BT Group plc Investor meeting slide pack - Q3 2018/19 February 2019 - April 2019 - BT Plc
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BT Group plc
Investor meeting slide pack
Q3 2018/19
February 2019 – April 2019
1 © BT Group plc, 2019
Contents
Overview and Strategy 3 Global Services 25
Financials 11 Openreach 30
Consumer 17 Appendix 34
Enterprise 21
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise GlobalServices
Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy
2 © BT Group plc, 2019
Overview and Strategy
Who we are, what we sell to our customers
BT Group
B2C UK B2B Global B2B Fixed network
Divisions Consumer Enterprise Global Services Openreach
1
Revenue £10.4bn £6.7bn £5.0bn £5.3bn
1
EBITDA £2.4bn £2.1bn £0.4bn £2.7bn
1, 2
FCF £1.4bn £1.6bn £0.1bn £1.2bn
Customers UK Consumers UK SMEs3, Corporates, Major Global MNCs4 Communications Providers
Business, Public Sector,
Communications Providers
Products Mobile, lines, broadband, Broadband, networking, voice, Managed network Fibre and copper broadband and
TV, BT Sport mobile, IT services, Ethernet, IT services voice, Ethernet
ventures services
1 FY 2017/18 IFRS 15 pro forma numbers 2 Normalised free cash flow 3 Small-Medium Enterprises 4 Multi-National Corporations
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
4 © BT Group plc, 2019BT Group strategy – positive progress in all areas
Our purpose To use the power of communications to make a better world
Our vision Leadership in converged connectivity and services, brilliantly delivered
Our goal Drive sustainable growth in value
Converged Services for UK
Consumer and Enterprise Invest
Deliver Transform
differentiated in
our
Our strategy Digital Global Services for MNCs1
customer integrated
operating
experiences network
model
Unmatched UK-wide Fixed Access leadership
for all CPs2
Renew our capabilities and culture
Our values Personal Simple Brilliant
1 Multi-National Corporations
2 Communications Providers
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
5 © BT Group plc, 2019BT uniquely positioned to lead in network, product and service convergence
One converged network Convergence in Europe
Always connected
34%
Best performance
25% 23%
Best value 12%
6% 5% 4%
Delivers fully converged services
- Fixed Source: McKinsey – based on quad-play penetration
Voice - Mobile
• Shared allowances
• Increasing trend towards convergence in Europe
Data
- Office/home • Services across multiple
- On the go
devices • Lower churn, driving loyalty in the base
- Any
Content platform • Personalised experience • Low UK penetration and strong latent demand: BT Plus
launched in Q1, c.500K subscribers after six months, now
offered with Complete Wi-Fi
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
6 © BT Group plc, 2019Deliver differentiated customer experiences
Movement in Group Net Promoter Score (NPS)
1 • Group NPS and RFT continue to improve:
20 – ten consecutive quarters of Group NPS improvement
15 • Service:
10
– Openreach ahead on all 42 Ofcom copper and fibre
minimum service levels
5
– Openreach best ever Ethernet provisioning
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 – Ofcom complaints reflect Q2 price increase: YoY improvement
-5
2016/17
2016/17 2017/18
2017/18 2018/19
2018/19 for lines and broadband
2
Movement in Group Right First Time (RFT) – increased BT Sport viewing across all platforms
16% – BT mobile, broadband and voice customers moving to annual
12% CPI price increases – no increase in 2019
8% • Products:
4% – BT Plus introduced Complete Wi-Fi
0%
– Enterprise launched new features to BT Net
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 – Global Services launched Cloud Connect for Google
1 Group NPS
2016/17 2017/18 2018/19
shows the cumulative movement in our customers' perception of BT since April 2016. 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 2016. 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.
