BT Group plc Q4 2017/18 - investor meeting slide pack

Transcription

1 BT plc Q4 207/8 - investor meeting slide pack May and June 208

2 Contents Page. 3 Page IR contact details; cautionary statement

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4 Who we are, what we sell to our customers B2C BT B2B Fixed network infrastructure Divisions EE and Public Sector and Ventures Revenue EBITDA FCF 5.0bn 5.3bn 4.6bn 2.0bn 5.0bn 5.bn.0bn.4bn.4bn 0.8bn 0.4bn 2.6bn 0.6bn 0.8bn.bn 0.5bn 0.bn.0bn Customers UK s UK s UK SMEs 2, Corporates, Public Sector Communications Providers MNCs 3 Communications Providers Products Lines, broadband, TV, BT Sport mobile Mobile broadband, lines, TV Broadband, networking, voice, mobile, IT services Broadband, Ethernet, voice, mobile, ventures services Managed network IT services Fibre and copper broadband, Ethernet FY 207/8 reported numbers 2 Small-medium enterprises 3 Multi-national corporations 4

5 207/8 year of disciplined delivery and risk reduction Improved customer experience Delivered financial outlook in line with expectations Secured regulatory clarity: legal separation of WLA market review gives pricing clarity on key products Confirmed next stage of fixed network development: ambition 0m FTTP 2 by mid-2020s and 3m by 2020 Secured 40MHz of 3.4GHz spectrum for 5G Premier League auction - games secured at lower cost Agreement to access Sky s sports and entertainment packages Closed final salary pension scheme to future accruals Agreed triennial valuation and funding strategy Remediated material controls weakness Simplified organisational structure and strengthened management Local Access 2 Fibre-to-the-Premises 5

6 We have evolved our strategy to focus on convergence Our purpose Our vision Our goal To use the power of communication to make a better world Leadership in converged connectivity and services, brilliantly delivered Drive sustainable growth in value Our strategy Converged for UK and Enterprise Digital for MNCs Unmatched UK-wide Fixed Access for all CPs 2 Deliver differentiated customer experiences Invest in integrated network leadership Transform our operating model Renew our capabilities and culture Our values Personal Simple Brilliant Multi-National Corporations 2 Communications Providers 6

7 BT is uniquely positioned to lead in network, product and service convergence One converged network Convergence in Europe Always connected Best performance 34% 25% 23% Best value 2% 6% 5% 4% Delivers fully converged services Voice Data Content - Fixed - Mobile - Office/home - On the go - Any platform Shared allowances across multiple devices Personalised experience Source: McKinsey based on quad-play penetration Increasing trend towards convergence in Europe Lower churn, driving loyalty in the base Low UK penetration and strong latent demand 7

8 Priorities for cash flow Drive sustainable growth in value Grow EBITDA Grow free cash flow Invest for growth Support pension fund Progressive dividends Maintain strong balance sheet Invest for growth Support pension funds Progressive dividends Maintain strong balance sheet 8

9 208/9 financial and dividend outlook 207/8 Actual 208/9 Outlook Underlying revenue (.0)% c.(2)% EBITDA 2 7.5bn 7.3bn - 7.4bn Capital expenditure 3.5bn c. 3.7bn (and 209/20) Normalised free cash flow 3 3.0bn 2.3bn - 2.5bn Full year 207/8 dividend unchanged at 5.40 pence per share. Final dividend unchanged at 0.55 pence per share. 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. We will look to maintain an unchanged dividend over the next two years, given our outlook for earnings and cash flow over this period 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 9

10 Key areas of focus Deliver differentiated customer experiences Putting the customer at the centre of everything we do Differentiation through converged products and services and service quality Focus on customer retention Invest in integrated network leadership Ambition for a single integrated all-ip fibre network Fibre First programme 4G and 5G Transform our operating model Building a lean and agile organisation Driving productivity improvements and making better use of digitalisation Accelerating restructuring and transformation Pensions June 207 triennial pension valuation Closing BTPS scheme following consultation with members On-going measures to address the pension deficit Regulation Market reviews WLA completed, BCMR on-going 0

