Earnings Transcript for BT-A.L - Q2 Fiscal Year 2025

Operator: Good morning and welcome everyone to BT Group's results presentation for the Half Year ended 30, September 2024. Presenting today is Allison Kirkby, BT Group's Chief Executive; and Simon Lowth, BT Group's CFO. Following the presentation, we will be having a Q&A session. I would like to make everyone aware that this event is being recorded for replay purposes. Before we start, I'd like to draw your attention to the usual forward-looking statements in our press release 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 press release and the annual report can be found on our website. With that, I'll now hand over to Allison.

Allison Kirkby : Good morning, everyone, and welcome again to our half year results presentation and thank you for joining us. Back in May, I reconfirmed our five strategic priorities, and I'm pleased that we are making solid progress against all of them. We're accelerating the key foundations that will drive value creation over the mid and long term, specifically doubling down on the U.K., fiber build and take-up lower costs and happier customers. But let me begin with some highlights. Openreach delivered record building connections in the half and increased its market-leading take-up outpacing even our own expectations. With lower build costs we can now go even further and build beyond the original £4 million target that was set for this year keeping our foot to the floor on one of the country's largest-ever infrastructure investments. In Consumer, we saw excellent growth in both our 5G and our fiber customer bases, as we accelerated the migration of our customers to next-generation platforms. And our mobile subscriber base grew for the first time in two years and our converged customer base is starting to grow again too. Customer satisfaction also improved across all three Consumer brands for the first time in nearly three years. In Business, we accelerated the carve-out of our global segment and started the transition to a simpler more focused U.K. business. And while radically modernizing, we also improved customer satisfaction. Across the group structural transformation and improved cost discipline delivered a further £400 million run rate savings. And bringing all of this together, we delivered growth in both EBITDA and normalized free cash flow, despite the revenue weakness which is keeping us firmly on track to meet our EBITDA and our cash flow targets for the year. Finally, we will increase the interim dividend by 4% to £0.024 per share in line with our progressive dividend policy. But let me now hand over to Simon to run you through the numbers before I take you back through a more detailed update on each of our units our transformation agenda and the outlook for the rest of this year.

Simon Lowth: Well, thank you Allison, and good morning to everyone. Looking first at our group results on Slide 7. So adjusted revenue for the half was £10.1 billion, that's down 3% as challenging conditions in business particularly outside the U.K. and an expected H1 decline for consumer more than offset growth in Openreach. Adjusted operating costs before depreciation were down 3%. We have made £433 million of gross annualized savings this half with £187 million cost to achieve that's absolutely in line with our target. Before moving on from costs, I wanted to quantify the impact of last week's budget on BT Group. We expect that the additional 1.2% on employers' National Insurance contributions the £4,100 reduction in the NI threshold and the known increase in the national living wage will together cost BT around £100 million per annum from April 2025 of which about 70% will be OpEx. We will intensify our productivity and our cost transformation programs to offset this. Turning now to adjusted EBITDA for H1 which was up 1% to £4.1 billion. Cost transformation and operational efficiency have more than offset the lower revenues. Reported CapEx came in at just under £2.3 billion for the half. That's down 2% compared with the prior year. This was mainly due to lower non-network infrastructure spend and the decline in IT costs following last year's platform deployment to support the new EE launch. It's worth noting that FTTP CapEx is down 2% in the half benefiting from lower unit costs as the build has accelerated. Lastly, we're still expecting FY 2025 cash CapEx to be around £200 million higher than the reported CapEx due to the net impact of grant funding and capital creditors. Normalized free cash flow of £715 million in H1 was up 57% on the prior year. This reflects the benefit of a lower working capital outflow, which was primarily from lower handset stock levels and a net inflow of mid-tens of millions of pounds from supply chain finance and handset monetization. We continue to expect a more neutral outturn for working capital for the full year. Separately, we also received a cash tax refund of around £100 million in the second quarter. And as Allison just announced, we're proposing an interim dividend of 2.4p per share. That's an increase of 3.9%. And that's in line with our policy of paying an interim dividend of 30% of last year's total dividend. Moving now to, our individual unit results, that's on Slide 8. Openreach grew revenue 2% in H1, driven by price increases and strong momentum in FTTP and Ethernet, partly offset by declines in broadband and voice lines. We expect continued momentum on FTTP and Ethernet beyond FY 2025, broadly offsetting the impact of line losses and the closure of WLR-related revenue streams, as we approach the PSTN switch-off. Openreach EBITDA grew by 6%, in the half, driven by stronger revenue improved cost transformation including around 5,000 fewer FTEs over the past 12 months and partially offset by pay inflation. Consumer revenue was down 1% for half, impacted by the expected challenging pricing comparator with the prior year combined with a lower broadband base. Consumer EBITDA declined by 1% in the half year due to the revenue flow-through and higher input costs, partially offset by continued strong cost control and higher equipment margin. In our Business division, H1 revenue was down 6% principally driven by non-U.K. trading in our global and our portfolio channels. U.K. revenues saw a small decline around half of which was due to the change in recognition of £38 million of wholesale managed broadband revenue in Q3 last year and that impacted the H1 comparative figures. Business EBITDA declined by 7% for the half, reflecting the revenue declines offset by cost control. We expect H2 year-on-year revenue and EBITDA trends to improve versus H1 in part due to a favorable comparator, as we lap the impact of last year's £38 million wholesale broadband recognition change and £41 million of billing accuracy adjustment. We also expect the usual B2B pickup in H2, albeit in a tougher CPS trading environment. And on that note, I'll hand back to Allison.

