TIDMBT.A
RNS Number : 8255G
BT Group PLC
29 July 2021
Trading update
Results for the three months to 30 June 2021
BT Group plc
29 July 2021
Philip Jansen, Chief Executive, commenting on the results, said
"Our operational performance remained strong and our EBITDA grew
during the first three months of the year, reflecting improved
trading across most of our business and the positive benefits of
our plans to modernise BT. Our results were overall in line with
our expectations during the quarter, with good performance in the
UK offsetting challenging conditions in Global's markets.
"We're powering ahead with our network build programmes: Openreach
has now built full fibre broadband to more than 5m premises with
growing customer demand; EE has set out plans for 5G on demand
anywhere in the UK by 2028. We've also reached a partnership agreement
with our largest trade union, the CWU(1) , allowing us to keep
our modernisation plans on track.
"We continue to invest in new strategic growth areas and have also
today announced a strengthened strategic partnership with Microsoft
that will see us accelerate co-innovation across all areas of our
business, including enterprise voice and cyber security, supporting
our growth strategy.
"With trading conditions expected to see some improvement through
the year, we have confirmed our outlook and remain confident that
BT is on a path to growth."
BT Group plc (BT.L) today announced its trading update for the
three months to 30 June 2021.
Key strategic developments:
-- Openreach announced an offer for communications providers
giving long-term price certainty on FTTP to drive widespread
adoption of ultrafast, ultra-reliable full fibre broadband
-- Announced long-term mobile network plans including: a 5G
network that covers over 90% of the UK's landmass by 2028; 4,500
square miles of new rural 4G coverage by 2025; and retiring legacy
3G services by 2023
-- Announced a strengthened strategic partnership with Microsoft
to accelerate innovation across enterprise voice, cyber security
and industry-focussed services
-- Reached agreement with the CWU(1) that recognises the need
for change, ensures our colleagues continue to be treated fairly
and with respect as we remain on track to modernise BT
-- Announced the launch of our new SoHo (Single/Small office, Home office) unit in Enterprise
-- Completed the sale of business units in Italy serving
customers in the public administration and SME sectors
-- Invested in Safe Security, a leader in cyber risk
quantification, reflecting our increased focus on security
-- Launched our Hope United campaign using the power of football
to tackle online hate, as we continue to lead on the responsible
use of technology
Strong operational performance with continued focus on our
network growth:
-- Openreach FTTP network now covers 5m premises; increased our
rural FTTP target to 6.2m premises as part of our programme to
reach 25m premises by the end of 2026
-- Openreach announced it will stop selling legacy products to a
total of 3m premises across 297 exchanges from April 2022
-- Launched Home Essentials, an industry-leading social tariff
available to 4.6m low income households
-- Strong growth in FTTP connections and 5G-ready customer base in Consumer
-- Revamped our converged Halo for business broadband bundles to
provide 900Mbps full fibre and Unbreakable Wi-Fi
-- Half of total Global orders won in the quarter were for products in our growth portfolio
Financials on track to deliver outlook and a path to growth:
-- Revenue GBP5,071m, down 3%; revenue has grown in Consumer and
Openreach, and remained flat in the SME sector, more than offset by
declines in the Corporate and Public Sector segment in Enterprise
and in Global
-- Adjusted(2) EBITDA GBP1,866m, up 3%; all units have delivered
EBITDA growth, with the exception of Global
-- Reported profit before tax GBP536m, down 4% despite higher
adjusted(2) EBITDA, primarily due to the prior year gain on
disposal of our domestic Spanish operations
-- Reported profit after tax GBP2m, down GBP446m, due to a
one-off tax charge in the quarter to reflect the remeasurement of
deferred tax balances following the enactment of the new UK
corporation tax rate of 25% from April 2023
-- Normalised free cash flow(2) GBP(43)m, up 12%, due to
improved EBITDA and lower cash tax payments, offset by higher cash
capital expenditure
-- Capital expenditure up 63% to GBP1,507m, primarily due to
investment in spectrum; capital expenditure excluding spectrum
payments up 9% to GBP1,011m, primarily due to FTTP provisioning
activities, mobile network spend and non-network infrastructure due
to the Better Workplace programme
-- No change to FY22 or FY23 outlook
(1) Communications Workers Union.