11 Deliver differentiated customer experiences % 9% 6% 3% 0% Movement in Net Promoter Score NPS and RFT continue to improve Progress in : copper network faults down 3.7% ahead on all 60 copper minimum service levels on-time repair performance remains over 80% Improving customer service: service calls to our contact centres down 0% YoY 206/7 207/8 increasing use of digital channels such as My BT and My EE, Movement in Right First Time 2 6.6m active users per month average BT call waiting time down to 4 seconds Ofcom complaints: down 25% YoY, at a record low, for EE mobile down 8% YoY for BT broadband and % YoY for BT landlines complaints team won Team Of The Year in the UK Complaint Handling Awards 208 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 206/7 207/8 NPS shows the cumulative movement in our customers' perception of BT since April 206. It's a combined measure of promoters minus detractors across our business units. 2 RFT is our key measure of customer service and shows the cumulative movement since April 206. It tracks how often we keep our promises to customers (e.g. completing orders/fixing faults on time). The scope of NPS and RFT are re-baselined at the start of the financial year.

12 Customer experience improved with converged and digital products Enterprise Lead in convergence improve economics of FMC Use data and digital channels to improve marketing and service Personal and local service with nationwide retail Strong portfolio of brands Multi-channel distribution Improve customer experience while reducing cost to sell/serve Protect and grow core connectivity market share, focussing on cross-selling and technology migration Create new revenue streams in selected adjacency offerings to add new high margin revenue e.g. security, IoT 4G Assure and BT One Phone already launched Digital GS new products with differentiated service and security offerings Partnership business model leverage benefits of partnerships Agile connect and cloud security De-emphasise low margin revenue streams Convergence lowers churn, increases loyalty and improves economics Fixed, Mobile Converged products 2

13 Invest in integrated network leadership Mobile Build 4G to 95% geographic coverage Lead the market to 5G Secure 3.4GHz (40 MHz) and 700MHz spectrum Fixed Continue to expand our super fast footprint: Win further public sector superfast projects (BDUK ) Engage with the Government and Ofcom on the USO Invest in ultra fast with Fibre First programme: Ambition 0m FTTP by mid 2020s Deploy Gfast in non-fttp areas Deliver the all-ip future: Lead the market to single-order products 3 Close PSTN Reduce operating costs A single integrated network Build seamless converged access across fixed, Wi-Fi, and mobile Build out integrated core and backhaul network 2 Broadband Delivery UK 2 Universal Service Obligation 3 Public Switched Telephone Networks 3

14 All-IP/fibre delivers performance, efficiency and service Current network Future state primary access products 3 primary access products 5,600 exchanges incl.,00 Fibre points of handover Retirement of exchanges:,00 fibre points of handover Engineering intervention for 90% of customer moves/changes Near zero touch network, managed by software Complex PSTN & LLU environment Simplified all-ip/fibre Local Loop Unbundled 4

15 Transform our operating model Simplify operating model Simplify and delayer our management structures Drive productivity improvement in our core UK operations Accelerate delivery of digital GS Consolidate our sites to c.30 modern, fit-for-purpose strategic sites Move from buying to strategic sourcing Sustained improvement in customer experiences Lean and simple organisation Sustained improvement in costs and productivity Digitalise processes 5

16 Transformation drives long-term growth Deliver differentiated customer experiences Increased ARPUs and RGUs Improved Customer experience Increased FMC product penetration Increased Digital interaction Transform our operating model c.3,000 Gross role reduction c..5bn Gross cost reduction c. 800m Cost to achieve with 2 year payback 3-year targets 6

17 regulated returns declining to allowed return on capital 20.0% 5.0% 0.0% 5.0% Trend of returns Returns - actuals Returns - including possible indirect effects 5 regulatory allowed return 204/5 205/6 206/7 207/8 E 208/9 E 209/20 E 2020/2 E Total impact on BT Price cuts on Ethernet (BCMR) services are starting to erode the ROCE Price cuts in WLA (especially GEA 2 services) over the next three years to accelerate this trend returns in regulated markets to be much closer to the Ofcom WACC 3 by 2020/2 Impact of regulation should reduce in the longer-term Last 3 years Next 3 years Regulatory price impact > 500m Return on Capital Employed 2 Generic Ethernet Access 3 Weighted Average Cost of Capital 4 assumes direct and indirect impact 5 extrapolating WACC used in Ofcom s charge control models across all services Estimated regulatory price impact 4 bn 7

