BT Group plc

Good morning and welcome everyone to BT Group's results presentation for the half year ended 30th of September 2026. Presenting today are Allison Kirkby, BT Group's Chief Executive and Patricia Cobian, BT Group's CFO. Following the presentation there will be a question and answer 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 forward-looking statements caution in the presentation and press release 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 presentation can be found on our website. With that, I'll now hand over to Allison.

Good morning everyone and a big warm welcome from us here at BT headquarters in London and thank you for joining us for our half year results for this fiscal year 27. I'll start by setting out the progress we've made so far this year and then Patricia will update you on our transformation and our financials and then we look forward to taking your questions after a quick recap from myself. I don't remember a busier period here at BT than this half and I am pleased that throughout it all we are showing strong and disciplined progress against our strategy. Let me take you through a few of the highlights. We showed growth in total revenue for the first time in two and a half years and we continue to grow EBITDA and customer satisfaction. We won historic double awards for the best full fibre and the best mobile networks. and Openreach has hit another record on fibre connections adding its 10 millionth fibre customer during October and seeing lower broadband line losses as a result. We continue to win in what we all know is a super competitive market with more converged customers and consumer and a really strong order book in business. and we continue to accelerate our transformation now halfway to our £3.5 billion target with a particular focus this year on PSTN switchover alongside all our other programmes. For international we've announced a new partnership with Verizon to create a scaled global joint venture serving multinationals and we've reached agreement with the BT Pension Scheme trustee on the 2026 valuation in record time. Our issuance of bonds to replace future contributions will reduce the deficit to around £300 million. And finally, in unprecedented circumstances, we stepped up to buy Tok Tok out of administration. And while we await the regulatory review process to conclude, work has begun to stabilise it and to plan for it to create value for BT. As a result, we are today reconfirming all of our guidance metrics for the year and beyond, including our £2 billion target for normalised free cash flow this year, that's excluding the impact of the TalkTalk acquisition, and £3 billion in fiscal year 30. And our interim dividend is rising by 2%. As you all know, our ambition is to become the UK's most trusted connector of people, business and society, guided by our purpose to connect for good. Our strategy focuses on three things. Building the best most trusted digital networks, connecting customers so they thrive as we grow in a digital world and accelerating our modernisation to restore leadership in everything we do. We're now just over two years into what is a six-year journey to create a fundamentally better BTE by the end of this decade and we're delivering. We're building the UK's much needed and only nationwide digital backbone and we're winning with customers all enabled by a radically simpler and better company. All of this underpins our financial guidance which are unchanged and which delivers growing cash flow with improving returns on capital. But let me take you through some more detail on the next slide on what we've achieved so far this year. On build, Openreach has now connected 10 million full-fibre customers with the 25 million coverage milestone well in sight. Our 5G plus coverage keeps expanding towards our 99% target for 2030 and we achieved a historic double award win for our networks. And we launched 5G network slicing, giving both consumers and businesses priority access when they need it. On Connect, we relaunched the BT brand for homes and businesses with Behind Brilliant Things and new mobile, TV and security products. And we also just last week refreshed the Plusnet brand. Our new product launches are closely allied with Core Connectivity from AI receptionist and mission-boosted business, the loyalty program EE1UP in consumer and Fastlane in both, commercializing and monetizing our network slicing capabilities. Customer satisfaction also rose again across all retail brands and we launched great products with our partners including our new cyber security solution with Microsoft and we're also the only UK provider to offer iPhone handoff and are participating in Anthropix Project Glasswing. And finally, on Accelerate, despite ongoing workforce and cost transformation, our colleague engagement continues to improve with an excellent understanding of our strategy and a stronger sense of mission and purpose reported by our colleagues. We continue to simplify through the international joint venture to focus back on the UK accelerating transformation in business and cutting units on legacy networks by half with 1 million customers moving off the legacy analog phone network in the last six months alone. We are scaling AI adoption and have a ServiceNow powered program for AI operations and of course we stepped up to protect service continuity for two and a half million customers by buying TalkTalk out of administration. Moving to the next slide, everything we do rests on our brilliant networks. Openreach has achieved a remarkable milestone, having now connected its 10 millionth customer. Just five years ago, they only had connected one million. Openreach has moved at an exceptional pace in the fibre race and it always on budget. And our retail brands and consumer and business are leading the way with over 600,000 full fibre net ads in the half year alone. Our quality has been recognised by Ookla and EE became the first major UK provider to offer 8 gigabits per second speeds on advanced full fibre broadband using XGS PON technology. In mobile we won the UK's best network from root metrics for the 13th consecutive year and we've developed Fastlane, the