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Good day, and welcome to BT's Q4 and Full Year Results Presentation for the year ended on the 31st of March 2021. My name is Attila Leonard Muscat, and I'm your host today. [Operator Instructions] I would like to advise all parties this conference is being recorded for replay purposes. And now I'd like to hand over to Mark Lidiard. Please go ahead.
[Audio Gap] Philip Jansen, Chief Executive; and Simon Lowth, Chief Financial Officer. Also attending the Q&A are members of our Executive Committee.Before we start, I'd like to draw your attention to the usual forward-looking statements on Slide 2 and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the slide and the annual report can be found on our website. With that, I'll now hand over to Philip.
Thanks, Mark. Good morning, everyone. Thanks for joining today's call. As per normal, Simon and I will make some prepared comments before taking your questions.So moving straight to Slide 4. As our full year results are in line with our expectations, there wasn't so much change in our operations, given the quarter 4 lockdown. I'm going to look at the bigger picture and focus on 4 things. First, how we've stabilized the business over the last few years to build stronger foundations for the future. Second, how BT has delivered for customers, our colleagues and the country during the pandemic and how BT is emerging as a more resilient and competitive organization. Third, I want to talk about how BT has emerged as a stronger business coming out of lockdown and that is firmly positioned for a pivot to growth. And finally, our plan to increase and accelerate our full fiber build from 20 million premises to 25 million premises by the end of 2026.Following this, Simon will cover our full year financials, the impact of the super-deduction, our modernization program and the triennial pension view and cover the outlook for the 2022 financial year.Moving to Slide 5. Over the last few years, we've done a huge amount to strengthen the business and remove uncertainties. If I go through just some of the achievements. On the fixed network, we have driven volumes of copper onto FTTC network, and we have proven that we can build full fiber, at pace and scale and at market-leading cost and quality. Ofcom's WFTMR gives all fiber builders, more regulatory certainty than has been the case for many years, and it allows BT to earn a fair return on our investment program.We are seeing very encouraging take-up from our customers on this network. And coincidentally, today, we reached 1 million connections to our 4.7 million FTTC platform.In mobile, we've extended our 4G coverage, and our 5G network has doubled during the year, now reaching 160 towns and cities with broader and most highly rated coverage than any other operator. 5G-ready connections stand at more than 3.2 million, and EE's brand strength has attracted more than 1.6 million active users across our retail businesses.Importantly, we have secured new 5G spectrum at an investment encouraging cost to further extend coverage and underpin future enterprise 5G use cases. We are making strong progress on the modernization of BT and are ahead of our planned savings targets.In addition to highly disciplined cost control, we are closing the legacy networks, reducing product variance and moving customers to digital services. We have created the digital unit to drive digital innovation and simplify our IT architecture that will underpin new automated customer journeys for all our major products. We have created BT sourced, our stand-alone procurement company, that will introduce AI to drive efficiencies into our purchasing.And in Global, over the past 2 years, we have divested domestic networks and operations in around 20 countries, successfully executing our strategy to focus on our core capabilities in serving multinational customers in today's software-defined world.With customers at the center of everything we do, we have driven consistent improvements in our group Net Promoter Score, seeing the BT brand at its highest ever NPS and delivered strong performance in terms of sales and churn. We have launched new high-value propositions into the market such as Halo and 4G Assure, and we are leveraging convergence propositions more than ever. In the B2B market, we have class-leading SD-WAN products, while we continue to be a leader in security, where we have recently launched Eagle-i. This new proposition will step change our managed services through proactive and predictive cybersecurity protection. using the combination of the most up-to-date thinking in analytics, automation and orchestration.As part of supporting our customers, we are tackling the fairness agenda, absolutely head on, thereby reducing risk. And we have introduced simpler, more transparent pricing for all of our consumer and smaller business products that supports market repair and lowest churn. We now have a clear and secure picture of our sports rights for the next 4 years and accordingly, are exploring options on how to best develop our sports business and to take it to the next stage of growth. We have reached a very balanced agreement on the pension triennial that reduces risk and has some significant cash advantages. And finally, we have made some management changes that give me the confidence that we have a much strengthened team in place to really drive the business forward. It is a credit to the resilience, the spirit, the determination of the BT team that so much has been delivered.Turning to Slide 6 now. As we all know, the past year has been like no other. When I spoke to you last May, I set out the principles for how BT had decided to confront the challenges posed by the pandemic. They were, keep colleagues safe and protected, keep customers connected and keep the country's critical natural infrastructure running. I think 12 months on, it's fair to say we have seen outstanding delivery from BT people across all parts of the business and all over the world in the face of the significant challenges that the business and each of us personally have faced over the past year. No one at BT has been furloughed during the pandemic. No one has been made redundant as a direct result of the pandemic, despite a significant hit to revenues and EBITDA. Indeed, in order to recognize the exceptional efforts of our frontline staff and as a way of demonstrating the Board's gratitude, we recently announced that we plan to pay a bonus of GBP 1,500 in cash and shares.In line with our purpose, we connect for good, the BT army of close to 100,000 people have gone the extra mile to keep customers and the country connected.At the start of the pandemic, we teamed up with ITV to launch top tips on tech, the adverts to help people all over the U.K. get the best from their technology and stay secured. We introduced initiatives such as lockdown learning with free unlimited mobile data, WiFi vouchers for schools and charities and 0 rating of some of the most popular educational websites.All to help some of the most disadvantaged kids stay plugged into learning. We extended until June this year, our highly popular free unlimited data offer for EU customers who work in the NHS. Our small business support scheme was introduced to support the U.K.'s 5.8 million small businesses through 10 initiatives to help them get better positioned for growth.And our Life Lines project which enables virtual hospital visits via video-enabled devices has now hit the milestone of 100,000 visits. And lastly, throughout the pandemic, We have kept the National's