Good day, and welcome to BT's H1 results call for the half year ended 30 September 2021. My name is Sandra Patrick, and I am your host today. During the presentation, your lines will remain on listen only. I would like to advise all parties that this conference is being recorded for quality purposes. Now I'd like to hand over to Mark Lidiard. Please go ahead.
Sandra, thank you very much. Welcome, everyone. My name is Mark Lidiard from the BT's Investor Relations team. Presenting on today's call is Philip Jansen, Chief Executive, and Simon Lowth, Chief Financial Officer. They will also be hosting the Q&A session. Before we start, as usual I'd like to draw your attention to the forward-looking statements on slide two, 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 slide and the annual report can be found on our website. With that, I'll now hand over to Philip.
Thank you, Mark. Good morning, everyone. Thank you for joining today's call. By way of an agenda, I'm gonna make some brief introductory comments and provide a quick overview. Simon's then gonna talk through the results themselves, and then I'll come back and share some more details on our plans, progress, and performance. Moving straight to slide five, the business continues to perform well, and we delivered results overall in line with expectations for the first half, demonstrating steady progress against our plan. This performance, coupled with our outlook, has given the board the confidence to confirm today that we are reinstating our dividend as promised back in May 2020 at GBP 0.077 per share with an interim payment of GBP 0.023 per share. At the same time, we are generating enough cash to invest in our future at unprecedented levels.
We have a compelling market opportunity which, coupled with our unique assets and improving competitiveness, point to an improving picture for our path to sustainable growth. We're accelerating the pace of delivery and going further and faster on transformation, generating momentum into the second half of the year and beyond. As a result, I'm reconfirming our outlook for this year and next, and we'll lay out expectations for an improving cash flow profile in the medium and long- term. As ever, though, we have more to do against the backdrop of highly competitive markets and legacy product declines. Moving to slide six, our strategy and plan remains the same, but we can summarize our efforts under five focused and clear priorities that will enable us to capture the opportunity ahead and allow us to deliver sustainable growth in value.
Taking these in turn, at the top, it's all about driving growth in Consumer through our converged propositions and services. Next, we will capitalize on Enterprise and Global's unrivaled assets to restore growth. Thirdly, we will deliver Openreach growth and strong returns on FTTP. The fourth priority is to relentlessly and continuously transform our cost base and improve productivity. Finally, we'll always keep our heads up to ensure we optimize our business portfolio and capital allocation. Executing against these priorities will deliver consistent and predictable revenue growth from next year, EBITDA growth from this year, and significant improvements in normalized free cash flow in the medium and long- term, all of which underpins our progressive dividend policy. As I said, I'll cover some of these in more detail in a moment, but first let me hand over to Simon to run through our first half results.
Well, thank you, Philip, and good morning to everyone on the call. Starting with our financial performance on slide eight, adjusted revenue for the half year was GBP 10.3 billion. That is down 3% as growth in Openreach was offset by declines in our Enterprise businesses. Consumer revenue was flat for the half year. Adjusted operating costs were down 5%, driven by the cost savings generated through our modernization program and tight cost control, partly offset by higher program rights and Openreach operating costs. Adjusted EBITDA for the half year was GBP 3.7 billion. That's up 1%. Moving to slide nine, the individual unit results, and starting with Consumer, revenue was broadly flat for the half year, helped by higher direct handset sales. Although they were constrained by stock limitations given the ongoing global supply chain issues.
BT Sport revenue was also higher versus the prior year. Tight cost management, including lower indirect mobile commissions, offset the benefit of prior year sports rights rebates, which meant that EBITDA was also broadly flat. In our Enterprise division, revenue was down 5% as continued declines in legacy products and the ending of some legacy contracts offset growth in retail mobile and in our new products. However, strong ESN delivery and a fixed asset disposal both in Q1 and lower costs through the half offset the revenue decline, and they drove a 2% increase in EBITDA. Moving on to Global. Revenue declined as we saw ongoing challenging market conditions resulting from COVID-19. This led to delayed project-based spend and change control sales. The decline in revenue led to lower EBITDA. Excluding divestments, one-offs, and foreign exchange, this was down 21%.
Lastly, Openreach grew revenue 5% in the first half, driven by higher rental bases in fibre-enabled products and Ethernet and higher provisioning. This was partially offset by declines in legacy copper products. EBITDA in Openreach grew 7%, driven by the revenue flow through and by efficiency programs that were only partially offset by higher recruitment, repair, and provisioning costs. Moving below EBITDA in slide 10, depreciation and amortization was GBP 2.2 billion. That's up 1%. Adjusted net finance expense was GBP 382 million. That's down 1%. Our adjusted tax charge was GBP 183 million, down 22%, reflecting an effective tax rate of 15.3%. This resulted in adjusted profit after tax of GBP 1 billion, up 7%.
The lower tax rate versus Q1 is due to a larger proportion of our CapEx qualifying for the super-deduction than initially expected. This translates to about GBP 5 billion of tax losses being carried forward into FY 2024. That's up from GBP 4 billion. Our reported effective tax rate was 57.3%, reflecting the remeasurement of deferred tax balances following the increase in the corporation tax rate to 25% from April 2023. Specific items after tax of GBP 583 million included restructuring and property rationalization costs of GBP 135 million, but it was mainly driven by the increase in the deferred tax balance. Reported profit after tax for the period was GBP 431 million, down 50%.
Finally, our reported earnings per share was GBP 0.044 , and our adjusted earnings per share was GBP 0.102 . Moving on to cash flow on slide 11. We delivered GBP 360 million of normalized free cash flow in the half year. That is down 15%, primarily due to higher cash CapEx and working capital outflows, which offset the lower cash tax. We paid cash tax and interest charges of GBP 416 million. Lease payments were GBP 319 million, and we incurred a net outflow of GBP 370 million from changes in working capital and other movements. This was driven by the payment of the annual bonus and phasing of Openreach collections. We invested GBP 2.3 billion in cash CapEx in the half year. That's up 9%.
