance of around 8.2 billion pounds, supported by strong progress and ongoing focus on costs. And our CapEx outlook for the year remains below £4.8 billion, and we continue to expect our fiscal year 25 normalised free cash flow to be around the £1.5 billion mark. Our outlook beyond fiscal year 25 remains unchanged for all metrics in all years, and we're confidently progressing towards our BBB Plus credit rating target. So to conclude... Openreach is breaking records on fibre build and fibre take-up. Consumer has laid the foundations for a return to growth and we're powering ahead on the transformation and turnaround of business. We're therefore delivering against our strategy with accelerated progress on those most important aspects for long-term value creation, doubling down on the UK, fibre, lower costs and happier customers. And together, This is what's underpinning our EBITDA and normalised free cash flow growth and are offsetting the short-term revenue pressures. We're therefore firmly on track to achieve our short-term and our long-term cost savings EBITDA and cash flow targets. And with these results and further time in the job, I'm even more convinced of BT's potential to become a true national champion, the UK's only true digital backbone. Of course, it's without doubt that there's still more to do to fully modernise BT, but we're working at pace and are sharp in focus positions as well to generate significant value for all our stakeholders, our colleagues, our customers, the country and our investors. So listen, thank you for listening. We will now move to Q&A and given the time available and the number of people online, please do keep it to one question per person. But let's move to the first question now.

Thank you. To ask a question, please use the raise hand button in the react menu, which you can find at the bottom of your screen. If you are dialing in from a phone, please press star nine on your telephone keypad. Our first question today comes from David Wright at Bank of America. David, please go ahead.

Hello, guys. I do hope you can hear me and I apologize. There's no video this morning. It does feel a little like a broken record that we're saying better open reach, worse VT business. We've said that for multiple years. It's been said possibly a little bit more under the guise of global services by multiple CEOs. So, Alison, I guess the question is, what can be done here? We've had some reports of potential divestment of the international businesses. Can BT business be sold in entirety? Is it easy to actually extract that from the BT group? What can be done here? You know, it was your first four-year result back in May. And so soon after that, you're already bringing down revenue guidance on the back of this. So what can be done with this business after so much disappointment for so long? Thank you.

We are doing a lot. First of all, we need to migrate away from legacy products and services and move it to new products and platforms and radically simplify the business. That's what Baz set out this time last year and that plan is very much on track. I also said back in May that we're really going to look at focusing on how we optimize that global business whether it be in our portfolio channels or also the multinational customer segment. And if you just look at the UK piece, the UK business, as we just discussed, you know, it's, performing similarly to consumer, you know, following all of the CPI plus pricing these last couple of years, we always knew the first half was going to be, you know, negative, but that we would get back to growth as we move into the second half of the year. So the UK business is clear. We just need to radically transform and simplify the products, the portfolios, and really strengthen the brand, which is what we're now doing. The global piece, We're looking at a range of scenarios. I do believe that that global multinational customer segment is ripe for consolidation. And that is one scenario that we are pursuing. But in the meantime, we've got to radically simplify and modernize that business as well. But I do believe a focus on the UK, which is showing not dissimilar trends to our consumer business and will return to growth, and then really radically simplify the portfolio in global, which we're doing. We'll return this business to growth consistently top and bottom line under the period that Baz also set out last year. You know, he said revenues wouldn't stabilize until sometime during 25-26 with growth after that. And EBITDA... stabilization and return to growth would be a year after the revenues. So we're still on track for that. But trust me, we are radically transforming the business and we are looking at options and solutions to optimize that global footprint.

Maybe Alison, just to clarify your point, you said that you thought this segment was right for consolidation. I assume you would want to be, you would be a seller into that. rather than a consolidator and potential buyer of assets. Is that a conclusion you can make here?

Yes, certainly I wouldn't want to double down in that segment. That's very clear. But if it's right for consolidation, but I won't be doubling down on the global multinational customer segment.

Thank you so much. The next question comes from Akhil Duttani at JP Morgan. Akhil, please go ahead.

