BT Group PLC Results For The First Quarter To 30 June 2013

LONDON, July 25, 2013 /PRNewswire/ -- BT Group plc (BT.L) today announced its results for the first quarter to 30 June 2013.

Ian Livingston, Chief Executive, commenting on the results, said:

"BT continues to make good progress, delivering another quarter of solid growth in underlying profit before tax. This is despite the impact of regulation and the significant investments we are making for the future.

"It is early days but we are very pleased with the strong start in BT Sport. More than half a million households have now ordered BT Sport and that's before the channels have even launched.

"Our consumer line loss is at its lowest level in five years and we took a 50% share of the broadband⁴ market net additions. Our SME business grew revenues by 1%, the best performance in more than four years, and our BT Global Services order intake was up almost 50%.

"Fibre remains at the heart of our plans and take-up is strong. Our fibre network now passes more than 16 million premises with more than 1.7 million connected.

"I am immensely proud to have led BT over the last five years. The foundations are in place for an exciting future and I'm confident that BT will make even more progress under Gavin's leadership and our talented team."

¹ Results for the first quarter to 30 June 2012 have been restated, see Note 1 to the condensed consolidated financial statements
² Before specific items
³ Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments
⁴ DSL and fibre, excluding cable

RESULTS FOR THE FIRST QUARTER TO 30 JUNE 2013

Group results

Line of business results²

¹ Restated, see Note 1 to the condensed consolidated financial statements
² Before specific items. Specific items are defined below
³ Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments
n/m = not meaningful

Notes:

a.  Unless otherwise stated, operating costs, earnings before interest, tax, depreciation and amortisation (EBITDA), operating profit, profit before tax, net finance expense, earnings per share (EPS) and normalised free cash flow are measured before specific items. The commentary focuses on the trading results on an adjusted basis being before specific items. This is consistent with the way that financial performance is measured by management and is reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. The directors believe that presentation of the group's results in this way is relevant to the understanding of the group's financial performance as specific items are those that in management's judgement need to be disclosed by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Specific items may not be comparable to similarly titled measures used by other companies. Reported revenue, reported operating costs, reported EBITDA, reported operating profit, reported profit before tax, reported net finance expense, reported EPS and reported free cash flow are the equivalent unadjusted or statutory measures.

b.  Underlying revenue, underlying costs and underlying EBITDA are measures which seek to reflect the underlying performance of the group that will contribute to long-term profitable growth and as such exclude the impact of acquisitions and disposals, foreign exchange movements and any specific items. We focus on the trends in underlying revenue excluding transit revenue as transit traffic is low-margin and is significantly affected by reductions in mobile termination rates.

Enquiries

Press office:
Ross Cook                                                                                Tel: 020 7356 5369

Investor relations:
Damien Maltarp                                                                         Tel: 020 7356 4909

The second quarter and half year results for 2013/14 are expected to be announced on Thursday 31 October 2013.

About BT

BT is one of the world's leading providers of communications services and solutions, serving customers in more than 170 countries. Its principal activities include the provision of networked IT services globally; local, national and international telecommunications services to its customers for use at home, at work and on the move; broadband and internet products and services and converged fixed/mobile products and services. BT consists principally of four lines of business: BT Global Services, BT Retail, BT Wholesale and Openreach.

For the year ended 31 March 2013, BT Group's reported revenue was £18,103m¹ with reported profit before taxation of £2,315m¹.

British Telecommunications plc (BT) is a wholly-owned subsidiary of BT Group plc and encompasses virtually all businesses and assets of the BT Group. BT Group plc is listed on stock exchanges in London and New York. 

For more information, visit www.btplc.com

¹ Restated, see Note 1 to the condensed consolidated financial statements

BT Group plc

RESULTS FOR THE FIRST QUARTER TO 30 JUNE 2013

GROUP RESULTS

Operating results overview
Our key measure of the group's revenue trend, underlying revenue excluding transit, was down 1% reflecting the anticipated impact of regulatory price reductions. Reported revenue was also down 1% at £4,449m with a £51m reduction in transit revenue (including mobile termination rate reductions of £29m), a £32m positive impact from foreign exchange movements and an £8m positive net impact from acquisitions and disposals.

Underlying operating costs¹ excluding transit were down 1% with our efficiency programmes being partly offset by around £40m of pre-launch costs for BT Sport and a £13m increase in the non-cash pension operating charge. Operating costs¹ also decreased by 1%, or by 3% on an underlying basis and excluding the higher pension charge.

Net labour costs decreased by 3%. Payments to telecommunications operators were down 7%, reflecting lower mobile termination rates and reduced transit and wholesale call volumes. Other costs were up 8% mainly due to BT Sport.

Adjusted EBITDA decreased by 1% to £1,440m. Excluding a £10m positive impact from foreign exchange movements and a £2m positive net impact from acquisitions and disposals, underlying EBITDA decreased by 2%.