Allison Kirkby: Thank you, Simon. So going back to the units in a bit more detail, Openreach delivered another stellar performance with growth in revenue, EBITDA, fiber build and fiber take-up. We built fiber to a record 2.1 million premises in the half a 30% year-on-year growth taking our footprint to £16 million or around half the country, while also driving down our build costs. This strong operational delivery gives us the confidence to now increase our build target this year to £4.2 million which we will achieve within our existing CapEx envelope. Customer demand for fuel fiber continues with 5.5 million premises now connected a record for connections in the half. And our take-uptake-up rate is now a market-leading 35%, showing that we're not only building, but we're also connecting at pace. In our operations, our repair volumes decreased around 10% over the last year driven by the shift to full fiber where the fault rate is 60% lower than copper. Fault volumes will continue to fall, as fiber expands benefiting our customers and our OpEx going forward. Our service also remains best-in-class achieving all of Ofcom's quality of service measures for both Copper and Ethernet and contributing to NPS growth of 4.3 points year-on-year. Broadband line losses, in Q2, were similar to Q1 and are at £377,000 for the half, driven by the same factors as I said earlier in the year, moderately higher competitive losses and a weaker broadband and new homes market. More than 80% of our losses occur in areas, where we don't have full fiber. So I'm confident that our best defense is to keep building at pace and stimulating take-up in the way we've been doing which is why we invest every pound we save on our build back into growing our network. This ever-expanding Openreach footprint, combined with an expected recovery in new homes that will come and the market will enable us to reduce these losses over the medium-term. So overall, solid take-up of fiber and strong operational momentum together with ARPU growth from indexation and product mix underpins the targeted return on our fiber investment which very much remains on track. Moving to the next slide, our Consumer business is performing well in what is a competitive environment. Revenue and EBITDA were both down a percentage point as we expected driven by a tougher pricing comparable in the first half and a slightly lower broadband base. Nevertheless, ARPUs for both fixed and mobile grew. And on broadband our market share was broadly stable with our full fiber base growing 33% to 2.8 million nationally and market share growing in urban areas, where we're already rolling out fiber. We see higher churn, where we don't have fiber, but as Openreach continues to build fiber nationwide we expect our churn to improve. In the quarter, we also launched the U.K.'s first Wi-Fi7 service, strengthening our premium broadband position and our ability to drive positive ARPU development in the future. Moving to mobile. The postpaid mobile base grew for the first time in two years and churn improved to an industry-leading 0.9%. 5G connections were up 17% with a base now at 10.5 million connections, all underpinned by what RootMetrics have named the Best Mobile Network for the 11th year in a row. In the quarter, we further strengthened our leadership position with the launch of 5G stand-alone in 15 cities across the U.K., which will increase to 30 major towns and cities within the next two months. Moving to convergence and new EE. We have two priorities to drive household penetration and customer lifetime value fixed mobile convergence and family or household tariffs. Early signs indicate that new EE is doing better than our previous Best of Both dual-brand approach with more than half of new EE broadband customers now taking a postpaid mobile contract. Consumer NPS, as I said earlier, remained strong and improved 4.2 points year-on-year. And as I also said earlier that was across all three of our Consumer brands. As the market leader, it's also important to me that we have taken a stance on the dangers of social media for young children. And we were the first operator to advise parents against giving smartphones to under 11s. This is a great example of us living our purpose. We connect for good. And it's very much appreciated by both parents and regulators alike. Back to the results. With the progress made in the first half and the run rate we are now seeing, we remain confident that Consumer will return to growth in the second half. So, let's now move to Business which is on Slide 12. As Simon said revenue and EBITDA were down 6% and 7% respectively in the half, principally driven by non-U.K. trading in our global and portfolio of channels. Meanwhile, our U.K. channels make up two-thirds of our overall Business revenue. And within these managed services grew by 3% while fixed and mobile connectivity declined by 6% but with around