Hi, good morning, Alison and Simon. Thanks for taking the question. Can I maybe ask a question on UK consumer trends? You've mentioned that you're expecting a better performance into H2, but I guess I was looking to understand from a KPI standpoint and a competitive standpoint how things are performing. I think, Alison, back in May, you said one of your initiatives was to stabilize the customer bases again, and there's been good progress on consumer post-paying. But I'm mindful that consumer broadband is still declining around 40,000 in the first half. So maybe if you could flesh out for us exactly what you're seeing in the market competitively and how do you think about the journey to stabilizing the consumer broadband base?

Yeah, so, you know, as we said, we're seeing really good progress on mobile. New EE is having... a great impact on customer satisfaction. And as we increasingly push convergence, we are getting broadband under the EE brand into more homes. And they are showing much more propensity to buy a bundle, including TV and including mobile subscriptions as well. And we've seen a real uptick in our broadband, our fixed mobile convergence in that new EE base. It's actually up quite dramatically. What we're seeing in the broadband base is a reflection of what we're seeing in open reach. You know, where we don't have our open reach full fiber and BT Retail only holds sales from open reach, we are seeing some losses to alt nets. But if you look at how BT Retail is performing relative to the losses we're seeing in open reach, it's actually doing pretty well because we're now building market share in urban areas where previously we didn't have the highest speed, most competitive product to compete with. So what I'm expecting is as Openreach gets into the other half of the country that it's not yet in, that the BTEE broadband base will start to stabilise and we will start to grow again. But it suffers the same a bit as Openreach in the short term where we're not in every part of the country. But now that we're ramping up our fibre build and going faster this year than we previously expected, we expect that to help to reduce the losses. And, you know, really happy with how new EE is performing. You know, EE is a very strong brand in urban areas. And, you know, the market share growth that we're seeing in those urban areas where previously we were suffering is really building up. So I'm confident we will stable that base in the coming quarters.

Great, thank you.

Thank you. Thank you. The next question comes from Adam Fox-Romley at HSBC. Adam, please go ahead.

Thank you very much. I wanted to ask a question about visibility of the sales line, really, because you mentioned that first-half sales were worse than expected, obviously within the consumer and the open-reach businesses, and indeed at the small business end, you've got pricing policies in place. Maybe you could just reflect a little bit on how the global line kind of came to be worse than you had anticipated. And I guess on a related note, for the UK part of the business, did you see anything in the order book or in customer conversations around the election or around the budget in terms of customer caution that might subsequently unwind? Thank you.

So the sales line, thank you, Adam, the sales line was only worse than expected in the global area. You know, open reach very much in line with what we expected and great revenue development and consumer exactly in line with what we expected. In that global piece, you know, more than half of the global missed. was actually very low margin, almost no margin equipment sales, which is very lumpy and it can come occasionally. So, you know, it had no impact on EBITDA cash flow. And then the other aspects, clearly there has been a slowing of decision making in certain parts of government as they've been waiting for the spending reviews. And some of those government contracts, they can be lumpy in nature as well. They're not always EBITDA cash flow positive in the early periods either. So definitely there's been a bit of slowing of some of the public sector contracts than we previously would have expected because of the change in government. and that's really the only dynamic that we're seeing in the UK that's slightly different versus what we expected coming into the year. And whilst we're looking at that public sector slowing, and clearly we're waiting to see how things pan out from a budget point of view, we're being cautious on the outlook for the corporate and public sector in the UK at the moment. But beyond those kind of phasing of public sector contracts and those big global equipment deals, there was nothing really different in the sales line versus what we expected in May.

Thank you. The next question comes from James Ratsa at New Street. James, please go ahead.

Yes, good morning. Thank you very much indeed for taking the question. So if I look at open reach, it seems like one of the big kind of variables over the medium term that's going to drive performance is actually the overall market growth rather than whether you're losing market share to altnets or not per se. So I'd just love to get, Alison and Simon, your views on what you're seeing for broadband market growth in the UK at the moment. I mean, it looks to me as if it's actually pretty flat. at the moment, despite household growth actually continuing in the UK, suggesting we've actually got a slight decline in broadband penetration in the UK. I mean, would you agree with that? Is that coming from maybe some signs of mobile tethering, fixed wireless access? Just love to get your thoughts on how you see the overall market growth for fixed broadband developing from here. Thank you.