critical infrastructure running. From answering more than 32.5 million, 999 calls to bringing high-speed fiber and WiFi connectivity to 200 vaccination hubs and connecting mass testing centers and 17 temporary NHS hospitals in England, Scotland and Wales. All this has been achieved against the backdrop of unprecedented demand for data.During December last year, traffic on our network peaked at more than 22 terabits per second on 2 occasions. And it's not just the peaks. On average, our fixed-line network traffic during working hours doubled from 5 to 10 terabits per second.And our mobile network, EE, has seen mobile data usage, up by 42% over the last year.So we see a BT that hasn't just struggled through and weathered the pandemic, but a BT that emerges from it with a significantly reduced risk profile and a BT that is positioned to embrace the future. If I turn to Slide 7. Our future is one that is about growth, and it's one that's about prospects. I'll start, I'll pivot to growth by looking at revenue. Over the recent years, as we all know, revenue has been in decline. We have seen significant hits from regulation, legacy product declines and more recently, COVID-19. But looking forward, regulation is no longer a headwind, and we are likely to see a recovery from COVID, leaving any legacy declines and the impact of the Virgin MVNO as the only remaining drought.Offsetting this as well as the COVID bounce back, we have indexed pricing at CPI or CPI+ across consumer and around half of SME and Openreach. That's nearly 2/3 of our consumer business of our total business by revenue.We also expect to see growth from our strategic products, which offer greater reliability and faster speeds such as Halo and 5G. We will see more cross-selling opportunities from convergence as well as the opportunity for increased ARPU from customers buying higher-speed products at both the wholesale and retail level.On top of this, we are starting to look at adjacent opportunities to drive longer-term revenue. We are actively exploring areas where we can leverage our network leadership to add value, perhaps health care or data, in a way that could add meaningful revenue growth over the long term. Right now, of course, we will not be distracted from delivering on our immediate strategic priorities.As a result, while I see revenue being broadly flat this financial year, I can see consistent and predictable growth from next year onwards. Turning now to EBITDA. Naturally, we'll see the benefit of flow-through from the revenue line, but our modernization program will also make a big difference here. As I mentioned, we are tracking ahead of our target to generate gross savings of GBP 1 billion by financial year '23. And we have only just started some of our strategic initiatives, including Digital and BT source, which I spoke about earlier. We also expect margin benefits as our strategic products begin to scale.Longer term, we have lots of opportunity for further savings from digitization. And as we move increasingly to FTTP and 5G, we will be able to address our sprawling exchange estate, reducing it from 5,600 buildings, housing a multitude of equipment to potentially just 1,100 fully focused on fiber and a near 0 touch software managed network.Overall, given the near-term benefit of our transformation, we expect consistent and predictable EBITDA growth from this point on at a rate ahead of revenue, including as we have reiterated many times, an outlook of at least GBP 7.9 billion next year.Lastly, all this comes together at the cash flow line. Sustainable EBITDA growth is a great place to start, but clearly, we are also continuing to invest heavily. Peak CapEx of up to GBP 5 billion a year will be required to deliver our value-accretive investments in full fiber 5G and our modernization program. This will inevitably constrain cash flow over the next few years, but a substantial benefit from the super deduction will help offset this. And then post-2026, after the peak network build, reducing CapEx should deliver an uplift of more than GBP 1 billion to normalized free cash flow. All this adds up to supporting a progressive dividend, resuming at 7.7p this financial year that is solidly underpinned from the very start.And finally, on Slide 8, we are going to increase and accelerate our FTTP build to drive even more growth over the medium term. Last year, Openreach built FTTP to a record 2 million premises, up from GBP 1.3 million the year before and exited the last year at a rate of 43,000 premises passed per week. This is being undertaken at a quality and a cost that is unrivaled. It is now clear that Openreach can go further and faster and reach a build rate of 4 million premises a year.We're starting to ramp up to that build rate immediately, and we are committing today to reach 25 million premises by the end of 2026. That's up 5 million premises and in a reduced timeframe. Simon will cover the financing implications of this in more detail shortly. But I'll just add here that we'll maximize both the benefit from the cash tax super-deduction and the opportunity afforded us by the lower-than-expected costs of the recent 5G spectrum auction. This means we are able to deploy greater operational firepower into a competitive marketplace and remain confident in our plan to reinstate the dividend in this financial year, whilst also supporting our BBB credit rating floor.At the same time, we are also investigating whether we can deliver even more value to shareholders by funding this additional build of 5 million premises through a joint venture between BT and one or more external parties. We think this would be a good option to bring forward value. But either way, we're going to start the accelerated ramp-up to 25 million premises from today.And with that, I'd like to hand over to Simon.
Well, thank you, Philip, and good morning to everyone. I'm going to summarize our financial performance for the year, discuss the extent of the potential benefits from the government's tax super-deduction and the progress of our modernization program before providing updates on the pension and then on our outlook.So turning to our results on Slide 10. Our Q4 and full year financial performance was in line with the expectations that we set out at Q3. Adjusted revenue for the year was GBP 21.4 billion, that's down primarily due to the impact of COVID-19 across our business and in consumer and in enterprise. These declines continued to be partially offset by higher rental bases of fiber and ethernet products in Openreach. This puts our full year adjusted revenue at the bottom end of our outlook range, which was down 6%.Operating costs were down 6%, resulting from our modernization program, lower sports rights costs and other cost initiatives, such as the COVID-19 mitigating actions, partially offset by investments in customer experience and our FTTP base. Adjusted EBITDA for the full year was GBP 7.4 billion, that's also down 6% and is in line with our GBP 7.3 billion to GBP 7.5 billion outlook.Moving to Slide 11. Our individual unit results were broadly in line with the expectations we set out at Q3. So given this and the fact that the Q4 lockdown has meant a little change in our operating performance, rather then run through the detail of each CFU, I'm just going to say a few words on each.Starting with consumer. In addition to the known impacts from COVID-19, there was continued pressure on mobile ARPU from the ongoing shift towards SIM-only contracts. This was partially offset by higher equipment revenue, driven by an improved handset mix. The market for both