BT Group plc Results For The Fourth Quarter And Year To 31 March 2013

LONDON, May 10, 2013 /PRNewswire/ -- BT Group plc (BT.L) today announced its results for the fourth quarter and year to 31 March 2013.

Fourth quarter and full year results:

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

"We are doing what we said we would do. In an environment where it is easier to focus only on the short-term, we are investing in our future and delivering growth in profits and dividends. We are driving fibre across the UK, launching high quality sports channels, investing in the high-growth regions of the world and will use our wi-fi capabilities and 4G spectrum to make sure our customers will be the best connected. We have created around 3,000 new jobs in the UK over the last year to support these investments.

"Our focus on improving efficiency across the business will allow us to continue to deliver strong financial results whilst making these investments. Our good performance this year is reflected in our dividend which is up 14% for the year. 

"We have a lot more to do but we are now a lot better positioned to do it."

Key points for the fourth quarter:

• Our key revenue measure³ was flat – a significantly improved performance
• Underlying operating costs⁴ excluding transit down 2%, despite our investments
• EBITDA¹ up 4% and earnings per share¹ up 22%
• Fibre available to more than half of UK homes and businesses and roll out accelerating in rural areas
• Fibre customer base more than doubled, now at more than 1.5m
• BT Global Services order intake of £2.0bn

Key points for the year:

• Results in line with or better than expectations
• Underlying operating costs¹ excluding transit down 6%
• EBITDA² up 2%
• Normalised free cash flow³ of £2.3bn
• Net debt reduced by £1,285m
• Proposed final dividend of 6.5p, up 14%, giving a full year dividend of 9.5p, also up 14%

Outlook:

• Strong financial outlook despite significant strategic investments, particularly in BT Sport
• Our EBITDA² outlook compares with c.£6,140m in 2012/13 when restated for the adoption of IAS 19 Revised
• Normalised free cash flow³ is above our previous expectations reflecting the benefits of our restructuring programme and capital expenditure efficiencies
• Further specific restructuring charges of around £400m, most of which will be in 2013/14, to further improve operational efficiency

Notes:

1)   Unless otherwise stated, any reference to revenue, operating costs, earnings before interest, tax, depreciation and amortisation (EBITDA), operating profit, profit before tax, earnings per share (EPS) and 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 EPS and reported free cash flow are the equivalent unadjusted or statutory measures.

2)   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.

The fourth quarter and full year 2012/13 results presentation for analysts and investors will be held in London at 9.00am today and a simultaneous webcast will be available at www.bt.com/results

The BT Group plc Annual Report & Form 20-F 2013 is expected to be published on 23 May 2013. The Annual General Meeting of BT Group plc will be held at Edinburgh International Conference Centre, The Exchange, 150 Morrison St, Edinburgh, EH3 8EE on Wednesday 17 July 2013 at 11.00am.

Results for the first quarter to 30 June 2013 are expected to be announced on Thursday 25 July 2013.

The full release and financial statements are available to download as a PDF documents.

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.

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

BT Group plc

RESULTS FOR THE YEAR TO 31 MARCH 2013

GROUP RESULTS

Operating results overview for the year
Our key measure of the group's revenue trend, underlying revenue excluding transit, was down 3%. In line with our guidance, underlying revenue excluding transit showed an improved trend in the second half of the year declining 1.8%, compared with a 4.4% decline in the first half of the year. This improvement includes stronger performances in the fourth quarter from BT Global Services, BT Consumer, BT Business and BT Wholesale.

The decline in underlying revenue excluding transit this year reflects lower revenue from calls and lines, the tough conditions in Europe and the financial services sector and regulatory price reductions.

Adjusted revenue was down 5% at £18,253m with a £293m reduction in transit revenue (including mobile termination rate reductions of £187m), a £168m negative impact from foreign exchange movements and a £36m negative net impact from acquisitions and disposals. Reported revenue, which includes specific items, was also 5% lower, at £18,017m.

Underlying operating costs¹ excluding transit were down 6%, reflecting our cost transformation activities and reduced cost of sales due to the decline in revenue. Operating costs¹ decreased by £1,166m, or 9%, to £12,464m. In aggregate, operating costs¹ and capital expenditure² have reduced by £4.7bn over the last four years despite greater investment in new areas of the business.