Yeah, James, we look at it in a similar way. You know, you saw growth in the broadband market during COVID. So, you know, households that previously were mobile only every day, you know, moved to broadband and mobile during COVID. And what you've seen is a bit of a correction of that growth we saw in COVID. And we're kind of back to the rates we saw on broadband and mobile tethering pre-COVID. But, you know, as the economy recovers, it will at some point. And now that the government is encouraging new homes built, planning restrictions being lifted, we expect all of that to benefit the broadband market going forward. We're also really positively pleased with the consumer demand for full fibre. you know, the fact that we're getting a 35% take-up rate at this rate in the build, and in some areas, you know, like 80%, even two years in, I was visiting an area up in Scotland recently, says there's great demand for full fibre. So the more that we get full fibre throughout the country, that will stimulate demand, as will economic growth and, of course, the new house building as well. And that gives us the confidence that that, combined with our penetration increasing throughout the country, we've passed more than half the premises in the country now, that will reduce the line losses that we're currently seeing.

You're not seeing any evidence at the moment of increased FWA or tethering take up?

No, it's reverting to where it was pre-COVID. There's always a bit of tethering down at that low end of the market, but fixed wireless access still very marginal in the UK. The fiber product is so keenly priced in the UK, it's difficult to see fixed wireless access taking off its scale. like it's doing in the US, where pricing is much higher of the cable and the fibre product. But clearly, there'll be areas of the country where fixed wireless access will make economic sense for the network owner and will provide good coverage for the homeowner as well. But we're not really seeing anything of a material nature changing in that segment.

Thank you.

Thank you. The next question comes from Jacob Bluestone at Exane BNP Paribas.

Jacob, you're on mute.

Good, yeah. Hopefully it works now.

Well done. It was good that somebody did that.

You'd think after a pandemic we'd work out how Zoom works, but apparently not. Thanks for taking the question. I had a question on cost. So you said you'd offset the weaker revenues through some cost cutting. And then from next year as well, you'll offset the impact of higher national insurance and so on through additional cost cutting as well. So it's quite a bit of extra cost cutting, essentially, that you're announcing with this release. Could you maybe give us a little bit more of an understanding of where are all these extra cost savings coming from, given, I mean, it's probably an extra $300 million, $300 million, $400 million of cost savings that you've sort of found? So just a bit of clarification around that. Thank you.

Simon, why don't you take that one?

Yeah, certainly. So thanks, Jacob. Firstly, do bear in mind, as Alison stressed, a fair proportion of the revenue weakness versus our expectation was in really very low margin activity, particularly outside the UK. Having said that, you are quite right that we are continuing to drive cost reduction harder. And we will intensify that to offset the impact of the budget. How are we doing that? We've set out a very clear, pretty comprehensive transformation program that's going to deliver $3 billion over the course of the next five years or so. we're finding ways of bringing forward some of that transformation to offset revenue pressures. In addition to that, we've been looking at further ways in which we can simplify the structure of the organization and the focus that Alison described helps us do that, particularly around areas like support functions. It's also worth bearing in mind that some of my two thirds of our cost base is, of course, third party cost. And we've had significant progress in terms of procurement supply chain savings. So across the board, you know, we're looking at each of the cost areas and we've got a very good track record of keeping, you know, continuing to develop greater cost savings than our expectation every year. And we'll sustain that.

And Jacob, 100 million is less than half a percent of our total cost base. You know, we've experienced inflationary pressure like that short term in the past. As Simon said, we've got multiple levers to offset it. And, you know, I'm even more convinced of the scale of cost takeout opportunity that exists in this company the more time I'm here. And particularly as we head towards that UK-focused organisation, we can really go after a reduced and simplified corporate function overhead setup that will help drive simplification of the company as well. So, you know, we've done it before. We've got multiple levers. We know how to do this.

Great. Thanks, guys.

The next question comes from Andrew Lee at Goldman Sachs. Andrew, please go ahead.

