Good morning, everyone, and welcome to BT Group's results presentation for the half year ended 30th of September, 2023. Presenting today is Philip Jansen, BT Group's Chief Executive. Simon Lowth, BT Group CFO, will join Philip for a Q&A session following the presentation. I would like to make everyone aware that this event is being recorded for replay purposes. Before we start, I'd like to draw your attention to the usual forward-looking statements in our press release 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 press release and the annual report can be found on our website. With that, I'll now hand over to Philip.
Thanks, Mark. Good morning, everybody, and thank you for joining today's call. Before I get into the detail of today's results, I just want to pick up the theme of our full year results. Much done, much more to do, and give you an overview of how we are tracking against our long-term ambition as well as progress this half. First, we delivered a strong financial and operating performance with both adjusted revenue and EBITDA growth in H1. At the same time, we are strengthening our competitive position and accelerating progress through improving our products, propositions, and service, whilst investing heavily in our digitalization and next generation networks. Second, we remain absolutely focused on cost and efficiency.
Our transformation program is ahead of plan and now has delivered the original FY 2025 target of GBP 2.5 billion pounds of gross annualized savings, with, as expected, a cost to achieve of just under GBP 1.3 billion pounds. Third, we remain on track to achieve our revenue and EBITDA outlook for the full year. As a result of build efficiencies, primarily in Openreach, we are lowering our full-year CapEx outlook to around GBP 5 billion pounds. This will flow through to normalized free cash flow, which we now expect to outturn towards the top end of the GBP 1 billion-GBP 1.2 billion pound range.
Finally, we are reaffirming our long-term ambition and continue to expect that by the end of the decade, following the peak of our full fiber build, we'll generate at least GBP 1.5 billion more normalized free cash flow a year. This cash uplift is before any contribution from revenue growth or cost savings, net of tax, and underpins both our progressive dividend policy and our BBB+ through-cycle credit rating target. Moving now to the half-year pro forma results on Slide 5. We delivered another strong financial and operational performance. Revenue for the half was up 3%, with good trading in Consumer and Openreach, along with increased lower margin sales in Business, partially offset by legacy product declines and continued pressure on large corporate customers.
EBITDA was up 4%, reflecting the revenue flow-through and strong cost control, which more than offset the impact of cost inflation and one-off items in the prior year. CapEx in the first half was down 11% to GBP 2.3 billion, mainly reflecting unit cost efficiencies in Openreach, which have more than offset the impact of more FTTP builds, connections, and of course, inflation. H1 normalized free cash flow was strong at GBP 456 million, primarily due to the higher EBITDA and lower CapEx, partly offset by working capital movements. And finally, and as expected, we are announcing our interim dividend of GBP 0.0231 per share, in line with our policy for it to be set at 30% of the prior year's full-year dividend. Let's now take a look at the pro forma financials by customer-facing unit.
Turning to Slide 6, I'll start with Consumer, which delivered another strong performance with revenue up 3% in H1, driven by service revenue from contractual price increases, increased roaming, and more FTTP connections. EBITDA grew 4%, supported by tight cost management and the annualizing of some prior year one-offs. We're also encouraged by churn staying low for the half year, while ARPU has remained robust. Now, this is a tricky balance to get right in the current economic environment. We have worked really hard to offer additional value, so the vast majority of recontracting customers stay with us. As I've always said, you may be able to buy cheaper, but you definitely can't buy better with BT. And with New EE's leading-edge propositions, that has never been more true.
Moving to business, in a challenging environment, revenue was up 1% in the half, driven by lower margin sales and good trading momentum in our small and medium business segment, supported by inflation-linked price rises. This was, however, partially offset by legacy managed contract exits and declines. EBITDA was lower for the half, driven by higher input costs and revenue flow-through, along with some one-off items in the prior year, leading to a tougher comparator. Business's new wins included a new five-year contract with the Army, which demonstrate that our public sector business remains a key partner across many areas of government and the country's public services. Finally, Openreach, which has again showed strong operational and trading momentum, resulting in revenue up 8% in the half, driven by price increases and growth in FTTP and Ethernet bases.
EBITDA was 12% higher due to the revenue flow-through and lower staff numbers, partially offset by pay and energy cost inflation, along with higher FTTP provision volumes. Moving now to our operating performance on Slide seven. Despite the tough economic climate, demand for our next-generation products and services has never been higher and is projected to keep increasing. For example, take-up on Openreach's leading FTTP network has grown to 33%, while in our downstream units, we added another 350,000 full fiber retail customers in the half year. 5G, too, has demonstrated consistent take-up, with almost 1.3 million connections in the half. In business, the hostile threat environment has clearly left customers motivated to seek protection from cyberattack, and this has driven BT's security revenue up 14% in the first half.
