BT Group plc Q3 2017/18 - investor meeting slide pack

Transcription

1 BT Group plc Q3 2017/18 - investor meeting slide pack February and March

2 Contents Page 1. 3 Page Group Consumer EE IR contact details; cautionary statement 57 8 February

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4 Who we are, what we sell to our customers BT Group B2C B2B Fixed network infrastructure Divisions Consumer EE and Public Sector and Ventures Revenue 1 EBITDA 1 FCF 1 4.9bn 5.1bn 4.8bn 5.5bn 2.1bn 5.1bn 1.0bn 1.2bn 1.5bn 0.5bn 0.8bn 2.6bn 0.7bn 0.6bn 1.3bn ( 0.2bn) 0.6bn 1.3bn Customers UK Consumers UK Consumers UK SMEs 2, Corporates, Public Sector MNCs 3 Communications Providers Communications Providers Products Lines, broadband, TV, BT Sport mobile Mobile broadband, lines, TV Broadband, networking, voice, mobile, IT services Managed network IT services Broadband, Ethernet, voice, mobile, ventures services Fibre and copper broadband, Ethernet 1 FY 2016/17 2 Small-medium enterprises 3 Multi-national corporations 4

5 Our purpose, goal, and strategy Our purpose To use the power of communications to make a better world Our goal Growth to deliver sustainable profitable revenue growth Broaden and deepen our customer relationships Deliver great customer experience 1 Invest for growth Transform our costs Our strategy Differentiated content, services and applications Best network in the UK Fully converged service provider Market leadership in all UK segments Focus on multinational companies globally A healthy organisation Best place to work 1 ee.co.uk/our-company/about-us/customer-service-results-2017 bt.com/help/home/customer-service-performance homeandwork.openreach.co.uk/ourresponsibilities/our-performance.aspx 5

6 Strategic focus area Deliver great customer experience Invest for growth Transform our costs Investing in our people more people (call centres and engineers) more training/fewer touch points onshoring Investing in our products and services add value/innovation and move to digital products designed to have fewer faults self service Better outcomes net promoter score Right First Time fewer missed appointments reducing propensity to contact Largest superfast broadband network 27.4m premises access to superfast 3m FTTP by mid 2020s 10m Gfast under review The leading mobile network largest 4G network (90% geographic coverage) 4G Pro, aim to be 5G leader most spectrum Only UK telco which owns fixed and mobile network economies of scale strong position for convergence and content Operational performance improvement procurement, eg focus on major suppliers customer and performance transformation project EE integration synergies 150m delivered FY16/17 vs. target 100m 250m delivered in H1 FY17/18 400m by FY19/20 Restructuring programme, Group functions and TSO 300m to be saved over 2 years 4,000 roles to be removed from back office 300m restructuring charge over 2 years, specific item 6

7 Capital allocation framework Drive sustainable, profitable revenue growth Grow EBITDA Grow free cash flow Invest for growth Support pension fund Progressive dividends Maintain strong balance sheet Invest for growth Support pension fund Progressive dividends Maintain strong balance sheet 7

8 Group

9 Key areas of focus Regulation and investment Fibre First programme WLA review Cost transformation Customer experience Combining EE and BT Consumer Pension deficit EE integration synergies restructuring programmes operational performance improvement investing in people, products and innovation improvements in customer service performance TV deal with Sky simplify operational model strengthen accountabilities accelerate transformation triennial valuation on track for 1H of calendar 2018 reviewing BTPS scheme following consultation with members considering funding options 9

10 Fibre First programme 3m FTTP by end of 2020 Already building our ultrafast network - mix of Gfast and FTTP 1 bringing at least 100Mbps broadband speeds 886,000 premises passed as at end of December 2017 Commitment to reach 3m FTTP by end of 2020, ambition to reach 10m by mid-2020s, if conditions are right 8 cities out of 40 named in first phase of the programme Broad support for consultation on large scale deployment; co-operation needed on key enablers including: achieving low build and connection costs achieving rapid take-up of and generating incremental revenue from the platform supportive regulatory and public policy framework Improving deployment methods including trenching machines, connectorised blocks and plug and play fibre frames estimated per premise passed 2, plus to connect 3 Win-win solution for all stakeholders 1 Fibre-to-the-Premises 2 for first 10m premises passed 3 excludes cost of battery back-up for the majority of customers 10