Depreciation and amortisation of £697m was down 4% reflecting the more efficient delivery of our capital expenditure programmes over the last few years.

¹ Before depreciation and amortisation

Net finance expense
Net finance expense of £146m was down 14% mainly due to lower net debt and a lower average interest rate.

Profit before tax
Adjusted profit before tax of £595m was up 5%, reflecting the lower depreciation and amortisation and net finance expense. Reported profit before tax (which includes specific items) was £449m, down 16%.

Tax
The effective tax rate on the profit before specific items was 22.6% (Q1 2012/13: 22.8%²).

Earnings per share
Adjusted EPS was 5.9p, up 5%, and reported EPS (which includes specific items) was 4.4p, down 17%. These are based on a weighted average number of shares in issue of 7,839m (Q1 2012/13: 7,788m).

Specific items
Specific items resulted in a net charge after tax of £114m (Q1 2012/13: £23m²). Specific items include group-wide restructuring charges of £84m and net interest expense on pensions of £59m (Q1 2012/13: £28m²).  

² Restated, see Note 1 to the condensed consolidated financial statements

Free cash flow
Normalised free cash flow was an outflow of £60m. This was an improvement of £64m compared with the prior year reflecting lower tax and capital expenditure, partly offset by movements in working capital.

After the £134m cash cost of specific items (Q1 2012/13: £33m), principally comprising restructuring costs of £106m and property rationalisation costs of £12m, and the cash tax benefit from pension deficit payments of £20m (Q1 2012/13: £162m), reported free cash flow was an outflow of £174m (Q1 2012/13: £5m inflow).

Net debt and liquidity
Net debt was £8,058m at 30 June 2013, an increase of £261m compared with 31 March 2013 but £1,084m below the prior year. The increase in the quarter mainly reflects the reported free cash outflow of £174m and the purchase of 25m shares for £75m as part of our share buyback programme of around £300m this year.

In the quarter we issued a US$600m three-year bond swapped into Sterling of £390m, with an average effective interest rate of 1.96%.

At 30 June 2013 we had cash and current investment balances of £1.3bn and available facilities of £1.5bn, in line with our strategy of maintaining a conservative liquidity and funding position. During the rest of 2013/14 £0.3bn of term debt matures and £0.6bn of short-term borrowing is repayable.

Pensions
The IAS 19 net pension position at 30 June 2013 was a deficit of £4.0bn net of tax (£5.2bn gross of tax), compared with £4.5bn (£5.9bn gross of tax) at 31 March 2013. The IAS 19 accounting position and key assumptions are:

Regulation
As expected, the charge controls for WLR, LLU and ISDN30 products impacted revenue in the quarter. We continue to expect these to have a negative impact of around £120m on group revenue and EBITDA in the year. In addition, the Leased Lines Charge Control came into effect from 1 April 2013 and we expect an annual negative impact of around £50m-£100m on group revenue and EBITDA this year and next.

Ofcom has recently published consultation documents on the Fixed Access and Wholesale Broadband Access markets. These include proposals for the continuation of price controls in these markets for the three year period from 1 April 2014.

Ofcom is expected to complete its review of the Wholesale Narrowband market in the next few months.

Fibre and broadband
We have now passed more than 16m premises with our fibre broadband network. There are now more than 1.7m homes and businesses using our fibre-based services with 265,000 net connections in the quarter. We added 197,000 retail fibre broadband customers, up around 30%, and the customer base currently stands at around 1.5m.

The broadband market¹ grew by 189,000 in the quarter, around 20% more than in the first quarter last year, of which our retail share was 50%.

¹ DSL and fibre, excluding cable

2013/14 outlook
Our first quarter results position us well for the full year, for which our outlook is unchanged. As previously reported, we expect EBITDA in the first half of the year to be impacted by our upfront investment in BT Sport. In the second quarter we expect this to impact BT Retail EBITDA by around £100m including programme content costs which we will start to recognise.

In BT Global Services we expect a smaller year on year benefit from contract milestones in the second quarter, with this reversing to give a larger year on year benefit in the third quarter. Partially offsetting this in the second quarter, BT Wholesale's year on year performance will benefit from the charge relating to ladder pricing in the prior year.

OPERATING REVIEW

BT Global Services

¹ Restated, see Note 1 to the condensed consolidated financial statements

Revenue
Underlying revenue excluding transit decreased by 3%, continuing the improved trend seen over the last few quarters. Double-digit revenue growth in the high-growth regions of Asia Pacific, Latin America, Turkey, the Middle East and Africa was more than offset by declines in the UK, continental Europe and the US.

Reported revenue was down 2% including a £9m decline in transit revenue and a £27m positive impact from foreign exchange movements.