Morning, everyone. I had a question on open reach again and also on margins somewhat following on from Jacob. So your open reach margin trend picked up relatively meaningfully in this half versus what you've been delivering in terms of margin expansion in prior years. Could you explain how much of that is the incremental cost savings and how much of it is kind of underlying structural mix improvements? And maybe help us to understand how you think about margin evolution at Openreach into the second half and, more importantly, into the coming years. Thank you.

Thank you, Andrew. Yes, you know, as I said, Openreach had a stellar start to the year. It is a mix of mix. You know, the fact that we've got, you know, really great progress on the shift to fiber. We've got great growth in Ethernet. They are higher price products, higher margin products. And then we're doing a fantastic job on fault reduction, which reduces our OPEX as well. And, you know, Clive and the team are really ruthless on driving operational excellence. and planning for a future where we, after the fibre build, where we have a much smaller workforce. And so he's looking at opportunities all of the time to take cost out, and that's what he's doing. He's also had quite a restructure of his management overhead recently as well, consolidating two management teams into one. And so we will continue to really focus margin and therefore EBITDA development considering that you know the line losses will be a drag for a bit longer so he's really focused on how does he keep growing his EBITDA and his cash flow generation whilst there will be you know some line losses to offset until we've really built out the fibre throughout the rest of the country.

Andrew, actually, it's a great example of where we've had huge benefits flowing through from procurement and supply chain management. So the Openreach team working with our procurement function have looked at all of the engineering materials, done a hell of a lot of value engineering to take cost out while still delivering great network builds. They've looked at different forms of contracting. So it's not simply on the repair volumes. It's actually the unit cost through supply chain management and procurement activity. It's been a great example.

Thank you. Can I just follow up on those answers? So you've obviously delivered a lot of cost savings in the first half and you highlighted line loss as a drag. Should we think about the first half margin improvement as a better guide to margin evolutions over the next few half years, or do you think it will return to the similar margin evolution that we saw in FY24, for example, which was a bit more muted?

We will continue to see some margin improvement through exactly the same portfolio of initiatives we just described in OpenReach. So I'm not going to give you precise percentage changes each quarter going forward, but the same levers will be available to us. Thank you.

Thanks, Andrew.

The next question comes from Polu Tang at UBS. Polu, please go ahead.

Morning. Thanks for taking the question. So I've got a question on working capital and free cash flow. Can you confirm whether Q2 benefits from a 200 million catch-up on late payments by TalkTalk? And does your 1.5 billion of normalised free cash flow guidance already factor in the benefit of of this catch-up payment, or is it a source of potential upside to the full year? And just on the subject of free cash flow and working capital, are there any other notable puts and takes to call out this year? So I noticed that you have a £95 million tax refund benefit. Are you going to see any benefits from forward copper sales or any benefit from factoring of handsets? Thanks.

over to you Simon.

Yep Paolo thanks very much indeed. So firstly we guided to one and a half billion pounds of normalised cash flow and we firmly reiterated that guidance for this year. We did receive a tax refund of about a hundred million pounds. That wasn't certain at the start of the year but we ascribed a sort of probability weighted component in our guidance and That having delivered helps us clearly to have greater confidence in the delivery of the cash flow. We can also look at absolutely optimising the amount of handset financing we do to manage interest costs appropriately. So just to reconfirm, we're firmly on track with our cash flow guidance for the full year. In terms of your second question, were there any particular movements in working capital in the first half? The short answer to that is no. We had slightly better working capital, or to put it this way, lower working capital outflows in the first half compared to last year. And that's principally just around timing of payments and receipts. And we deployed broadly the same amount of working capital funding to manage the cash flow timing on the mobile handset business, which we've explained before. There was no copper securitization in the half. and our guidance for the year assumed that our CPs would pay to term, and that remains our assumption for the year. Thanks.

Thank you, Paula. The next question comes from Robert Grindle at Deutsche Bank.

Good morning and thank you. I wonder what's your view on the CMA's near approval of the Vodafone 3 deal? I think your comments put into the process were less pro the deal than O2, who have a spectrum arrangement with Vodafone. What do you see the puts and the takes are from that merger from a BT perspective? Do you feel strongly either way? Thank you.

