BT Group plc Q1 2018/19 - investor meeting slide pack

Transcription

1 BT Group plc Q 208/9 - investor meeting slide pack August and September 208

2 Contents Page Page IR contact details; cautionary statement

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4 Who we are, what we sell to our customers B2C BT Group 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 We have evolved our strategy to focus on convergence Our purpose Our vision Our goal To use the power of communications 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 5

6 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 - Fixed - Mobile - Office/home - On the go Shared allowances across multiple devices Source: McKinsey based on quad-play penetration Increasing trend towards convergence in Europe Lower churn, driving loyalty in the base Content - Any platform Personalised experience Low UK penetration and strong latent demand 6

7 Deliver differentiated customer experiences Service % 2% 9% 6% 3% 0% Movement in Group Net Promoter Score Group NPS and RFT continue to improve Service quality: best ever performance for voice and broadband ahead on all 60 copper minimum service levels service calls to our contact centres down 0% YoY Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q 206/7 207/8 208/9 Movement in Group Right First Time 2 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q average BT call waiting time down to 34 seconds Increased use of digital channels: 8% increase in echat c.2.5m downloads of My BT; c.m downloads of My EE Ofcom complaints: down 25% YoY at a record low, for EE mobile down 32% YoY for BT broadband Group 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 Group 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 /7 207/8 208/9

8 Deliver differentiated customer experiences Products Converged products launched: BT Plus >00k customers in the quarter EE smart number technology Broadband 4G Assure for business customers BTNet for SME and Corporate clients BT Connect CISCO SD-WAN Cloud solution collaboration with Microsoft Azure Small and Medium Enterprises 8

9 Invest in integrated network leadership Fixed Mobile Accelerated FTTP deployment to c.0k premises/week FTTP costs at lower end of expectations wholesale price discounts for volume commitments on superfast and ultrafast speeds Positive progress on regulation DCMS 2 Future Telecoms Infrastructure Review 40MHz of 3.4 GHz spectrum acquired for 304m Plans to launch live 5G trial in October Improving 4G geographic coverage EE ranked number in all areas by RootMetrics EE won Best Network and Best Network in Mobile Today s industry awards Ofcom s Full Fibre Implementation Plan Fibre-to-the-Premises 2 The Department for Digital, Culture, Media and Sport 9

10 Transform our operating model New Enterprise unit leadership team appointed positive DCR Implementation Report TUPE 2 consultation process commenced: impacting c.3k employees planned transfer to Limited on October 208 Group to help drive business growth and optimise costs Gross reduction of c.900 roles Agreement to sell BT Cables Limited Digital Communications Review 2 Transfer of Undertakings (Protection of Employment) 0

11 regulated returns declining to allowed return on capital Trend of returns Price cuts on Ethernet (BCMR) services are starting to erode the ROCE 5 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 Total impact on BT Group 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

12 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 2

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14 strategy to become UK market leader in convergence has 6 enablers To use the power of communications to make a better world Our purpose Become the UK market leader in convergence, to drive sustainable growth in value Three great brands 2 One smart network 3 Best personal and local service 4 Personalisation through data and digital Best place to work 5 Best for partnerships 6 Open, superaggregator TV Our vision Our strategy & enablers 5m (BT homes with no EE relationship) + 3m (homes with a relationship with both BT & EE) + 3m (homes with no relationship with brands) 5m (EE homes with no BT relationship) + Personal Simple Brilliant Our values m 4