11 Current regulatory topics DCR 1 : to be legally separate company within BT Board: independent chair, majority independent members Greater delegation of responsibility: strategy, operations and budget Enhanced industry consultation process CEO to report to chair except for certain duties around BT s plc listing BT to adopt voluntary Commitments to replace 2005 Undertakings c.30,000 employees to transfer to Ltd, following TUPE and replicating Crown Guarantee Assets and trading to stay with BT plc Ltd brand no longer features BT logo Agreement to be comprehensive and enduring WLA 2 review what would good look like? Properly include the costs of higher service in charge control. Additional costs become disproportionate as coverage % increases Recognise 40Mbps/10Mbps charge control will have negative knock-on effect on investment, and not just by BT Recognise need to make RoC > WACC to support investment Fair bet - make a fair assessment of risks undertaken in 2008, when assessing the returns made on wholesale fibre broadband Optimistic we can reach a rational outcome that stimulates UK investment 1 Digital Communications Review 2 Local Access 11

12 Cost transformation c. 19.5bn annual cash costs EE integration synergies 250m annual cost synergy run-rate On track to deliver targets 400m cost synergies p.a. and 1.6bn NPV revenue synergies Restructuring programmes Group functions, TSO and 300m payback and 300m in costs within two years c.40% of 4,000 roles removed Operational performance improvement Customer and performance transformation Productivity improvements in ongoing activities All cost transformation programmes on track 12

13 New Consumer business to be created EE and BT Consumer combining from 1 April 2018 Pro forma c.40% of group revenue, c.32% of EBITDA Three distinct brands BT, EE and Plusnet Fixed and mobile networks, consumer products and services and content Simplify operating model, strengthen accountabilities, accelerate transformation Marc Allera (prev. CEO of EE) leading since 1 September 2017 Drive converged products and accelerate transformation 13

14 Using multiple brands to address different segments, and enable convergence Multi-brand consideration Distinct brand positions to compete Establishing leadership in convergence Customers brand consideration index: multi-brand >50% higher Brand strengths Premium, high quality Trustworthy, reliable, credible British heritage Family-focused Competitors BT Sport offered to EE postpaid customers Single brand Dual brand Multibrand Heartland Home, fibre, family BT Family SIM launched in Oct 2016 Brand strengths Innovative Modern and up-to-date Social and outgoing Out of home and on the move Simple converged fixed and mobile bundles Heartland On the go, mobile, personal Brand strengths Heartland Honest, straight-talking Playful Yorkshire charm Value for money Home, broadband, value Plusnet entered quad-play market in Nov 2016 BT and EE implementing joined-up approach to value creation 14

15 Customer Experience - improving results from investment in CX Consumer > 2m MyBT App downloads Average call waiting time reduced to <60 seconds YoY 5,000 agents trained on consumer.com Multiskilling agents Innovation >4,900 patents Gfast InLinkUK from BT SmartCity MK Agile Connect Group Net promoter score +5.5pts Right First Time +3.6% Customer Experience Copper network faults 4.1% lower YoY On-time repair performance remained >80% EE Onshore call answering 100% Call centre satisfaction +7% Ofcom complaints lowest ever >600 stores Products Superfast broadband available to 95% of UK premises 4G target 95% geographic coverage Leadership in FTTP and 5G Driving convergence Confidence to publish our customer service performance: Consumer: EE: : 15

16 Pension BT Pension Scheme (BTPS) BTPS has c.300,000 members, assets of 49.9bn, liabilities of 58.9bn (IAS19 at 31 Dec 2017) Benefits expected to be paid over c.70 years, requires long term approach BTPS deficit driven by continued very low discount rate, increasing liabilities Actuarial valuation every 3 years; BTPS Trustee and BT agree deficit and negotiate payment plan triennial valuation drives deficit repair payments assumptions differ from more volatile quarterly IAS 19 accounting estimate BT has constructive relationship with BTPS Trustee Expect to announce outcome in H1 calendar 2018 Deficit repair payments agreed for following three years 2014 triennial agreement was for 2.1bn cumulative payments 2017/ /20 Relationship between size of deficit and payments in following three years is not linear Proactive approach 30 June 2017 triennial valuation following 60 day consultation with BTPS members we have closed the DB scheme for managers. Discussions continue with team members and their union consideration of alternatives to paying cash into scheme launching appeal of the High Court decision not to allow move away from RPI indexation 16