Net cash specific item costs totaled GBP 359 million. These included the Dixons Carphone settlement and restructuring payments of GBP 162 million. In addition, we received a refund of GBP 227 million on spectrum. Our reported free cash flow was GBP 228 million. That's up 13% as lower normalized free cash flow and higher cash specific item costs were more than offset by the refund on spectrum. We paid GBP 600 million into our Pension Schemes, resulting in free cash outflow post the pension deficit payments of GBP 525 million. At the half year, we had financial net debt of GBP 12.3 billion.
That's an increase of GBP 0.6 billion since the end of the prior year, primarily due to CapEx and our pension payments, which offset the net cash inflow from operating activities. As at the 30th of September 2021, the IAS 19 deficit was GBP 4.3 billion, net of tax. That's an increase of GBP 0.1 billion from the 31st of March as a decrease in the real discount rate was partially offset by positive asset returns and deficit contributions over the period. Moving to slide 12 on our outlook, which we are reconfirming today. An improvement in revenue trends in the second half, largely led by our Enterprise businesses, supports our expectations for broadly flat revenue in FY 2022, followed by growth in the outer years.
We continue to expect to deliver between GBP 7.5 billion and GBP 7.7 billion of adjusted EBITDA this year. At least GBP 7.9 billion next year. As a result of the accelerated efficiencies, it's likely that CapEx this year will outturn closer to GBP 4.8 billion. Normalized free cash flow is still expected to be between GBP 1.1 billion and GBP 1.3 billion, but likely to outturn in the upper half of this range given the slightly lower CapEx. Finally, as promised, we're reinstating our dividend at a rebased level of GBP 0.077 per share, with the interim declared today at GBP 0.0231 per share. On that positive note, let me now hand back to Philip.
Thanks, Simon. Moving to the market opportunity on slide 14. Understanding and demand for our products and services has never been higher. Customers are focused on the capacity, speed, reliability, and security of their connections more than ever before, driving fixed data consumption up nearly 40% last year alone. Value for money, not just price, is becoming more important. Products, performance, and service matter. Coverage and adoption of next-generation networks are low in the U.K., including FTTP and 5G, and penetration of converged products is behind European markets. Furthermore, digitization of products and sales in the U.K . Also lags behind peers. This, combined with the exceptional demand, leads us to forecast growth over the next five years in both our Consumer and Enterprise markets, a clear change from recent years. Given our network leadership in the U.K., this is a huge opportunity for BT.
We're in a supportive and stable regulatory regime, with Ofcom's Wholesale Fixed Telecoms Market Review representing a marked shift towards a pro-investment wholesale landscape. Ofcom's Fairness agenda, which we fully support, has helped to ensure consumers are treated more fairly with lower pricing differentials between existing and new customers across the industry. Finally, while markets remain extremely competitive, we believe pricing environments have become more constructive in recent months, reflecting my earlier comments and the higher costs associated with growing data usage. This has been further supported by Ofcom's WFTMR, which allows for inflation on anchor FTTP as well as legacy product pricing at the wholesale level. Moving to slide 15. These combine to create a compelling opportunity for BT, given our unique assets. Make no mistake, BT is a stronger, better business and is now much more competitive.
We are the market share leader in U.K. Re tail markets with a presence in over 50% of all households and over 1 million business customers. We serve around 4,000 business customers worldwide. Customers choose to buy from BT and EE for our differentiated products and our ever-improving customer experiences. We have the broadest portfolio of next-generation products, including 5G, FTTP, SD-WAN, and Ethernet, all supported by our superior security and cloud access propositions. We have a head start on converged products with a strong pipeline of truly differentiated propositions to maintain our edge. Our brands are going from strength to strength with all-time high net promoter scores for the BT brand across Consumer, SME, and Global's multinational customers. EE maintained its strong leadership position amongst consumers and generated the joint lowest complaints to Ofcom of all operators in the most recently published data.
BT is also first-choice consideration for business customers. We have unrivaled geographic sales, marketing, and service reach with over 580 consumer stores in the U.K., over 3,000 salespeople in Enterprise, and the ability to serve multinational customers in over 180 countries across the globe. We differentiate further through having the largest, strongest, and most reliable next-generation networks in the U.K. with leading 4G and 5G networks and plans for a new converged core by 2023. Openreach is the leading fixed access wholesaler in the U.K. with nationwide coverage, offering the best products and sharp price points and regulated, ever-improving service. Additionally, its unique systems and networks are deeply integrated with those of our communication provider customers.
This position is underpinned by the largest super-fast fixed access network in the U.K., which covers nearly 29 million premises, and the largest FTTP network, now with almost 6 million premises passed. We've made great progress in driving forward the modernization of BT, and we have scope for further savings as we continue to simplify and digitize our products, processes, and systems. Supporting this is our move away from costly, complex legacy to next-generation networks, systems, and products. We have the balance sheet strength to invest in the massive agenda of network and digital transformation at unrivaled pace and scale, while maintaining our commitments to our BBB+ through cycle credit rating target to our Pension Scheme and to our progressive dividend policy following reinstatement this year. On slide 16, we've distilled our strategy into five clear priorities to grow our business.
First, we will drive growth in Consumer through our converged propositions and services. Our converged propositions deliver higher ARPU underpinned by inflation-linked pricing and significant improvements in NPS, leading to lower churn as our customers are happier and more satisfied. We've already got 50% of Consumer's BT broadband base onto our flagship converged products, Halo, and have a strong pipeline of converged propositions on the way. Second, we will capitalize on Enterprise and Global's unrivaled assets and strong competitive positions alongside the attractive market dynamics to return these units to growth. Enterprise and Global have developed a strong portfolio of next-generation services, and we are committed to leveraging these to drive up market share in fast-growing areas where we are under-indexed, such as Unified Comms, IP Voice, IoT, Security, and Managed Cloud.