This vote of confidence from our customers is the result of a consistent focus on customer experience right across the business, and I'm pleased to see BT Group's Net Promoter Score has risen again, 1.8 percentage points year-on-year to 22.7. Of course, to retain our customers' confidence, we need to hold on to our lead in next-generation networks. I'm more than confident than ever that we are doing just that, as our investment strategy continues to work. The GBP 15 billion investment in FTTP is delivering ahead of expectations, with a record quarter of build extending the current reach of our full fiber network to 12 million homes and businesses. Furthermore, we maintained the level of work in progress for infrastructure that underpins the next six million premises, meaning the build is either complete or underway for around 18 million premises.
That's approximately 56% coverage across the whole of the U.K.. Openreach has delivered this with unit costs for H1 in the lower half of our GBP 250-350 build range, and we have the capacity to go faster still. We expect to build to more than 900,000 premises in Quarter 3 and even more in Quarter 4. We've also seen strong demand, with the fiber base standing now at 4 million, and we expect take-up to grow modestly over the remainder of this year, despite the accelerating rate of build. We are determined to remain the partner of choice for our CPs in a competitive marketplace, and we're delighted that now over 1 million Sky customers are FTTP customers and can benefit from faster speeds and a more reliable broadband network across the Openreach FTTP platform.
At the same time as this unprecedented pace of fiber delivery, we've made fantastic progress upgrading the nation's mobile connectivity and currently have 5G within reach of 72% of the UK's population. We are also investing to transform and digitize to improve customer experience and lower our cost base. Through our modernization program and tight cost control, we've seen the cost base continue to come down and have already delivered GBP 2.5 billion towards our total target of GBP 3 billion of gross annualized cost savings by fiscal year 2025. However, our simplification journey is about more than just cost savings. The launch last month of New EE marks the go-live of an entirely new platform. It builds the foundations of how we interact with our Consumer customers and the new single ID to enhance that relationship.
As well as a flagship customer-facing brand, the systems on which EE's products will be sold are more integrated, they are more efficient, and they are much easier for our customers and our people to use. In business, the new Global Fabric will be a game changer for our corporate customers as they become increasingly digital. It will simplify global connectivity in an ever more complicated multi-cloud, Multi-SaaS environment. This will be the world's largest cloud-centric, feature-rich network with inbuilt security and multi-cloud management, all as a service. Our accelerated delivery, significant network and systems investments, and relentless focus on our cost base culminate in the strengthening of our competitive position. This will result in continued network leadership through our best-in-class FTTP and 5G networks, more customers on our next-generation platforms at an accelerating rate, and a lower cost base with a simpler, modernized operating model.
This will put us in really strong competitive position with a strong balance sheet and strong cash flow. I want to take a few moments to remind you how we see BT Group looking in the future before reviewing progress against the key metrics underpinning our 5 clear priorities. I turn to Slide 8. As I pointed out at our full year results in May, in the future, BT Group will be a much simpler and more digitized business than the one we have today, with leading networks and great customer experiences powered by a lean and efficient organization and utilizing the very latest technology, all of which will ultimately help to fulfill our purpose: we connect for good. How are we progressing towards this? I'll take each of our priorities in turn, starting with Consumer on Slide 9.
In Consumer, we remain well positioned to continue driving growth. As you can see, we've continued our momentum on FTTP additions, winning 335,000 customers in the first half. That's a 40% year-on-year acceleration in the rate of net adds. At the same time, we have grown our 5G connections to 9 million. Although the proportion of converged households was flat, we do expect to start driving growth through New EE with our single brand focus and advanced converged propositions. Strong sales of game consoles, for example, in the half, give us confidence that we can stretch the brands into new areas, and it is testament to the relationship we have with our customers and partners. Moving on to our second priority on Slide 10, to capitalize on our unrivaled assets in business.
Managed services revenue is broadly flat for the past rolling twelve months, and the market remains challenging. However, as I said earlier, strong trading and security and the recent launch of our innovative Global Fabric will support growth and form the basis of future managed services contracts. Alongside this, we continue to see positive trading momentum with our small and medium business customers, supported by index-linked pricing. Turning to Slide 11, Openreach delivered another record quarter of FTTP build, taking the base to 12 million premises passed, of which 3.5 million are in Area 3. Connections were also robust at 364,000 in the second quarter, and in some ways, more importantly, FTTP orders in September were at a record high, setting us up for a strong quarter of net adds in quarter three.
Openreach delivered this while maintaining a premium build quality and at a cost in H1 in the lower half of our GBP 250-350 per premises build range, with ongoing engineering efficiencies and scale economies more than offsetting inflationary pressures. Of course, we're not alone in recognizing the benefits of FTTP. We know others are building too, but only Openreach is connecting customers to full fiber at real pace and scale, driving ARPU up and costs down. Our proposition remains incredibly successful, with more than 70% of sales for products offering ultra-fast speeds. The challenging macro environment certainly contributed to Openreach's 255,000 broadband line losses in H1.