half of that decline due to a prior period revenue reclassification in the wholesale broadband segment. So, underlying the U.K. Business declined by just under 2% so not too dissimilar to what we saw in Consumer. As you all know we are in the midst of a radical modernization and turnaround of BT business touching all our products, all our platforms, and our geographies in order to drive the right long-term customer and shareholder value. And as in the consumer market, we are seeing strong demand for those next-generation products and solutions that we are evolving to with full fiber customers up 57% year-on-year and our 5G base up 86%. In areas where we have fiber we have over 50% of our customers take it. So, as Openreach expands its footprint as it's doing we expect to see further growth momentum. Customers on Voice over IP also grew 8% year-on-year and now make up around two-thirds of our voice base. Customer satisfaction improved as we are successfully managing these migrations to new platforms and increasingly putting security and trust at the heart of the refreshed Better on BT business brand. And looking forward and as Simon also outlined EBITDA trends should improve in the second half. Let's now move to transformation which is on Slide 13. As you've seen we are making solid progress against a massive agenda. This includes over £400 million run rate savings delivered in the past six months keeping us firmly on plan to deliver our £three billion ambition by the end of fiscal year 2029. To recap, we're driving most of the cost savings from four key programs; shutting down legacy networks and applications, simplifying our products, scaling the use of fewer shared platforms, and deepening our data and AI capabilities. With respect to what we saw in the first half, let me bring to life how these savings have been realized. Well, we migrated over one million customers away from legacy energy-hungry fixed and mobile networks. And the network decommissioning that follows enabled tens of millions in cost savings reducing our energy consumption by 10 gigawatt hours. This is around a quarter of our total energy reduction over the past six months. Digital transformation also delivered tens of millions in savings. We've cut the number of applications we use by more than 20%. And our AI-enabled chatbot, Aimee, is transforming service reducing inbound calls and improving customer experience. Openreach is also using AI to reduce its cost to build improving planning processes helping avoid multiple truck rolls and street works as well as reducing downtime between jobs. And partly as a result of all of these initiatives our total labor resource dropped by around 2,000 in the half and 5,000 over the past 12 months. Most of this reduction was seen in Openreach and Business thanks to fewer faults on fiber and the continued transformation of the Business unit. It's also due to increased efficiency across the company through the smarter use of technology. So, clearly, I'm pleased we've made solid progress year-to-date and I do see lots more to go after. And as Simon just mentioned, we will now intensify our cost transformation so that along with workforce productivity and other levers we will offset the increase in National Insurance burden now on us. Moving to our outlook here on 14. Back in May, when we announced our group revenue outlook for fiscal year 2025 of 0% to 1% growth I set out our expectation that half 1 would be much tougher year-on-year than half 2. Half 1 revenue was indeed tougher. It was down 3% on last year, and it's been tougher than we anticipated. We therefore, now expect group revenue for the full year 2025 to be down between 1% and 2% primarily reflecting that weaker trading outside the UK, driven very much by reduced low-margin equipment sales, along with a softer macro environment impacting our UK, corporate and public sector channel in particular. Of course, this still implies a better relative performance in the second half especially in Consumer, where we expect both service and equipment revenues to grow. Beyond revenue, we are confident in reconfirming our fiscal year 2025 EBITDA guidance of around £8.2 billion supported by strong progress and ongoing focus on costs. And our CapEx outlook for the year, remains at below £4.8 billion and we continue to expect our fiscal year 2025 normalized free cash flow to be around the £1.5 billion mark. Our outlook beyond fiscal year 2025, remains unchanged for all metrics in all years, and we're confidently progressing towards our BBB+ credit rating target. So to conclude, Openreach is breaking records on fiber build and fiber take-up. Consumer has laid the foundations for a return to growth and we're powering ahead on the transformation and turnaround of business. We're therefore, delivering against our strategy, with accelerated progress on those most important aspects for long-term value creation