18 Transformation offsets regulation impact in short term m 8,000 7,500 7,000 6,500 6,000 7,505 5,500 5,000 FY 207/8 Regulatory Price Cost Inflation Trading Cost Transformation FY 208/9 FY 2020/2 Transformation drives medium term EBITDA growth 8

19 Pension reached agreement on triennial valuation Funding deficit of.3bn: 207 recovery plan,.3bn deficit increase mostly due to fall in long-term real interest rates existing recovery plan end-date maintained Three components to deficit payments: m 2,000,500, ,000 FY8 + FY20 cash payments total 2.bn in line with prior agreement 2 Funded from issuance of bonds to the Scheme 3 3 year plan, maintains end-date. 0.4bn of FY2 payment by 30 June 2020, bn cash by March 2020, in line with prior agreement bn expected to be funded by issuing long-dated sterling BT bonds to BTPS bn cash pa for 0 years with some payments earlier in financial year (e.g. 400m cash by June 2020) Leads to material contributions of 4.5bn before next triennial Lower level of investment risk, reducing volatility m 2,000,500, recovery plan, 7.0bn deficit

20 Pension proactive measures to reduce pension risk Closure of defined benefit BTPS 2, members moved to improved defined contribution BTRSS 3 : alongside investment strategy changes, materially reduces pensions risk Appeal lodged for Section C indexation case IAS 9 deficit 5.3bn (net of tax) at 3 March 208: improvement in assets reduction in liabilities change in discount rate approach bn 0 (2) (4) (6) (8) (0) March 207 position IAS9 pension deficit March 208 position Sections B and C representing over 99% of the BTPS active membership to be closed to future accrual 2 BT Pension Scheme 3 BT Retirement Saving Scheme 20

21 New Enterprise business to be created Bringing together and from October 208 Pro forma c.28% of group revenue, c.29% of EBITDA Bringing together enterprise businesses will strengthen services and products and sharpen focus on customer experience, as customers move towards converged technologies Next step in the simplification of BT s operating model, having brought together BT and EE Gerry McQuade (prev. CEO of ) leading since May 208 Connecting customers to next-generation digital communications services, content and networks 2

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23 New unit created by combining BT and EE units unit is well-placed to drive convergence and accelerate transformation Integrated network leadership The best 4G network & 5G spectrum secured Access to largest Superfast network & Ultrafast rolling out Unrivalled public Wi-Fi with c6m hotspots Network showcased through premium content Differentiate d customer experiences 38% of BT revenue In Q4 7/8 Extensive retail estate with >620 stores 35% of BT EBITDA In Q4 7/8 Multi-skilled agents across all UK 4m homes with 30m relationships Advanced digital & self-serve tools >bn yearly customer touchpoints Highly motivated and engaged workforce

24 strategy to become UK market leader in convergence has 6 enablers 2 Three great brands One smart network Our brands will target specific segments and have differentiated positions BT & EE offer home- & mobile-centric convergence, Plusnet has value-focus Our priorities are to up-sell, minimise cannibalisation, and attract high-value Today we have three different fixed, mobile, and Wi-Fi networks Tomorrow s single network will always be connected, optimised & affordable We have a number of steps to take to one smart network in 2022 ARPU 3 Best personal and local service We will deliver on the phone, on digital, in stores, and in customers homes We have >620 retail stores, which will showcase our best local experience We will onshore 00% by end 2020 and introduce AR customer service tools Churn 4 5 Personalisation through data and digital Best for partnerships We will evolve our digital capabilities to target segments effectively We will use digital and data to optimise marketing and segment the base This will enable us to upsell and cross-sell, whilst being more cost efficient We have created a new Partnership Unit to leverage our scale For partners: launch with scale, accelerate go-to-market, simplify distribution For customers: most innovation, widest choice, integrated experience NPS 6 Open, super-aggregator TV Embracing content trends to offer unrivalled choice with all must-haves Delivered by BT and EE over tailored home- and mobile-centric platforms BT Sport focus on broader distribution and OTT proposition RGUs

