Trading update for the nine months to 31 December 2022
BT Group plc - 02 February 2023
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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 £3 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 £3bn 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 up3 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 up3 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 £15.6bn, 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 forma1 basis adjusted revenue was up £65m
• Adjusted1 EBITDA £5.9bn, 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 forma1 basis adjusted EBITDA was up 2%
• Reported profit before tax £1.3bn, down 15% due to increased depreciation offsetting EBITDA growth
• Reported capital expenditure (capex) £3.9bn, 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 £4.1bn, up 19%; significantly lower capex in Q4 given unwind of Openreach work in progress
• Normalised free cash flow1 £0.1bn, down £0.8bn 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 £19.2bn, £1.2bn 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
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1 See Glossary on page 3 2 Net debt was £18,009m at 31 March 2022 3 FTTP take up defined as customers that have been provisioned on the FTTP network |
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Nine months to 31 December |
2022 |
2021 |
Change |
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Reported measures |
£m |
£m |
% |
|
Revenue |
15,593 |
15,676 |
(1) |
|
Profit before tax |
1,307 |
1,537 |
(15) |
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Profit after tax |
1,320 |
886 |
49 |
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Capital expenditure |
3,880 |
3,752 |
3 |
|
|
|
|
|
|
Adjusted measures |
|
|
|
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Adjusted1 Revenue |
15,580 |
15,677 |
(1) |
|
Adjusted1 EBITDA |
5,880 |
5,708 |
3 |
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Pro forma1 Revenue |
15,342 |
15,277 |
- |
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Pro forma1 EBITDA |
5,951 |
5,863 |
2 |
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Capital expenditure excluding spectrum |
3,880 |
3,273 |
19 |
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Normalised free cash flow1 |
106 |
878 |
(88)% |
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Net debt1,2 |
19,226 |
17,741 |
£1,485m |
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1 See Glossary on page 3 2 Net debt was £18,009m at 31 March 2022 3 FTTP take up defined as customers that have been provisioned on the FTTP network |
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Overview of the nine months to 31 December 2022
Customer-facing unit updates
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Adjusted1 revenue |
Adjusted1 EBITDA |
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Nine months to 31 December |
2022 |
2021 |
Change |
2022 |
2021 |
Change |
|
£m |
£m |
% |
£m |
£m |
% |
|
|
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% |
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Third quarter to 31 December |
2022 |
2021 |
Change |
2022 |
2021 |
Change |
|
£m |
£m |
% |
£m |
£m |
% |
|
|
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 revenue1 growth; on a Sports JV pro forma1 basis revenue was up 2%, with a 4% growth in service revenue1 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 revenue1 and tight cost management including lower indirect mobile commissions; on a Sports JV pro forma1 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 £2.8bn on a 12-month rolling basis, up 4% reflecting growth in new business partially offset by contract re-signs; Wholesale order intake was £0.7bn, 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 £95m 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 £2.9bn, 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.£1 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 up2 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
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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. |
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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. |
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Normalised free cash flow |
Free cash flow (net cash inflow from operating activities 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. |
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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. |
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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. |
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Sports JV pro forma |
On 1 September 2022 BT Group and Warner Bros. Discovery 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. |
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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.
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Press office: |
Tom Engel Richard Farnsworth |
Tel: 07947 711 959 Tel: 07734 776 317 |
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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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