Total order intake was up 49% to £1.7bn including a seven-year renewal with Credit Suisse for global network outsourcing services. We also signed contracts with: Phoenix Group, for network services in 23 countries; Nexans, for network services across 40 countries; Arla Foods, to connect around 130 sites across North and South America, Europe and Asia; Western Power, for a multimedia contact centre in Australia; and Lombardia Informatica, for the social health information network of the Lombardy region in Italy.

Operating results
Underlying operating costs excluding transit declined by 4%, reflecting our cost transformation programmes and the impact of lower revenue. Operating costs decreased by 3%.

During the quarter we accelerated our field services transformation, improving internal and external third-party processes to provide a better service and reduce costs. We continued to optimise our network to enhance availability and reliability for customers and reduce third-party costs.

EBITDA in the quarter increased by 6%, or 1% on an underlying basis. Depreciation and amortisation reduced by 3% and operating profit more than doubled to £31m.

Capital expenditure decreased by 13% due to the phasing of expenditure in the prior year. This contributed to EBITDA less capital expenditure increasing by £28m to £71m. Operating cash flow was an outflow of £280m reflecting the usual seasonal phasing of working capital.

BT Retail

¹ Restated, see Note 1 to the condensed consolidated financial statements

Revenue
Revenue and underlying revenue excluding transit were both flat. 

Consumer² revenue decreased by 1%, with a 5% decline in calls and lines revenue being partially offset by 9% growth in broadband and TV revenue.

Consumer² line losses of 130,000 were at their lowest level for five years and 36% better than last year. We added 95,000 retail broadband customers, up 12%, representing 50% of the DSL and fibre broadband market net additions. We added 197,000 retail fibre broadband customers, up around 30%, and now have around 1.5m customers. We launched the new slim-line BT Hub 4 which offers market-leading wireless reliability. Our TV net additions were 23,000 taking the customer base to 833,000. 

It is early days but we are very pleased that more than 500,000 households have now ordered BT Sport. As expected, most of these are existing customers who have re-contracted their broadband service. We expect the proportion of new customers to increase after we launch the channels on 1 August.

Business revenue increased by 1%, the best performance in more than four years, with 9% growth in IT services. Following our successful dual-brand strategy in Consumer, we launched the Plusnet Business brand, which offers small and medium-sized enterprises a range of broadband and phone packages.

BT Enterprises underlying revenue increased by 3%. BT Ireland underlying revenue excluding transit increased by 2%, with growth in both Northern Ireland and the Republic of Ireland. We announced a deal with Setanta to add the BT Sport 1, BT Sport 2 and ESPN channels to the Setanta Sports pack which means that BT Sport will be available in the Republic of Ireland from August.

² Includes customers in Northern Ireland

Operating results
Operating costs were flat as the benefits of our cost transformation programmes were offset by around £40m of pre-launch costs for BT Sport. EBITDA was up 1% or flat on an underlying basis. Depreciation and amortisation decreased by 10% and operating profit was up 4%.

Capital expenditure decreased by 11%, despite our investment in BT Sport, reflecting the additional broadband-related investment in the prior year. This contributed to a 5% increase in operating cash flow.

BT Wholesale

¹ Restated, see Note 1 to the condensed consolidated financial statements
n/m = not meaningful

Revenue
Underlying revenue excluding transit was flat, or up 2% excluding revenue from ladder pricing which we stopped recognising in the second quarter of the prior year. The increase was primarily due to 23% growth in managed solutions revenue and 12% growth in IP services. This was partly offset by a 13% decline, excluding ladder pricing, in traditional calls and lines revenue and a 16% decline in broadband revenue (as lines migrate to LLU).

Revenue decreased by 6%, or 2% excluding ladder pricing, mainly due to a £39m decline in transit revenue driven by mobile termination rate reductions and lower volumes.

Total order intake was £509m (Q1 2012/13: £501m) covering a broad range of products and services mainly in broadband, Ethernet and IP Exchange.

Operating results
Operating costs excluding transit increased by 1% reflecting the higher cost of sales associated with the growth in revenue excluding transit and ladder pricing. Operating costs decreased by 7% reflecting the decline in transit revenue.

EBITDA decreased by 4%, but increased by 3% excluding ladder pricing. With depreciation and amortisation flat, operating profit declined by 6%.

Capital expenditure decreased by 11% due to lower spend on Wholesale Broadband Connect as our footprint expansion nears completion. Operating cash flow was an outflow of £31m due to the timing of customer receipts.

Openreach

¹ Restated, see Note 1 to the condensed consolidated financial statements

Revenue
Revenue declined by 2% as a result of regulatory price changes on WLR, LLU, ISDN30 and Ethernet products which reduced revenue by around £60m, or the equivalent of around 5%. This was partially offset by growth in fibre broadband revenue, which more than doubled, and a 5% increase in Ethernet revenue, driven by higher volumes.