25 BT focus on higher value customers Revenue up 3% driven by: Broadband, TV, Sport, and Mobile Q4 207/8 Change FY 207/8 Change 2-month rolling ARPU up 5% RGUs 2 per customer up 3% to % of broadband customers now on fibre BT Sport continued to deliver strong viewing figures across all platforms, up 9% YoY EBITDA up 3%, driven by revenue growth partially offset by higher network costs from an increase in fibre customers Further investments in customer experience: e.g. Premier League continuing on BT Sport for three more years from the 209/20 season Average Revenue Per User 2 Revenue Generating Units Revenue,289m 3% 5,066m 3% EBITDA 295m 3%,023m % Capex 92m 28% 29m 23% 65% 60% 55% 50% 45% 40% Fibre share of retail broadband base Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 205/6 206/7 207/8 205/6 206/7 207/8 25

26 EE sixth consecutive quarter of revenue growth Sixth consecutive quarter of revenue growth: postpaid up 6%; prepaid down 0% EBITDA up 37%, recovering strongly as forecast: quarterly trends driven by seasonal customer behaviour EBITDA up 7% over 207/8 mobile base 29.6m 95,000 postpaid adds, group base now 7.6m 433,000 prepaid decline, group base now 5.5m postpaid churn.2%, continuing to reflect loyalty Investing to improve customer experience: 4G geographic coverage 90% of the UK named the leading mobile network for the ninth consecutive time in latest RootMetrics survey introduced in-store and call centre video-calling to connect customers with technical experts Q4 207/8 Change EE Revenue YoY FY 207/8 Change Revenue,320m 5% 5,294m 4% EBITDA 433m 37%,353m 7% Capex 78m 9% 628m 2% 6% 4% 2% 0% -2% -4% Q Q2 Q3 Q4 Q Q2 Q3 Q4 FY 206/7 FY 207/8 206/7 207/8 26

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28 - at a glance Addressable market for core telecoms and IT services is 23bn 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 (% pa) 4 growth in IT services from move to the cloud (2% pa) 4 Fragmented market - 00s 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 IDC 204/5 205/6 2 revenue, 206/7 full year 3 over past 7 quarters 4 205/6 206/7 5 as at May % 75% 50% 25% 0% 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 29% 9% 7% SME Corp Major & Public Sector B&PS Rest of market 28

29 demanding quarter, improvements coming Underlying revenue ex transit down 5%: continued decline in traditional voice and lower equipment sales partly offset by growth in VOIP and mobile SME 2 down 2%, Corporate down 5% Public Sector and Major down 9% with lower equipment sales partly offset by mobile growth EBITDA down 7%: reflecting reduction in revenue EBITDA trend to improve in Q as Public Sector legacy drag subsides Order intake down 20% in Q4: 2-month rolling intake up % Launched BT broadband with 4G Assure in Q 208/9 Voice Over IP 2 Small and Medium Enterprises Revenue u/l ex transit Q4 207/8 Change,57m (5)% (5)% FY 207/8 Change 4,563m (4)% (4)% EBITDA 362m (7)%,48m (7)% Capex 83m (7)% 304m % 300, , ,000 50,000 00,000 50,000 0 IP voice seats Q Q2 Q3 Q4 Q Q2 Q3 Q4 206/7 207/8 29

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31 - at a glance - global scale to support multi-country customers We supply ICT services globally: 5,500 customers, 7,000 employees, 80 countries Focus is MNCs in key industry verticals globally, public and private sector customers outside UK: c.70% of revenue from MNCs 2 c.70% of revenue from customers served in multiple regions AMEA Americas UK Europe Revenue mix by geography and by portfolio 3% 2% 30% 36% BT Advise Industries BT Compute BT Contact Security BT One (fixed, mobile, unified comms) BT Connect (network services) Multi-country model combined with global account management: our 20 highest priority countries generate >90% of revenue partners extend geographic reach in sales and service in smaller country markets 2 Largest, multi-region MNC customers MNCs and domestic customers with narrower geographic focus Our customer model Major global accounts (50%) Top accounts (30%) % share of revenue Information and Communications Technology 2 Multinational companies 3 Smaller customers with high potential Key accounts (20%) 3