The downturn in house building and softness in new broadband adoption has meant that we have, again, had limited offset to competitive losses that were broadly flat against the second half of last year. I think it's worth noting that our broadband-based decline has occurred where we do not have FTTP. We have grown the broadband base within our FTTP footprint over the past 12 months. We were also pleased to see Openreach broadband ARPU increase by 10% year on year, providing a benefit to revenue that far outweighs the drag from the loss of copper broadband lines. Moreover, quarter three is usually seasonally stronger in volume terms, so we're continuing to target around 400,000 losses over the fiscal year as a whole. But in saying that, a weaker-than-expected market, including slower new home build, increases the risk that we will exceed this level.
However, let's be clear. The lines we are losing are primarily low-value copper lines. This is about a slow broadband market, and as just mentioned, we are growing in Openreach FTTP areas. So our best defense to line losses is to build FTTP as fast as possible, which I hope you agree we are doing. Turning to Slide 12. We've moved fast on our fourth priority to digitize, automate, and reskill to transform our cost base and improve productivity. Our strong delivery in H1 against this priority has seen total labor resource in the business fall by nearly 7,000 people. Some examples of our transformation improvements include consolidating 17 financial systems into a single standard version, saving around GBP 70 million in annual running costs. More than halving the number of products in our business portfolio to around 150.
A significant proportion of the code our BT colleagues add to our IT estate is now written using generative AI, allowing us to boost productivity considerably. Work in our digital division is also delivering genuine business transformation. We have now moved 80% of our data from multiple locations into Google Cloud Platform from a standing start two years ago. All this data is enabled for the use of AI and analytics applications, providing the basis for further savings and customer opportunities in the future. On Slide 13, as I said at the full year, are the key metrics to measure successful delivery of our strategy, which we have updated for this half year, further demonstrating our track record as we work towards delivering future BT Group.
In summary, on Slide 14, we are driving our growth strategy, investing heavily in our next-generation networks while improving our operational and cost efficiency, leading to a strengthening of our competitive position. We have a robust strategy, a strong plan that we are executing well, and we are reiterating our long-term growth ambition, supporting our customers, underpinning economic growth in the UK, and delivering for our shareholders. Build efficiencies, primarily in Openreach, mean we have been able to reduce this year's CapEx outlook to around GBP 5 billion, while still accelerating the fiber build and increasing take-up. This reduced CapEx will flow through to normalized free cash flow, which we now expect to outturn towards the top end of the GBP 1 billion-GBP 1.2 billion range.
Beyond the peak fiber build, we continue to expect at least a GBP 1 billion reduction in CapEx, flowing through to normalized free cash flow, with an additional GBP 500 million uplift by the end of the decade as we benefit from an all-IP, all FTTP network. This is a clear route to more than double our fiscal year 2022 normalized free cash flow by the end of the decade. All of this combines to underpin our progressive dividend policy, with the interim dividend of 2.31 pence per share confirmed today.
Now, it would be remiss of me not to recognize that this is my last results presentation as BT Group's Chief Executive, and to say a few words about the last 5 years, and in particular, to thank all of my brilliant BT Group colleagues and teams, who have allowed us to deliver some outstanding outcomes for our stakeholders. For example, providing the network resilience during and after the pandemic to support changing working patterns across the nation. By the time I hand over to Allison, bringing 40% of the UK premises within reach of our FTTP network, launching the UK's first and leading 5G service, which now supports almost 10 million customers. Reducing our energy consumption over the last 6 years by a cumulative 259 GWh, equivalent to a city the size of Durham.
Blocking around 280 million texts since deploying our new anti-scam technology in 2021. And finally, consolidating the 440 locations where our UK desk-based colleagues used to work, to just 97. BT Group is on the right track and in much better shape than when I joined it in early 2019. And I'm really pleased to be handing the baton to Allison, who knows the sector, she knows the company, and knows what's needed for the next phase of our journey, and I wish her all the best. And finally, a thanks to everyone on the call today. Your scrutiny may not always make for an easy ride, but we appreciate that it reflects the degree to which BT Group matters to people across the UK and beyond. So thank you for your scrutiny, your challenge, and your interest in BT.
So, could we open up to Q&A, please? Could I ask you to be as succinct as possible and ask one question each? Ben, could you open the line, please?
Certainly. Thank you. Allow me to inform our audience. If you wish to ask a question, please click on the Raise Hand icon next to your name. If you would like to withdraw your question, please click on the hand icon again. In case you joined using a telephone line, please key star three. And with that, our first question today comes from Akhil Dattani from J.P. Morgan. Akhil, please go ahead. You are now unmuted.