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
7 © BT Group plc, 2019Invest in integrated network leadership
Fixed • 5G launch locations Mobile
• Existing and announced FTTP locations
• FTTP and 5G launch location
1
• FTTP deployment at c.13,000 • Continuing to improve 4G geographic
premises/week with focus on coverage
commissioning in Q3
• Demonstrated 5G capability in London
• Building in 14 locations – further 11
• Plans to roll out 5G in 16 UK cities in 2019
locations announced Glasgow
Edinburgh
• 5G launch plan includes home router and a
• FTTP costs remain at lower end of Newcastle
number of handset partners
expectations Belfast
•
Leeds
Bury Hull
EE again ranked UK’s best mobile network
• c.2.6m premises passed with ultrafast Salford Manchester
Liverpool
Wirral
Sheffield
by both Rootmetrics and P3
technology Sutton Coldfield
Nottingham
Leicester
Birmingham
• Openreach volume discount deal – Coventry
c.680,000 fibre broadband net adds in Q3 Swansea
Cardiff
Redbridge
London
Bristol
Exeter
– Barking & Dagenham – Harrow
1 Fibre-to-the-Premises – Bexley – Merton
– Croydon – Richmond upon Thames
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
8 © BT Group plc, 2019Transformation drives long-term growth1
Deliver
differentiated Increased Improved Increased Increased
2
customer ARPUs and Customer FMC product Digital
experiences RGUs experience penetration interaction
Transform c.13,000 c.£1.5bn c.£800m
Cost to
our Gross Gross
achieve with
operating role cost
2 year
model reduction reduction
payback
1 3-year targets
2 Fixed Mobile Convergence
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise GlobalServices
Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy
9 © BT Group plc, 2019Progress with transforming our operating model
Progress in first nine months of 2018/19:
Simplify operating model • Gross reduction of c.2,800 roles
• £350m annualised benefits at cost of £206m at end H1, on track for
Simplify and delayer our 3-year targets
management structures
Sustained improvement in
customer experiences • 31,000 employees transferred to Openreach
Drive productivity improvement in
our core UK operations • DCR1 commitments largely complete
Lean and simple • Northern Ireland Networks transferred to Openreach
Accelerate delivery of digital GS organisation
• Business and Public Sector combined with Wholesale and Ventures to
Consolidate our sites to c.30 modern, form new Enterprise division:
strategic sites Sustained improvement in
– accelerate transformation
costs and productivity
Move from buying to strategic
– simplify operating model
sourcing
– strengthen accountabilities
Digitalise processes
• Two disposals in line with strategy to exit non-core businesses
• Hundreds of ongoing transformation initiatives
1 Digital Communications Review
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise GlobalServices
Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy
10 © BT Group plc, 2019Financials
First nine months of 2018/19 results – financial overview
First nine months First nine months Change YoY
2018/19 2017/18
(IFRS15 pro forma)
1
Adjusted revenue £17,606m £17,835m (1)%
2
– underlying (0.9)%
1
Adjusted EBITDA £5,553m £5,541m -
3
Normalised free cash flow £1,737m £1,947m (11)%
Net debt £11,114m £8,923m £2,191m
3
Reported capital expenditure £2,810m £2,571m 9%
1 before specific items
2 before specific items, foreign exchange movements and disposals
3 before specific items, pension deficit payments and the cash tax benefit of pension deficit payments
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
12 © BT Group plc, 20192018/19 financial outlook unchanged – expect EBITDA around top end of guidance
1
Underlying revenue ex transit c.(2)%
2
Adjusted EBITDA £7.3bn - £7.4bn
Capital expenditure (excluding BDUK clawback) c.£3.7bn
3
Normalised free cash flow £2.3bn - £2.5bn
Dividend per share Unchanged
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
Overview
Financials
Financials Consumer
Consumer Enterprise
Enterprise Global
GlobalServices
Services Openreach
Openreach Appendix
Appendix
and Strategy
13 © BT Group plc, 2019Summary – medium term outlook unchanged
£m
8,000 Adjusted EBITDA
7,500
7,000 • Consistent delivery against strategic pillars
6,500 • Sound operational and financial performance
7,577
6,000 • Increasing market and regulatory challenges
5,500 • 2018/19 outlook maintained
5,000 • Medium term outlook unchanged
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise Global
Global Services
Services Openreach