Operator: Thank you. [Operator Instructions] Our first question today comes from David Wright at Bank of America. David, please go ahead.

Q – David Wright: Hello, guys. I do hope, you can hear me and I apologize. There's no video this morning. It does feel a little like a broken record that we're saying, better Openreach, worse BT business. We've said that for multiple years. It's been said possibly, a little bit more under the guise of global services by multiple CEOs. So Allison, I guess the question is, what can be done here? We've had some reports of potential divestment of the International businesses. Can BT business be sold in entirety? Is it easy to actually extract that from the BT Group? What can be done here? It was your first full year results back in May, and so soon after that you're already bringing down revenue guidance on the back of this. So, what can be done with this business after so much disappointment for so long? Thank you.

Allison Kirkby: We are doing a lot. First of all, we need to migrate away from legacy products and services and move it to new products and platforms, and radically simplify the business. That's what -- that set out this time last year, and that plan is very much on track. I also said back in May, that we're really going to look at focusing on how we optimize that global business, whether it be in our portfolio channels, or also the multinational customer segment. And if you just look at the UK piece, the UK business as we just discussed, it's performing similarly to Consumer. Following all of the CPI plus pricing these last couple of years, we always knew the first half was going to be negative, but that we would get back to growth as we move into the second half of the year. So the UK business is clear. We just need to radically transform and simplify the products the portfolios, and really strengthen the brand which is what we're now doing. The global piece, we're looking at a range of scenarios. I do believe that that global multinational customer segment is ripe for consolidation. And that is one scenario that we are pursuing. But in the meantime, we've got to radically simplify and modernize that business as well. But I do believe a focus on the UK, which is showing not dissimilar trends to our Consumer business and we'll return to growth and then really radically simplifying the portfolio in global which we're doing. We'll return this business to growth, consistently top and bottom line, under the period that Bas also set out last year. He said, "Revenues wouldn't stabilize until sometime during 2025, 2026 with growth after that. And EBITDA stabilization and return to growth would be a year after the revenues." So we're still on track for that. But trust me we are radically transforming the business. And we are looking at options and solutions to optimize that global footprint.

David Wright: And maybe Allison just to clarify your point, you said that you thought the segment was ripe for consolidation. I assume you would want to be – you would be a seller into that rather than a consolidator and potential buyer of assets. Is that a conclusion you can make here?

Allison Kirkby: Yes certainly I wouldn't want to double down in that segment. That's very clear. But if it's ripe for consolidation – but I won't be doubling down on the global multinational customer segment.

David Wright: Thank you so much.

Operator: The next question comes from Akhil Dattani at JPMorgan. Akhil, please go ahead.

Akhil Dattani: All right. Good morning, Allison and Simon. Thanks for taking the question. Can I maybe ask a question on UK Consumer trends? You've mentioned that you're expecting a better performance into H2. But I guess I was looking to understand from a KPI standpoint and a competitive standpoint how things are performing. I think Allison back in May, you said one of your initiatives was to stabilize the customer bases again. And it's in good progress on Consumer postpaid, but I'm mindful that Consumer broadband is still declining around 40000 in the first half. So maybe if you could flesh out for us exactly what you're seeing in the market competitively? And how do you think about the journey to stabilizing the Consumer broadband base? Thanks.

Allison Kirkby: Yes. So the – as we said, we've seen really good progress on mobile. New EE is having a great impact on customer satisfaction and as we increasingly push convergence. We are getting broadband under the EE brand into new more homes and they are showing much more propensity to buy a bundle including TV and including mobile subscriptions as well. And we've seen a real uptick in our broadband. Our fixed mobile convergence in that new EE base it's actually up quite dramatically. What we're seeing in the broadband base is a reflection of what we're seeing in Openreach, where we don't have our Openreach full fiber and BT Retail only wholesales from Openreach. We are seeing some losses to altnets. But if you look at how BT Retail is performing relative to the losses we're seeing in Openreach, it's actually doing pretty well because we're now building market share in urban areas where previously we didn't have the highest-speed most-competitive product to compete with. So what I'm expecting is as Openreach gets into the other half of the country that it's not yet in that the BT EE broadband base will start to stabilize and we will start to grow again. But that – it suffers the same a bit as Openreach in the short-term where we're not in every part of the country. But now that we're ramping up our fiber build and going faster this year than we previously expected, we expect that to help to reduce the losses. And really happy with how new EE is performing. EE is a very strong brand in urban areas. And the market share growth that we're seeing in those urban areas where previously were suffering is really building up. So I'm confident we will stable that base in the coming quarters.

Akhil Dattani: Great. Thank you.

Allison Kirkby: Thank you.

Operator: Thank you. The next question comes from Adam Fox-Rumley at HSBC. Adam, please go ahead.

Adam Fox-Rumley: Thanks very much. I wanted to ask a question about visibility of the sales line really. Because you mentioned the first half sales were worse than expected, obviously within the Consumer and the Openreach businesses and indeed at the small business and you've got pricing policies in place. So maybe if you can just reflect a little bit on how the global line kind of came to be worse than you had anticipated? And I guess on a related note for the UK part of the business, did you see anything in the order book or in customer conversations around election or around the budget in terms of customer caution that might subsequently unwind? Thank you.