This return to growth will be underpinned by a significant improvement in operational delivery, driving down order complexity and driving up NPS. Third, we will deliver Openreach growth and strong returns on FTTP. Openreach is already building FTTP faster, at lower cost, and with a larger existing footprint than all of the competition combined. Our plan to cover 25 million premises by the end of 2026 will leave virtually no commercially viable home or business without an option to take the Openreach FTTP line, making Openreach the only national provider of choice for ultra-fast speeds. We will leverage our reputation for consistently high service levels together with compelling commercial deals to drive take-up onto our access platform, which is already connected to our many communication providers' customers and their networks through our exchanges.
Fourth, we will transform our cost base and improve productivity through process simplification and digitization, and through retiring legacy networks with customers phased off 3G by 2023 and plans to shut the PSTN by the end of 2025 and move to an all-IP network. This is a group-wide program and we expect it will drive margin expansion across all our units. Finally, we will continue to explore all avenues to optimize our business portfolio and capital allocation, including reviewing opportunities to grow in adjacent markets. These priorities will bring out the best of all our units to deliver growth and value and capitalize on the compelling opportunity we see in our markets today and going forward. Moving to slide 17. We've already made significant progress against these five priorities, and we're gathering momentum into the second half of the year.
Starting with Consumer. In the quarter, we delivered an inflection in broadband ARPU, and we continue to drive volumes onto Halo, which is our highest NPS, highest ARPU consumer product. Our Halo offering is underpinned by the higher speeds and improved reliability of Openreach's FTTP, with over 900,000 Consumer customers now on the FTTP network. Our mobile network is second to none. We've extended our 4G geographic coverage to over 85% of the U.K., and our 5G network covers around 40% of the population with 5.3 million 5G-ready customers. This is indeed an incredible achievement since we began our rollout only two years ago. Bringing this all together, the result is that churn and complaints on both BT and EE are at record lows. Finally, and most importantly, Consumer's NPS is at its highest ever level.
Moving to our second priority, we've significantly enhanced our business-to-business portfolio of next-generation services with the international launches of integrated secure services that include Webex, Zoom, and Microsoft Operator Connect. In the U.K., we have a new lineup of Halo for business products and the Digital Marketing Hub to give SMEs a platform to access digital advertising. Enterprise has focused on re-engineering operational processes to drive NPS as voted by SMEs to an all-time high and has adopted a new operating model, which includes the formation of two new units. One dedicated to serving the millions of small office, home office firms in the U.K., And the other, Division X, focused on selling solutions based on 5G Edge and IoT technologies.
We're already seeing customer growth in mobile and voice over IP and a stabilization of customer numbers in broadband as our revised strategy is driving an improvement in market share and lower churn. Global launched Eagle-i in October, our new transformational cyber defense platform. Now despite the well-documented market challenges, Global actually delivered a strong order intake performance in quarter two , up 29% to GBP 1 billion, helped by a major contract signing to interconnect a customer's operation across 60 countries. Moving on to FTTP. Openreach is now building at an annualized run rate of 2.5 million premises a year as it accelerates to its peak of 4 million over the next couple of years, all at the lowest cost and highest quality.
We now have 1.3 million customers connected to our FTTP network and are driving even faster take-up through our recently launched FTTP-only 10-year framework agreement, which delivers long-term index link pricing certainty in return for rapid adoption. Indeed, 10 communication provider customers have signed contracts, including Sky and TalkTalk. Furthermore, Openreach continues to raise service levels and delivered its best ever first half on time repair performance. Service performance, as measured against Ofcom's Quality of Service standards, is firmly on track, giving customers another very compelling reason to stay with us. Next, on to our excellent progress in the modernization of BT since I announced plans in May 2020.
Having already reached our target of GBP 1 billion of gross annualized cost savings, that's 18 months earlier than we anticipated, today we are announcing the bringing forward of our fiscal year 2025 gross cost savings target of GBP 2 billion by one year to fiscal year 2024, with further savings to follow in fiscal year 2025. We still expect total cost to achieve these savings, including the savings in fiscal year 2025, to be GBP 1.3 billion. Finally, we continuously look to optimize the group's portfolio and capital allocation to maximize value. With this in mind, we've taken the decision not to pursue the FTTP joint venture. We've done a lot of work on a potential joint venture, including discussions with prospective investors.
With FTTP CapEx costs coming down and take-up ahead of expectations, we have decided to retain 100% of the project for shareholders and to remain fully focused on driving build and take-up. In addition, we continue to be in discussions regarding the future of BT Sport and will provide an update at the appropriate time. Bringing this all together on slide 18. We will drive continuous improvement and deliver sustainable growth and value for all our stakeholders. Starting from the bottom of this chart, revenue will be broadly flat this year, but with consistent and predictable growth from next year. Across the group, this growth is supported by our recovery from COVID-19, by inflation-linked pricing on around two-thirds of our revenue, and by sales of converged products in growing markets. By mid-fiscal year 2023, we'll have moved 100% of consumers' contracted base onto CPI plus contracts.
Moving up the chart, as you've heard, we're accelerating our cost transformation plans, which, combined with an improving business mix, underpins our confidence in EBITDA margin expansion from today. As a result, we have increasing confidence in our ability to deliver EBITDA of at least GBP 7.9 billion next year, with growth ahead of revenue in the mid-term. Our accelerated delivery of transformation efficiencies is also supporting a reduction in our CapEx, despite inflationary pressures and without impacting our ability to invest in next-generation networks and digital transformation at unrivaled pace and scale. This means we expect CapEx this year to be below the GBP 4.9 billion that we guided to.
Importantly, it will support a more meaningful reduction of around GBP 200 million per year from next year. As a result, we expect peak CapEx going forwards of around GBP 4.8 billion, rather than the GBP 5 billion we previously indicated. As a result of our continuous improvement agenda and drive for efficiencies, we are announcing today a reduction in FTTP build costs. The Openreach team now believe we can build FTTP at a cost that's 15% or GBP 50 lower than previously envisaged across our whole footprint. That's a range of between GBP 250 and GBP 350 per premises passed. We're focused more than ever on cash conversion, reflected in this improving outlook. Looking further out, we expect multiple step-ups in our cash flows as we move to an all-IP, all FTTP network.
