BT 2012 Annual Report Download - page 43

40 Performance
Group Finance Director’s introduction
of pension deficit payments. On this normalised
basis, free cash flow amounted to £2.3bn in 2012
and is expected to be broadly flat in 2013 and
above £2.4bn in 2014. We intend to continue our
policy of reducing net debt and are targeting a
BBB+ credit rating over the medium term.
We expect BT Global Services to deliver solid EBITDA
growth in 2013 as we intensify our efforts to
improve the efficiency of its operations and reduce
its cost base. Its operating cash flow is expected to
be lower in 2013 due to phasing of working capital
before returning to growth in 2014.
As a result of our confidence in our ability to grow
free cash flow, we intend to increase the dividend
per share by 10%–15% per year for the next three
years. We also intend to spend around £300m
on a share buyback programme in 2013 which
will counteract the dilutive effect of all-employee
share option plans maturing in 2013 and add to
shareholder returns.
Tony Chanmugam
Group Finance Director
9 May 2012
Outlook
May 2011 Result
Underlying revenue excluding transitadown 2% to flat down 1.9%
Adjusted EBITDAb2012 above £5.9bn
2013 above £6.0bn
£6.1bn
one year early
Adjusted free cash flowbabove £2.2bn £2.5bn
Our financial objectives
Progressive
dividends
Support
pension fund
Reduce
net debt
Invest in
business
2012 2014
Grow free cash flow
Grow EBITDA
Improving revenue trends
2012 performance against our outlook
a Defined on page 167.
b Adjusted EBITDA and adjusted free cash flow outlook updated in February 2012 to be
above £6.0bn and to be around £2.4bn, respectively.
2012 performance
We have delivered financial results for the year
in line with or ahead of our targets.
Underlying revenue excluding transit declined by
1.9%, within our target range, an improvement
compared with the 3.0% decline in 2011.
We reduced our operating costs by £0.9bn
or 6%. While some of the reduction reflected
lower transit related costs, the majority reflects
the continued progress we have made in
transforming our cost base. Over the last three
years we have reduced our operating costs
by £2.9bn. Including capital expenditure, the
overall reduction is £3.4bn. Given the scale
of the savings achieved to date, it will be
challenging to keep up the same pace going
forward. However, through continued forensic
analysis of our cost base, we still see plenty
of opportunities in the coming years. Cost
transformation is about improving efficiency
and reducing the cost of failure. This in turn
improves customer service and allows us to
free up resources to invest in the business.
Adjusted EBITDA grew by 3% to £6.1bn and we
achieved our 2013 target to be above £6.0bn
a year early. Over the last three years we have
increased our adjusted EBITDA by 16%.
We generated adjusted free cash flow of
£2.5bn in the year, up 13%, which was well
above our target of more than £2.2bn. This
strong performance was after investing
£2.6bn in capital expenditure. In the last three
years we have more than tripled our adjusted
free cash flow, generating £6.9bn and have
reduced our net debt by £1.3bn. This strong
financial performance allowed us to make a
£2.0bn lump sum pension deficit payment on
agreeing the 2011 funding valuation.
Outlook
Our objective remains to drive profitable
revenue growth. While economic and
regulatory headwinds will make revenue
growth in 2013 more challenging than
originally envisaged, we expect underlying
revenue excluding transit to show an improving
trend in 2013 and 2014. We expect a decline
of around £200m–£300m in transit revenue
in 2013.
We expect to make further progress in
transforming our cost base which will drive
growth in adjusted EBITDA in 2013 and 2014.
As the tax credit in relation to the £2.0bn lump
sum pension deficit payment will distort our
cash flow in 2013, we are now giving our free
cash flow outlook excluding the tax benefit
We have delivered results
in line with or ahead of
our targets.
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