Allison Kirkby: So the sales line – thank you, Adam. The sales line was only worse than expected in the global area. Openreach, very much in line with what we expected and great revenue development. And Consumer exactly in line with what we expected. In that global piece more than half of the global miss was actually very low-margin almost no-margin equipment sales, which is very lumpy and it can come occasionally. So it had no impact on EBITDA or cash flow. And then the other aspects, clearly there has been a slowing of decision-making in certain parts of government as they've been waiting for the spending reviews. And some of those government contracts they can be lumpy in nature as well. They're not always EBITDA cash flow positive in the early periods either. So definitely there's been a bit of slowing of some of the public sector contracts than we previously would have expected because of the change in government. And that's really the only dynamic that we're seeing in the UK that's slightly different versus what we expected coming into the year. And whilst we're looking at that public sector slowing and clearly, we're waiting to see how things pan out from a budget point of view, we're being cautious on the outlook for the corporate and public sector in the UK at the moment. But beyond those kind of phasing of public sector contracts and those big global equipment deals, there was nothing really different in the sales line versus what we expected in May.

Adam Fox-Rumley: Thanks a lot.

Allison Kirkby: Thank you.

Operator: The next question comes from James Ratzer at New Street. James, please go ahead.

James Ratzer: Yes. Good morning, and thanks for taking the question. So if I look at Openreach, it seems like one of the big kind of variables over the medium term that's going to drive performance is actually the overall market growth rather than whether you're losing market share to altnets or not per se. So I'd just love to get Allison Simon your views on what you're seeing for broadband market growth in the UK at the moment? I mean it looks to me as if it's actually pretty flat at the moment despite household growth actually continuing in the UK suggesting, we've actually got a slight decline in broadband penetration in the UK I mean would you agree with that? Is that coming from maybe some signs of mobile tethering fixed wireless access? Just love to get your thoughts on how you see the overall market growth for fixed broadband developing from here. Thank you.

Allison Kirkby: Yeah. James, we look at it in a similar way. You saw growth in the broadband market during COVID. So households that previously were mobile-only, every day moved to broadband and mobile during COVID. And what we've seen is a bit of a correction of that growth we saw in COVID and we're kind of back to the rates we saw on broadband and mobile tethering pre-COVID. As the economy recovers, it will at some point and know that the government is encouraging, new homes build, planning restrictions being lifted. We expect all of that to benefit the broadband market going forward. We're also really positively pleased with the consumer demand for full fiber. The fact that we're getting a 35% take-up rate at this rate in the build and in some areas like 80% even two years in. I was visiting an area up in Scotland recently says there's great demand for full fiber. So the more that we get full fiber throughout the country that will stimulate demand as well economic growth and of course the new house building as well. And that gives us the confidence that that combined with our penetration increasing throughout the country we've passed more than half the premises in the country now that will reduce the line losses that we're currently seeing.

James Ratzer: But you're not seeing any evidence at the moment of like increased FWA or tethering take-up. Is that what you're seeing?

Allison Kirkby: No. It's kind of reverting to where it was pre-COVID. There's always a bit of tethering down at that low end of the market. But fixed wireless access still very marginal in the UK. The fiber product is so keenly priced in the UK. It's difficult to see fixed wireless access taking off at scale like it's doing in the US where pricing is much higher of the cable and the fiber product. But clearly, there will be areas of the country where fixed wireless access will make economic sense for the network owner and will provide good coverage for the homeowner as well. But that's not -- we're not really seeing anything of a material nature changing in that segment.

James Ratzer: Got it. Thank you.

Allison Kirkby: Thank you.

Operator: The next question comes from Jakob Bluestone at Exane BNP Paribas.

Allison Kirkby: Jakob you're on mute.

Jakob Bluestone: Did you? Hopefully it works now.

Allison Kirkby: Well done. It was good that somebody did that.

Jakob Bluestone: You'd think after a pandemic we'd work out how Zoom works, but apparently not. Thanks for taking the question. I had a question on cost. So you said you'd offset the weaker revenues through some cost cutting. And then for next year as well you'll offset the impact of higher National Insurance and so on through additional cost cutting as well. So there's quite a bit of extra cost cutting essentially that you're announcing with this release. Could you maybe give us a little bit more of an understanding of where are these extra cost savings coming from? Given I mean, it's probably an extra £300 million £400 million of cost savings that you've sort of found. So just a bit of clarification around that. Thank you.

Allison Kirkby: Simon, why don't you take that one?

Simon Lowth: Yeah, certainly. So thanks Jakob. Firstly, do bear in mind as Allison stressed, a fair proportion of the revenue weakness versus our expectation was in really very low margin activity particularly outside the UK. Having said that, you are quite right that we are continuing to drive cost reduction harder and we will intensify that to offset the impact of the budget. How are we doing that? We've set out a very clear pretty comprehensive transformation program that's going to deliver £3 billion over the course of the next five years or so. We're finding ways of bringing forward some of that transformation to offset revenue pressures. In addition to that we've been looking at further ways in which we can simplify the structure of the organization and the focus that Allison described helps us do that particularly around areas, like support functions. It's also worth bearing in mind that something like two-thirds of our cost base is, of course, third-party cost and we've had significant progress in terms of procurement, and supply chain savings. So across the board, we're looking at each of the cost areas, and we've got a very good track record of keeping -- continuing to develop greater cost savings than our expectation every year, and we'll sustain that.

