Results for the half year to 30 September 2024

BT Group plc

7 November 2024

Solid progress on strategic priorities

•   Record FTTP build rate of 2.1m in the half with FTTP footprint passing 16m premises, around half of the UK, in October. We have increased our FY25 build target to 4.2m within our existing capex envelope driven by build cost efficiencies; on track to reach 25m by December 2026

•   Strong customer demand for Openreach FTTP with record net adds of 446k in Q2; total premises connected 5.5m with an increased and market-leading take up rate of 35%. Growth in FTTP as a proportion of the broadband base contributed to a reduction in 12-month repair volumes of 0.3m to 3.0m, supporting growth in margin and EBITDA

•   Openreach broadband ARPU in H1 grew year-on-year by 6% to £16, ahead of the CPI price increases, driven by a greater FTTP take-up and speed mix; Openreach broadband line losses in H1 were 377k, a 2% decline in the broadband base - we continue to see moderately higher competitor losses with a weaker overall broadband and new homes market

•   Retail FTTP base grew by 35% year-on-year to 3.0m of which Consumer 2.8m and Business 0.2m; 5G base 12.5m, up 25% year-on-year

•   Consumer postpaid mobile base at 13.9m; Consumer broadband base marginally lower at 8.2m. Consumer ARPUs relatively stable despite lower CPI benefits

•   Business revenue decline due primarily to non-UK trading in our Global and Portfolio channels

•   Cost transformation on track with £433m gross annualised cost savings during H1 FY25; Total Labour Resource down 2k to 118k and down 4% year-on-year

•   BT Group NPS of 25.6, up 3.1pts year-on-year, further improving customer experience

Continued EBITDA and normalised free cash flow¹ improvement:

•   Adjusted¹ revenue £10.1bn, down 3% mainly due to challenging conditions in Business, principally driven by non-UK trading in our Global and Portfolio channels. In the rest of the Group, lower CPI benefit and continued competitive markets in Consumer were broadly offset by growth in Openreach due to the benefit of price increases, Ethernet base growth and improving FTTP volume and mix; reported revenue £10.1bn, down 3%

•   Adjusted¹ EBITDA £4.1bn, up 1%, with revenue flow through more than offset by cost transformation

•   Reported profit before tax £1.0bn, down 10% primarily due to lower revenue, higher specific costs and higher net finance expenses, partly offset by reduction in reported operating costs

•   Capital expenditure ('capex') £2.3bn, down 2% with peak reported capex passed in FY24, primarily driven by lower networks spend despite higher FTTP build due to reduced unit costs and efficiencies; cash capex of £2.5bn in line with prior year

•   Net cash inflow from operating activities £3.0bn; normalised free cash flow¹ £0.7bn, up 57% due to higher EBITDA, working capital timing and a tax refund

•   Net debt £20.3bn (31 March 2024: £19.5bn), increased mainly due to our scheduled pension scheme contributions of £0.8bn with cash inflow offset by payment of the final dividend

•   Gross IAS 19 pension deficit of £4.3bn, a decrease from £4.8bn at 31 March 2024 mainly due to scheduled contributions, partly offset by lower than required asset returns in the period

•   Interim dividend of 2.40 pence per share (pps) up from 2.31pps in H1 FY24 in line with our policy of paying 30% of prior year's full year dividend pps. FY24 final dividend paid in September was fully covered by normalised free cash flow¹

•   FY25 Outlook: FY25 guidance reiterated for adjusted EBITDA¹, capital expenditure and normalised free cash flow¹.  FY25 revenue guidance revised to down 1-2% primarily reflecting weaker non-UK trading including reduced low-margin kit sales, along with a softer environment in Corporate and Public Sector

•   Mid-term guidance: Sustained adjusted¹ revenue growth and EBITDA growth ahead of revenue, enhanced by cost transformation from FY26 to FY30; capital expenditure excluding spectrum less than £4.8bn until FY26, reducing by c. £1bn post peak FTTP build; normalised free cash flow of c. £2.0bn in FY27 and c. £3.0bn by the end of the decade

Customer-facing unit updates

¹      See Glossary on page 9.