Openreach Appendix
Appendix
and
and Strategy
Strategy
14 © BT Group plc, 2019Financial strategy and priorities for cash flow
Drive sustainable growth in value
Grow EBITDA
Grow free cash flow
Maintain
Invest for Support Progressive
strong balance
growth pension fund dividends
sheet
• Dividend outlook flat in
• Target 3m FTTP by end • Agreement reached on • Smooth long-dated debt
18/19 and 19/20
2020/21 June 2017 triennial maturity profile
• Interim dividend set at
• Launching 5G in 16 cities • £2bn bonds issued to • Targeting BBB+ through
30% of prior full year
in 2019 BTPS the cycle
dividend
Overview
Financials Consumer Enterprise Global Services Openreach Appendix
and Strategy
15 © BT Group plc, 2019Strong balance sheet and reduced pension deficit
£m
Net Debt Debt maturity and rates as at 31 December 2018
• Ample liquidity: £3.8bn cash & current investments and £2.1bn
undrawn committed facilities1
• £2.0bn pension contribution, funded by BTPS2 subscribing for long-
dated sterling bonds issued by BT in June 2018
• Targeting BBB+ credit rating through the cycle:
– currently BBB or equivalent
• Smooth, long dated maturity profile
Pension
• IAS 19 deficit £5.0bn (net of tax) at 31 December 2018
• Compared to 30 September 2018 valuation: Net debt
– decline in assets due to market movements
– increase in liabilities due to fall in real discount rate
• Appeal of Section C indexation case rejected by court of appeal
• High court ruled against BT in relation to a decision by HM Treasury
concerning public sector pension increases £11,895m
£11,114m
• We are seeking permission to appeal both judgments
• Impact on BT Group of Lloyds Banking Group’s High Court judgment
on equalisation of pension benefits of c.£100m increase in liabilities
1 at September 2018 30 Sep Normalised Other 31 Dec 2018
2 BT Pension Scheme 2018 FCF
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy
16 © BT Group plc, 2019Consumer
Consumer – at a glance
EE and BT Consumer brought together from 1 April 2018 with three distinct brands
46% 34% >14m >1bn
of BT Group revenue of BT Group EBITDA homes with yearly customer
in YTD 18/19 in YTD 18/19 30m relationships touchpoints
Home-centric Mobile-centric Value-focus
#1 for superfast fibre #1 UK mobile brand & network #1 value brand
Convergence ready #1 spectrum position High NPS
Premium content #1 Best Big Company to Work For Broadband and mobile
Reliability and peace of mind Digital savvy, younger audience Seek value, honest service
Connectivity for the whole family Mobile handset most important device Less interested in convergence
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
and
and Strategy
Strategy and Public Sector and Ventures
18 © BT Group plc, 2019Consumer – strategy to become UK market leader in convergence
Our
purpose To use the power of communications to make a better world
Our
vision
Become the UK market leader in convergence, to drive sustainable growth in value
5m
5m 13m
13m
(BT homes
(BT homes (homes with
(homes with no
no
1 2 3 4 5 6 with no
with no EE
EE relationship with
relationship with
relationship) ++
relationship) Consumer brands)
Consumer brands)
Best personal Personalisation
Three One smart Best for Open, super-
Our and local through data
great brands network partnerships aggregator TV
service and digital
strategy
& 3m
3m
enablers (homes with
(homes with aa
relationship with
relationship with 5m
5m
Best place to work both BT
both BT &
& EE)
EE) ++
(EE homes
(EE homes with
with
no BT
no BT relationship)
relationship) ++
Our
Personal Simple Brilliant
values 1m
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
19 © BT Group plc, 2019Consumer – solid performance in tough market conditions
• Revenue up 4%:
Q3 Q3
Change
– benefit of September 2018 BT price increase 2018/19 2017/18
– increase in handset costs for customers
Revenue £2,785m £2,680m 4%
– offset by Solus voice price reductions
• EBITDA up 15%, driven by BT price increase and one-off prior EBITDA £643m £558m 15%
year adjustment
Rising smartphone retail price Declining high-end Revised broadband
• Challenging market conditions: and tenure smartphone volumes pricing
– slowing high-end smartphone sales price +51%
Prior New
– continued aggressive broadband price competition
c.9 12
+2 Frequency
– regulatory headwinds tenure mths months months
• Ofcom review of broadband pricing and end of contract Uplift c.6% CPI
notifications
Incl in
✔
T&Cs1
1 Included in customer Terms and Conditions
2016 2017 2018 Q3 17/18 Q3 18/19