UK's first consumer network slicing solution. and I'm really pleased to say we continue to grow our post point base up 86,000 and a half, the best in over four years. Moving on to the three customer facing units, let's start with Openreach, where as I said we've now passed more than 24 million premises, well in sight of the 25 million target that we set back in May 2021. Connections have been surpassing our internal expectations with a new record in the half, bringing us to 41% penetration. We have rightly prioritised satisfying that demand for connections with a slightly slower build as a result. On cost to build, and with only just over 3% of the £25 million to go, I can say that for the whole project, we'll come out just above the middle of the £250 to £350 range per premise that we set ourselves five years ago. And that's despite inflation at more than 25% over that same period. That's around half the average cost of our competitors and a fantastic achievement by the team and obviously supports our ability and our desire to pass on this efficiency in the offers we create for our communication providers so they can drive even further uptake on a better quality premium service. Our line losses were £175,000 in the quarter and over the half year were 11% lower than last year. As with last year, we will update our view on line losses with the Q3 results, taking into account the impact of the PSTN switchover in Q4, the effect of the TalkTalk acquisition, plus the market's natural variability from one quarter to another. In our operations, we met all Ofcom quality of service standards and maintained our excellent Trustpilot rating. Because fibre is naturally more reliable, repair volumes continue to decrease 16% year on year, and that, combined with transformation initiatives, enabled ongoing headcount reduction. Together with top line growth in broadband and ethernet, our cost transformation enabled us to grow EBITDA by 4%. Moving now on to consumer. We all know how competitive the UK market is, so it's great to report that we grew converged, mobile and TV customers in the half with only a modest decline in broadband. And while we have the biggest converged base in the market, there is much more still to go for. We held service revenue flat, even after a voice drag of one percentage point, and grew equipment revenue, achieving 2% revenue growth overall. Admittedly, there is some ARPU pressure in broadband, some of which is actually due to voice, given the way we report and bundle, and some is from a competitive market. But as you've seen this half, we are able to drive value across all our services, while our transformation makes room for brand and other investments. We're also doing well in equipment, not just because of higher prices, but through deep partnerships for new device launches with all major handset suppliers. And in a constrained supply market, that makes a real difference, helping us win with the highest value customers, driving better quality net ads and better ARPUs. On subscribers, we're winning by investing in all three of our retail brands, BT, EE and Plusnet. I hope you like our new Plusle character. And in the half, we relaunched BT, created the new EE 1UP loyalty program, and last week we refreshed Plusnet 2, which will benefit us in this coming half. and we're winning by leading with fibre which now accounts for a remarkable 58% of our broadband base across the whole country and that's over 70% in areas where Openreach has built fibre. NPS improved across all three brands as we continue to focus on brand and product innovation alongside improving customer experience resulting in stable churn rates year on year at relatively low levels across mobile and broadband. Consumer as a unit reached its best NPS level in four years and Plusnet reached a record high as value for money becomes increasingly important for certain customer segments. AI is also starting to have a positive impact, making interactions more personalised and effortless, supporting our people with better knowledge, offers, coaching and call summarisation. And we will work to ensure that in an ingentic future, choice is about product and quality and not just about price. As we said at full year, we had higher brand marketing costs in the half, but we were able to offset those and also the cost of the voice migration through cost transformation. So we actually did better than we expected at EBITDA in the half. It's worth noting, considering some of the short term headwinds we face this year, The actual underlying momentum that we are seeing in consumer. Specifically without the voice drag EBITDA would have grown 1% and excluding the additional voice migration costs to help in particular vulnerable customers switch over their PSTN it would have grown 2%. Moving now to business on slide 10, revenue in business continues to be more stable than in the past and that was the case in each of our three segments individually too, whether that be small and medium-sized businesses, corporate and public sector and wholesale. Overall, we saw revenue and service revenue were down 1%, but both were up 1%, excluding the voice drag. Within this, we continue to grow full fibre connections. They were up nearly 30%. And a particular highlight of the half has been high double digit order growth with major wins and renewals across public and private sectors. That has included contracts with the likes of Scottish Water, Royal Mail, the Ministry of Justice and the Cabinet Office. So as legacy runoff reduces, the benefit from this strong order book will be more visible in the future. Like in consumer, NPS improved, up five points, driven by continued improvements in service and especially in our corporate and public sector division. And consideration for the BT brand is also up on the back of our Behind Brilliant Things campaign and investment. And we also expanded our AI and security capabilities, including AI receptionist from BT, and a deepened Microsoft partnership launching a new managed cyber security service for UK organisations. All these capabilities strengthen our role in supporting the UK's mission critical organisations and national resilience as the most