Allison Kirkby: And Jakob, £100 million is less than 0.5% of our total cost base. We've experienced inflationary pressure like that short term in the past. As Simon said, we've got multiple levers to offset it. And I'm even more convinced of the scale of cost takeout opportunity that exists in this company the more time I'm here. And particularly, as we head towards that UK-focused organization we can really go after a reduced and simplified corporate function overhead setup that will help drive simplification of the company as well. So it's -- we've done it before. We've got multiple levers. We know how to do this.

Operator: The next question comes from Andrew Lee at Goldman Sachs. Andrew, please go ahead.

Andrew Lee: Good morning, everyone. I had a question on Openreach again and also on margins somewhat following on from Jakob's. So your Openreach margin trend picked up relatively meaningfully in this half versus what you've been delivering in terms of margin expansion in prior years. Could you just explain how much of that is the incremental cost savings? And how much of it is kind of underlying structural mix improvement? And maybe help us to understand how you think about margin evolution of Openreach into the second half and more importantly into the coming years? Thank you.

Allison Kirkby: Thank you, Andrew. Yes, as I said Openreach had a stellar start to the year. It is a mix of mix. The fact that we've got really great progress on the shift to fiber we've got great growth in Ethernet. They are higher-priced products higher-margin products. And then we're doing a fantastic job on fault reduction which reduces our OpEx as well. And Clive and the team are really ruthless on driving operational excellence and planning for a future where we -- after the fiber build where we have a much smaller workforce.\ And so he's looking at opportunities all of the time to take cost out and that's what he's doing. He's also had quite a restructure of his management overhead recently as well consolidating two management teams into one. And so we will continue to really focus on margin, and therefore EBITDA development considering that the line losses will be a drag for a bit longer. So he's really focused on how does he keep growing his EBITDA and his cash flow generation, whilst there will be some line losses to offset until we've really built out the fiber throughout the rest of the country. And go ahead Simon.

Simon Lowth: Andrew, actually it's a great example of where we've had huge benefits flowing through from procurement and supply chain management. So the Openreach team working with our procurement function, have looked at all of the engineering materials done a hell of a lot of value engineering to take cost out while still delivering great network build. They've looked at different forms of contracting. So it's not simply on the repair volumes it's actually the unit cost through supply chain management and procurement activity been a great example.

Andrew Lee: Thank you. Can I just follow-up on those answers? So you've obviously delivered a lot of cost savings in the first half and you highlighted line losses a drag. Should we think about the first half margin improvement as a better guide to margin evolution over the next few half years? Or do you think you'll return to similar margin evolution that we saw in FY 2024 for example, which was a bit more muted?

Simon Lowth: We will continue to see some margin improvement through exactly the same portfolio of initiatives we just described in Openreach. So I'm not going to give you precise percentage changes each quarter going forward, but the same levers will be available to us.

Andrew Lee: Thank you.

Simon Lowth: Thanks, Andrew.

Operator: The next question comes from Polo Tang at UBS. Polo, please go ahead.

Polo Tang: Good morning. Thanks for taking the question. So I've got a question on working capital and free cash flow. Can you confirm whether Q2 benefited from a £200 million catch-up on late payments by TalkTalk? And does your £1.5 billion of normalized free cash flow guidance already factor in the benefit of this catch-up payment? Or is it a source of potential upside to the full year? And just on subject of free cash flow and working capital are there any other notable puts and takes to call out this year? So I noticed that you have a £95 million tax refund benefit. Are you going to see any benefits from forward copper sales or any benefit from factoring of handsets? Thanks.

Allison Kirkby: Over to you Simon.

Simon Lowth: Yes. Polo, thanks very much indeed. So firstly, we guided to £1.5 billion of normalized cash flow and we firmly reiterated that guidance for this year. We did receive a tax refund of about £100 million. That wasn't certain at the start of the year, but we ascribed a sort of probability-weighted component in our guidance. That having delivered is -- helps us clearly to have greater confidence in the delivery of the cash flow. We can also look at absolutely optimizing the amount of handset financing we do to manage interest costs appropriately. So just to reconfirm, we're firmly on track with our cash flow guidance for the full year. In terms of your second question were there any particular movements in working capital in the first half? The short answer to that is, no. We had slightly better working capital or put it this way lower working capital outflows in the first half compared to last year and that's principally just around timing of payments and receipts. And we deployed broadly the same amount of working capital funding to manage the cash flow timing on the mobile handset business which we've explained before. There were no copper -- there's no copper securitization in the half. And our guidance for the year assume that our CPs would pay to term and that remains our assumption for the year.