(2) See Glossary on page 3.
Three months to 30 June 2021 2020 Change
====== ======
GBPm GBPm %
Reported measures
Revenue 5,071 5,248 (3)
Profit before tax 536 561 (4)
Profit after tax 2 448 (100)
Capital expenditure 1,507 927 63
============================== ====== ====== =======
Adjusted measures
Adjusted(2) Revenue 5,070 5,250 (3)
Adjusted(2) EBITDA 1,866 1,813 3
Normalised free cash flow(2) (43) (49) 12
Capital expenditure excluding
spectrum 1,011 927 9
Net debt(2,3) 18,566 18,157 GBP409m
============================== ====== ====== =======
(2) See Glossary on page 3.
(3) Net debt was GBP17,802m at
31 March 2021.
Overview of the three months to 30 June 2021
CUSTOMER-FACING UNIT UPDATES
Adjusted(1) revenue Adjusted(1) EBITDA
=======================
First quarter to 2021 2020 Change 2021 2020 Change
30 June
GBPm GBPm % GBPm GBPm %
================== ====== ====== ======= ====== ====== ======
Consumer 2,382 2,362 1 523 501 4
Enterprise 1,287 1,352 (5) 429 406 6
Global 785 990 (21) 102 141 (28)
Openreach 1,347 1,286 5 773 729 6
Other 8 4 100 39 36 8
Intra-group items (739) (744) 1 - - -
================== ====== ====== ======= ====== ====== ======
Total 5,070 5,250 (3) 1,866 1,813 3
================== ====== ====== ======= ====== ====== ======
Consumer: Solid start as lockdown restrictions eased. Strong
customer focus resulting in churn nearing record lows.
Revenue has grown, primarily driven by BT Sport and higher
direct handset sales, as the first quarter saw the easing of
lockdown restrictions allowing pubs, clubs and our retail stores to
reopen, although retail footfall and sales remain lower than
pre-pandemic levels.
Year on year fixed and mobile revenues are down due to the
ongoing impact of Covid-19, lower out of contract price rises,
copper price reductions to address back book pricing, and the
continued decline of our voice only customer base and call volumes.
Increased SIM-only mix and a greater proportion of direct channel
sales also diluted postpaid ARPC.
EBITDA increased due to revenue growth, lower indirect
commissions (following the expiry of the retail agreement with
Dixons Carphone in FY21) and tight cost management. These more than
offset the one-off sports rights rebates recognised in Q1 last
year, although the substantial majority of these benefited Q2
FY21.
Quarter on quarter positive Q1 trading, aided by growth in our
strategic customer bases and converged products, as well as the
CPI+ price rise has slowed the decline in fixed and postpaid
ARPCs.
Our FTTP base has grown by 107k quarter on quarter, our largest
ever quarterly increase. Our 5G ready base now stands at over 4m.
Our class-leading mobile network was this month ranked by
RootMetrics as the UK's number one network for the eighth year
running.
Enterprise: Strong EBITDA growth driven by lower costs.
Revenue was down primarily due to continuing declines in legacy
products, in particular fixed voice which fell by 8%, the ending of
some legacy contracts over the past year, and a decline in
low-margin equipment sales. Wholesale mobile revenue fell by 8%
primarily due to the ongoing migration of an MVNO customer. This
was partly offset by growth in new products and retail mobile
revenue. Revenue was flat in SME, but declined in Corporate and
Public Sector and Wholesale.
EBITDA increased mainly driven by strong delivery performance on
our Emergency Services Network contract, a GBP10m gain on fixed
asset disposals in Wholesale, and lower costs including the benefit
of our cost transformation programme.