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
20 © BT Group plc, 2019Enterprise
Enterprise – at a glance
• Enterprise comprises retail and wholesale B2B markets Our revenues are derived from voice and data services
• Addressable retail market for core telecoms and IT services is £23bn1
• Markets moving to new IP and cloud services: Revenue split by products2
3 3
– traditional voice lines declining c.10% pa , but IP growing c.30% pa
– retail mobile market is growing 1% pa4
– growth in IT services from move to the cloud 2% pa4
• Investing in capability to exploit convergence over best network:
– clear propositions for all segments, strong integrated portfolio
– improving customer experience, NPS +32 points over last 2 years
– increasing sales effectiveness and coverage, targeted marketing
– lower operating costs from automation, less failure
Fixed Managed Services (contract) Mobile Republic of Ireland and Other Ventures
1 IDC 2014/15 – 2015/16
2 Enterprise revenue, 2017/18 full year
3 Q3 2018/19
4 2015/16 – 2016/17
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
22 © BT Group plc, 2019Enterprise markets – at a glance
Wholesale – fixed and mobile network services Retail – three channels with opportunity to grow
Fixed network Mobile network Media and
Resellers MVNO Enterprise market share1
operators operators Broadcast
100%
75%
50%
Ventures
25%
29%
19% 17%
0%
SME Corp Major & Public Sector
B&PS Rest of market
1 as at May 2016
Overview
Overview Business Global Wholesale
Financials
Consumer Consumer Enterprise Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy and Public Sector Services and Ventures
23 © BT Group plc, 2019Enterprise – Public Sector continues to perform well, legacy pressures continue
• Revenue down 6% due to:
Q3 Q3
Change
– continued declines in traditional voice and other legacy 2018/19 2017/18
products, lower equipment sales, and sale of cables
business Revenue £1,555m £1,654m (6)%
– partly offset by growth in networking, IP, and Ventures
messaging volumes EBITDA £501m £512m (2)%
– fixed down 8%, mobile up 2%
• EBITDA down 2%: Enterprise operating costs
£m
– reflects revenue decline, partly offset by lower operating
1,200
costs
1,150
• Public Sector continues to perform well:
1,100
– 5 year cyber security services contract with Police ICT
Company 1,050
– 2 year mobile services contract with HMRC 1,000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
– 3 year mobile services contract with Police Scotland 16/17 16/17 16/17 16/17 17/18 17/18 17/18 17/18 18/19 18/19 18/19
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
and
and Strategy
Strategy and Public Sector and Ventures
24 © BT Group plc, 2019Global Services
Global Services – at a glance
GS is the international arm of BT, serving its customers globally and securely
£5bn c.5,200 800 >180
Countries we
Revenue Total customers Focus MNC
deliver services
(FY17/18) served customers
in
76 2,600 15 4
Countries we Security
Security Global service
have people Operation
professionals hubs
presence Centres (SOC)
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
26 © BT Group plc, 2019Global Services – repositioning, focusing on core MNCs, differentiating
• Transformation programme to address challenges and
opportunities in a disrupted global marketplace:
We are
– shift from hardware to software models We are radically
future-proofing We are moving at
repositioning our pace to reduce risk and
– move away from individual to platform-based business around our core
GS by building value in
strategically selected deliver higher returns
solutions markets
areas of growth
– demand for deal flexibility
– embrace partnerships where others excel
– requirement for sophisticated security of hybrid
networks Industry Verticals
Banking &
• Simultaneously running ten strategic transformation Globally Financial
programmes to simplify the business Managed Services
MNCs
• Making substantial progress in de-risking 200 Resources,
customers Manufacturing
& Logistics
• Moving to an increasingly asset-light operation with Other Focus MNCs
improved return profile: 600 customers Technology,
1 2 Life Sciences &
– EBITDA, FCF and ROCE all expected to increase Regional Enterprise Business
Services
1 Free Cash Flow 2 Return On Capital Employed 4,400 customers
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
27 © BT Group plc, 2019Overall, we are moving to an increasingly asset-light operation with an improved return
to the business
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