broadband and mobile remains competitive. But despite this, consumer is leading in both full fiber connections and 5G orders. And despite a 12% EBITDA decline this year, we do expect to see EBITDA growth next year as the market starts to recover.Our Enterprise division saw a slowdown in business activity that combined with ongoing legacy declines and prior year divestments resulted in revenue decline of 8% in the year. Strong cost control, partly offset by OpEx investments made in the final quarter, resulted in EBITDA for the year, down 12%, excluding prior year divestments, EBITDA is down 11%. Enterprise made great progress this year expanding possible 5G use cases with partners across a number of sectors, including in health care, aerospace and in education.Moving on to Global. EBITDA, excluding divestments, one-offs and foreign exchange for the full year was up 3%. Throughout the first 3 quarters of the year, Global mitigated the impact of COVID-19 through transformation and tight cost control. However, in the fourth quarter, the COVID-19 impact for the first time, more than offset our lower operating costs. Global has recently launched a number of market-leading propositions, including next-generation SD-WAN products and its innovative Eagle-i security proposition.In Openreach, revenue growth in the year was driven by higher fiber and ethernet volumes, partly offset by declines in legacy copper products. This higher revenue supported the EBITDA growth. We made great progress on both building and connecting customers to our FTTP network. We've now built FTTP to 4.6 million premises including a record 2 million in the last year.Despite reduced provisioning activity due to multiple lockdowns in the year, we now connected over 900,000 premises to our full fiber network.Openreach also delivered its best ever on-time delivery of copper-based services at 94.6%, and this was despite record levels of copper folk fixes and full fiber provisions.Finally, we'll be publishing new Openreach CapEx KPIs from H1 this year to allow the market to understand better how we allocate capital across the various platforms. We'll publish a pro forma for these new KPIs ahead of our Q1 results.Moving below EBITDA on Slide 12. Depreciation and amortization was GBP 4.3 billion. Our adjusted net finance expense was GBP 773 million and the adjusted tax charge was GBP 428 million, resulting in adjusted profit after tax of GBP 1.9 billion. Reported profit after tax for the period was GBP 1.5 billion. And then finally, our reported earnings per share was 14.8p per share, and our adjusted earnings per share was 18.9p per share.Moving on to cash flow on Slide 13. We delivered a little under GBP 1.5 billion of normalized free cash flow in the year. That's down 27%, primarily due to our lower EBITDA, combined with increased capital expenditure. That's towards the top end of our outlook of GBP 1.3 billion to GBP 1.5 billion for the full year.Cash tax, interest, lease payments and changes in working capital and other movements came to an outflow of GBP 1.8 billion. We invested GBP 4.2 billion in cash capital expenditure over the year that is up 2%. Cash specific item costs totaled GBP 390 million, primarily due to restructuring costs. Our reported free cash flow was GBP 367 million, down 81%, reflecting the lower normalized free cash flow, payments made to Ofcom for the acquisition of Spectrum, GBP 227 million of which will be refunded this financial year, and an increase in cash specific costs, which last year included an inflow from the sale of BT Centre. We paid GBP 955 million into our pension schemes, gross of tax with a corresponding GBP 181 million of cash tax benefit, resulting in a free cash outflow post the pension deficit payments of GBP 424 million.Reported CapEx was up 6% at GBP 4.2 billion for the year, and that's driven primarily by investments in our full fiber and mobile networks, that's in line with our outlook of GBP 4 billion to GBP 4.3 billion.Within this total, we invested GBP 2.3 billion in our networks, that's up 12%, near $1 billion in customer-driven CapEx and with the remainder in our systems and IT and our nonnetwork infrastructure. Our reported net debt for the period remained just under GBP 18 billion. We remain committed to our credit rating target of BBB+ and a minimum rating of BBB.Going forward, we expect at least half of our capital expenditure in FY '22 and FY '23 to qualify for the government's cash tax super-deduction.Based on this assumption, we expect to pay 0 cash tax in the U.K. over the next 2 years and only to pay international tax, which, last year amounted to around GBP 60 million. We expect to build up large capital allowances over this period, supported by our plan to reach 25 million premises with FTTP. Taking these capital allowances, together with our asset-backed contribution into the pension scheme, means that we expect to carry forward tax losses of around GBP 4 billion at the end of FY '23. This clearly gives us additional funding capacity to be used on our value-accretive investments as we pivot to growth. In the long-term, however, we will see a negative impact from the higher corporation tax rate.Turning to our transformation program on Slide 14. We are modernizing BT, and we are improving efficiency across the company at an accelerating rate. We're doing this through simplifying our product portfolio, simplifying and automating customer journeys, moving to a more modern IT architecture and migrating customers to our modern full fiber and 5G networks. We're making clear progress towards these goals with proof points over the last year, such as reducing by a quarter, the number of buildings in which desk-based colleagues are located, migrating the majority of our legacy broadband customers onto our strategic products, closing over half of our legacy product variants. and launching the first digital journeys for our SME customers who cannot order many of our SME Halo packages online. This progress delivers immediate benefits by allowing us to provide better propositions more quickly and more efficiently for our customers. It also makes the business easier to manage by reducing the number of manual interventions and risk of failures. As a result of this great progress, we are tracking ahead of target, taking GBP 764 million of gross annualized cost out of the business over the last year. That's an incremental GBP 412 million in the second half of the year, that's over 3/4 of our FY '23 target of GBP 1 billion delivered in just the first year. The onetime cost to deliver this was GBP 438 million. We're also a smaller organization now with fewer than 100,000 full-time equivalent employees across the group at a 5% reduction from last year.So moving on to our pensions position on Slide 15. I'm pleased to announce that we've concluded our triennial funding valuation negotiations with the BT Pension Scheme trustee. We have agreed with the trustee a deficit of GBP 7.98 billion at the 30th of June 2020, with the recovery plan also considering changes since that date, including RPI reform. GBP 2 billion of this deficit will be met through an asset-backed funding arrangement backed by a loan note from EE Limited. This arrangement will provide GBP 180 million per annum capital and interest payments to 2034, but only if the scheme remains in deficit. We will also make payments expected to reduce the deficit to 0 by 2030.To protect BT, we've also agreed a mechanism by which we can reclaim funding if the scheme is in surplus at the 30th of June 2034 and to protect the BT Pension Scheme, we've also agreed