Retail order intake fell 16% to GBP2.8bn and wholesale order
intake fell 11% to GBP0.9bn on a 12-month rolling basis. The
declines in both retail and wholesale orders are largely due to
major contract extensions in Q4 FY20. Retail order intake in the
quarter was GBP0.7bn, up 43%; wholesale order intake in the quarter
was GBP0.1bn, up 28%. In the quarter, we implemented a new
operating model with a sharper segment and commercial focus. This
included the creation of a new segment dedicated to SoHo
(Single/Small office, Home office) customers, an area of
significant growth serving millions of UK firms. In addition, we
revamped our converged Halo for business broadband bundles to offer
mobile back-up, Complete Wi-Fi and full fibre speeds of up to
900Mbps.
Global: Challenging market conditions as a result of Covid-19
partly offset by strong cost transformation.
Revenue decline primarily due to more challenging than expected
market conditions resulting from Covid-19, the impact of prior year
divestments, and a GBP39m negative foreign exchange movement.
Revenue excluding divestments and foreign exchange declined by 12%
as customer business activity reduced, resulting in delayed
project-based spend and equipment sales. The prior year also
benefited from increased revenue, including high-margin
conferencing minutes, as customers went into lockdown for the first
time.
EBITDA decline reflected lower revenues and a GBP6m negative
foreign exchange movement, partially offset by lower operating
costs from ongoing transformation and rigorous cost control.
EBITDA, excluding divestments, one-offs and foreign exchange was
down by 19%.
Order intake on a rolling 12-month basis was GBP3.4bn, down 26%.
This decline reflects a number of large renewals in the prior year,
ongoing delays to purchasing processes and lower than expected
levels of demand and non-contracted spend. However, the proportion
of order intake represented by our growth product portfolio has
continued to increase. It represented just over half of total
orders won in the quarter, compared with a third in the prior
year.
The challenging market conditions are expected to continue
impacting both order intake and trading performance in the first
half of this year. However, Global is well positioned to benefit
from some market recovery anticipated in the second half.
At the end of June we completed the sale of business units in
Italy serving customers in the public administration and SME
sectors. We also made a strategic investment in Safe Security, a
leader in cyber risk quantification. Safe Security provides
services which enable organisations to measure their susceptibility
to various forms of cyber-attack and reflects our increasing focus
on security as a key growth area for BT.
Openreach: Revenue and EBITDA growth driven by full fibre
volumes.
Revenue growth was driven by higher rental bases in
fibre-enabled products(2) , up 14%, and Ethernet, up 7%, and higher
provisioning due to the Covid-19 impact of suppressed activity in
the first quarter of the prior year. This was partly offset by
declines in legacy copper products. Our FTTP base continues to
grow; we now have over 1m end customers and over 50% of new
customers are buying ultrafast products.
EBITDA grew 6% driven by revenue growth and ongoing efficiency
programmes, partially offset by higher operating costs. The
increase in operating costs was primarily driven by higher repair
volumes, increased provision activity, and recruitment and
investment in people.
In Q1 we delivered record on time repair performance of 87.9%,
despite poor weather and a significant number of people working
from home.
(1) See Glossary on page 3. Commentary on revenue and EBITDA is
based on adjusted measures.
(2) FTTP, FTTC and Gfast (including Single Order
migrations).
FINANCIALS FOR THE THREE MONTHS TO 30 JUNE 2021
Income statement
Reported revenue was GBP5,071m, down 3% or GBP177m, primarily
due to challenging market conditions resulting from Covid-19, the
impact of prior year divestments, negative foreign exchange
movements, and ongoing legacy product declines. This was partially
offset by higher rental bases in fibre-enabled products and
Ethernet in Openreach, and improved BT Sport and handset revenue in
Consumer as a result of the easing of lockdown restrictions.
Revenue has grown in Consumer and Openreach, and remained flat in
the SME sector, more than offset by declines in the Corporate and
Public Sector segment in Enterprise and in Global.