Hi, Akhil. Hello?
Can you hear me?
I can hear you now, Akhil. Hi.
Hi. Well, first of all, just given your concluding remarks, obviously, thanks very much for the last five years and, all the best for the future. Maybe if I can start with my question, which really is in regards to Openreach, trends in H1. We've obviously seen very impressive growth rates, both at revenue and EBITDA, but 8% revenue growth, 12% EBITDA growth. And that's despite with Equinox 2, you haven't pushed through the price hikes that you could have done. Could you help us maybe understand what supported the acceleration? And I, I guess, just to sort of preempt the answer, when I look at the divisional trends, it looks like your core broadband business is doing really well, but the incremental acceleration is from Ethernet and other.
Just trying to understand exactly what's going on in the mix, and maybe if you can help us understand. You, you sound like you're quite constructive on Q2 and Q4, but just to better understand the sustainability of these trends. Thanks.
Akhil, we couldn't hear that very well.
We couldn't hear the end of it.
Just say the last bit again.
Yeah. Sorry, I was just saying that obviously, the first bit was just color around the mix of what's driving the acceleration. And then the second piece of it was just, you made a number of interesting comments around Q3 and your confidence around Q3, Q4. It was just to understand the sustainability of the growth trends we've seen in H1.
Yeah. Okay, got it. Yeah. No, I, I got it. Got it. Okay. So, I mean, do it in reversal. I think, look, on the build and connection rate, you know, you can see what's happening here. We have had a record quarter. We're signaling that we're gonna increase the, the quarter three and quarter four, right? So we're heading to that target. You know, we're trying to get to a build rate of can we get to 4 million a year? So you can see an accelerating profile, as we head towards that sort of notional target. So I think that's really encouraging. What I think is probably even more encouraging is the, the build cost is coming down. So despite all this huge inflationary pressures, the team at Openreach are beginning to get a, a sense where the costs are, are coming down.
Right now, what that means for the future is really encouraging, right? So we build more, we've got very big operational efficiency in Openreach, which you know about, which is what the landing zone in the future is exactly that. So I think you're beginning to see the early signs of what a new Openreach could look like, which is, it's a fiber company. And the fiber company, you know, will generate a lot of cash when it's finished building, and you're beginning to see the signs of that. So you've got 8% revenue growth, 12% EBITDA growth, 10% ARPU growth. Within that, you know, obviously, these cost efficiencies, you know, we said as a group level, 7,000 people less. It's a significant reduction in headcount. Big chunk of that's in Openreach.
So, you know, they're getting more efficient, building more, connecting more, with less cost. And the less cost is, yes, on build, yes, it's on and the whole network management, but actually, as we have less copper, it faults less, with less service repairs. So you can see that on the number of truck rolls is going down, repair volumes are going down. So it's a little window into the future. So I think, you know, all of those metrics are hugely exciting. Simon, do you want to add anything to that?
... No, that's fine. Yeah.
And I got on the mix, by the way, and Ethernet continues to perform really strongly, to your point. So everything in Openreach is firing on all cylinders.
I mean, Philip, I might just add, and I think, Akhil, we couldn't quite hear the question, but if you think about the dynamics in Openreach in the first half of the year, we have seen broadband and lines, so the sort of broadband part of the business, basically growing its revenue at about 8%, which is broadly in line with the overall Openreach. Ethernet a bit faster. We're pleased about that, 12% up. The Ethernet business, very important contributor, you know, remains strong, and we're seeking to remain price competitive there at the same time.
I think the other point is that the costs, and I think Philip called this out, have remained flat, and that's a function you're seeing here, the migration onto fiber, the relief on the copper network, lower service, you know, work required, costs can be held flat, which is a great achievement in an inflation environment, and that's driving the EBITDA up. The only final point I would make, do remember, as we go into the second half of the year, we did have a pay rise in September, so we have a little bit, you know, of upward pressure on our labor costs as we go into the second half of the year, across all of the units of the group.
Thanks a lot.
Thanks, Akhil.
Our second question comes from Adam Fox-Rumley from HSBC. Adam, please go ahead.
Adam? Hello, Adam.
We'll move on to our next question. Jacob Bluestone from Exane BNP Paribas. Jacob, please go ahead.
Around your cash flow. I think your working capital included around GBP 360 million relating to mobile handsets. So just hoping you could help us understand what was that a year ago, and how much do you see that?
Let Simon give you that.
