TIDMBT.A

RNS Number : 6623O

BT Group PLC

02 February 2023

Trading update for the nine months to 31 December 2022

BT Group plc - 02 February 2023

 
Philip Jansen, Chief Executive, commenting on the results, said 
 "We've grown revenue and EBITDA on a pro forma, like-for-like basis, 
 despite a challenging economic backdrop, and we're transforming 
 BT Group for the benefit of our customers. We continue to accelerate 
 our investments in the UK's leading next generation networks; we're 
 combining our Enterprise and Global operations to create BT Business, 
 a single, strengthened B2B unit; and we're going further on cutting 
 costs to deliver GBP3 billion in annualised savings by the end 
 of FY25. 
 "On full fibre, we're building - and now connecting - like fury: 
 9.6 million premises reached to date, with 29% already connected, 
 and our 5G mobile network now reaches 60% of the UK population. 
 "In December we awarded a cost-of-living pay rise to 85% of our 
 UK colleagues, reaching an agreement with our union partners that 
 we will all lean into our ongoing transformation plans. Despite 
 extraordinary energy costs and other inflationary headwinds, we 
 are reaffirming our outlook for the year." 
 

Key strategic developments:

-- Announced the merger of Enterprise and Global to create BT Business, to enhance value for all B2B customers, strengthen our competitive position and deliver material synergies as part of our GBP3bn cost-saving target

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

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

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

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

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

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

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

Reaffirmed all outlook metrics despite inflationary headwinds:

-- Revenue GBP15.6bn, down 1% as price increases and improved trading in Openreach and Consumer were offset by lower strategic equipment sales in Global, migration of a MVNO customer, removal of BT Sport revenue, and legacy product declines; on a Sports Joint Venture ('JV') pro forma(1) basis adjusted revenue was up GBP65m

-- Adjusted(1) EBITDA GBP5.9bn, up 3% due to tight cost control and the removal of BT Sport costs, offset by revenue declines and inflationary cost pressures; on a Sports JV pro forma(1) basis adjusted EBITDA was up 2%

-- Reported profit before tax GBP1.3bn, down 15% due to increased depreciation offsetting EBITDA growth

-- Reported capital expenditure (capex) GBP3.9bn, up 3% due to increased Openreach investment in fixed network infrastructure offsetting prior-year investment in spectrum; capex excluding spectrum payments up 19%; cash capex was GBP4.1bn, up 19%; significantly lower capex in Q4 given unwind of Openreach work in progress

-- Normalised free cash flow(1) GBP0.1bn, down GBP0.8bn due to increased cash capex and adverse working capital phasing primarily driven by collections timings, partially offset by a tax refund and EBITDA growth

-- Net debt was GBP19.2bn, GBP1.2bn higher than at 31 March 2022 with normalised free cash flow more than offset by pension scheme contributions and payment of the final dividend

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

 
(1) See Glossary on page 3 
 (2) Net debt was GBP18,009m at 
 31 March 2022 
 (3) FTTP take up defined as customers 
 that have been provisioned on the 
 FTTP network 
 
 
Nine months to 31 December                        2022                    2021     Change 
                                ----------------------  ---------------------- 
Reported measures                                 GBPm                    GBPm          % 
Revenue                                         15,593                  15,676        (1) 
Profit before tax                                1,307                   1,537       (15) 
Profit after tax                                 1,320                     886         49 
Capital expenditure                              3,880                   3,752          3 
------------------------------  ----------------------  ----------------------  --------- 
 
Adjusted measures 
Adjusted(1) Revenue                             15,580                  15,677        (1) 
Adjusted(1) EBITDA                               5,880                   5,708          3 
Pro forma(1) Revenue                            15,342                  15,277          - 
Pro forma(1) EBITDA                              5,951                   5,863          2 
Capital expenditure excluding 
 spectrum                                        3,880                   3,273         19 
Normalised free cash flow(1)                       106                     878      (88)% 
Net debt(1,2)                                   19,226                  17,741  GBP1,485m 
------------------------------  ----------------------  ----------------------  --------- 
 
 
(1) See Glossary on page 3 
 (2) Net debt was GBP18,009m at 
 31 March 2022 
 (3) FTTP take up defined as customers 
 that have been provisioned on the 
 FTTP network 
 

