BT Group plc (BTA) Earnings Call Transcript & Summary

Good afternoon, everybody, and thank you so much, Allison, for joining us at such an important time for BT.

Great to be here, Karen. And great that we matched our outfit.

Overwhelmed with color too. Now I wouldn't want to speak for Chris Bryant, but if he was here, I'm pretty sure he would have said how important it is for kind of like quality infrastructure and resilience in the U.K. and kind of increasing, I think, on kind of the importance of the government agenda.

And kind of -- there's also kind of like quite a geopolitical element to this, isn't there? Kind of like in various countries, we see governments and particularly incumbent operators becoming closer together kind of to address various concerns that they might be. And I was just interested to know kind of how you're finding being in charge of BT with kind of shifting sands like that?

Yes. Well, it very much reinforces our purpose of connecting for good and makes you realize that we're not just connecting the country, we're protecting the country while we're upgrading the country. We are -- we've always been the communications backbone of the country. And now we're in the midst of a once-in-a-generation upgrade of that backbone to make it the digital backbone of the country. And in the world that we live in, that is -- as the world even warfare digitalizes, that gives an even bigger sense of responsibility and purpose as we do, what is the FTSE single biggest investment into the U.K. at the moment. It will be GBP 5 billion this year. Over the last 5 years, we've invested GBP 25 billion. We'll invest a further GBP 20 billion over the next 5 years to basically upgrade that old landline copper infrastructure and then infuse that and integrate it into the mobile infrastructure, our WiFi infrastructure. And because we are so penetrated everywhere in the country, and we always have been, in this world of potentially digital warfare and the need for more resilience, then clearly, that relationship with government is fundamental. It's fundamental to ensure that we can work with government as we upgrade the infrastructure that our owners get a fair return on that investment. It's fundamental that we work with government to ensure that the skills develop as we invest in the infrastructure and then that we work with government on the adoption of the new infrastructure and the skills. But then from a geopolitical point of view, as you know, I was in Scandinavia for 10 years. And you're hearing as we've just come out with the planned defense investment in the U.K., it's very much following what Scandinavia has been doing. They had this concept of total defense. And the incumbent telco was at the heart of that total defense because telcos are critical national infrastructure. And because of the border between Finland and Russia, I was very close to how Scandinavia reacted when Russia invaded Ukraine and saw how that history of association with the security services and supporting the country's communication networks became ever more important. So I'm delighted that one government supported our investment into fiber, of course, encouraging competition at the same time. I'm happy that they're staying very true to the regulation that was agreed upon back in 2021 to see that long-term investment go through, and we get a fair bet on that. I'm delighted that government is thinking about consolidation. You won't have resilience if you have a very fragmented digital infrastructure across the country. You won't have resilience if the owners of that infrastructure are not sustainable, and not able to deliver both a return for their investors, but also give the right quality of product and service to their customers. And now that the government is increasingly thinking about national resilience and security, we are around the table on that because we have 3,000 cybersecurity experts in BT, helping the emergency services network, the 999s, the security services all the time. So it's a great responsibility as we do this massive upgrade of the country, but it gives a great sense of pride and sense of purpose to our organization as we go on this modernization journey together, not just a modernization of BT, but a modernization of the country.

Right. And it's that -- those shifting fans geopolitically, are they behind your strategy of focusing on the U.K. then?

Well, in telco, you need scale. We have scale in the U.K., but we don't have scale internationally. Our international business developed as a result of us trying to support our multinational customers that are based out of the U.K. But also like many telcos, we kind of went on a global adventure at one point. We went on a global adventure and then we went on a sporting adventure. At the end of the day, you have to have scale, and we have unique scale here in the U.K. And so that focus on providing the best, most trusted networks to connect everyone in the U.K. is our single-minded focus now and transforming and modernizing BT so that we can consistently serve our customers in the country better.

Great. So you mentioned kind of the whole scale thing. I totally agree how important that is. As BT, how do you -- you have scale across so many business lines in the U.K. It's a great advantage to have. How do you protect that going forward? How do you kind of make sure that as an organization, you've still got that commercial edge to not be complacent to -- it's a super competitive market, you're fighting against the altnet, probably going to face more competition on the mobile side. How are you thinking about that?