From December 2026, post-peak FTTP build, we will significantly reduce our FTTP run rate from the peak of 4 million premises per year, driving a reduction in CapEx of at least GBP 1 billion. Additionally, by the end of the decade, many millions of customers will have been migrated to FTTP from legacy services. The fault rate on FTTP is around half that of copper, and we can manage many more aspects of the network digitally. We expect maintenance OpEx per line will be around 50% lower. The structure of FTTP network will enable us to rationalize our exchange estate, saving on lease, energy, and maintenance costs. Overall, this move towards an all-IP, all FTTP network will drive a further GBP 500 million in incremental cash flow entirely from operating cost savings.
Bottom line is that we expect these two actions alone to deliver at least an incremental GBP 1.5 billion of normalized free cash flow by the end of the decade, before any contribution from additional revenue growth and further transformation benefits, net of tax. I have huge confidence in our ability to deliver this outcome as a minimum. Don't forget, based on our current plan, we expect the Pension Scheme to be fully funded by 2030. Our significantly improved cash flow will be used to increase returns to shareholders through our progressive dividend policy, support our BBB+ through-cycle credit rating target, and invest in adjacent business opportunities where these provide the opportunity to drive further value. To summarize on slide 19, we see a compelling opportunity in our markets today.
Our leading asset position and improving competitiveness mean that we are uniquely positioned to capitalize on this opportunity through our five priorities. Execution against these priorities will reverse the challenging revenue picture we've seen over the past few years. Our confidence in our outlook is underpinned by a number of high conviction drivers of cash flow, which we announced today, including delivery of GBP 1 billion of gross annualized cost savings 18 months early, enabling us to pull forward our target of GBP 2 billion by one year to fiscal year 2024, with further savings in fiscal year 2025. In OpEx, the accelerated savings increase our confidence in the delivery of at least GBP 7.9 billion EBITDA next year and in EBITDA margin expansion across the group.
In CapEx, the accelerated cost savings will support a reduction in CapEx of GBP 200 million from next year and a lower peak CapEx of GBP 4.8 billion. We have increasing confidence in returns from FTTP, with 15% lower build costs and take-up ahead of expectations. This has driven our decision to retain 100% of the project and keep the upside for BT shareholders. From December 2026, post-peak FTTP build, we will significantly reduce our FTTP run rate from the high of 4 million premises per year, driving a reduction in CapEx of at least GBP 1 billion. Finally, beyond this, by 2030, we expect our move towards an all-fibre, all-IP network to drive a further GBP 500 million in incremental cash flow entirely from operating cost savings.
We have identified clear drivers of at least GBP 1.5 billion in incremental annual cash flows by the end of the decade, before any contribution from additional revenue growth and further transformation benefits net of tax. As I've said before, what we have today is a stronger, better, and more competitive BT, which will deliver enduring and sustainable growth in revenues, EBITDA, cash and consequently, returns to shareholders. We have around 45 minutes for questions and answers, so please limit questions to one per person to allow as many people as possible to ask questions within the time we have. Could I ask Sandra, please, to open up the lines?
Your question and answer session will now begin. If you wish to ask a question, please click on the Raise Hand icon next to your name. Please note that the Raise Hand icon is only displayed once you hover your mouse over your name in the Participants panel. Once your question is answered or if you wish to withdraw your question, please click on the Hand icon again. In case you joined using a telephone line, please key star three. The first question is coming from Akhil Dattani from JP Morgan. Please go ahead.
Thanks for taking the question. Maybe I can ask a question on the guidance you provided today on CapEx build costs going forward. Obviously, it's great to see that the FTTP build cost is gonna be lower at the midpoint. Maybe you could help us understand what exactly is driving that lower cost rate. I guess where my question is really getting at is just trying to understand, do you think that that is a cost saving your peers can equally benefit from, or is there something differentiated here which means that you have an advantage? I guess the follow-up to that really is that when you think about what that ultimately means, does that essentially mean higher IRRs now for BT relative to your base case, or are there any other offsetting factors that we should be thinking about? It's long.
Yeah. Akhil, I mean, good question. I'll give you a bit of an answer, and then maybe Simon can chat as well. I think the short answer is. As we build more, get more expertise, and we've got significant scale in what we're doing, we've managed to reduce the number of man-hours it takes effectively to build fibre. And that 15% reduction is very significant to your point. I think you'd have to talk to other people. I suspect that is a competitive advantage, yes. I think we would say that versus other people, we were already in good shape in terms of the cost. Again, if you compare it versus other countries, you know, we'll look at Germany, where it's EUR 1,000 per premise.
We felt we were competitive before this move, but the team have been working religiously to try and find ways of ironing out any of the potential wrinkles in the processes of delivering the builds to the level we talked about now. It's about every single element of building that we're getting smarter at that ultimately reduces the price. The other thing I'd say is, and I'll let Simon chip in, is we're making a statement today on the basis that we know there's inflation in the environment, obviously, and that applies across the board. We still feel that we're gonna see a 15% reduction versus what we previously thought. It's across many elements. I don't know, Simon, do you wanna chip in there at all?
No, I mean, I would say, and it's unambiguously a competitive advantage. We've got scale, and we've got a sort of proven record, which is building skills and innovation in what we're doing, and that, those in combination are hard to replicate. I would say secondly to your final question, Akhil, that, you know, clearly, lowering the build cost, absolutely further reinforces our confidence in, you know, getting the IRRs we discussed on the FTTP investment.
Yeah. Akhil, one other thing, just I think there is a clear supply chain advantage, you know, in terms of we've got our own people doing it, but we've also got a significant chunk of people from a third-party contractor angle who have signed up to long-term deals to build for us. I think, you know, we're really pleased that we can see acceleration in the build and get to the 4 million as quickly as possible, and the fact that costs are coming down is very encouraging.