Net labour costs decreased by 4% as improved productivity and better systems and processes offset our investment programmes, the recruitment of around 1,600 engineers and the insourcing of around 4,000 jobs. Payments to telecommunications operators were down 15% reflecting lower mobile termination rates and reduced transit and wholesale call volumes. Property and energy costs were 4% lower in total as we drove better space utilisation but lower energy usage was more than offset by higher energy prices. Network operating and IT costs were 7% lower as we rationalise our networks and systems. Other operating costs decreased by 11% principally reflecting lower cost of sales due to the decline in revenue and the benefit of our cost transformation activities.

Adjusted EBITDA of £6,181m increased by 2%.

Depreciation and amortisation decreased by 4% to £2,843m largely due to more efficient delivery of our capital investment programmes over the last four years.

Net finance expense
Net finance expense was £653m, a decrease of £28m, due to a lower average cost of net debt.

Profit before tax
Adjusted profit before tax was £2,694m, up 11% reflecting the higher EBITDA, lower depreciation and amortisation and lower finance expense. Reported profit before tax (which includes specific items) was £2,501m, up 2%.

Tax
The effective tax rate on the profit before specific items for the year was 22.5% (2011/12: 24.1%). For 2013/14 we expect the effective tax rate to be around 23%.

Earnings per share
Adjusted EPS of 26.6p was up 12% principally reflecting the growth in profit before tax. Reported EPS (which includes specific items) was 26.7p, up 3%. These are based on a weighted average number of shares in issue of 7,832m (2011/12: 7,763m). A reconciliation of reported EPS to adjusted EPS is provided in Note 9.

Specific items
Specific items resulted in a net credit after tax of £3m (2011/12: £166m), the principal components of which are described below with full details provided in Note 4.

Charges of £151m and £36m were recognised against revenue and EBITDA, respectively, following Ofcom's determinations on historic Ethernet pricing. One-off charges of £85m and £58m were recognised against revenue and EBITDA, respectively, following the Court of Appeal decision that wholesale ladder termination pricing should not be applied for 0800, 0845 and 0870 calls from mobile phones terminating on our network. We also increased our provisions for insurance and litigation risks by £43m, having reassessed potential claims relating to certain historic matters.

Restructuring charges of £204m (2011/12: £64m) were incurred. These include amounts relating to the next phase of our group-wide restructuring programme which started in the third quarter. This programme includes rationalising and transforming our resources, processes, networks and systems within BT Global Services and reorganising BT Innovate & Design and BT Operate, our two internal service units, to form BT Technology, Service & Operations (BT TSO). By improving group-wide processes and simplifying our business, we will improve customer service and generate future cost savings.  

A profit of £130m was recognised on the disposal of our remaining 23.2% interest in Tech Mahindra. Net interest income on pensions was £31m (2011/12: £197m). A specific item tax credit of £105m (2011/12: £164m) has also been recognised for the re-measurement of deferred tax balances due to the change in the UK statutory tax rate to 23% from 1 April 2013.

Capital expenditure
Capital expenditure excluding the purchases of telecommunications licences was £2,438m. Despite the accelerated fibre programme and other new investments, this was 6% lower than the prior year and below our guidance of around £2.6bn due to further efficiencies in our capital programmes. In the fourth quarter we also secured a 4G licence in the UK for a cost of £202m. This will enable us to provide our business and consumer customers with an enhanced range of mobile broadband services, building on our existing strength in wi-fi.

Free cash flow
Normalised free cash flow¹ was broadly level at £2,300m (2011/12: £2,307m) with lower capital expenditure and growth in EBITDA largely offset by working capital movements.

The cash cost of specific items was £366m (2011/12: £204m) mainly comprising restructuring costs of £147m, £95m from the historic Ethernet pricing determinations, cash payments of £67m from the ladder pricing decision relating to 2010/11 and 2011/12 and property rationalisation costs of £55m. Reported free cash flow, which includes the £560m tax benefit from pension deficit payments (2011/12: £215m), the purchase of our 4G licence and specific items, was £2,292m (2011/12: £2,318m).

A reconciliation of cash generated from operations to free cash flow is provided in Note 5.

Net debt and liquidity
Net debt was £7,797m at 31 March 2013, a reduction of £1,285m in the year, reflecting the strong cash generation of the business. This reduction was despite making £325m of pension deficit payments, purchasing the 4G licence, the share buyback of £302m and dividend payments of £683m. Net debt is reconciled in Note 6.