Yeah. Jacob, thanks for the question. Look, cash flow for the half year, you know, was up almost GBP 400 million year on year. So pleased with the cash flow performance. The real driver of that, Jacob, is that we grew EBITDA by about GBP 150, and our cash CapEx came down by GBP 300. That's a GBP 450 growth. And of course, that's, as Philip mentioned earlier, that's a bit of a preview into, you know, the, the leverage that we get as we develop this strategy out into the future. The combination of EBITDA growth and then being able to reduce CapEx post our peak, you can see the sort of expansion of cash flow that can flow. So a little snippet of that in H1.
In terms of working capital, specifically, year-on-year, it was an increase in an outflow of about GBP 50 million. Remember, H1 is always a working capital outflow half for us. We had a GBP 50 million increase in that outflow. Yes, we did have a program of monetization of mobile handsets. That's actually part of an integrated strategy as we move from just two-year contracts to three-year contracts. In order to normalize the working capital impact of that, we've introduced that scheme. But do bear in mind, and we make this clear, we had another handset financing program, which dropped by about GBP 20 million. So the net effect of those two is pretty modest. So hope that helps you, Jacob.
Absolutely, and also thank you to Philip, and best wishes for the future.
Thanks, Jacob.
Our next question comes from Georgios Ierodiaconou from Citi. Please go ahead.
Thank you for taking my question. It's around the comments you made on Openreach and the broadband share remaining strong and growing, where fiber has been upgraded versus the other areas. I was wondering if you can share some information on whether there are maybe differences in the overbuilt from others within the areas who are present with fiber versus others, or whether this is like for like? And then maybe squeeze in a second question because it's linked. There's been a very good improvement in NPS in the last five years, as you highlighted, and I just wanted to understand if there is a significant difference between the 10, 11 million homes you were already servicing with fiber a few months ago versus the rest. Thank you.
Let me do the first one, maybe, Simon, you can do the second one. Look, it's an important question, and I think it's relatively simple, you know. So, when we build fiber, in almost all circumstances, and remember, we've got lots of different cohorts of build, we grow our market share, full stop. I think that's the main headline. However, of course, if you are a customer, for example, in a rural area, and you're in ADSL, and you're getting 10 Mbps, and a new fiber provider gets there before Openreach, there's a very good chance we'll lose that line. And that happens a bit, of course, and that's in the numbers.
But, of course, as we get to 12 million built on the track to 18, going to 25, that is gonna happen far less. So I think, you know, we're very, very comfortable with what's happening on the ground in build and connections and the prospects of how the future should play out for BT... And it's about delivering for our customers, but also making sure that the investment case that's anchored into the fiber business case is rock solid. And again, you know, 12 million, 4 million connections, 33% at the build rate and the build cost we've shown today, I don't think anyone should be questioning the fifteen billion pound investment. You know, we're gonna get a good return for that.
We just wanna make sure we do as best we possibly can, as quickly for all our customers, and get that digital infrastructure, in the ground, as quickly as possible. Simon, do you want to do the second one on the-
Yeah, on NPS. I mean, we're pleased, clearly, with just the continued progressive improvement in NPS, customer satisfaction across the business. And I think that's a particular achievement, given, you know, we are in an environment where, in many parts of business, we're putting through price rises reflecting inflation. But you can see that that's flowing through into lower churn. How have we done this? This is just a relentless focus on NPS over, you know, 5+ years. It's something that the whole organization's focused on. It goes into scorecards, one. Two, we have added resources in order to ensure that we can provide good service to customers. Three, we've continued to really drive process improvement, both in our contact centers and in our engineering workforce.
And finally, of course, we've achieved all of this, even though we're only in the early part of replacing what is relatively now old IT with modern IT. So there's more opportunity to come, and that remains a clear focus for us.
Georges, can I just add to that? You know, I remember a very, a little-known club called the Coob Club, and it looks after its members in a very unique way. And I guess for me, it's been a key learning for me of how we look after our customers. And over the past 5 years, I think, you know, the overall customer focus has been completely revolutionized. So we—I hope that almost everybody in BT, 130,000-odd people, think much more deeply about looking after customers in the broadest possible sense. And to Simon's point, I am absolutely delighted that in the 5 years, the NPS has more than doubled. I mean, that is really important. We've got more to do, by the way. You can see... You know what the targets are.
If you're a customer of BT Group, we've got 30 million. You know, in general, the things have moved forward dramatically for the good. I think there's loads more to do. It's not just about the networks, obviously, give a significant boost by themselves. When you get onto new modern networks and get off the legacy, that by itself is a fundamental shift. But also, new propositions, new services that we're beginning to launch, both in Consumer and in business, are gonna make a big difference. And then if you are really, really, really good at digital and thinking about how you use new technology, the way we interact, the way we service customers, the way we look after customers, is gonna be transformed in the next few years. And therefore, it's one of the things that...