That's great. Can I ask you a super quick follow-up, which is the decision not to progress with the JV purely down to the lower cost and greater confidence in the IRRs, or were there any other factors beyond that also contributed?
I mean, the quick answer is it's mainly down to that with one other small factor, which is, given the progress and the focus and the delivery that Openreach has, why run any risk of distracting them and confusing things when we are absolutely gonna be successful in the FTTP build and the connection rate? Let's just charge at it because we're very confident about the returns we can make on it.
Makes sense. Thanks a lot.
Our next question is coming from Polo Tang from UBS. Please go ahead.
Yeah. Hi. Thanks for taking the question. Just a follow-up in terms of the FTTP build costs coming down. I mean, if they're coming down by GBP 50 per home for you, why are they not also coming down for the alt nets, meaning that you've actually got an increased risk of fibre overbuild in the U.K.? Just related to that, in your guidance, you obviously reiterated your guidance, but do you make any allowance for Sky or TalkTalk signing wholesale deals with Virgin Media O2 in terms of your guidance? If you're getting, you know, all these cost savings kind of pulled forward, why are you not raising your guidance?
Yeah, Polo, I mean, look, you'd have to ask our competitors how they're doing on their build costs. All I'd say again is I'm absolutely certain that this 15% reduction we're announcing today is extremely competitive and by the way, very difficult to do. We're gonna keep going, by the way. We're gonna keep looking for every opportunity to bring that down. I've always said on the returns, you know, we feel really positive about the FTTP investment program. We talked about a 10%-12% mid case, sort of planning case for the returns. This just underlines our increased confidence in delivering that for our shareholders. You know, there's still a lot to play for. We've got to get to GBP 25 billion by 2026.
We've got to keep connecting people in the way that we are. Just on your point in terms of our CPs, you know, it's really encouraging. We've signed, you know, 10 CPs, including the three biggest, including Sky, including TalkTalk Group, have signed up to a 10-year framework agreement on pricing. That pricing is really sharp, providing exceptional value for, yes, our customers, but also the end customers. That's what you can hear today is, you know, we've reached an inflection point. We're building such momentum behind this program.
We're connecting people rapidly and all our customers, the CPs, are now connecting people onto the FTTP network. The nature of the 10-year agreement encourages them to sell and has incentivized them to sell FTTP over anything else. You're gonna see it continue to expand over time. We're really pleased that Sky and TalkTalk Group and many others have signed up to this 10-year FTTP deal, and now we just need to execute really, really well.
Right.
Thanks, Polo.
Our next question is coming from John Karidis from Numis. Please go ahead.
Can you hear me?
Hi, John.
Hi. Hi. Good morning. I hope you can hear me. I just wanted to ask. Around the sensitivity of the Pension Scheme, funding deficit, to infrastructure based competition at the Openreach level. Therefore, it would be really useful if you can help us gauge the sensitivity of the funding deficit to BT's employer covenant. Secondly, the sensitivity of BT's employer covenant to Openreach. If Openreach is sort of business, for example, five years out were 20% lower, what would happen ultimately to the funding deficits of the BT Pension Scheme? Thank you.
Sure. Simon, do you wanna?
Yeah. Okay, John. Well, thanks for the question. I mean, firstly, Openreach is clearly an important part of the BT Group, an important contributor to the overall BT Group value, and therefore an important part of the Pension Scheme covenant. You know, I think the Pension Scheme absolutely believes in and understands the long-term value generated by our strategy. In terms of the pension deficit, that is not sort of directly linked to the covenant, although it has a bearing on the Trustees' approach to their investment strategy. All I would say at this point is we've just completed a very successful, for both parties, triennial valuation. We've agreed a funding plan. You know, we have a constructive relationship. I wouldn't expect to see significant changes in the covenant valuation as we move forward.
Right. Sorry, just for the sake of argument.
John, we're gonna move on, John. Thanks very much. We're gonna have another question.
Thank you.
Our next question is coming from Carl Murdock-Smith from Berenberg. Please go ahead.
Hi, Carl.
To ask a question about inflation and cost base, so, firstly, when will talks occur with the unions around the scale of pay rises next year? And how does the current inflationary environment play into that, particularly in the light of going into this after several years with no pay rises? And then on the energy side of inflation, how well hedged are you on energy costs? And over what time period going forwards are you hedged? Thanks.
Yeah. Carl, give you a general answer, and I'll ask Simon just to talk about energy specifically because it's a big point. You know, historically we take about 1% of the electricity off the U.K. grid. So we'll come back to that. In general, first thing I'd say is, the short answer is April next year is when the pay award has to be effective from. We have said internally, by the way, that having had no pay increase, as you rightly point out, for two years, we will make a pay increase next year. That's the first thing. In terms of the discussions with the unions, you know, they'll take place in the lead up to that, so, you know, beginning sometime next year.
I think the broader point is, and there's two things to point to. Number one is on the revenue side, the fact that we have two-thirds of our revenue linked to inflation, CPI or CPI plus is really a good hedge against the sort of impact of inflation on the cost side. You are absolutely right that we can see across multiple elements, including pay, but also energy and across other suppliers, we're seeing increased costs coming through now. What's important is to underline our complete commitment and confidence in at least GBP 7.9 billion EBITDA next year despite that, and that's as a result of, A, the transformation benefits we talked about that have come forward, but also our pricing plans looking into next year and beyond.
You know, we think we're well prepared for it. Of course, you're right to say who knows exactly how inflation will play out. It's a big uncertainty, it's a big risk to the economy. We are very, very well advanced in our planning around all the different eventualities. The key point is the GBP 7.9 billion EBITDA is not at risk under any imaginable scenario. Simon, anything on energy?
Energy, Carl, yep. Firstly, property and energy costs, you'll see we report that. That was about GBP 1 billion in the last two fiscal years. Something like a half of that is energy. Carl, within the energy costs, do recall that a relatively small part of it is actually the commodity. It's transmission, distribution, and various forms of essentially sort of environmental costs. Of the commodity component, we have a rolling hedge program through power purchase agreements and derivatives. We typically roll, you know, 12, 18 months. We have some exposure, you know, some partially unhedged position, but small and we don't expect the impact to be material. Hope that helps.