trusted connector. As we said at the full year, EBITDA was expected to be lower in the first half due to migrations from legacy products and of course the higher marketing costs associated with the BT brand relaunch. But it is expected to improve in the second half. Now moving to international. As you are well aware, at the end of June we announced our intention to create a 50-50 joint venture with Verizon through the combination of our respective international operations, which will trigger a payment of $625 million in equalisation payment to BT at closing of the transaction, which we continue to expect in the second half of calendar 2027 following regulatory approvals. The new joint venture will serve more than 3,000 customers across more than 180 countries, representing approximately $4 billion in combined annual revenue. And while BT International has to now be treated as discontinued in our financial accounts, we continue to focus on making it better, under Clive Selley since the 1st of April, and now Martijn Blanken since the 5th of October, who, as you know, will be the incoming CEO when we create the JV. EBITDA was up 24 million pounds on a like-for-like basis enabled by excellent cost discipline and transformation and so we are confident the cash outflow from international will improve from around 150 million pounds last year to around 50 million pounds in this fiscal year. But while we plan for the future, we're also seeing underlying business momentum improve. For example, we're onboarding customers, including Atos now, to our global fabric network as a service. We're adding AI and security capabilities, and we secured contract extensions from Eurocontrol and AIA, to name a couple. Now moving to the next transaction during the period, and that was TokTok. TokTok had been in a sale process for a long time, and it became apparent to their board that in the absence of a viable offer they would need to move to liquidation. This would have ended service for two and a half million customers including thousands of vulnerable customers, hospitals and even the traffic light systems in large cities like Belfast. By stepping in we have been able to protect service aiming to stabilise and then quickly integrate the business once we have the approvals to do so. The cost of the acquisition is around £400 million in this fiscal year and this comprises a combination of consideration, transaction and administration costs, working capital impacts as well as a trading loss for the balance of this fiscal year and non-receipt of around £100 million that would otherwise have been due to Openreach. TokTok will appear as a separate reportable segment in our accounts and we will update you later this fiscal year on revenue EBITDA and CAPEX following alignment of their financial reporting to BT's accounting policies. Of course we're awaiting the conclusion of the regulatory review before we can do that. and with that let me welcome Patricia to what unexpectedly is already her second time speaking to you following our call when we acquired PopTalk on the 5th of October in only her fifth week in the seat as CFO.

Thank you Alison. It is great to be here and yes two months into my role I have already experienced what BT can deliver at pace and that gives me lots of confidence for the future. I will start with our transformation program before also giving you more detail on our pension triennial outturn and the divisional performance. On transformation, we continue to deliver on the program initiated in April 2024, which was extended in May this year to run for the six years to the end of FY30. The only change in this half year is that we are re-presenting the program given International is now treated as a discontinued operation for accounting purposes. That way we can align the program benefits and costs to our accounting, including the restructuring costs. In the half year, we delivered £312 million of gross annualised cost savings on this new basis at a cost to achieve of £85 million, taking the represented cumulative total to £1.7 billion at a cost to achieve of £800 million for the last two and a half years. As you know, this transformation program is a multifaceted one, which includes the commissioning legacy networks, simplifying our product set, scaling to fewer shared platforms, and deepening our data and AI capabilities. As a result, we reduced energy usage by 7% year on year, total labor resource by 11%, and open reach reduced repair volumes by an excellent 16%. We migrated 1.1 million customers of the PSTN in the half year, leaving just 1 million to go before the deadline in January 2027. And a final point to note, our FY30 total labour resource target has also been represented to exclude international, reducing from 75 to 80,000 to 65 to 70,000. Now total labour resource is below 100,000 for the first time in our history and this is 90,000 excluding international across both direct labour and subcontractors. Let's turn to the successful conclusion of our pension triennial review. I am pleased that we have been able to agree the 2026 triennial in record time, as Alison said, with a consistent approach for closing the deficit. As you can see, the deficit has continued to reduce. We have seen a low volatility of outcome at each valuation, reflecting our long-standing hedging program covering rates, inflation and longevity. We were behind plan in 2026, mainly due to increased longevity and some asset performance. As a result, we will make an additional payment in FY34 with a present value of £282 million. We have also agreed to convert our payments into zero-coupon bonds, giving the pension trustees even greater certainty. After the issue of these bonds, which we expect to take place very shortly, the deficit will fall to around £0.3 billion. and there is no change to the tax consequences. In time, if funds are not returned to us but are paid into the pension fund, we will obtain a tax deduction. The new agreement also makes several other changes, including having greater freedom to declare a dividend or other distribution of up to £1.5 billion a year, which is double what had been agreed at the start of the last triennial, and that