to pay additional contributions of up to GBP 200 million per annum into the scheme should the deficit widen by more than GBP 1 billion.I believe these agreements are good news for BT and for the Pension Scheme, and they reduce risks on both sides.Moving on to the IAS 19 position at the 31st of March 2021, the total deficit was GBP 5.1 billion gross of tax. That's up GBP 0.2 billion since 30th of September 2020. The increase in the deficit primarily reflects a fall in asset values, partly offset by our deficit repair payment of GBP 0.5 billion in the half year, an increase in the real discount rate and lower assumed future life expectancies.Coming to our outlook on Slide 16. We continue to expect EBITDA of at least GBP 7.9 billion in FY '23, with sustainable growth from this point forward. This level of EBITDA funds our CapEx expectation and the reinstatement of the dividend. We're pulling on 3 levers to drive that EBITDA, ensuring that we capitalize on our recovery from COVID-19, driving revenue and margin growth through investment across our strategic products and through inflation-linked pricing. Delivering material cost savings through our modernization and transformation programs. We remain confident in our outlook for FY '23.We expect adjusted revenue for FY '22 to be broadly flat year-on-year, dependent on the speed of COVID-19 recovery. We expect to achieve year-on-year revenue growth by the end of the financial year.For adjusted EBITDA, we expect to deliver between GBP 7.5 million and GBP 7.7 billion, benefiting from a COVID-19 bounce back, price indexation in Openreach and our retail businesses and further cost transformation, more than offsetting legacy declines and the normal inflation in our cost base.To capitalize on Openreach's build capability, a positive spectrum auction outcome and to maximize the benefit from the tax super-deduction, we are increasing and accelerating our FTTP investment, and as such, we expect reported CapEx to increase to around GBP 4.9 billion this year. We expect normalized free cash flow to be between GBP 1.1 billion and GBP 1.3 billion, heavily weighted towards the second half, with growth in EBITDA and the cash tax benefit more than offset by the year-on-year increase in CapEx.Our outlook for normalized free cash flow beyond FY '22 will clearly be impacted by the funding of the additional 5 million premises and whether we can execute a joint venture structure that delivers value for shareholders.Philip has already said, while CapEx will put pressure on cash flow in the short to midterm, we will see a very significant increase in our free cash flow, once we complete the bulk of our FTTP build and drop from peak to sustaining CapEx levels. Our plan supports BT's long-term cash flow and profitability. It also underpins our intention to declare a dividend of 7.7p per share for this year, with 30% of the total to be declared at the interim stage.With that, thank you, and back to you, Philip.
Thanks, Simon. So just by way of summary, during what's been a very tough year for everyone. Our full year results were in line with expectations, thanks to the hard work and dedication of all of our people. And although there's still much more to do as we all know, we have definitely laid strong foundations for the future, reducing risk and reducing uncertainty, building our leading networks, modernizing BT and delivering strong products -- propositions and service for our customers.Looking forward, I believe we've got a great opportunity ahead of us. During this financial year, We'll start our pivot to growth in revenue and EBITDA. We'll continue to grow revenue and EBITDA predictably and consistently into the future, underpinning the reintroduction of our progressive dividend this year. We are investing heavily in the future of BT, including the expansion and acceleration of our full fiber build to pass 25 million premises by the end of 2026. This additional investment reflects both Openreach achievements on the ground and the scale of BT's ambition to reinforce the foundations for growth, both for the company and indeed, the nation.Although, the scale of these investments that we are making will inevitably press on cash flow over the next few years. Not only will they not impact our ability to pay a dividend, they are designed to deliver enduring success for all BT stakeholders. And indeed, as Simon has said, a very material cash flow increase that will follow peak investment, post-2026, will create further options for BT in the future.Thanks very much, as ever for engaging with us today. Just before we get to questions, I would really like to say farewell to Cathryn Ross who leaves us at the end of the month. Her leadership has been absolutely key in building our improved relationships with Ofcom, and we wish her well in her new role.So we've got about 40 minutes or so for questions. [Operator Instructions] And with that, I'd like to go back to the operator and open up for questions.
[Operator Instructions] And the first one is coming from Nick Lyall, representing Societe Generale.
Just a quick question on the guidance, please, Philip and Simon. Just It could be a very tough year for Enterprise, in particular, on SMEs, given June for rental payments and the furlough in September. So could you [indiscernible] in the guidance in broad terms in terms of the SME performance and how you've sort of tried to cope with that in terms of giving some up and downside.
Yes. I mean I'll give you a quick couple of comments then Simon can chip in. Look, I think you're right. The place that is least certain, I think, is Enterprise, in general, as we sort of see the sort of easing of the support schemes of further and all the other stuff that we know about the government has put in place. So I think we understand that. We've done a lot of work. Rob, who's the CEO of Enterprise, has taken a fresh look at the business clearly since he's been here. And he's put together a point sort of assumes a reasonable bounce back. But we're not sitting here expecting it to be significant and immediate in enterprise. And that's why, as Simon said, we're a bit cautious on the revenue line this year. We do -- I do personally feel there's going to be a big bats back at some stage and the economy will do well in the back half of this year. But I think in terms of the enterprise, it is going to be the place where we need to wait and see. I think we've got a business briefing in June where Rob will sort of lay out his plan, but also by then, I think we'll have a clearer picture on exactly how some of the easing of the lockdown and coming flat out in June, hopefully, is impacting the business. So we've been reasonably cautious about it, and then we'll go into more detail on that day. Simon, do you want to add anything?
No, Philip, I think you've covered it. I mean, I think we've got some great new products in SME. The Halo products, the mobile businesses performed well. And while we're not expecting to see strengthening in the sector in the first part of the year, we are confident that we will start to see some recovery as we move into the next financial year.
The next question is coming from Polo Tang, representing UBS.
So it's just really a question about talks with the Communication Workers Union. Can you remind us what the main issues are and what's the risk, that settlement with the CWU will either reduce the level of transformation that you can achieve or lead to higher restructuring costs? And can you maybe just give us a rough sense in terms of the milestones from here? What's the rough timeframe from here?