That's brilliant. Thank you very much.
Thanks, Carl.
Our next question is coming from Maurice Patrick from Barclays. Please go ahead.
Hi, Maurice .
On cost inflation. On the retail side, I'm sure when you put through the 100% CPI price increase, you weren't thinking that CPI would be running at 3% or 4% even. Given what you've said already, if we still see CPI sitting at sort of current levels, will you put through the full increase given all the noise around loyalty and c ustomers in difficult times, et cetera. Would you say, would you happily put through a 7%-8% price increase? Thank you.
I mean, the short answer is, I wouldn't say happily, but yes, we will. I think you've got to recognize that, you know, to Carl's question, we are gonna see under all circumstances inflationary pressure on our costs. We wanna make a pay increase to our people, of course, but also we have things we just talked about, energy and et cetera. We're gonna see that. Equally, you know, we will put that price increase through, but it's not a move by itself. Remember, we're increasing the propositions and the products and the services in terms of quality that we're offering our customers. It's a question of value for money and satisfaction.
We're pretty confident that our customers, based on all the evidence we can see now, churn at the lowest level ever. Customer complaints, lowest level ever. NPS, highest level ever. We will put the price increases through, yes. Having said that, if the market gets very, very competitive and we see changes in that, of course we'll amend our plan a little bit. The way forward is deliver the contract as per what we've articulated to our customers. At the same time, always keep an eye on value for money and customer NPS.
Right.
Remember we have a Home Essentials product which is available for up to 6 million homes, which is a GBP 15 product. That will not go up. That is capped. There are some people in the vulnerable category or on Universal Credit, all those kind of metrics that you know so well. In that instance, the GBP 15 stays and will not see a price increase.
Cool. Thank you. Thanks, guys.
Our next question is coming from Nick Lyall from Société Générale. Please go ahead.
Hello?
Hi, Nick.
Hi there. It was just a quick one about Consumer, please, Philip. Just the, I take your point about broadband ARPU inflecting, but mobile ARPU or postpaid mobile ARPU still seem pretty weak this quarter, year on year at least. Am I missing a little bit of roaming in the prior year that I was assuming was more stable, or is there anything else maybe going on that's weakening the ARPU numbers, given what we've just said about CPI increases? Could I clarify as well, maybe with Simon on the staff numbers? There seem to be some very strange staff movements in the numbers, particularly in Consumer as well, just in your KPIs. Have I missed something in terms of reclassification of staff there? Thanks very much.
Yeah, I mean, Simon can comment on both. I mean, you know, you're right. There's the continued SIM Only out-of-bundle and roaming mixed up in those numbers. So yeah, that's what you're seeing. You're absolutely spot on. In terms of the employee numbers, Simon, have you got that?
Yeah. The main change probably in the numbers, if you look at the movement between the end of the fiscal year 2021 and today, you know, we have had continued reductions in Consumer, and that's a function of the continued efficiency programs that we're running. You will also have seen that there was a slight increase in Global, but that simply reflects an organizational movement of a set of service activities that we've moved from our shared services in the corporate unit into Global. There's a corresponding reduction in what's called Other, which is the sort of corporate functions. That's simply that service unit was dedicated to Global, and we've integrated and driven synergies with it. Hope that helps you.
That's great. Thank you very much.
Okay.
Okay.
Our next question is coming from Sam McHugh from Exane. Please go ahead.
I want to ask about Enterprise and Global, if I can please. Obviously, you're doing an amazing job, I think, on cost and Enterprise. The implied annual rate of cost cutting is about to slow, I think. Revenues in Enterprise are down 5%, order books down 15%-20% in the last 12 months. Global revenues fell 6% in the last 12 months. Order books down 10%. It does feel a lot like corporates are facing a lot of cost pressure at the moment, and telco is obviously something they can shop around a bit for. Can you just talk a bit about what you're seeing in your end markets in terms of pricing, competition and demand? What gives you the confidence about turning around the B2B performance given people like ITS, Virgin, CityFibre are all ramping up their B2B investments?
Yeah, Sam, good question. You know, this is the bit that we need to see next year. You're absolutely spot on. The cost work in Enterprise and Global is very strong. I think, you know, the Global plan, they've executed extremely well in terms of, you know, getting out of local access network exposure. We've divested a load of assets, as you well know, which has simplified the business. The Global plan is spot on. Focusing on the right number of customers with an over-the-top software-defined proposition and not having these local access networks. The return on capital is much improved. But you're dead right that the market is slower than we would like.
We've got a subdued market activity, particularly around projects and variations, which is a big part of how Global hit their number every single year. Yes, that needs to come back, no question, and we are assuming there is a recovery in that next year. Remember, you know, we look around in Global, across the world, there are different levels of recovery in terms of back to the office, back to work. A lot of companies still questioning exactly what's gonna happen. That's why the project work has really stalled. From a market share point of view, we're confident we're not losing market share. On the NPS side, you know, we're extremely strong on Global. It's + 40%, so that's really fine. You're right. We've gotta wait for that market to come back a bit.
We have definitely got the right products and services. We're going to more broadly on the Enterprise part of the U.K., for example, where Rob is leading the sort of turnaround. We've got the right products in the areas that are growing. You know, whether it's the IP Voice, Security, Managed Cloud, Edge, IoT, you know, we're beginning to really mobilize our efforts where we're under indexed versus where we should be.
We're confident we're gonna get growth. The question is, how quickly does the market bounce back? Yes, you're right on that. I have to tell you, the plans we've got make sense. Also, you know, both in Rob and Bas' situation, they are improving the propositions and the customer service and the journeys, as evidenced by the NPS going up. We will definitely do better. We just need the market to firm a little bit. Sam, is that all right?
Yeah. That's great. Thanks very much.
Our next question is coming from Andrew Lee, from Goldman Sachs. Please go ahead.