28 © BT Group plc, 2019Global Services – steady improvement in performance
• Revenue down 5% due to:
Q3 Q3
Change
– decision to reduce low margin business 2018/19 2017/18
• EBITDA up 4% driven by: Revenue £1,202m £1,265m (5)%
– positive cost performance
EBITDA £147m £141m 4%
• Delivering steady progress against Digital GS strategy:
– strong industry ratings in Q3 for Unified Communications Global Services’ revenue and EBITDA movements
and Managed Security services £m £m
GS YTD Revenue GS YTD EBITDA
3,900 390
– first international provider to receive telecoms licences in 3,800
3,700 340
China 3,600
290
3,500
3,400 240
3,300
3,200 190
3,100
3,000 140
1 Global Wholesale Voice
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
and
and Strategy
Strategy and Public Sector and Ventures
29 © BT Group plc, 2019Openreach
Openreach – at a glance
• Maintains and builds access network between homes and business Openreach serves c.26m customers through CPs
and exchanges; huge engineering operation
Consumer / Residential Business and Corporate Infrastructure
• >27m premises passed with superfast fibre broadband network c.21m c.5m • Fibre
• New sites
business
end customers connections • Data centres
• ‘Fibre First’ commitment to deliver FTTP to 3m premises by March
2021, ambition for 10m by mid-2020s, if conditions are right
• Commitment to serving >600 CPs nationwide on equal access terms
• Supplies copper and fibre access products, Ethernet and backhaul
• Ofcom regulates >90% of Openreach revenue, and has charge
controls over c.75% OPENREACH
>600 Communications Providers with access to c.30m end customers
Access products, eg copper, Fibre, ISDN Ethernet and backhaul products
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
31 © BT Group plc, 2019Openreach – stimulating fibre take-up through volume discounts
Openreach fibre volume discounts:
Core • Openreach announced volume-related discounts to encourage CP
Network take-up of superfast and ultrafast, effective August 21st 2018:
– more than 17.5 million homes and businesses could order
better broadband over the Openreach network
• Multi-year 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
– discounts go beyond Ofcom’s WLA GEA40 pricing controls
– key clauses include CP-CP migration threshold and volume
protection for small competing alt nets
• Financial impact:
– adverse impact on Openreach was c.£60m in Q3
– final net impact at Group level will depend on retail market
dynamics
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
32 © BT Group plc, 2019Openreach – increasing take up of FTTC1 and Ethernet
• Revenue down 9% due to:
Q3 Q3
Change
– regulation, volume related discounts, physical line losses, 2018/19 2017/18
and one-off IFRS 15 benefit last year
1 Revenue £1,256m £1,379m (9)%
– offset by continued growth in FTTC and Ethernet
• EBITDA down 19% due to:
EBITDA £603m £747m (19)%
– revenue decline and pay inflation
– partially offset by efficiency savings Total FTTP build – premises per week
25,000
• Positive engagement with Ofcom on a number of regulatory
20,000
reviews:
15,000
– seeking further clarity on key enablers to underpin
expansion of FTTP target 10,000
5,000
0
Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19
1 Fibre-to-the-Cabinet Total FTTP Build per week Linear (Total FTTP Build per week)
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
33 © BT Group plc, 2019Appendix
BT – strong market position, uniquely positioned for sustained growth
BT is a clear market leader BT has a portfolio of strong brands
30m 1m+ 1,500 1
B2C B2B MNCs
relationships relationships
Positioned across fixed, mobile and strategic partnerships Multi channel sales and service
Fixed
• Superfast speeds: c.90% coverage
infrastructure
Mobile • Award winning 4G network
infrastructure • 5G roll out in 2019 UK Over
Digital Partnership
call 600
channels
Strategic • Content, technology, device and centres stores
partnerships service vendors
1 Multi-National Corporations
Overview Global
Financials
Group Consumer Enterprise
Enterprise Global Services Openreach
Openreach Appendix
Appendix
and Strategy Services
35 © BT Group plc, 2019Pension – reached agreement on June 2017 triennial
IAS 19 Actuarial
2017 recovery plan, £11.3bn deficit Measure Accounting measure Actuarial measure
£m 1 FY18 + FY20 cash payments total £2.1bn in line with prior agreement Frequency Quarterly Triennial
2,000 Purpose Regular updates Sets cash deficit payments
2 Funded from issuance of bonds to the Scheme
1,500 3 13 year plan, maintains end-date.
