Key strategic developments:

·     EE successfully launched the UK's first 5G mobile network in six cities

·     BT named the UK's major broadband universal service obligation provider by Ofcom

·     12 successive quarters of improvement in Group NPS¹, up 0.3 points

·     Openreach announced updated pricing for wholesale FTTP broadband and the next 36 locations in its FTTP rollout

·     BT welcomes the Government's ambition for full fibre broadband across the country and is ready to play its part to accelerate the pace of rollout

·     Sale of BT Centre agreed for £210m and lease signed for new headquarters in Aldgate, London

Operational:

·     Openreach continues FTTP rollout at c.20k premises passed per week with 267k premises passed in the quarter; 3.7m ultrafast (FTTP and Gfast) premises passed to date

·     Consumer fixed ARPC £37.9 flat year on year; postpaid mobile ARPC £20.7, down 4.6% on Q1 2018/19 due to the impact of regulation and lower RPI price increases

·     Fixed churn down to 1.3% following customer experience improvements; postpaid mobile churn remains at 1.1%

·     EE first in 15 out of 16 RootMetrics tests for mobile network performance

Financial results:

·     Reported and adjusted¹ revenue of £5,633m down 1% with decreases in Consumer, Enterprise and Global

·     Adjusted EBITDA¹ down 1%² at £1,958m driven by lower revenues and higher spectrum fees and content costs, partly offset by reduction in costs from restructuring and transformation programmes

·     Reported profit before tax of £642m and adjusted¹ profit before tax of £749m, impacted by the higher upfront interest expense on the IFRS 16 lease liabilities recognised from 1 April 2019

·     Normalised free cash flow¹ of £323m down 36% reflecting increased capital expenditure and higher interest and tax payments, partially offset by working capital phasing

·     Reported capital expenditure of £931m up 11% primarily due to network investment and customer driven costs

·     Full year outlook maintained

¹ See Glossary on page 5

² Changes on prior year are presented on an IAS 17 basis where meaningful except for adjusted EBITDA, which is presented on an IFRS 16 pro forma basis 

n/m = IFRS 16 to IAS 17 comparison not meaningful
 

Overview of the first quarter to 30 June 2019

CUSTOMER-FACING UNIT UPDATES

Consumer

Known headwinds from international calling plus mobile spend cap regulation drove revenue decline. Excluding the impact of regulation, revenue was broadly flat YoY. EBITDA declined mainly due to reduced revenue, increased spectrum licence fees and higher content costs. Excluding the impact of regulation, EBITDA would have been broadly flat YoY. Fixed churn fell to 1.3% following improvements to customer experience, while mobile churn remained low at 1.1%. With the launch of Smart Plans in April and 5G in May with a market leading range of devices, we continue to deliver our more-for-more strategy and are encouraged by the early results. As previously announced, over the remainder of 2019/20 we will invest to bring forward by a year the 100% onshoring of our customer service and accelerate the managed migration of copper customers to fibre.

Enterprise

Lower equipment sales and fixed voice, with the traditional lines and calls market continuing its declining trend, reduced Enterprise revenue. These challenges were partly offset by growth in IP and networking, and in mobile despite tough market conditions. EBITDA decline was driven by the lower revenue, partly offset by lower labour costs reflecting our ongoing restructuring programme. During the quarter we sold the marketing and operation rights to 220 of our high towers for the next 20 years to Cellnex, including an upfront cash payment of c.£100m. This quarter we launched the UK's widest range of 5G devices for business with good early interest and take up, particularly amongst SMEs. We also launched new fibre and digital phone line bundles that are based on Openreach's all-IP SOGEA capability. Retail orders were up 9% YoY and 3% on a rolling 12-month basis. Wholesale orders were up 109% YoY, driven by the Cellnex deal, although down 9% on a rolling 12-month basis. Since 30 June we have agreed the extension of our ESN contract to December 2024.

Global

Revenue decline was driven by our strategic decisions to reduce low margin business, divestments and legacy portfolio declines, partially offset by growth in Security. EBITDA in the quarter benefitted from certain one-offs and lower YoY operating costs reflecting ongoing transformation. We continue to see an ongoing shift in buyer behaviour towards more flexible commercial terms, including shorter contract lengths and increasing usage-based billing. These factors impacted order intake which was down 19% in the quarter and 14% on a rolling 12-month basis. During the quarter we opened a new Cyber Security Operations Centre (SOC) in Paris, as well as upgraded facilities at our existing SOCs in Madrid and Frankfurt.

Openreach

Revenue growth was driven by higher rental bases in fibre⁴, up 24%, and Ethernet, up 8%, partly offset by price reductions (reflecting the impact of Openreach's volume-related discounts) and higher service level compensation (due to implementation of auto-compensation). EBITDA was flat YoY, with revenue growth and certain one-off items offset by higher operating costs.  The increase in operating costs was mainly driven by higher business rates, higher salary costs as Openreach invested in more colleagues to deliver better service, and pay inflation, partly offset by efficiency savings. Openreach was ahead on all of Ofcom's 42 copper and fibre quality of service levels.