Overview of the nine months to 31 December 2022

Customer-facing unit updates

 
                      Adjusted(1) revenue       Adjusted(1) EBITDA 
                    ------------------------ 
Nine months to 31 
 December              2022     2021  Change    2022    2021  Change 
------------------ 
                       GBPm     GBPm       %    GBPm    GBPm% 
------------------  -------  -------  ------  ------  ------ ----- 
Consumer              7,431    7,442     - %   1,964   1,705     15% 
Enterprise            3,692    3,867    (5)%   1,010   1,252   (19)% 
Global                2,474    2,525    (2)%     311     321    (3)% 
Openreach             4,255    4,068      5%   2,570   2,368      9% 
Other                    24       20     20%      25      62   (60)% 
Intra-group items   (2,296)  (2,245)    (2)%       -       -      -% 
------------------  -------  -------  ------  ------  ------  ------ 
Total                15,580   15,677    (1)%   5,880   5,708      3% 
------------------  -------  -------  ------  ------  ------  ------ 
 
 
Third quarter to 
 31 December         2022   2021  Change   2022   2021  Change 
------------------ 
                     GBPm   GBPm       %   GBPm   GBPm% 
------------------  -----  -----  ------  -----  ----- ----- 
Consumer            2,439  2,585    (6)%    669    628      7% 
Enterprise          1,253  1,295    (3)%    350    400   (13)% 
Global                857    871    (2)%    114    114      -% 
Openreach           1,419  1,361      4%    859    807      6% 
Other                  10      6     67%     15     11     36% 
Intra-group items   (766)  (749)    (2)%      -      -      -% 
------------------  -----  -----  ------  -----  -----  ------ 
Total               5,212  5,369     (3)  2,007  1,960      2% 
------------------  -----  -----  ------  -----  -----  ------ 
 

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

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

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

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

   --     Churn continues to remain stable in a competitive market 

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

Enterprise: Revenue and EBITDA quarterly progression in FY23 continues

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

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

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

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

-- Retail order intake was GBP2.8bn on a 12-month rolling basis, up 4% reflecting growth in new business partially offset by contract re-signs; Wholesale order intake was GBP0.7bn, down 28%

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

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

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

-- Revenue decline mainly due to lower strategic equipment sales and the impact of prior year divestments, partly offset by a GBP95m positive foreign exchange movement; revenue excluding divestments, one-offs and foreign exchange was down 5%

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

-- On a rolling 12-month basis order intake was GBP2.9bn, down 10%; the proportion of our growth product portfolio represents 53% of total orders won in the year

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

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

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

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

-- Broadband base down 10k in Q3 (Q3 FY22: 45k growth) with YoY position impacted by reduced broadband market growth; competitor churn continues to be in line with our expectations and average monthly rental ARPU grew by c.GBP1 YoY (7.6%) due to increased volumes of FTTP

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

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

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

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

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

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

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

Glossary

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

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

Enquiries

 
Press office:        Tom Engel            Tel: 07947 711 959 
                      Richard Farnsworth   Tel: 07734 776 317 
Investor relations:  Mark Lidiard         Tel: 0800 389 4909 
 

We will hold a conference call for analysts and investors in London at 10am today and a simultaneous webcast will be available at www.bt.com/results .

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

Forward-looking statements - caution advised

Certain information included in this announcement is forward looking and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward looking statements. Forward looking statements cover all matters which are not historical facts and include, without limitation, projections relating to results of operations and financial conditions and the Company's plans and objectives for future operations. Forward looking statements can be identified by the use of forward looking terminology, including terms such as 'believes', 'estimates', 'anticipates', 'expects', 'forecasts', 'intends', 'plans', 'projects', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or 'should' or, in each case, their negative or other variations or comparable terminology. Forward looking statements in this announcement are not guarantees of future performance. All forward looking statements in this announcement are based upon information known to the Company on the date of this announcement. Accordingly, no assurance can be given that any particular expectation will be

met and readers are cautioned not to place undue reliance on forward looking statements, which speak only at their respective dates. Additionally, forward looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority), the Company undertakes no obligation to publicly update or revise any forward looking statement, whether as a result of new information, future events or otherwise. Nothing in this announcement shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws.

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February 02, 2023 02:00 ET (07:00 GMT)

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