²      Net debt was £19,479m at 31 March 2024.

    n/m: comparison not meaningful

Overview of the half year to 30 September 2024

Our strategic priorities

Our five priorities support our mission to become the UK's most trusted connector of people, devices and machines, while creating significant growth for all our stakeholders - our colleagues, our customers, the country and our investors:

•   Deliver Openreach growth and strong returns on FTTP

•   Drive Consumer growth through converged solutions

•   Capitalise on Business' unrivalled assets to restore growth

•   Digitise, automate and reskill to transform the cost base and improve productivity

•   Optimise the business portfolio and capital allocation

In May 2024 we sharpened our focus to accelerate the modernisation of our operations, and deliver growth for all our stakeholders:

•   Leveraging our significant investments into our networks and platforms to accelerate migrations and deliver the best converged customer experience

•   Focusing on the UK where we have a strong competitive advantage. While our global business sits outside this strategy, it shows strong commercial opportunity as we roll out Global Fabric, our network-as-a-service. We will explore ways to optimise the business and potentially partner to achieve scale

•   Accelerating transformation; in May 2024 we announced a further target of £3bn gross annualised cost savings by the end of FY29, at a cost to achieve of £1.0bn

•   Peak capex has passed as a result of improved efficiency and a clear focus on connectivity in the UK

This sharpened focus allows a clearer path to significant cash flow expansion in the short-term, and a doubling of normalised free cash flow by the end of FY29.

Strategic priorities and transformation

 During H1 FY25, we made strong progress against our strategic metrics for FY28-FY30:

•   FTTP premises passed increased by 2.1m to 15.9m; target of 25-30m

•   Openreach take-up increased to 35% and retail take-up increased by 0.4m to 3.0m; targets of 40-55% and 6.5-8.5m respectively

•   5G UK population coverage increased to 80% and 5G retail connections increased by 1.1m to 12.5m; targets of >98% and 13.0m-14.5m respectively

•   Total labour resource decreased by 2k to 118k; target of 75-90k

In May 2024, we announced a further cost transformation target of £3bn gross annualised cost savings by the end of FY29 at a £1.0bn cost to achieve, after successfully delivering on a previous £3bn gross annualised cost savings target 12 months early. We are on track to deliver on this, with £0.4bn gross annualised cost savings achieved in H1 FY25 at a cost of achieve of £0.2bn. We expect c. 40% of the £1.0bn cost to achieve in FY25 as we complete the final year of our previous five-year modernisation programme, with the remainder spread across the remaining years.

Financial outlook

•    FY25 guidance reiterated for adjusted EBITDA¹, capital expenditure and normalised free cash flow¹.  FY25 revenue guidance revised to down 1-2% primarily reflecting weaker non-UK trading including reduced low-margin kit sales, along with a softer environment in Corporate and Public Sector.

•    From FY26 to FY30, we expect sustained adjusted¹ revenue growth and EBITDA growth ahead of revenue enhanced by cost transformation. Capital expenditure will remain at less than £4.8bn until FY26 before reducing by c. £1bn post peak FTTP build. We expect to deliver c. £2.0bn in normalised free cash flow in FY27 and c. £3.0bn by the end of the decade.

¹ See Glossary on page 9.

Dividend

•    In line with our policy, we are today declaring an interim dividend of 2.40 pence per share (pps) (H1 FY24: 2.31pps), which is 30% of last year's full year dividend, in line with our policy

•    We reconfirm our progressive dividend policy which is to maintain or grow the dividend each year whilst taking into consideration a number of factors including underlying medium-term earnings expectations and levels of business reinvestment

•    The Board expects to continue with this policy for future years, and to declare two dividends per year with the interim dividend being fixed at 30% of the prior year's full year dividend

•    The dividend will be paid on 5 February 2025 to shareholders on the register of members on 27 December 2024. The ex-dividend date is 24 December 2024

Principal risks and uncertainties

A summary of the group's principal risks and uncertainties is provided in note 15.

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