Yeah. I had a question just on your Equinox CP wholesale contracts that you signed. Kind of the flip side of the fibre IRR boost you're having from the lower investment costs. Your key investor concern is volume pricing risk to your wholesale outlook. What exactly do the CP contracts guarantee you in terms of wholesale customer fibre sign-ups? Or, you know, another way of asking the same question, by how much does this reduce overbuilder wholesale risk? If you can give us some help in how to think about the materiality of this, those signings, that would be great.
If possible, and you can just ignore this question, there's a follow-up in terms of how we should read into the fibre JV walkaway that you're doing. Obviously, you've got higher returns. How much demand did you have for the JV, given that kind of uncertainty in the wholesale environment? Did you learn anything about the way private investors would value your network versus how the public markets are valuing it at the moment? Thank you.
Yeah. Okay, Andrew. Let me just do the JV first. Maybe Simon might want to talk about it in a minute. I mean, you know, I think that what you can read into the JV announcement is a very positive conclusion that says we will do it ourselves because the returns are very attractive for our shareholders. Also we don't want to, in any way, distract away from the progress we're making on building and connecting people at the lowest possible cost. I think it's a real endorsement of our plan, and we're really happy with it. The good news is we can afford to do it ourselves. We didn't need to get external finance. Simon might wanna add something in a minute.
On the Equinox deal, you asked how material is it. I would say very. Because of the scale of our build, we're at 6 million now, 1.3 million connected. We're ramping up from 2.5 million a year to 4 million a year as quickly as possible on the build rate. You know, people are now asking for this product and service more and more. And therefore from a CP point of view, whoever you are, you know, you're gonna have to connect on the Openreach platform over the next few years. Of course, we all know there is a hypothetical possibility of a big wholesaling change with some volume customers moving across from our network to somebody else's. You know, the chance of that, I think, decreases massively as we continue with our plan, which is why we're going so fast and accelerating.
Some of the things we've announced today just point to a picture that says great progress on FTTP. The Equinox thing is a 10-year pricing agreement. It gives certainty to our CPs. These are really, we call them sharp price points. It's exceptionally good value for money. You know, we're out there competing heavily, delivering for our customers, and we're gonna be the only nationwide provider of fibre to all these CPs. You know, the retail market is extremely competitive, right? The other reason it's material is, in this 10-year framework pricing agreement, these CPs commit to buy FTTP only where we sell it. So when it's available, there's a ratcheting system which is 75% and 90% of what they sell is FTTP.
It just means the transition away from copper onto FTTP is accelerated, making it harder for other people to take up volume on other platforms, which is exactly what we should be doing. The final thing I'd say, just on that pricing, when you're looking at the pricing, it's delivering at the retail level, the wholesale pricing we're offering is giving exceptional value for money to the end customers.
You can get a 100 Mb service on FTTP for less than GBP 1 a day, and you can upgrade, you know, for a couple of pound per month through the different speed tiers. The wholesale price for 1 G is GBP 22, which would lead to, roughly, a GBP 44 retail price. If you look into the marketplace, that's very, very competitive. I know that other people will struggle to beat those prices and make exceptional returns, which is why we're doing it.
Thank you.
Simon, sorry. Anything to add on this? No. Simon thinks the JV question's been answered. I hope that's okay, Andrew.
Yeah. Thank you very much.
Our next question is coming from Jakob Bluestone from Credit Suisse. Please go ahead.
You mentioned earlier that you're seeing supply chain shortages on the handset side. I'd just be interested, are you also seeing any supply chain shortages in terms of your fibre deployments? I guess specifically, you know, how would that feed into the ability to reduce the deployment costs? Thank you.
Yeah. Not really is the short answer, but actually it's an important plan. I think Simon might just wanna give you a sense of silicon shortages, supply chain challenges, and friction in our system as we, you know, ramp up our activity and put so much resource and money into the company. Clearly, that is a question about. Simon, do you wanna just give your perspective on that? How much is it, how much of a challenge is it for us on silicon and on supply chain?
Well, clearly, I mean, we all know there's a global chip shortage, and that does impact handsets. It does impact some elements of the equipment that we provide to our Enterprise customers. You've seen that impact, and we've talked about it in Consumer on the handset market. You know, I think it is a contributing factor to some of the sort of revenue challenge we've got in our large end of our corporate markets. On network build, both in FTTP, but also in the core and mobile, you know, it has a bearing, but it's really not a material one to the pace at which we can deploy those networks at this stage. It isn't having a bearing either on our ability to roll out or on our cost point.
That's on the chipset. As Philip mentioned earlier, I mean, the other critical element of supply chain, clearly when you're rolling out network is the workforce. We're in a position of considerable advantage through the strength, size, scale, skills of our internal workforce and long-term relationships we've got with subcontractors. We see that as actually an advantage to us as we navigate through this period.
Yeah, Jakob, look, we're not immune to the challenges in the macro sense, but we're extremely vigilant, and we've got a good plan today.
Thank you. That's helpful.
Our next question is coming from Robert Grindle from Deutsche Bank. Please go ahead.
Hi, Robert.
Yeah. Good morning, gentlemen. Thank you. Great progress on the FTTH homes passed cost. Is there a parallel reduction in the connection costs? As your build costs go lower, do these get passed on via the passive infrastructure mechanism, or are those prices effectively unchanged? If your build costs fall, does that affect Equinox prices? Have the Equinox prices had any impact on the retail competition in Q3? Thanks.
The short answer is, I mean, thank you for the comments on FTTP build cost. The short answer on the build is no. I mean, that, you know, that is, as I think everybody realizes, the engineering challenge is very significant to build 25 million homes and connect them in the way we described. We will continue to work hard to bring down our costs on everything, looking at, are there further opportunities on build and provisioning. As yet, the short answer is no. In terms of the pricing on Equinox, you know, I sort of covered it before. You know, that's what we're really saying here, I'm sure you've got it, is we're feeling more encouraged by the FTTP project because we're building so fast.