Discount rate Yield curve for AA corporate bonds Prudent expected return (BTPS assets)
£0.4bn of FY21 payment by 30 June 2020 Longevity Future expectations Prudent overall approach
1,000 2,000
Inflation Future expectations Prudent overall approach
500 1,250 Assets Market value Market value
850 900 900 907 907 907 907 907 907 907 907
0
2017/18 BT Pension Scheme sensitivity analysis1
Increase in liabilities Increase in deficit
0 £bn
12 10.6
-2
Pension valuation, £bn
10
-4 -3.9 8
6 4.9
-6
4 2.9 2.8
-7 2.1
-8 2 1.3
-9
0
-10
1.1 percentage point fall in 0.7 percentage point increase to 1.35 year increase to life
-11.3 discount rate inflation rate expectancy
-12 -11.
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
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Sep-09
Sep-10
Sep-11
Sep-12
Sep-13
Sep-14
Sep-15
Sep-16
Sep-17
Sep-18
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
scenario assumes this is the only change – in practice a combination of changes could arise
Source: BT Annual Report and Form 20-F 2018, p243
IAS 19 (gross of tax) IAS 19 (net of tax) Actuarial (gross of tax)
Overview
Overview Financials
Financials Consumer
Consumer Enterprise
Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
and Strategy
and Strategy
36 © BT Group plc, 2019Regulation – key regulatory market reviews
BCMR Apr 13 to BCMR Apr 16 to Mar 19 Post CAT lacuna BCMR Apr 19 to Mar 21
Business Connectivity
Mar 16
Appeal Post CAT Consultation
(BCMR/LLCC)
Final statement TBC: Unified Downstream wholesale
access remedies, 5 years
FAMR to Mar 17 Lacuna WLA Apr 18 to Mar 21
Fibre, copper access
(FAMR and WLA)
Consultation Consultation
Final statement Final statement
NBMR Oct 13 to Sep 16 Lacuna NBMR Dec 17 to Mar 21
Narrowband markets
(WNBMR and NCC) Consultation Consultation
Final statement Final statement
2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23
2.3 & 3.4GHz DCMS: FTIR 700MHz & 3.6-
UK Policy B’band
spectrum Ofcom: future Brexit 3.8GHz spectrum
Framework USO
auction bbd stg doc auction
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
37 © BT Group plc, 2019Regulation – Openreach regulated returns declining towards allowed return on capital
Trend of Openreach returns
5
• Price cuts on Ethernet (BCMR) services are starting to erode the
1
Openreach ROCE
2
• Price cuts in WLA (especially GEA services) over the next three
years to accelerate this trend
• Openreach returns in regulated markets to be much closer to the
3
Ofcom “WACC ” by 2020/21
Total impact on BT Group
• Impact of regulation should reduce in the longer-term
Last 3 years Next 3 years
Regulatory price impact Estimated regulatory price impact4
> £500m ≥ £1bn
1 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 Openreach services
Overview
Overview Business Wholesale
Financials
Financials Consumer Consumer Enterprise Global Services
Global Services Openreach
Openreach Appendix
Appendix
andand Strategy
Strategy and Public Sector and Ventures
38 © BT Group plc, 2019Network – increased capex to support network investment
Capital expenditure year ended 31 March 2018
£m
4,000 c.3.7bn
3,522
3,500 3,454
3,000
2,622
2,500
2,317
2,000
1,500
1,000
500
0
2014/151 2015/16 1 2016/17 1 2017/18 1 Next
Next 32 years
years
2
Capacity/Network Customer Driven Systems/IT Non-network Infrastructure
1 gross BDUK grant funding deferral (claw-back) included in capacity/network: 2014/15: £29m; 2015/16:£229m; 2016/17: £188m; 2017/18: £122m
2 excluding BDUK claw-back
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Financials
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Global Services Openreach
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39 © BT Group plc, 2019TV – Partnerships will broaden choice for our TV customers
Super aggregator TV strategy for 2019:
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: Primary central set-top-box experience
Multi-screen, multi-platform access
Home-centric
1
All premium Sky content:
OTT and digital first
Fully flexible mobile & app centric
Mobile-centric
Pay channels:
1 aiming to launch BT and Sky content sharing arrangement before start of 2019/20 premiership football season
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40 © BT Group plc, 2019Network – all-IP/fibre delivers performance, efficiency and service
Current network Future state
11 primary access products 3 primary access products
5,600 exchanges incl. 1,100 Fibre Retirement of exchanges: 1,100 fibre
points of handover points of handover
Engineering intervention for 90% of Near zero touch network, managed by
customer moves/changes software
1
Complex PSTN & LLU environment Simplified all-IP/fibre
1 Local Loop Unbundled
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41 © BT Group plc, 2019BT is stepping up its societal leadership
We use the power of communications to make a better world
1 2 3
Building better digital lives Championing human Tackling climate change
and digital rights
• Building a programme to inspire and equip our • Our approach is informed by the UN Guiding • Sector-leading approach on climate. Ranked
customers and communities to upgrade their Principles on Business and Human Rights. eighth most sustainable company in the world
digital skills and capabilities • We protect our customers from online threats. (Newsweek Green Rankings).
• Reached 2m children through our Barefoot We’re co-founders of ‘Internet Matters’ which • Target to become net zero carbon emissions
primary schools programme, as part of our helps keep children safe online. business by 2045.
long term commitment to children’s digital • Leading the fight on modern slavery and a • Now at 96% renewable electricity worldwide
skills founding partner of the UK Modern Slavery and have a target to reach 100% by 2020.
• Be a leader within a bigger UK digital skills Helpline and Tech Against Trafficking
movement to improve productivity
Supported by strong foundations:
Behaving ethically Developing diverse talent Keeping our people safe & healthy
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42 © BT Group plc, 2019Investor Relations – contact details
tel: +44 (0) 20 7356 4909 BTGroup
email: ir@bt.com LSE: BT.A
web: www.bt.com/ir NYSE: BT
Certain statements in this trading update are forward-looking and are made in reliance on the safe harbour provisions of the US Private Securities Litigation Reform Act of 1995. These statements include, without
limitation, those concerning: our outlook for 2018/19 including revenue, EBITDA and free cash flow; our roll out of FTTP; and launch of 5G.
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, consultations licence fees and market reviews, outcomes of appeal and
conditions or requirements in BT’s operating areas, including the outcome of Ofcom’s Business Connectivity Market Review (BCMR), Physical Infrastructure Market Review (PIMR), spectrum auctions, broadband USO
and other consultations; as well as competition from others; 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; 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; disruption to our technology supply
chain; the anticipated benefits and synergies of the transformation of our operating model, integration, restructuring and cost transformation not being delivered; the outcome of BT’s broader review of financial
processes, systems and controls across the Group; 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.
. Overview
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Services Openreach Appendix
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