Yes. I mean, Polo, it's quite hard to give you specifics here, but let me give you a sense of it. I think, as we've implied and you can see we're making lots of progress on the modernization, the change agenda at BT. So on one level, Simon has said, we put GBP 764 million of savings through the company, which is great. But we're also changing so much, and we've got plans over the next 5 years to completely revolutionized the company. I mean you're going to end up having a full fiber network, new 5G network, completely modernized IT systems. And we've got what's known as a better workplace program where we are consolidating all our offices. And we're effectively shutting 270 offices and going under 30. So the union quite rightly is saying they're just very cautious in making sure that all that change is managed as carefully and as professionally and as thoughtfully as possible. And looking at as is their role purely from their individual members' point of view. So their questions are around pay, they're around better workplace, they're around new pay points, they're about grading all the normal topics, but it's -- you got to look at it in the round. And so I'll give you an example of a data point, of the buildings that we're trying to shut 72% of them have less than 5 people in them.So everybody knows that including the CWU, that is not a long-term position. And some of these buildings are appalling. But if you're one of those 5 people, and we can't find you something else in the company, then I guess, that is challenging for those individuals, and we get that. And I think making sure we're clear how we handle that. But at the same time, just so you know, the discussions continue to be very constructive. As you hear, there's a moratorium that's been agreed. So there's no balancing for industrial action at all for the foreseeable future, and we're in constructive discussions. So that's all I can really say.
The next question is coming from Maurice Patrick, representing Barclays.
Just a question on the sort of consumer ARPU trends. It looks like broadband ARPU is down about 9%, postpaid mobile, down by 11%. Just curious as to how much of that's like direct trading, for example, from Nexus car from warehouse, no doubts impacting that consider line on the mobile. In broadband, you're adding 50,000 customers, but the ARPU taking a step down. I'm sure there are lots of moving parts. So if you could break out some of those that would be super helpful.
Yes. I mean, that's -- so Simon can chip in here. But I think all those things you've talked about are true, but you didn't mention investment in fairness. We continue to to make sure we're doing everything we can on the fairness agenda. And we're definitely leading the charge on that, right? Dealing with the back book, front book, challenges you know that we're really confronting that head on and balancing that out. And it's just this continued investment in the trading performance for long-term benefits and the churn is coming down very nicely. So I think the overall customer profile, I think, is not bad, given the circumstances. But you're right to point out to the overall ARPU is done in exact the number you talked about. So Simon, if you want to add anything to that?
No. I mean, I think that we're pleased -- very pleased with our performance in the fixed market in terms of the value bringing to customers and the progress we're making in turn and bringing new customers to BT. And that partially offsets the pressure on the ARPU, which Philip, as you said, is principally driven by some of the fairness agenda that we've been driving. There's also a bit of decline in legacy voice usage. But I think on the mobile side, the trends are pretty consistent with what we've seen, which is a continued shift to SIMO. And of course, also we've had the impact of the COVID lockdown, Maurice, so out of bundle and roaming has been lower. So that's also impact this year. That, of course, we'll see a recovery of that as the economy gets back to normal.
And the next question is coming from Michael Bishop, representing Goldman Sachs.
Just to pick up on the significant tax changes. So I think it's quite clear that there's no cash tax in FY '22 and '23, given what you've identified. But Simon, you mentioned that there's then a GBP 4 billion tax loss carried forward. So sorry, just Slide 2 part question. First is, how do you get to that? And how much is the CapEx relief carried forward and how much is the impact from the asset-backed contribution to the pension? And then the second element is just could you give us any more granularity on how you think you can offset that GBP 4 billion carried forward against cash tax from FY '23 and how we should think about that phasing?
Yes. I'll let -- Michael, I'll let Simon answer that. There are lots of moving parts there. And it's obviously very good news. But Simon, do you want to have a crack at that?
Yes, sure. I mean, I think the place to start, Michael, is that, as I indicated in my remarks, we think that at least half of our capital investments in the next couple of years will qualify, and therefore, in FY '22, FY '23, we get this benefit of the super-deduction, which means a sort of 130% of that capital investment is deductible attacks. And then in addition to that, the ABS structure at GBP 1.7 billion, we can also take that as deductible over a full year period. So that gives us a very significant tax deduction in FY '22 and FY '23, which as you say, means that we will not be paying U.K. cash tax in the next -- this year and next. So that's a big help in terms of accelerating our CapEx. And then there is still, as you say, and I remarked, a GBP 4 billion tax loss still available to us, as we go into FY '24. And we will be able to offset that against our taxable profits in FY '24, '25, '26. You can generally offset up to 50% of taxable profits. So it will be a -- we would utilize that loss pretty swiftly. And again, great for supporting the increased investment we're making. Hope that helps, Michael.
And the next question is coming from Robert Grindle representing Deutsche Bank.
Yes. I'll ask a pension question. I think you [Technical Difficulty] Sorry about that. Two questions. Will you recognize debt within your balance sheet for the asset-backed funding arrangement? And on the negative pledge threshold, which has fallen from GBP 1.5 billion to GBP 0.5 billion. What in practice does that mean? What could you now not do up to GBP 0.5 billion that you could do previously to GBP 1.5 billion.
Simon?
The first answer is no, the ABS sector is an asset into the scheme that is not shown as a debt or BT. We don't want it in our consolidated accounts. And to the second question, there will be, clearly by sort of on the threshold, there will be some potential options which we'll need to consult the trustee on, but we don't see it constraining our business plan or activities, Robert, at all.
[indiscernible] questions?
Okay. Obviously, reduction in one of the protections that's set out in the pensions note, I think was the question Robert has posed.
The next question is coming from Nick Delfas representing Redburn.
Just a question on the possibility of doing some things off balance sheet. Obviously, KPN has been able to take capital in a joint venture with APG. Is that something you're interested in? And what's your view on sources of capital for that kind of venture? Would that include both pension funds and potentially other telco operators?
Yes, Nick, I mean, obviously, today, we think it's a really important and big announcement for us to move to 25 million premises by the end of '26. It's not only the number going up. It's bringing the time frame forward. And I think the other good thing is that we can set out a plan where we could fund ourselves from our own internal resources and feel very good about the dividend and a progressive policy at that. So I think that's the main message. There is this sort of sub message that says, because the market is so hot for infrastructure investment for the kind of thing that we are doing. And I believe there's not going to be a proposition in BT Openreach, speed, quality, cost, all things you know about. We thought it was sensible to see whether or not there was an alternative vehicle for this 5 million additional set of premises. And therefore, I think you mentioned KPN and APG, and that's a good sort of proxy for what we -- the framework, a straw amount, if you like, that we're thinking about. And obviously, we've had over the -- not just month years, I guess, since I've been here, too, is we've had a lot of inquiries from people willing to and keen to participate. So we thought we'd launch a process to evaluate what kind of partners could contribute to that kind of joint venture and our working hypothesis is it will be exactly the kind of people you referred to. And again, we're very open-minded. So we'll see. But we expect to sort of -- it's been in the next few months, certainly no more than 6, getting to a conclusion. Either we do it ourselves and we come up with a vehicle, which makes sense for all our stakeholders and particularly our shareholders.