Polo Tang: Thanks.

Operator: Thank you, Polo. The next question comes from Robert Grindle at Deutsche Bank.

Robert Grindle: Yes. Good morning and thank you. I wonder what's your view on the CMA's near approval of the Vodafone-Three deal? I think your comments put into the process were less pro the deal than O2 who have a spectrum arrangement with Vodafone. What do you see the puts and the takes are from that merger from a BT perspective? Do you feel strongly either way? Thank you.

Allison Kirkby: Thank you, Robert. Well, we've made our position clear from the beginning. We've always wanted to ensure as you would expect that any merger would not negatively impact competition and the ability for all parties to be able to get the right investment on their infrastructure investments going forward. And so we've made our position clear. It's now for the CMA to decide and work with emerging parties as to how they move forward. In the meantime this deal has been going on for 1.5 years. We've continued to build up our 5G network. It reaches 80 -- our 5G network reaches 80% of the population now. We've been further ahead of everybody else on the shared rural network. We've won the Best Network for the 11th year in a row. And if you combine that with everything we're doing on the fixed infrastructure layer with fiber we believe we've still got the best networks in the country and that will continue for the foreseeable future. So let's see how it all plays out now.

Operator: The next question comes from Steve Malcolm at Redburn. Steve, please go ahead.

Steve Malcolm: Yes. Good morning. Thanks for taking my question. I'll go for sort of one maybe a small add-on to follow up on Akhil's question earlier. Just on -- first on revenue outlook. I know you don't give detailed guidance beyond 2025, but you do have an aspiration to grow revenues in the midterm. And I guess when I look at 2025-2026 you're going to have a lower tailwind from CPI. Clearly you're going to have sort of a greater of volume pressures within Openreach because the average base is going to go down. So can you just kind of give us some reassurance that you think you can grow beyond this year? And maybe what that mix looks like? Can you get B2B back to stable. And I don't want to get it but it just looks like quite a tall order to grow revenues with less CPI next year and lower volumes in Openreach. So maybe some comments around that would be great? And then -- on the Consumer business look I noticed the broadband churn ticked up in the first half, but second quarter particularly is that just an impact of the kind of people coming out of two-year contracts? And as that sort of annualize in the second half is that part of the reason you think that the trend should improve and maybe net adds will get a little bit better as that sort of churn and out-of-contract experience comes to an end? Thanks.

Allison Kirkby: Yes. I think what we won't have next year is the sawtooth effect we had this year coming in -- coming off of this 14% price increases on both consumer and the SMB segment. We had a massive correction that had to happen in the first half of this year both mobile broadband, consumer and SMB. We're not going to have that going into next year. And yes, there'll be less CPI if inflation stays low in some of the underlying but we have still got our £3 and £1.50 in our contracts coming through. Because of the scale of that back book to front book correction that had to happen earlier this year there was a bit more save desk investment, a bit more regrading went into the market. And again we're going to have much less of that going into next year as well. So underlying, I think, we -- and that goes to your point on broadband churn. Some of that was driven by scale of the loyalty gap that had built between the back book and the front book as a result of two years of compounding CPI plus 3.9% when CPI was very high. So -- and then of course one of the reasons we lose a bit of broadband at the moment is where we don't have full fiber in areas where we have altnet competition. By this time next year, we'll be past 20 million homes. So BT Retail both Consumer and Business we'll be able to start competing again in parts of the country where it hasn't had a full fiber offer. So all of those areas give me confidence. And then let's remember some of the -- more than half of that global revenue that we didn't get in the first half is very low margin or sometimes nil margin, so it has no impact on our EBITDA and cash flow. And that's why we really need to focus on the UK going forward and finding the right solutions for that global business, which as you can tell I'm fully focused on.

Steve Malcolm: And then just a quick follow-up, do you think you can sort of deliver growth with the current perimeter? Or do you need to get those disposals done to remove…

Allison Kirkby: The current plan is to deliver growth with the current perimeter, yes. But clearly I'm going to be focused on the UK going forward once I find the right solution for global.

Operator: The next question comes from Maurice Patrick at Barclays. Maurice, please go ahead.

Maurice Patrick: Hi. Hopefully you can hear me and I can use my mute function.

Allison Kirkby: And we can see you Maurice as well, which is lovely.

Maurice Patrick: What are the likes, luckily my cam won't work across my screen. And so a question on NPS in consumer. So I think you showed NPS improving in the period across your three brands. I was just conscious that on the recent Swisscom and KPN call, they talked overtly about the cost of living crisis and how MPS was suffering a bit from that. You did see churn popping up in the quarter as well. Just curious as to like cost of living, general pressures, is there some NPS pressure taking place there? It would be helpful to get more clarity on that. Thank you.