15 continued momentum, delivering strategy Revenue up 2% due to: growth in high end smartphones and SIM only Q 208/9 Q 207/8 Change increased BT Sport revenues offset by Solus voice price reductions 66% of broadband customers now on fibre fixed and mobile churn remained low EBITDA up 0%, driven by revenue growth and flat opex: increased sports rights and device costs later in the year Further investments in customer experience: Over-the-Top Amazon Prime Video added to BT TV encouraging start for BT Plus convergence products EE smart number launched = launched Revenue 2,59m 2,540m 2% EBITDA 60m 556m 0% Three great brands Launch BT Plus Reposition BT brand Data sharing plans Stay connected promise 2 launches from the 24 announcements in May One smart network >98% time on 4G Accelerate Ultrafast Integrate BT Wi-Fi New converged hub Best personal and local service 95% of customers within 20 mins of a store 00% UK call centres for all brands BT return to high street New service in the home Personalisation through data and digital 360 O customer view Re-launch BT.com Remote virtual support Plusnet selfservice app Best for partnerships Creation of the partnership unit Nest & Hive partnerships Smart home assistants Buy devices on EE plans Open, super aggregator TV Now TV on BT TV Enhanced BT Sport for EE Amazon Video on BT TV New OTT TV service from EE 5

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17 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 0% pa 3 whilst IP growing 42% 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, 207/8 full year 3 FY 207/ /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 There is opportunity to grow in all our markets Voice Broadband WAN Managed (contract) Mobile Ireland and Other market share 5 29% 9% 7% SME Corp Major & Public Sector B&PS Rest of market 7

18 BPS Public Sector headwinds now largely behind, legacy pressures continue Revenue down 4%: continued decline in traditional voice, lower equipment sales and EU roaming impact partly offset by growth in VoIP fixed down 4%, mobile down % EBITDA up 2%: Q 208/9 Q 207/8 Change Revenue,085m,32m (4%) EBITDA 350m 342m 2% reflects diminished Public Sector contract drag broadly flat, excluding one-offs m 70 BPS networking revenue New Legacy 50 Voice over Internet Protocol 30 Q Q2 Q3 Q4 Q 207/8 208/9 8

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20 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 207/8 20

21 continued legacy product declines Revenue down 8%: Managed services down 5%, Broadband down 4%, Voice down 4% Mobile revenue down % Ventures revenue up 6% - continued growth in messaging 80 InLinkUK units installed at end of Q Q 208/9 Q 207/8 Messaging volumes (m) Change Revenue 459m 497m (8)% EBITDA 54m 74m ()% EBITDA down % in Q: reflecting declines in legacy revenue, Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q 206/7 207/8 208/9 2

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23 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 Strategic collaborations with AWS, IBM, Cisco and MS Azure Emphasis on growing cyber security BT s MPLS 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 New organisational structure with focus on MNCs Improve financials, risk profile, and long-term value to BT 23

24 improving cost performance Revenue down 8% mostly due to strategic decision to reduce low margin business EBITDA up 30%, reflecting prior year bonus true-up and lower labour costs Transformation initiatives on track: first phase of new organisational structure implemented Q 208/9 Q 207/8 revenue and EBITDA movements Change Revenue,47m,246m (8)% EBITDA 95m 73m 30% m m,300 GS Q YoY Revenue 20 GS Q EBITDA after recharges 0, ,00 70 Voice 24

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26 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.m premises passed with superfast fibre broadband network Fibre First commitment to deliver FTTP to 3m premises by end 2020, ambition for 0m by mid-2020s, if conditions are right / Residential c.2m end customers and Corporate c.5m business connections Infrastructure Fibre New sites Data centres Commitment to serving >600 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 26

27 New wholesale pricing structure CPs incentivised to encourage more of their customers onto better and faster services of superfast and ultrafast: more than 7.5 million homes and businesses could order better broadband over the network Multi-year special offer with volume, mix and forecasting commitments for long-term discounts: tier structure covering 3 and 5 year take-up commitments qualification criteria based on current take-up of fibre with discounts go beyond Ofcom s pricing controls, some as much as 40% below current pricing key clauses include CP-CP migration threshold and volume protection for small competing alt nets No change to Group financial outlook for 208/9: adverse impact in the order of high tens of millions of pounds on s revenue and EBITDA in 208/9 final net impact at Group level will depend on retail market dynamics Line Rental 27