17 Consumer

18 Monthly ARPU RGUs per customer Consumer - at a glance Deepen customer relationships emphasis on growing RGU per customer more services lead to higher ARPU, and lower churn Strengthen TV and Sport sport content a key differentiator: a reason to join and stay with BT building our entertainment offer, in a disciplined way Drive convergence convergence in UK lags behind European markets opportunity for Consumer Customer experience happier customers, with higher NPS 3, are more loyal customer service is improving, still not where we want it to be ARPU 1 and RGU 2 progression Consumer ARPU Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2015/ / /18 Operational metrics Q2 2016/17 Q3 2016/17 RGUs per customer Q4 2016/17 Q1 2017/18 Q3 YoY change ARPU 4.8% RGUs/customer 3.1% Q2 2017/ Q3 2017/18 Retail BB customers ( 000) 9,193 9,276 9,276 9,286 9,307 9,342 Retail share of BB net adds 65% 44% 35% 53% 34% 22% Retail BB market share 46% 46% 46% 45% 45% 45% Fibre BB as % of BB base 49% 51% 53% 55% 57% 59% TV customer base ( 000) 1,684 1,736 1,750 1,758 1,765 1,760 1 Average Revenue Per User 2 Revenue Generating Units 3 Net Promoter Scorec 18

19 BT Consumer - Strong BT Sport viewing and premium TV content deal agreed Revenue flat increased ARPU 1 offset by voice line losses 12-month rolling ARPU up 4.8% RGUs 2 per customer up 3.1% EBITDA down 4%, reflecting investment in customer experience and broadband speed upgrades Superfast growth, ultrafast product launches 152Mbps and 314Mbps with minimum speed guarantees of 100Mbps 59% of broadband customers now on fibre TV agreement with Sky launch in early 2019 BT Sport BT Sport viewing 4 up 23% YoY all customers 5 now pay for BT Sport Q3 2017/18 Q3 2016/17 Change Revenue 1,261m 1,262m - EBITDA 250m 260m (4)% Capex 66m 54m 22% 1 Average Revenue Per User 2 Revenue Generating Units 3 average weekly viewing from start of football season 4 ex digital 5 excluding employees Season to date 3 BT Sport viewing 4 at an all-time high 2013/ / / / /18 19

20 Fibre supports higher ARPU, lower churn and upsell opportunities Early move on fibre led to significant upside 59% of the retail broadband base on Infinity (vs. 33% for other communication providers) churn for BT Infinity is about a third lower higher ARPU, and attracts new customers Investing to maintain broadband leadership superior performance in Ofcom speed report, especially at peak times 52Mbps now minimum for Infinity 1 customers upgraded to Care Level 2 (24-hour response) Fibre remains key to our future plans 86% say they will never go back to copper 3x more customers take TV with fibre vs. copper Ultrafast products launched with 100Mbps minimum guarantee BT Infinity fibre broadband offers the best experience Faster home wi-fi with BT Smart Hub Fibre penetration continues to improve 18% 29% Access to >5m public hotspots with BT Wi-fi BT retail broadband subscribers with fibre service Preferential pricing for mobile and sport 39% 48% 53% 59% 2012/ / / / /17 Q3 2017/18 20

21 TV and Sport platform, a foundation for growth Improvements in audience and content Multi-year agency deal for BT to market and sell Sky s NOW TV service to BT TV customers, starting from m TV and well over 5m BT Sport customers total BT Sport audience +23% YoY 1 disciplined approach to content rights Innovative approach Netflix embedded in user interface inventive formats, such as The Goals Show, using connected red button on BT TV and BT Sport App UEFA finals made available on social media platforms multi-platform digital strategy Strong roster of channels and sports rights Multiple routes to value creation Starter Entertainment Max 80 channels Pause & rewind 100 channels Record 300 hours 141 channels, 21 HD Record 600 hours Free BT Sport inc 4K UHD Charging Volumes Commercial BT Broadband, BT Sport Pack, EE, Sky Broadband lines, TV/BT Sport customers, EE customers c.30,000 pubs and clubs sport deals, e.g. with Virgin Media and Setanta Advertising Advertising and programme sponsorship 1 excluding Showcase and digital 21

22 EE

23 EE - at a glance - the leader in UK mobile Consumer-focused mobile operator EE enterprise mobile part of EE MVNO business part of The best overall UK mobile network 1 90% 4G geographic coverage; target 95% by m postpaid and 6.0m prepaid customers across BT Wide set of products across mobile and fixed EE #1 for postpaid handset and SIM-only acquisitions, and iphone sales; over 1m home customers Efficient, well-activated marketing campaigns BAFTA and Glastonbury Festival sponsorship; high-profile advertising Emergency Network (ESN) service provider current contract to December 2021 Mobile subscriber UK total market share by operator Tesco Mobile, 6% Three, 11% Vodafone, 22% Source: EE and market data, December 2016 Virgin Mobile, 4% Talk Talk, 1% BT (inc. EE), 29% O2, 27% 2016/17 EE revenue 5,090m Equipment, 272m, 5% Fixed, 276m, 6% Prepaid mobile, 402m, 8% Postpaid mobile, 4,140m, 81% 1 ratings from latest RootMetrics survey 23