There is no chance for complacency in this job. As you know, the U.K. is one of the most competitive telco markets in Europe. And having invested GBP 25 billion and now invested another GBP 20 billion, I've got to deliver for my shareholders. So hence, a reason on focusing on the U.K., so they got a better chance of success. And we -- what I'm trying to do is on the back of this investment, really modernize the culture, modernize how we can be better for our customers so that our -- and as a result of that, we're really trying to instill more of a challenger mindset in our organization. Openreach has very stiff and tough competition nowadays. BT Consumer has tough competition. BT Business has competition. We will lose customers if we don't deliver the best product, the best service in a seamless way. I, myself, am not a complacent kind of person. Nothing is ever good enough. I'm a bit of a challenger, always have been a challenger. And so I'm trying to instill more of that winning mindset into the culture of BT so that we can combine a winning mindset and a challenger mindset alongside our wonderful network so that we can compete. And we soon will be a challenger in mobile again. We've got 11 years of mobile leadership ahead of us, but we'll soon be the challenger, and that will instill new competition in us. And we go to market under multiple brands as well. So working on the culture, and ensuring we show up in the best possible way we can be every day because we have a huge expectations on us. We have to deliver for the country, for our owners and for our customers. So there's no time for complacency.

Very pleased to hear it.

And in terms of how over the last year, we've brought new leadership into our retail units to spur growth in those units again. We have decided to keep all 3 brands in the consumer business because we realize in a very competitive fragmented market, we are uniquely positioned with 3 brilliant brands -- one of them very iconic being BT, a second very iconic one being EE. So we're now going to use all 3 of those brands so that we can compete in all segments of the market. And now that we've got fiber passing 18 million homes in the U.K., we've got the mobile network leadership. We're well ahead on 5G stand-alone. We've got great products and cloud-based services, security-based services around that core connectivity as we're modernizing all of our products and the platforms we go to market with, that will give us new fuel to compete again as well.

Great. You mentioned kind of your TV adventure. I'd like to understand a bit more kind of what kind of role you see TV content playing in BT's future?

TV has a very important role to play, but not as us as owners of it. We should be brilliant owners and operators of network assets. And then we should be partnering with the best in content, the best in security, the best in cloud-based services, and we are a great route to market for all of those other platforms because we've got the biggest customer bases to go after. And so we should be a brilliant aggregator of content so that as customers increasingly want flexibility in the streaming products they want to buy at any point in time and not feel encumbered to any one package for too long, we should be the best at offering the flexibility in a seamless way for our customers. So that's my view on content. And we have -- we're still in the JV with TNT Sports. It's very public that we have a route to exit from that at some point in the future. So today, a proud partner with Warner Bros., but in the future, we need to be the best aggregator of all of the content and all the streaming platforms want to come to us to distribute their content through us, and we combine that with the best network performance. And what we want to be is Netflix's customers get a better experience because they're on a BT or an EE-powered network.

So connectivity at your heart.

Connectivity is totally our heart. Yes.

Okay. Well, you certainly seem to be doing something right. Your shares are up 60% since you started just over a year ago. And what do you think are kind of the biggest strategic shifts you've made that have kind of led to that? And where do you see kind of most opportunities going forward?

I'm actually in the midst of an investor roadshow at the moment. And it's been interesting. What do long-term owners really want from a telco because telcos have not always been the ones that have delivered on what they promise, they want us to deliver on what we promise. And so a lot of that share price appreciation is because we are delivering on what we said we would do. We're delivering for customers. We've grown our NPS 5 points, up to 30 points across all brand segments over the last year. We've accelerated our fiber investment. It's probably going to be Europe's single biggest and best fiber platform. Nobody else is building at the pace we are, connecting at the pace we are. So we're building the asset of the future, and we've accelerated that in the last year, and we've accelerated the take-up. We're delivering on our transformation, and that is allowing us to offset some of the revenue headwinds, some of the cost headwinds at an EBITDA level. And telcos, at the end of the day, are valued on the free cash flow generation. And you can't live forever just borrowing from the bank. And we are delivering on what we promised. We've gone from GBP 1.3 billion last year -- the year before last to GBP 1.6 billion this past year, and we've shown a very clear route to GBP 2 billion and GBP 3 billion. And it's just mapping that out, showing the clear milestones along the way that shows that we're delivering for customers, delivering for owners and delivering for the country, and we're consistently doing that. The only disappointment this last year is revenue has been tough. There's been headwinds in our international business. That's why we're carving it out as a separated business now so we can even more focus on the U.K. We've clearly -- all of that competition in the fiber market has mean we've lost more lines than we expected in Openreach. So Clive and the team are going to have to be more like a challenger and more competitive again there because losing a little bit too many. So those are the headwinds. But because of everything else we're doing around customer experience, the quality of what we're building, the speed at what we're building and that we're ahead of plan on the transformation, then our investors and owners get comfortable that we're on track for that long-term free cash flow inflection towards the GBP 3 billion. So we've got more to go, though. So 60% growth is not enough because BT deserves to be valued a lot more than that.

Goodness. Look forward to seeing that. Well, thanks so much, Allison. I hope everyone will agree that's really interesting chat and a really fabulous time for BT. I look forward to seeing more.

Thank you very much.