Most important thing to me. And I guess, you know, when I first arrived, you know, we had loads of call centers outside of the UK. A lot of feedback on that. It was one of the first decisions I took, was to bring it all back. From that moment, we've been on a journey to transform the way in which we think about our customers, the way we treat them, and the way they interact with us. And for me, it's one of the biggest things that has happened here, because we've now got a business that is doing the two things that you can't be successful without: it's growing, and the customers like what we're doing.
If you are not growing and your customers don't like what you're doing, you're gonna have a tough time, and I feel both those things are heading in the right direction. Thanks, Georgios.
Up next is Carl Murdock-Smith from Berenberg. Carl, you may proceed.
Philip, I just wanted to wish you all the best for the future. And, my question's about, H1, H2, EBITDA phasing in the business division. So after H1, EBITDA of GBP 806 million, and looking at where consensus is for the full year, at above GBP 1.7 billion, that would mean that H2 would need to be 53% of full year EBITDA. So that's quite an H2 ramp. Last year, we did see that kind of phasing in H2, but in the year before, the year ending March 2022, we didn't, and H1 and H2 were much more even. So I guess my question is, what do you expect this year's EBITDA phasing to be like in business?
Are you comfortable that there are good reasons to justify the significant H2 profitability ramp-up expected by consensus, particularly in the face of the current macro challenges and the salary phasing headwinds that you flagged earlier? Thank you.
Yeah, Carl, I'll let Simon give you his perspective on that. Obviously, we don't do loads of breakdowns on individual units for individual half years. So I hear what you're saying, Carl. Look, so thank you for your original comment. I appreciate that. You know, business is obviously a challenging environment for the reasons you know. What's happened historically, you know, this first half is a continuation of the trend for a little while. Yes, there's a change-out from old to new, which we're just working our way through. The chunk of business that actually is performing extremely well is the index link part. So and not just in terms of financials, but it, its customer base, its performance, its NPS, its revenue, EBITDA are all heading in the right direction.
And of course, their prices have moved up, as inflation has come through. In the big chunk of the rest of the business area, we've got long-term contracts, which are a lot on the legacy. We've been unable to pass through some of the costs that are associated with the inflation pressure we're all experiencing. So clearly, that is the headwind you're referring to in the first half, and obviously there's not gonna be an immediate bounce back in the second half. There's a lot of work that Bas and his team are working on. I have to say that the strategy that BT Business has now makes a lot of sense, and you're gonna see it in detail. You know, Bas is gonna spend some time with you in the not-too-distant future explaining that.
So I think, you know, you should wait until you see that, because there will be a much stronger proposition for our customers. And as we scale the new stuff, it will make a material difference. It's just that we're stuck between the old and the new, and not enough new. But at some stage, that will change, and I think Bas is gonna give you a sense of that, when he meets with you. Simon, do you want to make any further comments on phasing?
Sure. No, Carl, thanks for the question. I mean, the B2B business, you know, does typically see a little bit of a ramp-up in H2 versus H1, but I think this year it's gonna be flatter than we've seen, certainly than prior year, and possibly before. Why is that? Well, first of all, do remember, as I said earlier, we had a pay rise in September, halfway through the year. In the indexed part of our business, you do get this some attenuation of the price rise in the volume part of the business, and of course, you know, it's a pretty tough macro, particularly for sort of UK, large UK corporates, particularly public sector ones, and which have benefited a bit from FX last year. So I think it's gonna be flatter, than...
A bit of a ramp up, but flatter than prior years. Do bear in mind, of course, of course, Carl, that Openreach, I think, strongly performed in the first half of the year, and I suspect that, you know, the market will see that. So, you know, a bit of a, perhaps a bit weaker on business, but stronger on Openreach.
The following question comes from Nick Delfas from Redburn. Nick, please go ahead.
Hello, Nick?
Hello.
Nick's device has just disconnected. Let me proceed to Polo Tang from UBS. Polo, please go ahead.
Hi. Firstly, Philip, best wishes for the future, for life after BT Group. In terms of my question, it's on Openreach. So the minimum volume deals on FTTC or the Openreach 112 deals that you had with the largest ISPs has recently expired. However, are you seeing any change in terms of how these ISPs are behaving and the number of lines that they're delivering to Openreach? Also, if you look at some of the largest ISPs, Sky is exclusively with Openreach, but they recently signed a wholesale deal with Virgin Media in Ireland. Therefore, are you worried about the risk of Sky shifting some of its business away from Openreach to other players in the UK? Also, how do you think about the risks to Openreach from Virgin Media revisiting M&A discussions with TalkTalk? Thanks.
Yeah, I'm gonna I'll let Simon talk about one, one, two, and the effect on Openreach. And maybe I'll take the question on Sky and VMO2 and TTG. I think, you know, clearly it's, it's really important. I think what, what, what I'd point to is, you know, we've built the 12 million, connected 4. Of the 4 million, Sky are 1 million. So, so, so the market is moving pretty rapidly, obviously. And so, you know, for me, you know, one of the things that Clive and the Openreach team have done really, really well, you know, they run it as an independent company that, like any great company, thinks really carefully about its customers. And, and, you know, Sky is one of the biggest customers, as is TalkTalk Group.