That would include other telcos as well as pension money?
Well, we're not excluding anybody. Just very open-minded, let's just see what happens as now we're launching the process as of now. Let's see where we go.
The next question is coming from James Ratzer, representing New Street.
I had interested kind of following up on the topic on Openreach. I mean you've now resolved the triennial pension valuation without doing any transfer of Openreach assets into that scheme, I mean, it's still interest in potentially selling a stake in Openreach. You just mentioned how red hot to some of the infrastructure funds are at the moment. And as you've increased the build now to GBP 25 million, do you still think you can keep your cost per home passed reasonably flat as you extend towards that higher target?
Yes, James, good questions. Short answer, no, is -- are we going to sell a stake in Openreach right now and look at it, no. We -- the thing that's in front of us is what we just described a minute ago, is, let's evaluate this discrete GBP 5 million built by Openreach and operated by them. We'll look at that. So -- but again, who knows over the years, how things will evolve. And again, it's a great question on the cost per home for the GBP 25 million. That GBP 25 million is all commercial build and a significant chunk of it will be retail. And we've done a lot of work. Clive and his team assessing the potential of that sort of GBP 25 million of the cost profile of different parts of it. So yes, we very much expect to be in the same band as we've currently articulated in the marketplace. So yes, no, very encouraging news on that front, too.
The next question is coming from Siyi He representing Citi.
My question is really on the cost cutting. I think you mentioned that you're already ahead of your plan that runs until the end '23. However, you have decided to keep the cost-cutting plan to GBP 1 billion. I'm just wondering if you can just share with us your thinking behind that and whether there could be a potential upside. And just if I may, I want to squeeze a question, just a follow-up question on the previous question. And I think you mentioned that the pension could look -- have a potential sharing your Openreach revenues as will have a negative impact on the covenant. And I was wondering whether this JV ideas that you have run past the pension trustees. And how should we think about that?
Yes. No problem. I'll let Simon do the pension and the conversation of trustees in a minute. If I do the cost cutting. Look, I'm absolutely delighted with the profile of what's happened on the costs. You can see the reduction in the number of people who are working at BT, done really carefully, as Simon said, it's more than 5% reduction just over. We have got GBP 764 million of cost savings at a cost that's lower than was anticipated on average. But at the same time, it's been a tough year. We've put the brakes on anything that wasn't absolutely essential. And we've thrown the kitchen sink at a cost savings for all the reasons that are obvious in terms of the level of uncertainty that's been the context in which we've been operating in.So we are heading for that GBP 2 billion on the time frame we talked about. Yes, of course, if you take a run rate. 3 years for GBP 1 billion, and you do GBP 764 million in 1 year. Clearly, you could argue what that number has got to go up. Look, but we're not ready to do that. And I'll tell you why. Obviously, we've taken the -- not the low-hanging fruit, but the easier things always come first. The area that I'm most interested in is, true modernization, true change in operations that demonstrate digital journeys being transformed.That does cost a bit of money as well as saving money in the end. So we're now into the heavy lifting. And with Harmeen arriving, I want to make sure she's got all the tools and the support and the budget to make these massive changes that are going to end up giving a better customer experience and a better colleague experience. So I would expect the rate to slow down. Clearly, the billions not at risk. And by the way, the GBP 2 billion is not at risk. But I think there's no merit in putting the business under more short-term pressure on costs if it means we don't fix some of the fundamentals. So Harmeen and the rest of the executive team and the whole leadership team are focused on really changing and transforming the way the company operates, that will lower the cost base rather than just trying to lower the cost base. And there's a very important distinction between those 2 things. So on the pension, Simon has got a very clear answer. So I'll let Simon do that.
Thanks, Philip. Yes. I mean we have consulted with the BT Pension Scheme, shared with them our plans to explore a joint venture, and they are supportive of the acceleration and expansion of our build program, which they see as highly supportive to BT as the sponsor of the scheme. And they support the concept of looking at different forms of funding that for value. And we'll obviously engage with them through the process to ensure we do it in a manner that is -- continues to secure their support.
The next question is coming from Akhil Dattani representing JPMorgan.
Just a question is on, I guess, just a bigger picture point around the broader message that you're giving today because I mean it sounds like you're trying to articulate with the new regulatory framework, you're really confident in the midterm outlook, on an inflection to revenue growth and EBITDA growth. And then I guess post 2026, cash flow expanding, too. But I guess in the near term, visibility is not extremely good and CapEx is going up. So I guess the question really was how you try and help investors with that duration gap or how you think about the need to do that. And I guess there's really 2 parts to it. One is have you considered or thought about merits of giving some sort of midterm guidance? I know it's always challenging in our sector, but if you've got conviction in the returns, just interested in how you thought about that process. And also, Philip, you mentioned on Openreach, you're not considering monetizing. Just keen to understand your thoughts around. Obviously, last year, you said might be an option as obviously, given this whole duration gap issue, just how you think about that as well?