Thank you, Robert. Well, we've made our position clear from the beginning. You know, we've always wanted to ensure, as you would expect, that any merger would not negatively impact competition and the ability for all parties to be able to get the right investment on their infrastructure investments going forward. And so we've made our position clear. It's now for the CMA to decide and work with emerging parties as to how they move forward. In the meantime, this deal has been going on for a year and a half. We've continued to build up our 5G network. Our 5G network reaches 80% of the population now. We've been further ahead of everybody else on the shared rural network. We've won the best network for the 11th year in a row. And if you combine that with everything we're doing on the fixed infrastructure layer with fibre, we believe we've still got the best networks in the country and that will continue for the foreseeable future. So let's see how it all plays out now.

The next question comes from Steve Malcolm at Redburn. Steve, please go ahead.

Yeah, good morning. Thanks for taking the question. I'll go for sort of one, maybe a small add-on to follow up on Akhil's question earlier. First on revenue outlook, I don't want you to give detailed guidance around 25, but you do have an aspiration to grow revenues in the midterm. And I guess when I look at 25, 26, you're going to have a lower tailwind from CPI. clearly you're going to have sort of greater volume pressures with an open reach because the average base is going to go down. So can you just kind of give us some reassurance that you think you can grow beyond this year? And maybe what that mix looks like, you know, can you get B2B back to stable? I don't want to, you know, but it just looks like quite a tall order to grow revenues with less CPI next year and lower volumes and open reach. So maybe some comments around that would be great. I noticed the broadband churn ticked up in the first half. Well, second quarter particularly, is that just an impact of the kind of, you know, people coming out of two-year contracts? And as that sort of annualised in the second half, is that part of the reason you think that the trend should improve and maybe then add to get a little bit better as that sort of churn and out-of-contract experience comes to an end? Thanks.

Yeah, I think, you know, what we won't have next year is the sawtooth effect we had this year. Coming off of these 14% price increases on both consumer and the SMB segment, we had a massive correction that had to happen in the first half of this year. Both mobile, broadband, consumer and SMB were not going to have that going into next year. And yes, there'll be less CPI if inflation, you know, stays low in some of the underlying. But, you know, we have still got our £3 and our £1.50 in our contracts coming through. Because of the scale of that back book to front book correction that had to happen earlier this year, there was a bit more save desk investment, a bit more regrading went into the market. And again, we're going to have much less of that going into next year as well. So underlying, I think, and that goes to your point on broadband churn. Some of that was driven by the scale of the loyalty gap that had built between the back book and the front book as a result of two years of compounding CPI plus 3.9 when CPI was very high. And then, of course, one of the reasons we lose a bit of broadband at the moment is is where we don't have full fibre in areas where we have alternate competition. By this time next year, we'll be past 20 million homes. So BT Retail, both consumer and business, will be able to start competing again in parts of the country where it hasn't had a full fibre offer. So all of those areas give me confidence. And then let's remember some of that more than half of that global revenue that we didn't get in the first half is very low margin or sometimes nil margin. So it has no impact on our EBITDA and cash flow. And that's why we really need to focus on the UK going forward and finding the right solutions for that global business, which, as you can tell, I'm fully focused on.

Just a quick follow-up. Do you think you can deliver growth with the current perimeter or do you need to get those disposals done?

The current plan is to deliver growth with the current perimeter yes but clearly I'm going to be focused on the UK going forward once I found the right solution for global.

The next question comes from Morris Patrick at Barclays. Morris please go ahead.

Yeah hi there hopefully you can hear me and I can use my mute function and

And we can see you, Maurice, as well, which is lovely.

What a delight. Luckily, my cat won't come across my screen this time. But no guarantee. So a question on NPS in consumers. I think you showed NPS improving in the period across your three brands. I was just conscious that on the recent Swisscom and KPN calls, they talked overtly about the cost of living crisis and how NPS was suffering a bit from that. You did see churn popping up in the quarter as well. Just curious as to cost of living, general pressures, is there some NPS pressure taking place there? It'd be helpful to get more clarity on that. Thank you.