28 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 28

29 accelerating FTTP deployment Revenue down 2% in the quarter: regulation and physical line losses offset by continued strong growth in fibre broadband and Ethernet EBITDA down 9%: revenue decline, increased business rates, wage inflation, higher training costs, recruitment of new engineers Q 208/9 Q 207/8 Change Revenue,27m,248m (2)% EBITDA 567m 62m (9)% partially offset by savings from reduced repair visits Fibre First programme on track: c.0,000 weekly build rate reached build costs at lower end of range Exeter announced as ninth city m broadband connections Fibre Non Fibre Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q Q2 Q3 Q4 Q 20/2 202/3 203/4 204/5 205/6 206/7 207/8 208/9 29

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31 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 Fixed infrastructure Superfast speeds: c.90% coverage Multi channel sales and service 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 and Group 3

32 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 and Group 32

33 208/9 financial and dividend outlook Q in line 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 and Group 33

34 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 and Group 34

35 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 Sustained improvement in customer experiences Lean and simple organisation Consolidate our sites to c.30 modern, fit-for-purpose strategic sites Move from buying to strategic sourcing Sustained improvement in costs and productivity Digitalise processes and Group 35

36 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 and Group 36

37 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 2 excluding BDUK claw-back and Group 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 EE 37

38 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 and Group EE

39 Partnerships will broaden choice for our TV customers Today: Lack of key pay-tv content to drive switching Tomorrow: Embracing content trends and partnership opportunities, to offer an unrivalled choice of content across the pay-tv providers All the must-have content SVoD providers All premium Sky content Mobilecentric Homecentric Primary central set-top-box experience Multi-screen, multi-platform access Pay channels OTT and digital first Fully flexible mobile & app centric 39

40 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 Jun 8 Pension valuation, bn Pension IAS9 measure of deficit estimated to have fallen in Q Q IAS 9 deficit estimated to be 3.9bn net of tax (Q4 5.7bn*) Decrease due to: issue of 2bn bonds to BTPS, 0.% increase in discount rate leading to 0.7bn fall in liabilities, 0.5bn reduction in asset values, 0.5bn actuarial error operating charge expected to be slightly lower than in ( 64m) 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 * restated IAS 9 (gross of tax) IAS 9 (net of tax) Actuarial (gross of tax) /8 BT Pension Scheme sensitivity analysis bn 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 percentage point increase to inflation rate Source: BT Annual Report and Form 20-F 208, p243 Increase in deficit year increase to life expectancy and Group EE 40

41 Pension reached agreement on June 207 triennial valuation Funding deficit of.3bn: 207 recovery plan,.3bn deficit increase mostly due to fall in long-term real 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) m 2,000,500, recovery plan, 7.0bn deficit Leads to material contributions of 4.5bn before next triennial Lower level of investment risk, reducing volatility and Group 4

42 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 2 Downstream wholesale access remedies 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 and Group EE 42

43 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, in June 208 Net debt Term debt maturity profile m 7, % 6,000 5,000,227m 4,000 3,000 9,627m 2,000, % 4.34% 2.23% 30 Jun 207 Normalised FCF Pension deficit payments Other 30 Jun % 2.33% as of 3 March

44 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 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) 5.3bn of 207/8 revenue was generated from products and services that can help our customers save carbon emissions In 207/8, our overall energy consumption dropped by.7%. We cut our energy bill by nearly 29m, cumulatively saving 250m since 2009/0. 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 Machine-to-machine and Group EE 44

45 Investor Relations - contact details tel: +44 (0) ir@bt.com web: BTGroup LSE: BT.A NYSE: BT 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; the transformation of our operating model; and our increasing network investment through s Fibre First programme, further 4G mobile network build and the proposed 5G trial. 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 Broadband Access market and USO; the DCMS Future Telecoms Infrastructure review; 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 transformation of our operating model and 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 Group; 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. and Group EE 45