Yes, Akhil. No problem. Okay, no problem. I mean I'll do the last one, first. What we're really saying is, given what we've announced today, I think our focus on any structural changes, if you like, or financial changes to Openreach will be focused pillar on this 5 million additional venture or activity. That gives it focus and doesn't provide a lot of uncertainty. So I think -- and I guess the other thing I'd say, it links to the fundamentals of your question. We feel really good about full fiber build. We've got 4.7 million premises connected -- built now. We've got 1 million today. We've got our 1 millionth connection today. We're building so fast, we can get to GBP 4 million a year quickly. We believe in that for 2 reasons. One, strategically, it's so important for the company and for the future of our customers. And also, we believe in the business case, right? And so how we fund it will depend on what happens through this process that we launch on a potential JV, but we don't need that.So I think I just want some clarity on Openreach, which is build like fury, 25 million homes by 2026 at the GBP 300 to GBP 400 per premise and get on with it. And if that extra 5 million needs to be funded or should be funded or could be funded because it's beneficial to our stakeholders through a slightly different vehicle, we'll do it, but we don't need to.Your more fundamental question is, it's a really important big one. I get it. Let me give you how I think about it. If I look at where we are today, All the things, I won't bore you with all the things we've talked about in terms of the investments, which are pressing on cash flow, which obviously people question, and I understand that. But the operations are getting better, right? So if you look across the business, and I sort of said that in my comments, consumer, we've put through significant price increases, and it's not pricing by itself. It's looking at everything in totality. So our churn, our customer numbers, our pricing, our NPS are all in a really good position. So you can expect nice growth in consumer. We've actually got a very good position, and that will be fueled by FTTP and fueled by 5G as well and convergence. So I think that's a strong position for the consumer business to be. Openreach now, with that build profile, competitively, it's so strong, plus the indexation you know about. I mean that's a really good position to be in. And Global is -- has really -- it's really sort of strengthened its position and has delivered some really, really good numbers. The revenue line is always going to be challenging as we back out some things in local networks, which you know about. But actually, operationally, strategically and return on capital-wise, really good. And then there's the Enterprise sector, which we talked about before. And Rob's come in and he's got a plan for it, which I think takes a bit of time to get it going. But it will deliver the kind of things I talked about for consumer once we've got his arms around it.So in the short term, the business is improving its leading indicators, and we're investing very heavily in the way that we've described. That's when you look at the broader message, we're saying the company has been declining for years, no more decline only growth. Growth at every revenue, EBITDA and cash flow. And if you're interested in cash flow, which I think is a pretty important metric, you can be guaranteed when we've built the FTTP network, and we faced a 5G network, and we've done our modernization program. We're going to have so much of a stronger, better company that's delivering great things for our customers that the company is fundamentally stronger. And the cash flow is going to go through the roof. So I'm focusing on that. That is our -- that's our aim, which is in end '26, you're going to be in a materially different place. Of course, it's a bit bumpy from a cash flow point of view and people see so much money going out the door. I get that. But it's the right thing to do, and it will turn out well for all our stakeholders, including our shareholders. And can I just -- Simon, do you want to add anything to that?
No, I think you captured it, Philip.
Philip, would you say earlier on something around what happened in a cash flow [indiscernible]. What was it exactly that you said?
Sorry, Akhil. Say that again.
So I think you said something in regards to what happens exactly to CapEx post '26. Do you mind just repeating that?
Yes, what I said was post '26, you're going to get at least GBP 1 billion of reduction in CapEx post December '26, at least.
And the next question is coming from Charlotte Perfect representing Arete.
My question is around operational. Yes, the operational ramp-up, obviously, you're doing very well on the operational ramp-up of the fiber rollout program, and now you're going to accelerate it. Could you talk a bit about the implications of the ramp-up over the next couple of years in terms of resourcing and fiber supply and what the measures that you're putting in place are? So will you need to outsource more on the resource front? Do you have -- have you got a strong fiber supply contracts in place to accommodate the increase in the fiber supply? And what are the benefits of being Openreach versus competitors because your build program is accelerating much, much faster than the competitors. So how is Openreach able to do it when competitors in the U.K., at least, don't seem to be around getting there.
Yes. I mean, Charlotte, it's actually -- again, it's a really great question because I mean, this is a massive engineering operational feed, right? So We've got to go to -- we're building at 42,000 a week at the moment. We've got to go to 75,000 a week as quickly as we possibly can. That's 15,000 a day or 1,500 premises passed every hour. So you're right to point out, this is -- and it's double-digit thousands of people engaged in a huge engineering feed. And the 2 or 3 key things are. One of the availability of the skilled resource, and we've got that. Clive is building that, as we speak. But also the access to labor from outside as well. We're not going to do all ourselves. So we've got some really, really important partners that we signed long-term contracts with and long-term deals to make sure we can deliver this. But we ultimately do need another 7,000 people, as I said. So there's people, capability, training, We're in good shape on that. We're building these training centers. So that we can put people through it quickly and rapidly and get them up to speed. But on the supply side, again, it's crucial. But again, that's one of the great strengths of Openreach in the BT Group. Now we've got a really, really strong set of suppliers, great relationships and people can rely on us. And when we say we're going to build X number, that's what we do. And therefore, people -- our suppliers want to work with us. And the good news is we've got good prices, as you can see in some of the numbers we declare. So we feel -- not complexing because you're pushing to something that's important, which is this is a massive task. So we've got all the contracts in place. We've got the right supplier base. We've got the right skill base. We're going to add 7,000 jobs. But it's not going to be easy to maintain that sort of build rate of GBP 4 million a year. As soon as we get there, for a couple of years, it's going to be hard work.
The next question is coming from Carl Murdock-Smith representing Berenberg.
As no one else has asked it, I'll ask about the Premier League announcement this morning. You've said that you're unable to confirm the exact cost, but that you can confirm that the rights reflect current market conditions and in line with current markets expectations. Can I, somewhat cheekily, just ask what current market expectations were then. I was forecasting a 10% reduction. Is it fair to assume that current market expectations means a small reduction?
Carl, you can cheekily ask a question. And I can cheekily answer back, current market expectations, depends what perspective you take, yours is one. And again, I think that's not unreasonable to think along those sort of lines. But overall, we're very happy with what's happening on sports rights because our customers now have complete certainty and having a sort of 4-year window of Premier League, UEFA Champions League, rugby, allows us to think about what do we do to make the most of BT Sports. And is there a potential partner to work with, to make the most of BT Sports in the future. So I think it's good for everybody here. The funding into football goes for all levels. That's good. We want to see that. But at the same time, we want to make sure that our commercial entity in BT Sport performs well. And we've talked about it before in terms of the trajectory of sports rights. And I think everyone called the peak a little while ago, and I think what we've seen today is a continuation of that trend. So we are content with what we've got. It's a good deal for our customers. It's a good deal for the Premier League. It's a good deal for BT.
The next question is coming from Sam McHugh representing Exane.