Well, clearly the cost of living crisis had an impact on our NPS and everybody's NPS over the past couple of years. We are seeing that starting to correct and revert again. And we're seeing within NPS our value for money perception is improving again. we do see that PlusNet in particular has performed extremely well from an NPS point of view. Its recovery has come faster. That's our value brand. But as we've been, you know, improving our customer experience, launching Wi-Fi 7. We've actually invested into our call centres recently to help the migrations, particularly to new EE. That is all benefiting all three of our brands. And actually, as we've moved into the quarter, we're seeing NPS building even further. So I think we had that cost of living crisis impact on NPS these last two years. And now everything we've done to improve our product with full fibre, to improve our customer experience, and also getting that value for money perception right as we close the front book to back book gap that developed during the cost of living crisis is having a benefit now.

Thank you.

Thank you. The next question comes from Ottavio Adorizio at Bernstein. Ottavio, please go ahead. Otavio, you are currently muted.

Hopefully you can see and you can hear me now.

We can. It's lovely to see you.

The same, likewise. So just a question that was asked earlier on the CMA, your answer was mostly on the environment. But when I read your response, most of it was also based on the NBNL impact on the NBNL-GV with Hatch. Now, from the remedies being proposed, there is not much that's going to mitigate that impact. So, of course, still we haven't seen the final response and the final remedies. But my question to you would be, if nothing will be done, how you can basically mitigate, without reaction, all the arguments you put that were very significant, the impact it can have on your costs? And following up on that, no matter how the JV merger will unfold, by 2031, the JV will dissolve anyway. So could you tell us how it's going to impact your leasing costs, comparing the fact that a significant portion of the country is covered by the JV, and these towers will now go towards Celmex. Would you need to lease from them? That means your leasing cost, your project leasing cost to increase. If you can give us some piece of granularity on what you're going to plan beyond 2031.

Simon, why don't you take the answer to this question? Yeah, sure.

Thanks very much indeed. So you made one very important point, which is that there is a contract that is in place between ourselves and Hutch on the management and the funding of MVNL that sustains through into the beginning of the next decade. And that obviously gives us significant protection for our costs in that period. We've also done a fair amount of planning ahead of that and have got a series of things that we will be looking at doing to ensure that our cost of the individual towers is not significantly impacted when we get into the next decade. We've got a lot of time to plan for that. Who knows how the network will develop. A lot of our concerns are actually more about the conduct of NBNL in the interim, and obviously we will be engaging with the parties to ensure that our concerns were not founded.

We have time for one last question today, which will come from Andrew Beale at RHA. Andrew, please go ahead.

I think you might want to answer the last one, right?

We answered the last question, Andrew.

Okay. All right. So just coming back to the refocus of the business back towards the UK, can you update us on the sort of geographies or characteristics of global that you've determined you want to sell or shut and what activities, if any, you might want to keep? to be able to offer services to multinational corporates, UK corporates that were able to fabric in the sort of profitable sense. And there have obviously been some things in the press, but what can you tell us about where you've got to in that process?

Well, clearly we never comment on ongoing potential mergers, acquisitions or disposals. But in terms of the global footprint, you know, we have two channels. that we are looking in to optimize and simplify. There are individual businesses in what we call our portfolio channels, which is a mix of individual geographic businesses or services that were acquired and built up over the years that we have been simplifying and reducing over a number of years and that work continues. And then there is the multinational customer segment and how we serve that segment outside of the UK. And that was the piece I particularly put my emphasis against in May to say, I believe that that segment is ripe for consolidation because most telcos that are serving their multinational customers outside of their home domestic markets have seen new competition over the years develop. There are probably too many players in too many places now, considering the new competition that has come in from hyperscalers and others. There's been a lot of shift away from legacy services into cloud-based services. And that's the segment that I see is ripe for consolidation opportunity. And we're in dialogue with a number of players at the moment to look at what the options are going forward. Meanwhile, we are not overly dependent on finding a sales solution. We have to radically simplify and transform that business just as we're doing with the rest of our BT business.

Thank you.

Thank you. This concludes the Q&A session and I would now like to hand back to Alison for any closing remarks.

Yep. Thank you all for your questions today and for dialing in. And of course, myself, Simon and the IR team are ready to take up any questions offline. And I look forward to meeting as many of you as possible in the coming days and weeks as we get out on our roadshows. So thank you again and look forward to seeing you soon.