Adjusted(1) EBITDA of GBP1,866m was up 3% or GBP53m, due to
lower cost of sales, cost savings from our ongoing transformation
programme, lower indirect commissions and a one-off disposal of
fixed assets, which more than offset the revenue decline and prior
year benefit of one-off sports rights rebates. All units have
delivered EBITDA growth, with the exception of Global.
Reported profit before tax was GBP536m, down 4% or GBP25m,
primarily due to the prior year gain on disposal of our domestic
Spanish operations, despite higher adjusted(1) EBITDA.
Tax
The effective tax rate was 18.2% on adjusted(1) profit, based on
our current estimate of the full year effective tax rate. There was
a one-off tax charge in the quarter of GBP439m to reflect the
remeasurement of deferred tax balances following the enactment of
the new UK corporation tax rate of 25% from April 2023. As a
result, reported profit after tax was GBP2m, down GBP446m.
Capital expenditure
Capital expenditure was GBP1,507m (2020/21: GBP927m), up 63%,
primarily due to investment in spectrum of GBP496m. Other increases
include FTTP provisioning activities, mobile network spend and
non-network infrastructure due to the Better Workplace
programme.
Normalised free cash flow
Normalised free cash flow(1) improved by GBP6m to an outflow of
GBP43m, due to improved EBITDA and lower cash tax payments, offset
by higher cash capital expenditure.
Net debt and liquidity
Net financial debt (which excludes lease liabilities) at 30 June
2021 was GBP12.5bn, GBP0.8bn higher than at 31 March 2021
(GBP11.7bn), with net capital expenditure (after spectrum refund),
pension contributions, net interest payments, payment of lease
liabilities, share purchases and the acquisition of BT OnePhone
Limited, more than offsetting net cash inflow from operating
activities.
Net debt(1) including lease liabilities was GBP18.6bn at 30 June
2021, GBP0.8bn higher than at 31 March 2021 (GBP17.8bn).
Outlook
No change to FY22 or FY23 outlook.
(1) See Glossary on page 3.
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 Free cash flow (net cash inflow from operating activities
cash flow after net capital expenditure) after net interest
paid and payment of lease liabilities, before pension
deficit payments (including cash tax benefit), payments
relating to spectrum, and specific items. For non-tax
related items the adjustments are made on a pre-tax
basis. It excludes cash flows that are determined
at a corporate level independently of ongoing trading
operations such as dividends, share buybacks, acquisitions
and disposals, and repayment and raising of debt.
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.
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 predominantly to
restructuring charges linked with our modernisation
programme, 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: 020 7356 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 half year results for FY22 on 4
November 2021.
Forward-looking statements - caution advised
Certain information included in this results release 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 BT'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 results release are not guarantees of
future performance. All forward looking statements in this results
release are based upon information known to BT on the date of this
results release. 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), BT 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 results
release shall exclude any liability under applicable laws that
cannot be excluded in accordance with such laws.
About BT
BT Group is the UK's leading telecommunications and network
provider and a leading provider of global communications services
and solutions, serving customers in 180 countries. Its principal
activities in the UK include the provision of fixed voice, mobile,
broadband and TV (including Sport) and a range of products and
services over converged fixed and mobile networks to consumer,
business and public sector customers. For its global customers, BT
provides managed services, security and network and IT
infrastructure services to support their operations all over the
world. BT consists of four customer-facing units: Consumer,
Enterprise, Global and its wholly-owned subsidiary, Openreach,
which provides access network services to over 650 communications
provider customers who sell phone, broadband and Ethernet services
to homes and businesses across the UK.
For the year ended 31 March 2021, BT Group's reported revenue
was GBP21,331m with reported profit before taxation of
GBP1,804m.
British Telecommunications plc is a wholly-owned subsidiary of
BT Group plc and encompasses virtually all businesses and assets of
the BT Group. BT Group plc is listed on the London Stock
Exchange.
For more information, visit www.bt.com/about .
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