At 31 March 2013 the group had cash and current investment balances of £1.5bn and available facilities of a further £1.5bn providing us with a strong liquidity and funding position. Out of total gross debt of £9.3bn, £1.5bn is repayable in 2013/14.

Pensions
The IAS 19 net pension deficit at 31 March 2013 was £4.5bn net of tax (£5.9bn gross of tax), compared with £1.9bn (£2.4bn gross of tax) at 31 March 2012 and £4.3bn (£5.5bn gross of tax) at 31 December 2012. The increase in the deficit during the year principally reflects an exceptionally low real discount rate of 0.87%. This includes the impact of quantitative easing on the debt markets and a higher inflation assumption. The higher deficit is despite the strong investment returns and the £325m deficit payment which contributed to the BT Pension Scheme assets increasing by £3.0bn to a record high of £41.3bn.

The IAS 19 accounting position and key assumptions for the liability valuation are provided in Note 10.

IAS 19 'Employee Benefits (revised)' (IAS 19 Revised) came into effect from 1 April 2013 and will impact our pensions accounting as explained in 'Accounting standards, interpretations and amendments not yet effective' in

Note 3 to the Annual Report & Form 20-F 2013. Had this applied to the year ended 31 March 2013, operating costs would have been around £40m higher, at around £400m, and net finance income on pensions, which is classified as a specific item, would have been £150m lower, resulting in a net finance expense of around £120m.

We expect the pension operating charge in the income statement to be around £450m in 2013/14. This includes   around £40m due to the adoption of IAS 19 Revised and a £50m increase mainly due to the lower discount rate and higher inflation assumptions. The net pension interest expense within specific items is expected to be around £240m. We also expect regular cash contributions to the BTPS to be around £210m in 2013/14, similar to 2012/13.

All-employee share option plans
Around 20,000 of our people benefited from our all-employee share option plans this year, receiving BT shares worth over £12,000 per person on average. To counteract the dilutive effect of these share options, we acquired 131m shares as part of our buyback programme.

Over the next two years around 34,500 of our people could each receive shares worth over £28,000 on average, based on the share price at 31 March 2013.

Dividends
The Board is proposing a final dividend of 6.5p, up 14%, giving a full year dividend of 9.5p, up 14% (2011/12: 12%). Subject to shareholder approval, this will be paid on 2 September 2013 to shareholders on the register at 9 August 2013. The ex-dividend date is 7 August 2013. The final dividend, amounting to approximately £514m (2011/12: £453m), will be recognised as an appropriation of retained earnings in the quarter to 30 September 2013.

Regulation
There were a number of regulatory decisions and outcomes of appeals that affected us during the year and will impact us in the future.

The charge controls for WLR, LLU and ISDN30 products which became effective in April 2012 had a negative impact of around £120m on group revenue and EBITDA in the year. We expect a further similar impact in 2013/14. The July 2012 Court of Appeal decision against wholesale ladder termination pricing also impacted 2012/13 EBITDA growth by around £30m.

In the fourth quarter Ofcom issued its final determinations on the Business Connectivity Market Review and the associated Leased Lines Charge Control. These are likely to have a net negative year on year impact of around £50m-£100m on group revenue and EBITDA in 2013/14 with a further similar impact in 2014/15.

Ofcom also issued a consultation document on the Wholesale Narrowband Market Review setting out proposals for regulating the markets for the next three-year period. A new charge control has been proposed for certain services. This will start from 1 October 2013 and is expected to reduce our revenue from fixed call termination, with this partly offset by an increase in prices on call origination.

We expect the Fixed Access Market Review and associated charge controls, which are due to take effect from April 2014, to be published in the next few months.

Fibre and broadband
We have now passed more than 15m premises with our fibre broadband network, with an increase of around 6.2m in the year. There are now more than 1.5m homes and businesses using our fibre-based services, having more than doubled in the year with 873,000 net connections.

The broadband¹ market continued to grow with 834,000 net additions in the year. This takes the total number of broadband connections on our network to 17.6m, provided through more than 150 service providers. We added 424,000 retail broadband¹ customers in the year, a 51% share, taking our customer base to around 6.7m, up 7%.

Principal risks and uncertainties
The group's principal risks and uncertainties are disclosed in Note 11.

Outlook
We continue to expect an improved trend in underlying revenue excluding transit in 2013/14 compared with 2012/13.