32 steady progress with restructuring Underlying revenue ex transit down 8% in Q4: underlying revenue down 8% over the full year de-emphasis of low-margin global wholesale voice and equipment sales EBITDA down 33% in Q4: 9% reduction in Q4 operating costs excluding one-offs, EBITDA marginally down Order intake up 2% in Q4: 2-month rolling intake down 6% reflecting shift to shorter more flexible contracting Progress with restructuring: moving towards Digital GS, e.g. IBM Cloud Connect 2 shifting focus from domestic to global MNC customers Voice 2 Multi-National Corporations Revenue u/l ex transit Q4 207/8 Change,24m (3)% (8)% FY 207/8 Change 5,03m (9)% (8)% EBITDA 37m (33)% 434m (2)% Capex 86m (5)% 278m (23)% m GS Q4 YoY Revenue m, ,400,350,300,250,200 revenue and EBITDA movements GS Q4 YoY EBITDA Contribution 32

33 - moving to a more focused operating model Strategic way forward: Focus on 800 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 Accelerating restructuring and transformation of operating model: Two-year restructuring of operations to reduce costs Simplification and streaming of core processes underway Improve financials, risk profile, and long-term value to BT 33

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35 - 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 c. 2.0bn revenue Ventures Mobile Other 2076/8 35

36 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 Brilliant People Leverage our market position # # # # Fixed # #2 # # # Mobile # 36

37 improved order intake Underlying revenue ex transit down 6%: Managed Solutions down 8%; Data and Broadband down 0%; Voice down 0% Mobile revenue broadly flat YoY Ventures revenue up 6% - continued growth in bulk messaging and Fleet Solutions 38 InLinkUK units live at end of Q4 EBITDA down 7% in Q4: reflecting legacy revenue decline Order intake up 47% in Q4: new 4 year product deal with KCOM Revenue u/l ex transit Q4 207/8 Change 506m (6)% (6)% FY 207/8 Change 2,009m (5)% (4)% EBITDA 204m (7)% 754m (0)% Capex 69m (4)% 229m % m,200,000 2-month rolling intake down 28% Quarterly order book Q Q2 Q3 Q4 Q Q2 Q3 Q4 206/7 207/8 37

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39 - at a glance Maintains and builds access network between homes and business and exchanges; huge engineering operation serves c.26m customers through CPs c.27.6m premises passed with superfast fibre broadband network / Residential c.2m 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 39

40 - access network Core Network c.27.6m premises can access superfast fibre c.5,500 exchanges c.0,000 cabinet locations c.4.7m DPs c.30m premises 40

41 another quarter of strong fibre growth Revenue flat in the quarter: continued strong growth in fibre broadband, up 22% EBITDA down 8%: driven by increased business rates and higher pension charges Normalised free cash flow down 23% 555,000 fibre broadband net additions: 9.8m premises connected, 36% of those passed ultrafast now available to more than.5m premises Ahead on all 60 copper minimum service levels 3.7% reduction in copper network faults in the year Fibre First programme on track: recruiting 3,500 trainee engineers m 2 0 Q4 207/8 fibre connections Change FY 207/8 Change Revenue,289m 0% 5,23m 0% EBITDA 64m (8)% 2,520m (4)% Capex 394m (6)%,658m 5% /2 202/3 203/4 204/5 205/6 206/7 207/8 4

42 Faster speeds and broader coverage Superfast and Ultrafast plans Ultrafast Gfast and FTTP Plans Fibre First commitment to deliver FTTP to 3m premises by end 2020, ambition for 0m by mid-2020s, if conditions are right Gfast remains critical component of s Ultrafast strategy Progress Launched two G.fast variants 60/30Mbps and 330/50Mbps, live since September Extending our FTTP footprint; targeting new sites, MDUs, SMEs and hard-to-reach areas.5m 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 Multi-Dwelling Units 2 Universal Service Obligation 42

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44 BT strong market position, uniquely positioned for sustained growth BT is a clear market leader BT has a portfolio of strong brands 30m B2C relationships m+ B2B relationships,500 MNCs Positioned across fixed, mobile and strategic partnerships Multi channel sales and service Fixed infrastructure Superfast speeds: c.90% coverage Mobile infrastructure Strategic partnerships 4G: 90% geographic coverage Content, technology, device and service vendors UK call centres Over 600 stores Digital Partnership channels Multi-National Corporations 44