24 EE - EBITDA down 6%, driven by high customer investment costs Revenue up 4% postpaid up 6%; prepaid down 15% Group postpaid mobile ARPU down 1.9% Group churn 1.2% Group mobile base 29.8m 235,000 postpaid adds, group base now 17.5m 299,000 prepaid decline, group base now 6.0m EBITDA down 6% reflecting investment in premium handsets and smart watches expect strong recovery in Q4 Investing to improve customer experience 4G geographic coverage now 90% of UK landmass network coverage and performance recognised in latest RootMetrics reports 1 Apple selling price of smallest capacity premium model at launch Q3 2017/18 Q3 2016/17 Change Revenue 1,357m 1,311m 4% EBITDA 259m 277m (6)% Capex 122m 153m (20)% Apple s premium handset price evolution 1 1, iphone 6 Plus iphone 6S Plus iphone 7 Plus iphone X Sep 2014 Sep 2015 Sep 2016 Nov

25 EE - network leadership and customer experience drive more for more revenue growth Maintain network leadership 4G to reach 95% UK geographic coverage by 2020 plan to have over 450 new sites live in 2018 Consistently ranked No.1 in network tests Introduced the new Time on 4G metric e.g. using to planning specific rail coverage upgrades Preparing to lead the way on 5G researching with a number of partners 4G geographic coverage acceleration Transform customer experience Ambition to become the best operator for customer experience Calls: 100% answered in UK and Ireland Digital: My EE app has >10m registrations; investment in online Stores: bringing personal service to more customers plan to have c.700 total stores by end of 2019 Online chat increasing and propensity to call falling 90% 95% Illustrative coverage only Q3 2017/ Q1 2016/17 Q1 2017/18 Online chat users Propensity to call 25

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27 - at a glance Addressable market for core telecoms and IT services is 23bn 1 Market moving to new IP and cloud services traditional voice lines declining (9% pa) 3 whilst IP growing (20% pa) 3 mobile market is growing (1% pa) 4 growth in IT services from move to the cloud (2% pa) 4 Fragmented market - 100s of competitors but few compete across the whole market Investing in capability to exploit convergence over best network clear propositions for all segments, strong integrated portfolio improving customer experience, NPS +22 points over 7 quarters increasing sales effectiveness and coverage, targeted marketing lower operating costs from automation, less failure 1 IDC 2014/ /16 2 revenue, 2016/17 full year 3 over past 7 quarters / /17 5 as at May 2016 Our revenues are derived from voice and data services Revenue split by products 2 Traditional voice Networking (incl. BB & IP) Mobile Managed (contract) ICT Other There is opportunity to grow in all our markets market share 5 100% 75% 50% 25% 0% 29% 19% 17% SME Corp Major & Public Sector B&PS Rest of market 27

28 - steady progress Underlying revenue ex transit down 6% declines in traditional voice and lower equipment sales, partially offset by continued growth in mobile Progress on IP voice base up 55% YoY SME down 3%, Corporate down 7%, Public Sector and Major down 6% EBITDA down 8% reflecting reduction in revenue and strong prior year comparator Revenue u/l ex transit Q3 2017/18 Q3 2016/17 Change 1,125m 1,190m (5)% (6)% EBITDA 362m 393m (8)% Capex 69m 74m (7)% Continued growth in BPS mobile and mobile market share 1 Order intake down 22% 12-month rolling up 12% Cumulative mobile net adds (LHS) Mobile market share (RHS) 35% 30% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 25% 1 Source: BT, IDC 2015/ / /18 28

29 Public Sector - managing transition of large contracts Public Sector market has undergone major changes Core telecoms and IT market of c. 10bn, with further c. 8bn in IT and other outsourcing contracts Public sector spend is increasingly devolved and being consolidated locally Larger integrated contracts being replaced by smaller individual product deals BT s major contracts are ending and impact is still working through the business Growth in new areas will take time to offset declines in these contracts We are adapting the business to respond Managing transition of ceased contracts; majority of revenue ceased by end of 2017/18 Significant investment in growing regional sales teams with some early wins in Scotland and Wales Investing to standardise and scale Managed Service capability Growth in mobile and networking Improved Net Promoter Score by +26 points over 7 quarters 29

30 Corporate and SME - good performance, well positioned for future Corporate: growth in core portfolio Strong profit growth over year Mobile and networking grew market share Successful integration of EE and BT into one sales team, with strong Why BT? message Focused marketing of Voice and IP Future opportunities: SME: PSTN 1 decline with some offset in mobile and networking #1 in SME mobile: strong growth, 2% market share gain Fibre broadband: now > half the base Network services: strong revenue performance Traditional lines decline: some offset from growth in IP Voice Bundles increasingly important Good progress on EE integration and cross sell exploit well integrated converged proposition of mobile, IP and network further revenue and cost synergies from integration Future opportunities: digital campaigns to target cross sell extend bundling capability and offers 1 Public Switched Telephone Network 30