We expect adjusted EBITDA to be £6.0bn−£6.1bn in 2013/14. The small decline compared with 2012/13 is despite underlying improvements in our business performance and is more than accounted for by our investment in BT Sport and the higher pension operating charge. The EBITDA performance in the first half of the year will be impacted by our upfront investment in BT Sport. We expect adjusted EBITDA to increase to £6.2bn−£6.3bn in 2014/15 and to grow further in 2015/16.

We expect the next phase of our restructuring programme to reduce our cost base by around £200m per year, with this run-rate largely achieved in 2014/15, contributing to an improvement in EBITDA and capital expenditure efficiency. We expect around £400m of further specific restructuring costs, most of which will be incurred in 2013/14.

We expect capital expenditure in 2013/14 and 2014/15 to be broadly level with 2012/13. We will continue to invest extensively in fibre broadband while benefiting from efficiency savings in other areas due to our cost transformation activities, including our restructuring programme.

We expect higher levels of normalised free cash flow than previously, at around £2.3bn in 2013/14, around £2.6bn in 2014/15 and to grow further in 2015/16.

We continue to expect to increase the dividend per share by 10%−15% per year for the next two years.

We also expect to spend around £300m per year for the next two years on our share buyback programme which will partly counteract the dilutive effect of all-employee share option plans maturing over this period. As in 2012/13 we may undertake the buyback through a combination of direct market purchases and purchases by our Employee Benefit Trust.

RESULTS FOR THE FOURTH QUARTER TO 31 MARCH 2013

GROUP RESULTS

Operating results overview
Underlying revenue excluding transit was flat, an improvement compared with recent quarters reflecting stronger performances from BT Global Services, BT Consumer, BT Business and BT Wholesale. Adjusted revenue was 2% lower at £4,785m with transit revenue down by £81m, a £12m favourable impact from foreign exchange movements and a £2m net negative impact from acquisitions and disposals.

Underlying operating costs¹ excluding transit were down 2%. Total operating costs¹ decreased by £140m, or 4%.

Net labour costs decreased by 3% mainly reflecting improved productivity and better systems and processes offsetting the recruitment of additional engineers and insourcing of some activities. Payments to telecommunications operators were down 9% reflecting lower mobile termination rates and reduced transit and wholesale call volumes. Property and energy costs were 2% lower and network operating and IT costs were 10% lower as we rationalise our networks and systems. Other operating costs decreased by 2%.

Adjusted EBITDA increased by 4% to £1,673m.

Depreciation and amortisation decreased by 7% to £692m largely due to more efficient delivery of our capital investment programmes over the last four years.

Net finance expense
Net finance expense was £148m, a decrease of £25m due to the lower average cost of net debt.

Profit before tax
Adjusted profit before tax was £833m, up 21% reflecting the higher EBITDA, lower depreciation and amortisation and lower finance expense. Reported profit before tax (which includes specific items) was £687m, down 5%.

Tax
The effective tax rate on the profit before specific items for the quarter was 22.1% (Q4 2011/12: 24.1%).

Earnings per share
Adjusted EPS of 8.3p was up 22%, principally reflecting higher profit before tax. Reported EPS (which includes specific items) was 7.5p, down 7%. These are based on a weighted average number of shares in issue of 7,838m (Q4 2011/12: 7,771m).

Specific items
Specific items in the quarter resulted in a net charge after tax of £58m (Q4 2011/12: £107m net credit). Restructuring charges of £151m (Q4 2011/12: £14m) were incurred as part of the next phase of our group-wide restructuring programme. Net interest income on pensions was £7m (Q4 2011/12: £48m).

Capital expenditure
Capital expenditure excluding the purchases of telecommunications licences was £648m, down 7% reflecting efficiencies in our capital programmes.

Free cash flow 
Normalised free cash flow was an inflow of £1,301m, up 43% compared with the prior year. This increase principally reflects favourable working capital movements, lower capital expenditure, lower tax payments and growth in EBITDA.

The cash cost of specific items was £147m (Q4 2011/12: £53m) comprising restructuring costs of £87m, property rationalisation costs of £9m and £51m from the historic Ethernet pricing determinations. Reported free cash flow, which includes the £79m tax benefit from pension deficit payments (Q4 2011/12: £nil), the £202m purchase of our 4G licence and specific items, was £1,031m (Q4 2011/12: £856m).

OPERATING REVIEW

BT Global Services

Revenue
Underlying revenue excluding transit decreased by 3% in the quarter and 6% in the year reflecting the tough conditions in Europe and the financial services sector.

