• Key developments

    Regulatory and compliance matters

    • Agreement reached on Openreach governance; Openreach board established and consultations announced today
    • Ofcom’s investigation into historical ‘Deemed Consent’ use resulted in a £42m fine and c.£300m compensation
    • As announced at Q3, adjustments relating to the investigation of our Italian business amount to £268m for prior year errors, for which we’ve revised prior periods, and a specific item charge of £245m in the current year for changes in accounting estimates. An additional £15m of investigation costs incurred in Q4

    Board appointments

    Jan du Plessis to join our Board on 1 June 2017 and become chairman of BT Group with effect from 1 November 2017

    Strategic progress:

    • Improvement in customer experience, with 100% of EE and 86% of Consumer inbound calls now handled in the UK and Ireland. Openreach has more than halved missed appointments this quarter year on year
    • Investing for growth with fibre broadband now passed more than 26.5m premises. In mobile, 4G coverage now reaches 80% of the UK’s landmass. In content, UEFA Champions League and UEFA Europa League rights secured until 2021
    • Accelerating cost transformation with restructuring programmes across Global Services, Group Functions and Technology, Services & Operations (TSO) saving c.£300m over two years, removing 4,000 roles with a restructuring charge of c.£300m – cost savings to offset market and regulatory pressures and support investment
    • Strategic review of Global Services undertaken; developing a more digital business, prioritising innovation on the cloud-based platforms delivering its products and services, and less dependent on owning local network

    Financial:

    • Results in line with our revised outlook issued in January 2017, except for normalised free cash flow which is c.£300m ahead due to earlier than expected customer collections that will reverse next year
    • Reported revenue up 27% for the year and up 10% for the quarter. Underlying revenue excluding transit adjusted for the acquisition of EE down 0.2% for the year and 0.9% for the quarter
    • Reported basic earnings per share down 33% for the year and 49% for the quarter. Adjusted earnings per share for the year and quarter down 9% and 13% respectively
    • Reported profit before tax down 19% for the year and 48% for the quarter. Adjusted profit before tax up 5% for the year and down 6% for the quarter
    • Specific items before tax were £1,178m for the year and £591m for the quarter
    • Adjusted EBITDA of £7,645m for the year, up 18%, and £2,069m for the quarter, up 2%, with underlying EBITDAadjusted for the acquisition of EE down 2.9% for the year and 4.6% for the quarter
    • Net cash inflow from operating activities £6,174m for the year, and £1,591m for the quarter and normalised free cash flow£2,782m for the year, and £834m for the quarter
    • Outlook: 2017/18 underlying revenue broadly flat, EBITDA £7.5bn - £7.6bn and normalised free cash flow of £2.7bn - £2.9bn, as the working capital benefit to 2016/17 from earlier than expected customer collections reverses
    • Proposed final dividend of 10.55p, up 10%, giving a full year dividend of 15.40p, also up 10%. Dividend policy remains progressive but 2017/18 dividend growth to be lower than the 10% previously anticipated

    Gavin Patterson, Chief Executive, commenting on the results, said:

    “This has been a challenging year for BT. We’ve faced headwinds in the UK public sector and international corporate markets and must learn from what we found in our Italian business. Openreach also received a fine from Ofcom after an investigation into historical Deemed Consent practices revealed it fell short of the high standards we expect. We take these issues extremely seriously and are putting in place new measures, controls and people to prevent them happening again. Learning from the challenges of this year will make BT a stronger company for the future.

    “However, we’ve also made good progress in a number of areas. Our integration of EE is going well, our UK consumer, SME and corporate businesses are performing strongly, and we’ve made significant progress in improving customer experience across the group. Our agreement with Ofcom on Openreach governance brings to an end a period of uncertainty. And securing exclusive rights to top-flight European football until 2021 puts our consumer businesses in a strong position.

    “We’ve undertaken a strategic review of Global Services. Technology trends mean that we are now less dependent on owning physical local network assets around the world, creating the opportunity to reposition Global Services as a more focused digital business. We are therefore restructuring our Global Services organisation to enable this strategic refocusing.

    “We’re also accelerating and expanding our cost transformation programmes, most significantly in our central Group Functions, in Technology, Service and Operations, as well as in several other lines of business. This will help offset market and regulatory pressures and create the capacity for future investment.

    “We aspire to be the UK’s digital champion. To achieve this, we’re ready to invest in the UK’s digital infrastructure, in continued improvements in our customer service, and in new technologies to further enhance customer experience. To that end, Openreach has today announced that it’s consulting with customers and industry stakeholders on the business case that could support better rural broadband and a large scale Fibre-to-the-premises rollout across the UK.”

    News release

    KPIs

    Slides

    Consensus

  • Pro forma

  • Operational:

    • Mobile pay monthly net additions of 276,000, with low churn of 1.1%
    • Retail broadband net additions at 83,000, with retail fibre broadband net additions at 260,000
    • Record Openreach fibre broadband net connections at 498,000, including 48% from external service providers
    • Openreach has halved missed appointments year on year
    • Mike McTighe appointed Chairman of the new Openreach Board
    • 100% of EE calls now handled in UK and Ireland contact centres and we’ve added around 500 UK and Ireland contact centre roles in Consumer, with around 900 to be filled in the final quarter of the year

    Financial:

    • Reported revenue up 32%, and underlying revenue excluding transit adjusted for the acquisition of EE down 1.5%
    • Reported earnings per share down 59% and adjusted earnings per share down 24%
    • Adjusted EBITDA of £1,870m up 18%, with underlying EBITDA adjusted for the acquisition of EE down 8%
    • Total adjustments relating to the investigation of our Italian business amount to £268m for prior year errors, for which we’ve revised prior periods, and a specific item charge of £245m for changes in accounting estimates (£145m in Q2 and £100m in Q3). See pages 5 and 20
    • Net cash inflow from operating activities £1,515m, down £179m and normalised free cash flow £606m, down £298m
    • Outlook: 2016/17 underlying revenue broadly flat, EBITDA of £7.6bn, normalised free cash flow of c.£2.5bn. 2017/18 underlying revenue broadly flat, EBITDA broadly flat, normalised free cash flow of £3.0bn – £3.2bn

    Gavin Patterson, Chief Executive, commenting on the results, said:

    “The good progress we’re making across most of the business has unfortunately been overshadowed by the results of our investigation into our Italian operations and our outlook. We’ve undertaken extensive investigations into our Italian business, including an independent review by KPMG, and I am deeply disappointed with the unacceptable practices by some that we’ve found. This has no place at BT, and it undermines the good work we’re doing elsewhere in the Group. We are committed to ensuring the highest standards across the whole of BT.

    “We face a more challenging outlook in the UK public sector and international corporate markets but we’ve seen record growth at EE, strong momentum in Consumer, and our highest ever fibre net connections in Openreach. Customer experience remains a top priority. EE is now answering 100 per cent of its customers’ calls in the UK and Ireland. In Openreach, missed appointments have halved year on year. We’ll continue to invest to ensure our service levels improve and that our customers see the benefit.

    “We are pushing ahead with reforms at Openreach, particularly on governance and customer service and continue to believe an agreement can be reached with Ofcom on its Digital Communications Review. We think these changes address Ofcom’s concerns and can form the basis for a fair, proportionate and sustainable settlement.”

    News release

    Webcast

    KPIs

    Slides

  • Operational:

    • Mobile pay monthly net additions of 280,000, with sustained low churn
    • 65% retail share of total broadband net additions at 76,000, with retail fibre broadband net additions at 216,000
    • Openreach achieved 440,000 fibre broadband net additions, including >50% from external service providers for first time
    • Over 1,000 new UK-based customer service roles in Consumer in the second half to answer 90% of calls in the UK
    • Good progress clearing long tail of outstanding Ethernet orders in Openreach
    • Openreach ahead on all 60 minimum service levels and on track to halve missed appointments this year

    Financial:

    • Reported revenue up 35%, and growth in underlying revenue excluding transit adjusted for the acquisition of EE up 1.1%
    • Reported earnings per share down 10%, adjusted earnings per share up 4%
    • Underlying EBITDA adjusted for the acquisition of EE up 0.9%
    • Non-cash specific item charge of £145m following initial investigation into inappropriate management behaviour in BT Italia
    • Net cash inflow from operating activities of £1,734m, up £489m and normalised free cash flow of £894m, up £325m reflects timing of receipts and payments within the year; net debt £9,573m
    • Interim dividend 4.85p, up 10%
    • Outlook unchanged

    Gavin Patterson, Chief Executive, commenting on the results, said:

    “This is a positive set of results, both operationally and financially, and we remain on track to achieve our full year outlook. We’ve made good progress on the integration of EE and the delivery of our synergy targets. Our consumer facing lines of business have performed well, but in the enterprise space, UK public sector continues to be a challenging market. Across the group, we continue to drive cost reduction and productivity improvements. Customer experience remains a key priority, and we’re stepping up our investments in the second half of the year. And we’ll continue to invest in our ultrafast and 4G plans in 2017 and beyond. Ofcom’s consultation on the Digital Communications Review closed earlier this month; we’ve submitted our response and will continue to engage with Ofcom to reach the best outcome for the UK.”

    News release

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    Consensus

  • Key strategic developments for the quarter

    • Growth in underlying revenue excluding transit on a pro forma basis up 0.4%
    • Underlying EBITDA on a pro forma basis down 2% reflecting our launch of BT Mobile handsets
    • 79% share of broadband net additions
    • Mobile pay monthly net additions of 244,000, with record low EE churn
    • Significant governance changes planned to further increase the independence and transparency of Openreach

    Gavin Patterson, Chief Executive, commenting on the results, said

    “We’ve made a good start to the year, with growth in revenue and strong cash flow. We’re on track to deliver our full year outlook.

    “Our integration of EE is progressing well, alongside our business reorganisation that took effect on 1 April. EE performed strongly, both financially and commercially, and our customers are seeing the initial benefits of our acquisition with BT Sport now available to EE pay monthly customers. We remain focused on improving customer experience and 100% of EE pay monthly calls are now handled in UK and Ireland contact centres. We’ve reduced engineer missed appointments by more than a third since last quarter and Openreach is again ahead on all 60 minimum service levels set by Ofcom.

    “Fibre broadband is available to well over 25m premises and take-up remains strong. At a retail level, we performed well achieving a 79% share of broadband net adds in the quarter. We were pleased to renew our FA Cup rights during the quarter and we look forward to showing more games from the Premier League at a much better time slot, starting in two weeks. Our customers can also look forward to all the exclusive live action from the UEFA Champions League and UEFA Europa League once again this year.

    “Our investment plans remain central to our future and so we will be rolling out further fibre in the coming months, as well as 4G through the Emergency Services Network contract. Our aim is to make these services as universally available as we can, whilst also deploying a new generation of ultrafast broadband. Such investment requires regulatory clarity, particularly in these uncertain times.

    “Having listened to Ofcom and industry, we have set out our proposals for greater independence and transparency for Openreach. Our proposals can form the basis for a fair, proportionate and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Digital Communications Review to a speedier conclusion. We will continue to engage with Ofcom over the coming months.”

    News release

    Webcast

    KPIs

    Slides

    Consensus