We're connecting so many people. The ARPU is good, the satisfaction is high, and our CPs are joining at a rapid pace in selling increased volume. Share of FTTP a year and a half ago or a year ago was mainly BT. That's not the case anymore. That's because people need to sell this stuff because it's really compelling. We're really excited by that. On the passive pricing, I mean, Simon, do you wanna give a quick answer on that?
I can. No, doesn't impact it.
Okay.
Our next question is coming from Adam Fox-Rumley from HSBC. Please go ahead.
Thank you very much. It was helpful to get that first indication of the OpEx savings at GBP 500 million from fibre. I just wanted to ask about the phasing of that and specifically whether or not some of those come ahead of the peak CapEx number, for example, the 3G and the PSTN switch-offs that you referred to earlier. Thank you.
Adam, we can't really give you the phasing of it. you know, actually we wouldn't know exactly what that is. What we're saying is conceptually today, we're telling you that there is a material step up structurally in the cash of this business when we get to an all-IP, all-fibre network. By the way, that will keep going. I imagine a situation where you see continued improvements on the cost line as evidenced by our transformation pull forward we've done to 2024, plus to 2025, we said there'll be more. We get into the new world where we're beginning to turn off the PSTN, get to all-IP, more fibre, more 5G. The cost will keep coming down.
What we've looked at is we know at a minimum, GBP 500 million will come out because we just know to operate a full fibre network in an all-IP world is gonna be way lower. Once we get there, I fully expect there to be loads more opportunities to continue to improve the productivity and efficiency of the BT company because we'll be in new networks, and we'll be in things that are fundamentally, of the moment, as opposed to living off legacy stuff. We're just trying to give an indication of the things that we're absolutely certain about now, but there'll be more upside to come, but we've gotta wait until we get there to know exactly what they are. We're certainly not into the phasing game yet.
Okay, thanks.
Our next question is coming from Siyi He from Citi. Please go ahead.
Hi, Siyi He.
Hi, this is Siyi He. Question please. On the first question, the pressure is to say that there's no commitment for volume. Just wondering if you can clarify whether there is no volume commitment for the current subs. What about the commitment for the new subs that CP gets? The second question is really about the fibre. Now you'll see a lower CapEx required to build, and we have potential tax reduction next year. We're giving the overbuild threat. I wonder whether there is a possibility that you can use the GBP 200 million savings to accelerate the build faster than 4 million a year and bring forward the free cash flow inflection that you expected by the end of this decade. Thank you.
Okay. I mean, first answer is no, there are no contractual volume commitments, and that's because of our significant market power position. So that, there is no change. The practicality is, given the scale of our current footprint, 29 million homes, on super fast and our build program on ultra fast, we will have the biggest FTTP network in the land, and we'll have more customers connected to it than anybody else, guaranteed. So, you know, the question is exactly what is it? So if FTTP was a football match, we don't know the score, but we know we're gonna be the winner.
On the GBP 200 million, look, we've announced today we're really pleased with the plan to get to GBP 4 million. GBP 200 million reduction, I think, is again a reflection of what you've just described in terms of the reduction in cost to build. No one else has hit GBP 4 million, I don't think, anywhere per year in Europe. We think that's a really lofty target, which we feel very good about. Let's see what happens when we get there. Next question please, Sandra .
Our final question is coming from James Ratzer from New Street. Please go ahead.
Hi, James.
Morning. Good morning, Philip and Simon. A question really about Project Gigabit, please. We'd just love to get your thoughts on this initiative and in particular, to what extent this is incorporated in both the 25 million FTTP build out target and the cash flow targets that you've given over the longer -term. I mean, to what extent do you think you'll be able to win the majority of the contracts that are up for up for kind of bidding in that GBP 5 billion government contract? Thank you.
Oh, James. When you're talking Project Gigabit, you mean the government subsidized build-
Yes.
The five, the original GBP 5 billion the government announced, of which they say they're gonna spend GBP 1.4 billion. Is that what you mean?
Yes. Although I thought the commitment to spend GBP 5 billion is still there, it's just been pushed out over a longer period of time t o what extent that influences some of the longer -term targets you've given looking out to the end of the decade? Could, for example, the GBP 25 million build go up as a result of Project Gigabit? Could that mean kind of longer -term extra spending, but in return, obviously for more customers taking up FTTP?
Yeah, I mean, look, great question. The short answer is no, it's not in the GBP 25 million. These properties, you know, could increase our number, yes. But they're government funded, as you say, and obviously in that situation, you know, they would be, and it won't be us. Those contracts will be won by Openreach and other providers. Obviously by definition, whoever gets there is gonna be more than likely the exclusive provider. We do see it as an opportunity at some stage.
Again, I should say, when I talk about this FTTP footprint nationwide, you know, at some stage we turn our copper off completely. The GBP 25 million is by December 2026. We have a reduction of GBP 1 billion in cash flow as a result of the reduced spend and reduced build. We'll still be building. In post 2026, we see ourselves building steadily in places that make sense, and that could be some government funded activity, and we may do a few before then.
I mean, it's an interesting topic given what you've said today about reducing FTTP build costs, presumably in the taxpayer's interest, you should be the front-runner to win the vast majority of those contracts as you were with BDUK. Is that a fair thought to have?
I mean, you could take that view, but at the same time, I guess, and when we're talking about the 15% reduction and the GBP 50 per premise, that is for the commercially viable areas, right? And the bit that we understand well. If you can imagine, there's a huge hockey stick of costs associated with these very difficult, hard to reach areas that the government is gonna fund. There's a complicated formula for calculating how much it costs to build in these areas.
When the subsidy comes, it reflects that and that's why it's complicated. That's why not a single property are being built yet. No contracts are being awarded because it is not easy to work out how that works. That's why we've not included it in our numbers. But you're right. Look, are we well positioned? Of course we are. We're well positioned in every part of the U.K., urban, rural, uber rural, government funded. Openreach is ready to play its part across the whole of the country.
Got it, Philip. Thank you.
Thanks, James. Look, thanks, everybody.