Revenue was down 3% in the quarter including an £18m decline in transit revenue, an £8m impact from disposals and a £10m positive impact from foreign exchange movements. Revenue was down 8% in the year.

Total order intake was £2.0bn in the quarter (Q3 2012/13: £1.9bn; Q4 2011/12: £2.0bn) and £6.3bn in the year. In the quarter, we signed contracts with leading organisations around the world including: AstraZeneca, to manage their network IT services; Anglo American, for global networking and for application performance monitoring; the Department for Work and Pensions, to provide network, telephony, conferencing and contact centre infrastructure; Media-Saturn Group, for IP Connect and Ethernet Connect services to around 750 locations across Europe; Rolls-Royce, for BT Connect network services to link 160 locations globally; and Admoncall in Mexico, for communications and voice services.

Operating results
Underlying net operating costs excluding transit costs declined by 4% in the quarter and 7% in the year, reflecting the impact of lower revenue and our cost transformation programmes. Net operating costs decreased by 5% in the quarter and 9% in the year.

During the quarter we accelerated the transformation of our end-to-end customer service processes to improve service and reduce costs, and made our back-office functions more efficient. We continued to optimise our network to enhance availability and reliability for customers and reduce third party costs. We have improved commercial terms with our suppliers and launched a programme of property optimisation outside the UK.

EBITDA in the quarter increased by 15%, or 13% excluding foreign exchange movements and disposals, partly reflecting the timing of costs during the year. EBITDA was flat in the year, or up 4% excluding foreign exchange movements and disposals.

Depreciation and amortisation reduced by 11% in the quarter and 13% in the year as a result of lower capital expenditure in recent years. Operating profit was up £47m in the quarter and £88m in the year, resulting in a positive full year operating profit for the first time in five years.

Capital expenditure was up 1% in the quarter but down 6% in the year. EBITDA less capital expenditure increased by £26m to £63m in the quarter and by £34m to £101m for the year.

Operating cash flow of £404m in the quarter was £240m higher, reflecting the increase in EBITDA and timing of working capital flows. Operating cash flow for the year was an inflow of £6m. As expected this was lower than the prior year reflecting the phasing of working capital.

BT Retail

Revenue
Revenue was flat in the quarter and down 2% in the year.

Consumer revenue was flat in the quarter, the best performance for five years due to growth in fibre and a slower decline in calls and lines revenue. Revenue decreased by 2% in the year.

In the quarter we added 136,000 retail broadband customers, representing 48% of the DSL and fibre broadband market net additions. We added 211,000 retail fibre broadband customers and now have around 1.3m customers. Our TV net additions increased to 40,000 taking the customer base to 810,000. There are now over 5m BT Wi-fi hot spots and minutes trebled year on year for the third quarter running, reaching 4.7bn minutes in the quarter and over 13bn minutes for the year.

In the quarter we agreed to acquire ESPN's UK and Ireland TV channels business. Combining this content with our existing rights will enable BT Sport customers to see live coverage of the FA Premier League, the FA Cup, Scottish Premier League, UEFA Europa League, and the top league in Germany, Italy, France, USA and Brazil. In addition to football, we will also offer live English and French club rugby, WTA tennis and Moto GP. We have now announced our BT Sport proposition.  Launching in August, the three channels, BT Sport 1, BT Sport 2 and ESPN will show a wide variety of world-class sport and will be free with BT broadband, or £12 per month to non-BT broadband customers.

Business revenue was flat in the quarter and down 3% in the year. The improved trend in the quarter was due to 10% growth in IT services and a slower decline in voice revenue. Our line losses decreased for the second consecutive quarter.

BT Enterprises underlying revenue was down 2% in the quarter and down 1% in the year, with growth in BT Wi-fi offset by declines in other divisions. During the quarter, we acquired Tikit Group plc, one of the largest independent suppliers of technology solutions and services to legal and accounting firms, as part of our strategy to expand our specialist IT services capabilities.

BT Ireland underlying revenue increased by 5% in the quarter and 4% in the year with growth in both Northern Ireland and the Republic of Ireland. In Northern Ireland 52% of our consumer broadband customers now take fibre-based services. In the Republic of Ireland the wholesale business continued to grow and we agreed a multi-year contract with UTV for BT Ireland to provide wholesale voice and broadband services.