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32 - at a glance - global scale to support multi-country customers We supply ICT 1 services globally Revenue mix by geography and by portfolio 5,500 customers, 17,000 employees, 180 countries Focus is MNCs in key industry verticals globally, public and private sector customers outside UK c.70% of revenue from MNCs 2 AMEA Americas UK 12% 21% 30% BT Advise Industries BT Compute BT Contact Security BT One (fixed, mobile, unified comms) c.70% of revenue from customers served in multiple regions Europe 37% BT Connect (network services) Multi-country model combined with global account management Our customer model our 20 highest priority countries generate >90% of revenue partners extend geographic reach in sales and service in smaller country markets 1 2 Largest, multi-region MNC customers MNCs and domestic customers with narrower geographic focus Major global accounts (50%) Top accounts (30%) % share of revenue 1 Information and Communications Technology 2 Multinational companies 3 Smaller customers with high potential Key accounts (20%) 32

33 - managed declines in low margin business Underlying revenue ex transit down 6% managed decline in low-margin business Restructuring continues new digital products launched with key suppliers progress update at Q4 2017/18 results Order intake down 11% to 1.1bn 12-month rolling down 25% reflecting ongoing challenging market conditions Strong growth in security services increasingly important as customers move away from dedicated MPLS 1 to more hybrid networks EBITDA up 103m reflecting one-off items and prior year Italy impact; broadly in line excluding these items 1 Multi-Protocol Label Switching 2 Voice Revenue u/l ex transit Q3 2017/18 Q3 2016/17 Change 1,266m 1,398m (9)% (6)% EBITDA 143m 40m 258% Capex 64m 69m (7)% 1,398m Q3 2016/17 Prior year Italy impact revenue and EBITDA movements Revenue 2 GWV & equip sales Trading FX and Other 1,266m Q3 2017/18 40m Q3 2016/17 Prior year Italy impact EBITDA GWV 2 & equip sales Trading FX and Other 143m Q3 2017/18 33

34 - moving to a more focused operating model Strategic way forward Focus on global multi national corporations Focus on strong customer relationships NPS continues to improve Market focus where we have strong leadership and we deliver repeatable solutions Technology trends mean less dependent on owning physical local network Reposition as a focused digital business Prioritise platform based solutions such as cloud based services, and SDN e.g. launch of BT Connect SD-WAN Cloud of clouds ecosystem continues to develop e.g. IBM cloud connected AWS partnership and IBM cooperation announced Emphasis on security - continues to grow BT s global network remains at the core Creating a simpler operating model two-year restructuring of operations Simplification and streaming of core processes underway Improve financials, risk profile, and long-term value to BT 34

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36 - at a glance Fixed network services Ventures Fixed network operators Mobile network operators Overseas operators Resellers Media and Broadcast Mobile network services Mobile Virtual Network Operators IoT/Machine to Machine Ventures c. 2.1bn revenue 1 Mobile Other /17 36

37 Our strategy is based on selling new products and services, supported by brilliant customer experience Create a better business Sell MVNO to CPs Converged communications Mobile network operator solutions Ventures strategic solutions Internet of Things Professional services Digital kiosks Cross-sell products Turn products into services Create new business models Combined with a brilliant customer experience Engaged Customers Customer-centric decisions Easy to do business Brilliant People Leverage our market position #1 #1 #1 #1 Fixed #1 #2 #1 #1 #1 Mobile #1 37

38 - stronger Ventures revenue Underlying revenue ex transit down 4% Managed Solutions down 8%; Data and Broadband down 8%; Voice down 3% Mobile revenue down 5% reflecting specific MVNO 1 contractual commitments last year Ventures revenue up 9% - good growth in bulk messaging and Fleet Solutions EBITDA down 10% reflecting continued legacy decline and revenue mix Order intake 372m, down 61% 12-month rolling down 38% reflecting two large contracts in prior year 86 InLinkUK units live at end of Q3 providing free calls, wi-fi and other services Revenue u/l ex transit Q3 2017/18 Q3 2016/17 Change 506m 528m (4)% (4)% EBITDA 189m 211m (10)% Capex 54m 53m 2% order book generating advertising revenue 2016/ /18 1 Mobile Virtual Network Operator 1, m Q1 Q2 Q3 Q4 Q1 Q2 Q3 38

