BT 2016 Annual Report Download - page 92

Overview The Strategic Report Governance Financial statements Additional information
96 BT Group plc
Annual Report 2016
97
(0.4)%
^
31.5p
£2,830m
4.7%
^
2.0%
^
33.2p
£3,098m
3.0%
^
5%
^
9%
^
2015
2015
2015
2015
Change
Change
Our key measure of the group’s
revenue trend, underlying
revenue excluding transit, was
up 2.0%, at the top end of our
outlook range of 1% to 2%.
And it's our best growth in more
than seven years.
Adjusted earnings per share
increased 5% to 33.2p.
We generated normalised free
cash ow of £3,098m. This
was up £268m compared with
last year. Normalised free cash
ow excluding the impact of EE
was £2,837m, in line with our
outlook of around £2.8bn.
Our customer service measure
‘Right First Time’ was down
3.0% compared with up 4.7%
last year.
2016
2016
2016
2016
Trend in underlying revenue excluding transit
Adjusted earnings per share
Normalised free cash ow
Customer service
Group performance
Progress against our KPIs
We’ve performed well against our three financial KPIs.
But our customer service performance was down 3.0%,
and we want to do much better.
We use four key performance indicators (KPIs) to measure how
we are doing against our strategy. Our financial KPIs measure:
the trend in underlying revenue excluding transit; our adjusted
earnings per share; and normalised free cash ow. Customer service
improvement is also a key non‑financial KPI for us.
Our KPIs are chosen because they reect the key elements of our
strategy. We use these to measure the variable elements of our
senior executives’ pay each year, as we’ve explained in the Report
on Directors’ Remuneration (see page 128).
We’ve outlined our performance against each KPI here, together
with an explanation in italics of how we define each measure.
You can find reconciliations of the financial measures to the closest
IFRS measure in the Additional information section on pages
240 to 242.
Prot forecast considered within the Listing Prospectus
On 26 January 2016 we published a Listing Prospectus in relation
to our acquisition of EE. In this, we provided information relating
to our 2015/16 profit forecast. This information confirmed our
outlook as stated on 29 October 2015, when we published our
unaudited results for the six months ended 30 September 2015,
in which we stated that for 2015/16 we expected modest growth
in adjusted EBITDA relative to the £6,271m we achieved in
2014/15.
This profit forecast did not take into account any impact of the
acquisition of EE.
Our adjusted EBITDA in 2015/16 for BT, excluding EE, was
£6,319m, up £48m, consistent with the statement we made
in the Listing Prospectus.
Outlook for 2016/17 and 2017/18
We expect growth in underlying revenue excluding transit in
2016/17. Adjusted EBITDA is expected to be around £7.9bn,
after a net investment of around £100m in launching handset
oerings to BT Mobile customers. Normalised free cash ow
is expected to be £3.1–£3.2bn. This is after up to £300m of
upfront capital expenditure in the Emergency Services Network
(ESN) contract, as well as around £100m of EE integration capital
expenditure.
For 2017/18, we expect growth in underlying revenue excluding
transit and adjusted EBITDA. We also expect to incur capital
expenditure of around £100m on the ESN contract and around
£100m again on integration. We are confident in our cash
ow generation, as a result of the investments we are currently
making, the ability of our business to respond to a dynamic
industry environment, and ongoing cost transformation and
synergy realisation opportunities. As such, we expect to generate
normalised free cash ow of more than £3.6bn in 2017/18.
We expect to grow our dividend per share by at least 10% in both
2016/17 and 2017/18. We expect to buy back around £200m
of shares in 2016/17 to help counteract the dilutive eect of all‑
employee share option plans maturing in the year. This is below the
£315m buyback we completed in 2015/16 reecting the lower
number of shares that are expected to be required for our share
option plans.
Trend in underlying revenue excluding transit
Year ended 31 March
%
2013 20142012 2015 2016
Outlook
Up 1%-2%
Result
Up 2.0%
ab
(4)
(3)
(2)
(1)
0
1
2
3
(1.9)
(3.1)
(0.4)
0.5
2.0
Adjusted earnings per share
Year ended 31 March
pence
2013 20142012 2015 2016
26.3
23.4
31.5
33.2
28.2
0
5
10
15
20
25
35
30
Outlook
c£2.8bn
£m
2013 20142012 2015 2016
Normalised free cash ow
Year ended 31 March
Result
£2.84bn
a b
1,900
2,100
2,300
2,500
2,700
2,900
3,100
2,450
2,300
2,307
2,830
2,837
3,098
Excludes the impact of EE
%
Customer service improvement
At 31 March
2010 2011 2012 2013 2014 2015 2016 2016c
Target
Above 4.7%
Result
Down 3.0%
0
5
10
15
20
10.5
15.7
(4.0)
4.7
3.0
3.0
1.5
(3.0)
b
Our positive revenue performance, which excludes the impact
of EE, was driven by BT Consumer where revenue was up 7%
reecting 17% growth in broadband and TV revenue, helped by
our investments in BT Sport Europe and BT Mobile. We explain more
about the performance of our lines of business from page 57.
Underlying revenue reects the overall performance of the group
that will contribute to sustainable profitable revenue growth. We
exclude the impact of acquisitions and disposals, foreign exchange
movements and specific items from this measure. We focus on the
trend in underlying revenue excluding transit because transit trac
is low margin and aected by reductions in mobile termination
rates, which are outside our control.
Adjusted profit after tax grew 13% this year reecting the impact
of the acquisition of EE, our cost transformation activities and a
lower interest expense together with a reduction in the eective tax
rate from 19.9% to 17.5%.
Adjusted earnings per share grew 5% to 33.2p. The weighted
average number of shares in the market increased 7% reecting the
additional shares we have issued as part of the EE acquisition.
Adjusted earnings per share is the adjusted profit after tax
attributable to our shareholders, divided by the weighted average
number of shares in issue. Being an ‘adjusted’ measure, it excludes
the impact of specific items and as such it is a consistent way to
measure the performance of our business over time.
The increase of £268m or 9% in our normalised free cash ow
primarily reects the £261m generated by EE in the period since
acquisition. Excluding EE, normalised free cash ow was £2,837m,
in line with our outlook.
Free cash ow is the cash we generate from our operations, less
capital expenditure and finance costs. It represents the cash
available to invest in the business, repay debt, support the pension
scheme and pay dividends to our shareholders.
Normalised free cash ow excludes significant non-operational
payments and receipts that distort the trend in our cash ow. So
in calculating normalised free cash ow we take out the impact of
specific items, purchases of telecommunications licences, pension
deficit payments and the tax benefit from pension deficit payments.
Improving the service we deliver is key. Our ‘Right First Time’
measure was down 3.0% (2014/15: up 4.7%). This was
disappointing. We’re making good steps in some areas. Openreach
achieved all 60 of the minimum service levels set by Ofcom. But
despite these improvements, we’re not where we want to be, across
all of our lines of business. You can read more about our customer
service on page 22.
‘Right First Time’ is our key measure of customer service. This tracks
how often we keep the promises we make to our customers. This
could be about keeping to appointment times, fixing faults within an
agreed period or answering calls promptly and dealing with queries
or orders eciently. As well as improving service and the customer
experience, keeping our promises should mean that there is less
work to do in correcting our mistakes, and so reduces our costs.
a Financial outlook which was given at the start of the year and rearmed in February.
b Excludes impact of EE.
c Cumulative improvement since 1 April 2009.