So, you know, the question is always: How do we make sure that our large customers for Openreach feel comfortable with what we are being offered, what is being offered to them? So, you know, we've had Equinox 1, you know there's Equinox 2. Those things have worked for our customers and for Openreach, and I think it's working for everybody, all stakeholders, you know, the country at large, getting more digital infrastructure. So this is a scale business, and I think our customers understand that. They understand the scale is required to be successful. And, you know, networks is complicated at one level, but actually it's very simple. You know, it's heavy investment, massive CapEx, and you need to fill the network, and it's a scale business. So I think that allows us to be very competitive across the board.
And I don't just mean price, but of course I do include price in that. But making sure that, you know, we get people onto FTTP quickly, early, with a great product, with great service, at very attractive pricing. And as the Openreach initiative continues to roll out, you know, the financial picture for everybody should work. And what I'm hoping for is that both Openreach makes a great return, it deserves to, on a GBP 15 billion investment. But also our big customers like Sky and Talk Talk and Vodafone, and many others by the way, get not only exceptional value and great things for their customers, but they get a chance to make a very fair return, too.
That is the way it's set up, and that is the fair bet, by the way. So that's what we're doing, and I think there's every chance that our large customers will retain confidence in what we're doing if we can keep delivering in the way that we are. And that's why we're going so fast. And again, you know, I would say, just since you raised it on VMO2 and others, I think it's really good, you know, that we have strong competition and having a another very big player building fiber, competing hard, you know, I think is a good dynamic in the country. And again, as I say, you know, we are- I think leading in the race for fiber.
I hope we're comparing well to others, I think we are, and, and that's the way it's gonna continue for the foreseeable future. I really do believe. Simon, do you want to think about the 112 deals-
Sure.
and the effect of that coming to an end?
Yeah, really quick. I mean, yeah, ahead of its expiry, we took the decision to provide our CPs with, you know, 2 years advance notice of pricing, and so essentially, we're rolling forward those offers on the FTTC products with a sort of 2-year advance window. These are not... And that's at our election, clearly. These are not subject to volume commitments, but I think it's worked very effectively in helping CPs continue to run the FTTC platform. But it also means that the FTTP platform is very competitive for them, particularly with Equinox. So we're, you know, it's a big driver of support from CPs and also why we're getting such strong take-up on the FTTP platform.
Thanks.
The following question comes from Robert Grindle, from Deutsche Bank. Robert, please proceed.
Okay.
Robert, we can hear you loud and clear.
Great. Philip, thanks for your humor and joining us on these calls. Much appreciated. My question is about One-Touch Switching, which was delayed until March. Does this improve your ability to take share from VMO2? Is this something you're looking forward to? After all, you're doing quite well already with fiber. And I might just jam one in to Simon. You've put in a significant summary on the class action suit, but you haven't taken a provision. Why the profile given to it now? Is it because it's so close, or is there a change in thinking on the outcome risk? Thanks.
Robert, I'll do the first one and let Simon do the second. Thank you, by the way, for your comments. I've really enjoyed all our conversations. So, the short answer, it is a short answer to the One-Touch Switching is yes. You're absolutely right. You understand what's happening there. That does make a difference. And again, I support that, by the way. You know, you wanna in this kind of market, we wanna make sure that our customers get the opportunity to buy the best services and encourage people to compete like fury. So, yeah, that One-Touch Switching is gonna make a difference, and let the best man win, as they say. Simon, second part of the question?
Yes. I mean, we simply updated our disclosure on that matter, Robert. You know, I think as you've seen, you know, we continue to believe that the claim is without merit, and on that basis, you know, the accounting standards don't require a provision, don't deem it sensible or required at this point, but we've provided you with full disclosure of where we are.
Thanks, Robert.
Thank you.
Up next is David Wright from Bank of America. David, please go ahead.
Hi, David.
Hello, hello. Can you hear me, guys?
Can hear you loud and clear.
Great.
Yeah.
Great stuff. Okay, so, a very simple question and, then a question for yourself, Philip. Just on the unit cost efficiencies of Openreach. Just trying to understand to what extent we can extrapolate those, if anything. I might have thought that the unit cost would trend higher as you start to move a little bit more rural, perhaps with the build. And then just my question to you, Philip, again, you know, you've done your time now with BT, and you arrived promising to be braver and bolder, and I think you should be congratulated for your success there. And there have been many, many achievements. I guess one thing that stands out a little, though, is despite all of this, the share price has not really performed so well.