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40 - at a glance Maintains and builds access network between homes and business and exchanges; huge engineering operation 27.4m premises passed with superfast fibre broadband network serves c.26m customers through CPs Consumer / Residential c.21m end customers and Corporate c.5m business connections Infrastructure Fibre New sites Data centres Commitment to serving >590 CPs nationwide on equal access terms Supplies copper and fibre access products, Ethernet and backhaul Ofcom regulates >90% revenue; charge controls c.75% OPENREACH >590 Communications Providers with access to c.30m end customers Access products, eg copper, Fibre, ISDN Ethernet and backhaul products 40

41 - access network Exchange >5,500 locations Cabinet c.101,000 locations Distribution Point c.4.7m locations Homes/es c.30m locations Typically 3.5km from premises Typically 350m from premises Typically ~35m from premises Core network Copper Copper Copper Fibre Backhaul Fibre 41

42 - continued strong fibre growth Revenue flat continued strong growth in fibre broadband, up 23% EBITDA down 5% increased business rates and higher pension charge Normalised free cash flow down 8% increased opex and capex Fibre broadband now available to c.27.4m 1 premises record 600,000 fibre broadband net additions 2 9.2m premises connected Ahead on all 60 copper minimum service levels 4.1% reduction year to date in copper network faults Targeting 3m premises with FTTP by the end of 2020 first eight cities announced 1 Using latest Ordnance Survey addressing product 2 Including BT Northern Ireland Q3 2017/18 Q3 2016/17 Change Revenue 1,286m 1,284m - EBITDA 641m 676m (5)% Capex 477m 409m 17% fibre net adds k / / / / / /18 42

43 Faster speeds and broader coverage - Superfast and Ultrafast plans Plans Progress Ultrafast Gfast and FTTP Fibre First commitment to deliver FTTP to 3m premises by end 2020, ambition for 10m by mid-2020s, if conditions are right Gfast remains critical component of s Ultrafast strategy Launched two Gfast variants 160/30Mbps and 330/50Mbps, live since September Extending our FTTP footprint; targeting new sites, MDUs 1, SMEs and hard-to-reach areas 886,000 ultrafast capable premises, growing quickly Superfast Beyond BDUK 95% coverage 95% coverage achieved Respect the Government s decision on USO 2 waiting for outline of approach including funding mechanism Multiple solutions: FTTP deployment techniques, fixed wireless broadband and satellite Trialling trenching machines currently 300m a day for as little as 3 per metre duct laid 6 times quicker than before 1 Multi-Dwelling Units 2 Universal Service Obligation 43

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45 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Pension valuation, bn Pension - sustained low discount rate necessitates more proactive approach Q3 IAS 19 deficit 7.9bn net of tax (Q2 7.7bn) continued low real discount rate (Q3-0.82%, Q2-0.68%) increase in assets (Q3 49.9, Q2 48.7bn), and liabilities (Q3 58.9bn, Q2 57.7bn) operating charge expected to increase by c. 100m IAS 19 Actuarial Measure Accounting measure Actuarial measure Frequency Quarterly Triennial Purpose Regular updates Sets cash deficit payments Discount rate Yield curve for AA corporate bonds Prudent expected return (BTPS assets) Longevity Future expectations Prudent overall approach Inflation Future expectations Prudent overall approach Assets Market value Market value /9 2009/ / / / / / / / / bn BT Pension Scheme sensitivity analysis % pt fall in discount a rate % pt increase to b inflation rate Increase in liabilities increase in deficit yr increase to life expectancy -12 IAS 19 (gross of tax) IAS 19 (net of tax) Actuarial (gross of tax) 1 the scheme actuary has assessed the risk of these events as occurring no more than once in 20 years; the impact shown for each scenario assumes this is the only change in practice a combination of changes could arise a scenario assumes a one percentage point fall in the yields on both government and corporate bonds b assuming RPI, CPI, pension increases and salary increases all increase by 0.9 percentage points Source: BT Annual Report and Form 20-F 2017, p211 45

46 Pension - sequence of recovery plans from triennial reviews 1 2.6bn 2011 Recovery Plan for 3.9bn deficit m 2bn Agreed payments bn Additional contingent payments m , bn 2014 Recovery Plan for 7.0bn deficit Agreed payments Agreed payments, to be reviewed at 2017 valuation years are to 31 March 2 by end of April 2015 ( 875m in March 2015, 875m in April 2015) 46