45 Market growth is slowing with demand for higher value products increasing UK broadband growth has slowed, but fibre is steadily increasing UK mobile subscriptions broadly flat, but pay monthly is growing UK broadband subscriptions (m) UK mobile subscriptions (m) CAGR CAGR (4.4)% 28.0% 3.0% 207* % (4.7)% 207* Cable Fibre Copper Prepaid Postpaid Intensifying competition clear differentiation needed for premium pricing *to Q3 207 Source: Ofcom CMR & Connected Nations report EE

46 Increased capex to support network investment m 4,000 3,500 Capital expenditure year ended 3 March 208 3,454 3,522 c.3.7bn 3,000 2,500 2,37 2,622 2,000,500, /5 205/6 206/7 207/8 Next 32 years Capacity/Network Customer Driven Systems/IT Non-network Infrastructure gross BDUK grant funding deferral (claw-back) included in capacity/network: 204/5: 29m; 205/6: 229m; 206/7: 88m; 207/8: 22m 2 excluding BDUK claw-back EE 46

47 On track with current cost transformation projects c. 9.8bn annual cash costs EE integration synergies Restructuring programme Operational performance improvement Achieved 290m annual cost synergy run-rate at year end 207/8 On track for target of 400m p.a. costs and.6bn NPV revenue by end 209/20 Savings from renegotiating supplier terms, insourcing, rationalising sites Achieved 70% of roles target at Q4, and 80m of in-year savings On track for target of 4,000 roles reduced and 300m annual savings by 208/9 Incurred 24m at year end, of total restructuring cost of 300m Creation of single customer experience and transformation function Improvements in front line productivity e.g. call centres, 6.6m active users a month of My BT and My EE Streamlining back office through automation and shared services Net Present Value All current cost transformation projects on track EE 47

48 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-0 Jun-0 Sep-0 Dec-0 Mar- Jun- Sep- Dec- Mar-2 Jun 2 Sep 2 Dec 2 Mar 3 Jun 3 Sep 3 Dec 3 Mar 4 Jun 4 Sep 4 Dec 4 Mar 5 Jun 5 Sep 5 Dec 5 Mar 6 Jun 6 Sep 6 Dec 6 Mar 7 Jun 7 Sep 7 Dec 7 Mar 8 Pension valuation, bn Pension - sustained low discount rate necessitates more proactive approach Q4 IAS 9 deficit 5.3bn net of tax (Q3 7.9bn) assets unchanged (Q4 49.9bn, Q3 49.9bn, Q2 48.7bn), decrease in liabilities (Q4 55.8, Q3 58.9bn, Q2 57.7bn) operating charge expected to be similar to IAS 9 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 IAS 9 (gross of tax) IAS 9 (net of tax) Actuarial (gross of tax) bn 207/8 BT Pension Scheme sensitivity analysis Increase in liabilities 2.9. percentage point fall in discount rate 4.9 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 Source: BT Annual Report and Form 20-F 207, p2 Increase in deficit percentage point increase to inflation rate year increase to life expectancy EE 48

49 Key regulatory market reviews Connectivity (BCMR/LLCC) BCMR Apr 3 to Mar 6 BCMR Apr 6 to Mar 9 Appeal Post CAT lacuna Post CAT Consultation Post CAT statement BCMR Apr 9 to Mar 22 Fibre, copper access (FAMR and WLA) FAMR to Mar 7 Lacuna WLA Apr 8 to Mar 2 Consultation Consultation Final statement Final statement Narrowband markets (WNBMR and NCC) NBMR Oct 3 to Sep 6 Lacuna NBMR Dec 7 to Mar 2 Consultation Consultation Final statement Final statement 205/6 206/7 207/8 208/9 209/ /2 202/ /23 UK Policy Framework 2.3 and 3.4GHz spectrum auctions 208 Brexit 700MHz spectrum auction 2020 EE 49