Just a question on EBITDA and cash flow. So I think I'm right in saying that the guidance this year excludes somewhere in the region of GBP 100 million or so commission costs related to the customers acquired through the old Dixons channels because you prepaid those expenses in April and accounted for a specific item. But you're still recognizing the revenue for those customers basically boosting EBITDA and free cash flow. So just can you confirm that accounting treatment? And then secondly, I guess, more importantly, what proportion of those customers are you keeping? Is it fair to interpret the mobile revenue trend deteriorations. Maybe you're not keeping quite as many of those bits and those customers.And then related to that -- I'm sorry, it's a long question. On LTIPs, will the Remuneration Committee make adjustments for things like that and the Selmec one-off when they look at normalized free cash flow and EBITDA.
Yes, sure. Look, on the last one. I don't know the truth. So you'd love to ask the Remuneration Committee. On EBITDA, cash flow question, let Simon do that.
Sure, Sam. Yes, you're quite right. We recognized a payment as a specific item in the fourth quarter of FY '21, and that is indeed buying out essentially the future revenue share, which is spread out over a number of years. It doesn't all land in FY '22, and it's one of many factors that support our confidence in EBITDA moving forward. But that's clear.
I think we've got to stop 11:15. So we need to -- I think we've got a couple more questions.
And the next question is coming from David Wright, representing Bank of America.
I just wanted to revisit the GBP 1 billion because I think you have kind of alluded to this before, but is that GBP 1 billion lower CapEx from the new peak of 4.9%.
Yes.
I think before, we might have had GBP 1 billion from the GBP 4.6 billion. So that's maybe a slightly different message.
From the GBP 4.9 billion, at least GBP 1 billion will drop off straight away post December '26.
Okay, super. And just maybe just a quick further comment from Carl's question. Just on the whole BT Sports debate in the press. Any further commentary you can give on that, please?
Not really, no. I mean constructive discussions, please don't assume we're going to do something -- for the reason I said earlier, it makes a lot of sense. BT Sports is in a good position. We've got complete clarity on its rights now. And we want to think how do we make the most of BT Sports. Commercially, it's nice and viable now. How do we grow it, develop it? And is there a partner that we could work with to do that. But you've got to recognize nothing might happen and we might carry on exactly as it is and deliver a great product for our customers in the way that we have done for a few years. So that's the position on that. Nothing else to add. I'm afraid, David.
And the next question is coming from Adam Fox-Rumley representing HSBC.
I just wanted to ask a question about the location of the new 5 million homes that you're planning. Is it right to assume that they're mostly going to be in areas 1 and 2?And then a quick clarification, please. Could you tell us what Progressive really means for the dividend? Is it -- should we take it as a proxy as being in line with EBITDA growth, presumably not free cash flow?
Yes. I mean just very quickly, Progressive is flat or growing. And on the split on GBP 5 million -- of the GBP 5 million, GBP 3.5 million will be in towns and cities and stuff and GBP 1.5 million will be in commercial rural.
The next question is coming from Jeremy Dellis representing Jefferies.
First question is to do with the CapEx outlook, just to help us with our free cash flow modeling. We see GBP 4.9 billion CapEx number in FY '22. Does that represent peak. We might imagine that you'd be scaling up your fiber build beyond FY '22. So in that case, does CapEx go higher?And then second question is just related to cash tax. In the period, FY '24 to '26. Could we assume that you will be paying essentially minimal U.K. cash tax because of the capital allowances because of the tax relief on the ABS. And also because you won't be getting any benefit from the tax yield on the cash deficit payments in FY '22 and FY '23.
Straightforward answer, Simon?
Yes. So basically, on the CapEx, we were guided to GBP 4.9 million for FY '22. We think CapEx could hit a peak of GBP 5 billion as we sort of complete the ramp-up. And obviously, as we do that, we've also got other elements of our CapEx program running down. So we -- I think Philip, actually in his remarks, made clear, GBP 5 billion will be peak CapEx. And in terms of cash tax, we will be paying some U.K. cash tax from '24 onwards, but at a much reduced rate, more in line with where we have been in the last couple of years simply because we're still benefiting from that substantial tax loss that I described in my remarks. So Jerry, hope that helps you.
The last question is coming from John Karidis representing Numis.
Number of questions, please. Given that cash is king, consensus was terrible at forecasting your movement in working capital. We were going for an outflow of GBP 19 million. You came out with an inflow of GBP 259 million. How do we go about forecasting this going forward?Secondly, 753,000 of your 905 FTTP lines at the end of the period came from consumer. Roughly how many of the 753,000 are also still taking copper line for voice?
I'll do the last and quickly, and then Simon, maybe you could do the cash is king working capital question. Yes, you're right, by the way, 700 are consumer, BT retail customers That's just because BT Retail was getting -- going faster than anybody else at the beginning, and they all take, at the moment, some form of copper line. That will change pretty rapidly. And you'll see the ramping up of volumes and connections from other people throughout this year. And as I said earlier today, we connected our 1 millionth customer to the FTTP platform. And so we're going to see that ramping up. And the mix is not as it has been up until now. So you get a much more broadly based mix going forward.
Of the 153,000 lines are going to drop off the line count for Openreach sometime over the next couple of years?
Yes, eventually, yes. And again, just in terms of the numbers, 1/3 of FTTP sales now are non-BT CPs, and that will obviously continue to grow. But everyone's launching IP voice. And eventually, that -- obviously, the copper element is going to fall away, of course.Simon, do you want to do the working capital forecast?
John, it -- I mean the -- you will see that working capital in our business in any 1 sort of 4 to 8-week period around the end of the quarter can be volatile. It just reflects the precise timing of sales and net or receipts and payments, particularly linked to movements in the CapEx plan.So I think my guidance would be a focus on through the year, working capital. And of course, we should be running this business with flat working capital. Perhaps you need a bit as you start to grow, but rather than on the cut point in a particular 4-week window, it will be volatile.
So basically 0, more or less?
Well, as we start to grow, you should expect the business to start to put in a little bit of working capital, but that's not the big driver of normalized free cash flow. We manage our working capital very efficiently. And indeed, I think there's more opportunity to improve working capital efficiency, and we're working on that as well.
Thanks, John. Thank you, everybody. Appreciate all the questions. Appreciate all the interest as ever. See you soon. Bye-bye.
Thank you. Well, that concludes your conference call for today. You may now disconnect. Thank you for joining. And enjoy the rest of your day.