47 Key regulatory market reviews Connectivity (BCMR/LLCC) BCMR Apr 13 to Mar 16 BCMR Apr 16 to Mar 19 Appeal Post CAT lacuna Post CAT Consultation Post CAT statement BCMR Apr 19 to Mar 22 Fibre, copper access (FAMR and WLA) FAMR to Mar 17 Lacuna WLA Apr 18 to Mar 21 Consultation Consultation Final statement Final statement Narrowband markets (WNBMR and NCC) NBMR Oct 13 to Sep 16 Lacuna NBMR Dec 17 to Mar 21 Consultation Consultation Final statement Final statement 2015/ / / / / / / /23 UK Policy Framework 2.3 and 3.4GHz spectrum auctions 2018 Brexit 700MHz spectrum auction

48 Regulatory certainty key to investment landscape 2016/17 and 2017/ regulation impacted revenue and EBITDA by c. 230m c. 180m from Connectivity Market Review (BCMR) c. 50m from Fixed Access Market Review (FAMR) EBITDA impacted by: c. 120m impact from BCMR and from MPF price cut during lacuna period c. 60m impact between new business rates implementation and regulatory reviews high tens of millions of pounds impact from EU mobile roaming cuts Further regulatory impacts on revenue and EBITDA from: Local Access Market Review (MPF 1, GEA 2, DPA 3 ) Connectivity Market Review, including dark fibre Narrowband Market Review (WLR 4, ISDN 5, Solus voice) 2018/19 and beyond 1 Metallic Path Facility 2 Generic Ethernet Access 3 Duct and Pole Access 4 Line Rental 5 Integrated Digital Network 48

49 EE integration - revenue and cost synergies across BT Revenue synergies: Revenue synergies NPV c. 1.6bn Cross-selling opportunities being realised BT Sport available to EE customers business mobile net adds up strongly over the year Area Network Expected cost synergy in 2019/20 High Cost synergies: Cost synergies Year 4 c. 400m c. 150m achieved year 1 vs. 100m target due to early delivery, achieved 250m in Q2 17/18 early focus on renegotiating supplier terms, insourcing, estate rationalisation IT Support functions B2B B2C High High Medium Medium Integration costs: Integration costs c. 550m Reduced from c. 600m Customer service Property Supply chain and logistics Medium Medium Low Key: Low < 20m, Medium 20-50m, High > 50m Taking the best of both cultures 49

50 Costs Revenue Costs Revenue Impact of IFRS 15 on revenue recognition Move away from cash-based accounting Earlier revenue and EBITDA recognition Accounting of handset contracts is the largest change for BT Adoption from Q1 2018/19 Accelerated profit may lead to a one-off additional cash tax charge, split between 2018/19 and 2019/20 Mobile revenue recognition - Before Mobile revenue recognition - After Time Time Handset Service Handset Service 50

51 Group governance and controls Italy and review: detailed balance sheet reviews in seven large countries outside UK, supported by EY. With Italy covers c. 2/3 by asset value of operations outside UK no similar issues or areas of concern identified elsewhere, giving comfort this was isolated to Italy KPMG independent review of systems and controls relating to our Italian business. We also conducted a broader review of financial processes, systems and controls across the group Steps taken in Italy: suspended number of senior management in Italy who have now left business new President of our European operations, new CEO and CFO of BT Italy, from outside Italy implementing improvements to governance, compliance and control culture and capabilities of our people in the organisation Group-wide steps to improve control, governance and compliance environment: increasing resources and improving capabilities of the controlling function and the audit function outside the UK further developing our integrated risk and assurance reporting processes enhancing controls and compliance programme to strengthen awareness of the standards we expect, the capabilities of our people, and to reinforce the importance of doing business in an ethical, disciplined and standardised way new CEO and CFO of BT Italy will continue to review Italian management and finance teams, and work with BT Group Ethics and Compliance to improve the governance, compliance and financial safeguards continue to rotate senior management among all countries in 51

52 2017/18 financial outlook Underlying revenue 1 ex transit Broadly flat EBITDA 2 7.5bn - 7.6bn Normalised free cash flow 3 2.7bn - 2.9bn 1 excludes specific items, foreign exchange movements and disposals 2 before specific items 3 before specific items, pension deficit payments and the cash tax benefit of pension deficit payments 52

53 Shareholder distributions Progressive dividend policy unchanged: to maintain or grow the dividend each year whilst reflecting a number of factors including underlying medium term earnings expectations and levels of business reinvestment From next year the interim dividend per share will be fixed at 30% of the prior year s full year dividend. However, in this transitional year we have decided to hold interim dividend at 4.85p per share 221m shares bought back in H1, more than fulfils 17/18 planned buyback of c. 100m, to counteract dilutive effect of employee share option plans 53