50 Impact of IFRS 5 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 Q 208/9 Estimated that the likely impact on transition at April 208 will produce a cumulative increase in retained earnings of between.bn and.5bn before tax. The corresponding impact will be recorded as a contract asset and will lead to an additional one-off cash tax payment split equally between 208/9 and 209/20 Mobile revenue recognition - Before Mobile revenue recognition - After Costs Revenue Time Costs Revenue Time Handset Service Handset Service EE 50

51 Strong balance sheet Ample liquidity: 3.6bn cash & current investments and 2.bn undrawn committed facilities Targeting BBB+ credit rating through the cycle Smooth, long dated maturity profile 2.0bn pension contribution, funded by BTPS subscribing for long-dated sterling bonds issued by BT, expected in 208/9 Net debt Term debt maturity profile m 8,932m 9,627m 3-Mar-7 Normalised FCF Spectrum cost Spec. items Pension deficit payment incl. tax benefit Dividends Other 3-Mar-8 5

52 governance and controls Italy and review: strengthened our review of reconciliations, journals, results and the financial position in Italy to remediate material weakness introduced new detailed oversight controls to holistically review the results and financial position of Italy and other material overseas territories provided additional control guidance to local finance teams including clear definitions of roles and responsibilities between Italy and the shared service center and a clear policy as to when and to whom concerns should be escalated reviewed the talent mix on international leadership teams, including establishing an ex-pat programme. Within Italy we have made further senior finance appointments including a new deputy CFO and Financial Controller established monitoring to detect early warning signs and assessed target setting and remuneration to ensure it reflects balanced risks and opportunities continued detailed balance sheet reviews in other countries, now covering 80% by asset value of operations outside UK. No similar issues or areas of concern identified elsewhere -wide steps to improve control, governance and compliance environment: enhanced our controls and compliance programmes to strengthen awareness of the standards we expect and the capabilities of our people, and reinforced the importance of doing business in an ethical and disciplined way all group-wide finance employees have completed Financial Statement Fraud awareness training including module on how to escalate concerns redefined and communicated our three lines of defence model and developed and communicated enhanced controls policies and procedures introduced enhanced integrated financial risk and assurance reviews of each of our CFUs and corporate functions satisfied with the improvements to processes and controls but recognize that further improvement opportunities exist which will continue to be a focus in 208/9 EE 52

53 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 Environment We're committed to respecting human rights and we use the UN Guiding Principles on 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 re co-founders of Internet Matters which helps children stay safe online Being ethical helps us build trust and mitigate reputational and operational risks Machine-to-machine Helped.6m children receive better teaching in computing and tech skills since 204/5 (target: 5m by 2020) Generated 53m for good causes using our skills and technology since 202/3 (target: > bn by 2020) Inspired 39% of our people to volunteer their time and skills in 207/8 (target: 66% by 2020) Helped 4.6m people overcome social disadvantage through the benefits our products and services can bring since 204/5 (target: 0m by 2020) In 207/8 we helped customers reduce carbon by 2.2 times BT s own end-to-end carbon emissions (target: 3: by 2020) We do this by using conferencing, flexible working, M2M and other solutions to help customers cut carbon, while also working to reduce our own end-to-end carbon emissions 5.3bn of 207/8 revenue was generated from products and services that help our customers save carbon emissions This year, we declared a new ambition to reduce our carbon emissions intensity by 87% (by 2030). Also committing to reduce supply chain emissions by 29% over the same period EE 53

54 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 995. These statements include, without limitation, those concerning: our outlook for 208/9 including revenue, EBITDA and free cash flow; capital expenditure for 208/9 and 209/20; share buy-back; our dividend policy; the BT Pension Scheme recovery plan and expected funding from the issuance of bonds; our transformation driving long term growth; and our increasing network investment through s Fibre First programme and further 4G and 5G mobile network build. 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, as well as competition from others; consultations and market reviews including the outcome of Ofcom s reviews of the Local Access, Broadband Access and Connectivity markets; selection by BT and its customer facing units 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, including the proposed investment in our FTTP broadband network and 4G spectrum; 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 and other integration and restructuring plans not being delivered; the improvements to the control environment following the investigations into BT s Italian business not continuing to be operated successfully, effectively and timeously across the ; the anticipated benefits of the evolved strategy, transformation and restructuring not being realised; the BTPS recovery plan; 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. EE 54