Allison Kirkby: Well, clearly the cost of living crisis had an impact on our NPS and everyday's NPS over the past couple of years. We are seeing that starting to correct and revert again. And we're seeing within NPS, our value-for-money perception is improving again. We do see that Plusnet in particular has performed extremely well from an NPS point of view. Its recovery has come faster. That's our value brand. But as we've been improving our customer experience, launching WiFi 7, we've actually invested in our call centers recently to help the migrations particularly to new EE. That is all benefiting all three of our brands. And actually as we've moved into the quarter, we're seeing NPS building even further. So I think we had that cost-of-living crisis impact on NPS these last two years. And now everything we have done to improve our product with full fiber to improve our customer experience and also getting that value-for-money perception right as we close the front book to back book gap that developed during the cost-of-living crisis is having a benefit now.

Maurice Patrick: Great. Thank you.

Allison Kirkby: Thank you.

Operator: The next question comes from Ottavio Adorisio at Bernstein. Ottavio, please go ahead. Ottavio, you are currently muted.

Ottavio Adorisio: Hopefully you can see and you can hear me now.

Allison Kirkby: We can. It's lovely to see you.

Ottavio Adorisio: So just a question that was asked earlier on the CMA, your answer was mostly on the environment. But when I read your response, most was also based on the MBNL, impacting the MBNL JV with Hutch. Now from the remedies being proposed there is no match that's going to mitigate that impact. So, of course, still we haven't seen the final response and the final remedies. But my question to you would be if nothing will be done, how you can basically mitigate? Without reacting to all the augments you put up a very significant -- the impact can have on your cost. And following up on that, no matter how the JV -- merger will unfold, but 2031, the JV will dissolve anyway. So could you tell us how it's going to impact your leasing cost comparing the fact that a significant portion of the countries covered by the JV and these towers will now go towards Cellnex? Would you need to lease from them? That means your leasing costs will increase? If you can give us a bit of granularity on what you are going to plan beyond 2031?

Allison Kirkby: Simon, why don't you take the answer to this question yes?

Simon Lowth: Yeah, sure. Ottavio, thanks very much indeed. So I mean you made one very important point, which is that there is a contract that is in place through between ourselves and Hutch on the management and the funding of MBNL that sustains through into the beginning of the next decade. And that obviously gives us significant protection for our costs in that period. We've also done a fair amount of planning ahead of that and I've got a series of things that we will be looking at doing to ensure that our cost of the individual towers is not significantly impacted when we get into the next decade. We've got a lot of time to plan for that. Who knows how the network will develop? A lot of our concerns are actually more about the conduct of MBNL in the near -- in the sort of -- in the interim. And obviously, we will be engaging with the parties to ensure that our concerns were not founded.

Operator: We have time for one last question today which will come from Andrew Beale at Arete. Andrew, please go ahead.

Andrew Beale: You might want to answer the last one, right?

Allison Kirkby: We answered the last question, Andrew.

Andrew Beale: Okay. All right. So just coming back to the refocus of the business back towards the UK. Can you update us on the sort of geographies or characteristics of global that you've determined you want to sell or shut? And what activities if any you might want to keep to be able to offer services to multinational corporates, the UK corporate the global fabric in a sort of profitable sense. And there have obviously been some things in the press, but what can you tell us about where you've got to in that process?

Allison Kirkby: Well, clearly we never comment on ongoing potential mergers, acquisitions or disposals. But in terms of the global footprint, we have two channels that we are looking in to optimize and simplify. There are individual businesses in what we call our portfolio channels which is a mix of individual geographic businesses or services that were acquired and built up over the years that we have been simplifying and reducing over a number of years and that work continues. And then there is the multinational customer segment and how we serve that segment outside of the UK. And that was the piece I particularly put my emphasis against in May to say, I believe that that segment is ripe for consolidation. Because most telcos that are serving their multinational customers outside of their home domestic markets have seen new competition over the years develop. They've got -- there are probably too many players in too many places now considering the new competition that has come in from hyperscalers and others. There's been a lot of shift away from legacy services into cloud-based services and that's the segment that I see is ripe for consolidation opportunity. And we are in dialogue with a number of players at the moment to look at what the options are going forward. Meanwhile, we are not overly dependent on finding a sales solution. We have to radically simplify and transform that business just as we're doing with the rest of our BT business.

Andrew Beale: Thank you.

Allison Kirkby: Thank you.

Operator: This concludes the Q&A session and I would now like to hand back to Allison for any closing remarks.

Allison Kirkby: Yes. Thank you all for your questions today and for dialing in. And of course myself Simon and the IR team are ready to take up any questions off-line. And I look forward to meeting as many of you as possible in the coming days and weeks as we get out on our road shows. So thank you again and look forward to seeing you soon.