Operating results
Net operating costs declined by 1% in the quarter. This was below the recent trend as our cost transformation programmes were partly offset by additional costs associated with the improved revenue trend, and by the investment in BT Sport. EBITDA increased by 5% and with depreciation and amortisation decreasing by 7%, operating profit was up 8%. EBITDA was up 6% in the year.

Capital expenditure decreased by 23% in the quarter and 14% in the year as the prior year included additional broadband related investment. Operating cash flow increased by 12% in the quarter and 11% in the year reflecting the growth in EBITDA and lower capital expenditure.

BT Wholesale

Revenue
Underlying revenue excluding transit increased by 2% in the quarter. This was a significant improvement compared with recent quarters due to growth in managed network services (MNS) more than offsetting the impact of broadband lines migrating to LLU. In the year, underlying revenue excluding transit declined by 2%, or by 1% excluding ladder pricing.

Revenue decreased by 5% in the quarter and 9% in the year mainly due to a decline in transit revenue of £63m in the quarter and £277m in the year, driven by mobile termination rate reductions and lower volumes. MNS represented 32% of external revenue in the year, up from 27% last year.

IP Exchange voice minutes increased by around 60% in the quarter. Revenue from IP Exchange in BT Wholesale and BT Global Services was over £100m for the year.

Total order intake in the quarter was over £800m, compared with around £220m last year. This takes the total to over £2bn for the year (2011/12: around £750m). This included a number of contract re-signs and extensions including those with the large UK mobile network operators: EE, MBNL, O2 and Vodafone. In the quarter we signed a ten year contract with Telefonica UK to support the introduction of 4G services to its O2 customers. We will provide a sizeable increase in backhaul capacity to new and existing sites, and also build a dedicated high capacity transmission network.

Operating results
Net operating costs decreased by 8% in the quarter, but increased by 2% excluding transit costs. This reflects the higher cost of sales associated with the growth in revenue and mix changes partly offset by an 11% decrease in selling, general and administrative costs. EBITDA increased by 2% in the quarter. In the full year EBITDA declined by 3%, or 1% excluding ladder pricing. Depreciation and amortisation reduced by 3% in the quarter, and operating profit increased by 8%.

Capital expenditure decreased by 43% primarily due to lower spend on our Wholesale Broadband Connect network, which now covers more than 90% of premises, and due to reduced Ethernet spend. Operating cash flow increased by 1% as the improved operating performance was largely offset by working capital movements. Operating cash flow was up 12% in the year.

Openreach

Revenue
The continued impact of regulatory price changes reduced revenue by around £50m in the quarter and around £180m in the year. This was partially offset by growth in fibre broadband and Ethernet resulting in an overall revenue decline of 3% in the quarter and 1% in the year.

The physical line base grew by 88,000 in the quarter and by 54,000 in the year. The additional engineering resource we have recruited has helped to address provision lead times and deliver more fault repair activity resulting from one of the wettest years on record.

We passed a further 1.8m premises with our fibre broadband network in the quarter resulting in an increase of 6.2m in the year – a growth rate of around 120,000 per week. We have now passed more than 15m premises. We believe that, together with government support and subject to an acceptable investment environment, we can pass more than 90% of premises with our network in the next three to four years. We achieved around 270,000 fibre connections in the quarter, with more than 1.5m homes and businesses now connected. This take up rate compares favourably with experiences of other large European economies.

In the quarter we won 10 Broadband Delivery UK (BDUK) regional bids to deploy fibre broadband including in Cambridgeshire, Devon & Somerset, Wiltshire, South Gloucestershire, Hampshire, Shropshire and Highlands & Islands. This brings the total number of bids won in the year to 19. We have now passed well over half of the premises in Cornwall, one of the least densely populated regions in the UK. With the programme progressing well, we will be able to re-invest efficiencies we are achieving to extend coverage to 95% of homes and businesses, up from a target of 80%−90% at launch.

Operating results
Net operating costs reduced by 4% in the quarter in part reflecting cost efficiencies. EBITDA was flat, and with depreciation and amortisation increasing by 1%, operating profit was down 1%. EBITDA was up 1% in the year.

Capital expenditure increased by 5% in the quarter reflecting the acceleration of our fibre broadband roll out. Operating cash flow was down 10% due to the higher capital expenditure and timing of debtor receipts. Operating cash flow was down 4% in the year.

The full release and financial statements are available to download as a PDF documents.

SOURCE BT

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