54 m Debt and maturity profile Strong balance sheet with cash and current investments of 4.9bn and undrawn committed credit facilities of 2.1bn BBB+ (or equivalent) credit rating with Fitch, Moody s and S&P Effective rate 1 4,500 4,000 3,500 3,000 Term debt maturity profile 7.10% 3.67% 4.31% 2.34% 2.33% 2.23% 4.43% 5.6% 2,500 Change in net debt 2,000 1, bn 1, bn /18 18/19 19/20 20/21 21/22 22/23 23/24 24/25 25/26 After the effective rate represents the weighted average interest rate on bonds maturing in each period 30 Sept 2017 Normalised FCF Specific items Pension deficit payments Tax benefit of pension deficit payments Dividends Other 31 Dec 2017 after the impact of hedging 2 As at 30 Dec

55 Our purpose is to use the power of communications to make a better world Delivering our purpose creates measurable societal and environmental value. It also promotes sustainable revenue growth and helps with risk mitigation Being ethical and responsible Social impact 1 Environment We're committed to respecting human rights and we use the UN Guiding principles on business and Human Rights to inform our approach. This includes working with our suppliers to ensure conditions in the work place and to combat modern slavery We protect our customers from online threats. We are co-founders of Internet Matters which helps children stay safe online Being ethical helps us build trust and mitigate reputational and operational risks Helped 1.5m children receive better teaching in computing and tech skills since 2014/15 (as at November 2017, target: 5m by 2020) Generated 422m for good causes using our skills and technology since 2012/13 (target: > 1bn by 2020) Inspired 31% of our people to volunteer their time and skills in 2016/17 (target: 66% by 2020) Helped 3.9m people overcome social disadvantage through the benefits our products and services since 2014/15 (target: 10m by 2020) In 2016/17 we helped customers reduce carbon by 1.8 times BT s end-to-end carbon emissions (target: 3:1 by 2020) We do this by using conferencing, flexible working, M2M 2 solutions and other products and services to help customers cut carbon, whilst also working to reduce our own end-toend carbon emissions 5.3bn of 2016/17 revenue was generated from products and services that help our customers save carbon emissions. This is 22% of our group revenue 1 By end 2016/17 financial year unless otherwise stated 2 Machine-to-machine 55

56 UK broadband connections - move to faster technologies 30 VMED 4.1m BT 6.0m m * Virgin Media c.5.1m (+25%) BT c.9.3m (+60%) - of which 5.5m fibre Other CPs 10.2m 5 Fall in Other CPs due to EE becoming part of BT Other CPs c.11.3m (+11%) - of which 3.7m fibre 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q * Liberty Q4/FY 2017 results due 15 Feb 2018 Other DSL Other fibre BT DSL BT fibre VMED 56

57 Investor Relations - contact details tel: +44 (0) ir@bt.com web: LSE: BT.A NYSE: BT Forward looking statements caution Certain statements in this presentation are forward-looking and are made in reliance on the safe harbour provisions of the US Private Securities Litigation Reform Act of These statements include, without limitation, those concerning: our outlook for 2017/18 including revenue, EBITDA and free cash flow; dividend growth and share buyback; net debt; charges to the BT Pension Scheme; group restructuring; accelerating cost transformation; investment in customer experience and digital infrastructure; Universal Broadband Commitment; and FTTP roll out. Although BT believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. Factors that could cause differences between actual results and those implied by the forward-looking statements include, but are not limited to: material adverse changes in economic conditions in the markets served by BT whether as a result of the uncertainties arising from the UK s exit from the EU or otherwise; future regulatory and legal actions, decisions, outcomes of appeal and conditions or requirements in BT s operating areas, including the outcome of Ofcom s strategic review of digital communications in the UK and the implementation of the DCR commitments, as well as competition from others; consultations and market reviews including the outcome of Ofcom s consultation on the Local Access market and the results of any future spectrum auctions; selection by BT and its lines of business of the appropriate trading and marketing models for its products and services; fluctuations in foreign currency exchange rates and interest rates; technological innovations, including the cost of developing new products, networks and solutions and the need to increase expenditures for improving the quality of service; prolonged adverse weather conditions resulting in a material increase in overtime, staff or other costs, or impact on customer service; developments in the convergence of technologies; external threats to cyber security, data or resilience; political and geo-political risks; the anticipated benefits and advantages of new technologies, products and services not being realised; the timing of entry and profitability of BT in certain markets; significant changes in market shares for BT and its principal products and services; the underlying assumptions and estimates made in respect of major customer contracts proving unreliable; the anticipated benefits, synergies and cost savings of the EE integration not being delivered; the outcome of the BTPS triennial valuation and discussions of the pensions review; the aims of and anticipated cost savings from the group s restructuring programmes not being delivered; the improvements to the control environment proposed following the investigations into BT s Italian business not being implemented successfully or effectively; and general financial market conditions affecting BT s performance and ability to raise finance. BT undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. 57