The physical line base grew by 12,000 compared with a 44,000 decline in the first quarter last year. Over the past 12 months, our physical line base has increased by 110,000.

We have now passed more than 16m premises with our fibre broadband network. We achieved 265,000 net fibre connections, an increase of 56%. Other service providers are now more engaged in marketing and selling fibre and their net additions in the quarter have more than trebled. More than 1.7m homes and businesses are now connected.

We won a further nine Broadband Delivery UK (BDUK) regional bids to deploy fibre broadband including Cheshire, Durham, Coventry, Solihull & Warwickshire and West Sussex. We have now won a total of 29 regional bids. The programme will have a long payback but, unlike other companies, we have committed the capital and are focused on helping the UK achieve its short-term goal of more than 90% fibre availability. The UK is seen in many countries around the world as an exemplar of what can be achieved by government and private sector working together.

Operating results
Despite the additional engineering resource that we recruited last year and the effect of wage inflation, cost efficiencies resulted in operating costs remaining flat. EBITDA was down by 4% due to the lower revenue. With depreciation and amortisation increasing 3%, reflecting the investment in fibre broadband and Ethernet, operating profit was down 14%.

Capital expenditure decreased by 2%. Operating cash flow decreased by 7% due to the lower EBITDA.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Group income statement
For the first quarter to 30 June 2013

Group income statement
For the first quarter to 30 June 2012

¹ Restated, see Note 1 to the condensed consolidated financial statements

Group cash flow statement
For the first quarter to 30 June

¹ Restated, see Note 1 to the condensed consolidated financial statements

Group balance sheet

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1  Basis of preparation and accounting policies

These condensed consolidated financial statements ('the financial statements') comprise the financial results of BT Group plc for the quarters to 30 June 2013 and 30 June 2012 together with the audited balance sheet at 31 March 2013.

These financial statements have been prepared in accordance with the accounting policies as set out in the financial statements for the year to 31 March 2013, other than the change outlined below, and have been prepared under the historical cost convention as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value.

These financial statements do not constitute statutory accounts within the meaning of Section 434 of the Companies Act 2006 and have not been audited or reviewed by the independent auditors. Statutory accounts for the year to 31 March 2013 were approved by the Board of Directors on 9 May 2013, published on 23 May 2013, and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified and did not contain any statement under Section 498 of the Companies Act 2006. These financial statements should be read in conjunction with the annual financial statements for the year to 31 March 2013.

Changes in presentation and restatements
Effective from 1 April 2013, we have made a number of changes that simplify our internal trading and more closely align our line of business financial results with our regulatory accounts. We have also adjusted the disclosure of our lines of business to reflect customer account moves and to better reflect their commercial activity. In order to present historical information on a consistent basis, we have revised comparative information for the year ended 31 March 2013 for a number of items that impact the financial results of individual lines of business, but have no impact on the total group results.

To simplify our reporting, starting from 1 April 2013 we no longer separately report other operating income. We have re-presented items previously reported as other operating income, as either revenue or a reduction in operating costs, as appropriate. Other operating income before specific items was £392m in the year ended 31 March 2013 (Q1 2012/13: £88m). This change increases group revenue by £86m for the year ended 31 March 2013 (Q1 2012/13: £20m) and reduces operating costs by £306m (Q1 2012/13: £68m). There is no impact on the group's EBITDA or profit before tax.

Finally, IAS 19 Employee Benefits (Revised) came into effect from 1 April 2013 and we have restated comparative figures to reflect the position had it applied before this date. For the year ended 31 March 2013, this has increased operating costs by £38m (Q1 2012/13: £11m) and has reduced net finance income on pensions (treated as a specific item) by £148m (Q1 2012/13: £36m), resulting in an overall reduction of £38m in EBITDA (Q1 2012/13: £11m) and adjusted profit before tax. Reported profit before tax and reported profit after tax, which are after the impact of specific items, are reduced by £186m (Q1 2012/13: £47m) and £143m (Q1 2012/13: £36m), respectively.  There is no impact on the group's free cash flow.

Forward-looking statements – caution advised
Certain statements in this results release 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: current year outlook, including revenue trends, EBITDA and normalised free cash flow; BT Global Services results and continued progress in its business; BT Retail EBITDA; BT Wholesale performance; our investment in BT Sport; our fibre roll-out programme; liquidity and funding; and the impact of regulation.

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; future regulatory actions, decisions, and conditions or requirements in BT's operating areas, including competition from others; selection by BT and its lines of business of the appropriate trading and marketing models for its products and services; fluctuations in foreign currency exchange rates or 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; the anticipated benefits and advantages of new technologies, products and services not being realised; the timing of entry and profitability of BT in certain communications 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 aims of the group-wide restructuring programme not being achieved; 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.

SOURCE BT

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