is rising to £2 billion by FY30. and also reducing trustee discretion on returning contribution to us. In return, we are giving the pension fund a charge over £4 billion of EE assets and we have agreed a mechanism to close any deficit that reopens from 2029. So in summary, this is a well-balanced plan supporting the pension scheme in line with our capital allocation policy and no more contributions are expected to be required for the BTPS to reach full funding by 2030. Let's move to our financial results and let's start with Openreach. Openreach revenue grew 1% year-on-year to £3.2 billion. Inflation-linked price rises and an increasing FDTP mix in broadband were offset by the lower broadband customer base. Openreach EBITDA again grew ahead of revenue, up 4% to £2.2 billion, driven by ongoing cost transformation, including lower repair volumes and lower labour resource. In consumer, service revenue was flat at £3.9 billion and up 1% excluding the impact of voice. Broadband ARPU fell, partly due to voice, but postpaid mobile ARPU grew. We will continue to compete to defend and grow our customer base in a competitive market. And consumer total revenue rose by 2% driven by higher handset prices with equipment revenue up 12% in the half. Consumer EBITDA fell by 1% to £1.3 billion, a little better than we had signalled in May, as our transformation programmes and tight cost controls successfully mitigated much of the cost of the BT brand relaunch and other cost inflation. Moving to business, service revenue was £2.3 billion, down 1%, but up 1% excluding voice. Business total revenue fell by 1% to £2.6 billion, with equipment revenues up 3% in the period. Business EBITDA was down 7% to £601 million due to the migration from legacy products and the higher marketing costs associated with the BT brand relaunch. And as we said in May, and as Alison has just mentioned, we expect a better performance in H2. Moving to results for the group as a whole. First half total revenue grew by 1% to 8.75 billion supported by higher price equipment sales. The first half UK service revenue was 7.7 billion pound down 1% after a drag of about a percentage point from voice. Note that internal revenues rose 3% principally as consumer was successful in holding its broadband base and growing fiber. As a result of our cost transformation programs supported by tight spend controls, EBITDA grew 1% to 4.1 billion pounds. and reported capex fell by 5% to 2.3 billion as we have passed the peak of the full fibre build, partly upset by very strong customer connections in open reach. Cash capex was over £200 million higher than reported capex due to the timing of capital credit payments. This will fall in H2 and for FY28, we expect cash capex of just under the H2 run rate. Normalised free cash flow was 236 million for the half. This was around 300 million lower than last year on a continuing operating basis due to the timing effect of the upfront decision on the broadband anchor price, receivables timing, which was not TokTok related, and repayment of working capital financing. We remain confident in our outlook for circa £2 billion in the full year. And as Alison just announced, our interim dividend is up 2% year-on-year to 2.5 pence per share, in line with our policy of paying 30% of the previous year's full-year dividend. The IAS19 pension deficit fell to £3.2 billion from £4.2 billion at the FY26 year-end, predominantly as a result of the payment of scheduled contributions over the period. As you know, the IAS 19 deficit does not drive our cash contributions and is calculated on a different basis. The cash contributions are determined by the actuarial valuation which I have already presented. Let's now look at our normalised free cash flow progression in more detail on the next page. As you know, our H1 cash flow is typically lower than H2 due to the impact on billing cycles of 30-day month-ends, to the payment of bonuses in June, and to capex seasonality. As I mentioned before, our normalized free cash flow in the first half was also impacted by the timing effect of the Ofcom decision on the broadband anchor price, by receivables timing, and by the repayment of working capital financing. and there was not yet a benefit from falling capex as a result of the flows in capital creditors from a record build in Q4. Looking out to the financial year as a whole in FY27, the main components of NFCF growth will be lower cash capex and some EBITDA growth partially offset by slightly higher interest, leases and tax. As we have previously said, working capital programs help mitigate the impact of higher value handset sales and longer handset repayment contracts. So to the degree that we grow equipment revenues, we will also finance the purchase of devices given their high value and extended payment terms. Note that international is now excluded from our group normalized free cash flow. But it would, in any case, have not had a much more, it would have had a much more limited impact on FY27 as we continue to expect its normalized free cash outflow to improve from around 150 million to around 50 million. Finally, Let me reiterate as BT's new CFO that our capital allocation framework has not changed. Let me take each component in turn. One, we start investing for growth. That includes investing with care on achieving returns above our cost of capital in our fiber and 5G networks or our acquisition of TokTok. Two, we support the pension scheme and while doing this, we ensure we mitigate investment and longevity risks and as you have seen, this has enabled a good outcome in this triennial and the issuance of bonds to the pension scheme. Three, we aim to maintain and improve the strength of our balance sheet. In today's higher rate environment, our BBB rating with aim to achieve BBB plus is a clear competitive strength and best for equity holders too. and four, our shareholders return policy is clear to grow the dividend at a low to mid single digit percentage rate per annum until metrics consistent with BBB plus are reached, from which point residual cash flow will be available for enhanced distributions to shareholders. And with that, I will hand back to Alison to conclude.