So I guess my sort of parting question to you is, is why do you think that really is? What do you think are the headwinds to, you know, some very obvious advantages that can be understood in BT in terms of the share price? And I know you mentioned before about Clive running Openreach as an independent company. Do you think it needs to be more independent to really realize value in the wider BT group? So just any perspectives on that would be appreciated.
Yeah, sure. I mean, Simon, do you wanna... I'll say a couple of things on unit cost efficiencies first, and then Simon may want to speak to that. Look, obviously, it's the first half, right? It's six months. This is a multi-year program. There are lots of moving parts. You know, we started, and then we had the COVID crisis and supply chain challenges and then inflation and a tight labor market, which we all had to sort of really deal with in what was a very challenging environment. I think things have obviously progressed, and these first six months on Openreach of this year are hugely encouraging. It literally, I think you're driving it. It is a window to future Openreach.
It is a little vignette of what it is, and it's the leverage in that company, and the cash flow implications of a company that's growing like it is, based on new FTTP. On the costs, you know, the twelve million includes three and a half million in Area 3. That's why we reiterated that. So, you know, we've got a blend here of all types of build. So they've done a fantastic job on that. I would say to you that the provisioning has stubbornly stayed the same, and I'm determined, and so Clive is, too, to try and find a way of bringing that down, which we hope we'll be able to do over time. So it's still early days on that because things are stabilizing a little bit, to my point on the macro.
Supply chain is much easier than it was before. The chip shortage, that thing, has not. That's pretty much gone away. So look, I think we need a bit more time to make sure that we're comfortable that there's a new normal on this, and we'll just have to wait and see. But it's hugely encouraging, I think. But let's just give it a bit more time for Clive to bed in the processes that are at this level. I mean, Simon, do you want to add anything on that?
I mean, I think you've captured it, Philip, and we set out 250-350, goodness, about three years ago now, and the fact that we're operating within that range, given the inflation we've had, I think is a testament to the Openreach team and the work they've done, particularly as we've had, as you said, a pretty broad mix. This year it's important to say we have benefited, as the supply chain is—there's a bit more capacity in it. Do remember, you know, you can get an improvement by some tilt in the mix in the first half, and we did remember to build a fair bit of WIP at the beginning of last year.
Yes.
But anyway, this year, lower end of that range, we've brought our CapEx down to GBP 5 billion, and that's given us the cash flow uplift. But I think as we look forward, we're gonna be staying firmly within that range. Exactly where will depend upon mix. We'll keep driving efficiencies to stay within it, and we've reiterated peak CapEx between, you know, GBP 5 billion and GBP 4.1 billion. But clearly, Clive is always driving to see if we can do better than that. Watch the future.
Yeah, and look, so it was hugely positive, but let's see how it evolves. But I think you can sense, you know, things are well under control in Openreach, and it's really encouraging. I mean, David, on your bigger questions, and again, thank you. Appreciate it. I hope I've been as bold as one can be in this job and maybe brave, I don't know. I hope not foolish. I'm pretty sure not. I guess, what do I think? I think that I'm pleased that we have the right strategy here, and we've been able to invest and stick the course, despite all these very difficult challenges that have been thrown at us. I won't reel them off again, but you know what they are. You know, life...
The last 5 years, I've experienced hugely challenging situations that no one expected, is the truth. And so despite that, we've had the courage and conviction to, to stick the course because we believe in the strategy, and the strategy is the right one: investing heavily to create a, a business that is better for customers and, and, and stronger for the future. So I, I think we've done that, and I, I look at it and go, you know, the, the company is growing for the first time in 6 years, revenue and EBITDA, and I think you can see that's pretty stable. And, you know, we talk about FTTP and 5G and customer experience, way better. The relationship with the regulator and indeed, the, the whole public sector, the government, policymakers, I think we've got that balance right. We're getting off legacy really quickly.
We've built all the new tech. Now, we've got to make the most of it. The digital capability is really much stronger. 80% of our data is in the cloud. And I think, you know, as I said, I'm pleased that we've helped keep the nation connected through difficult times, and we're building the network that people will need as these new technologies take off. You know, AI and virtual reality, augmented reality, they come, build these new headsets. You're gonna need... All these devices that will be connected are gonna need great networking, and I think we're gonna have that.
So, you know, and all the stuff we've done across the ESG agenda, I look at that and go, "That's important, too." And I mentioned it in my remarks, you know, and, you know, significant changes on sustainability and power usage and, you know, getting electric vehicles really going at scale and more to do, obviously. But so bringing the power consumption down, making sure that we're trying to do the right thing by society with all our digital skills activity, but also, you know, focus on diversity and inclusion, really believing in it. We're not perfect. We've got more to do, but the purpose of We Connect for Good is alive and well and kicking, and it's really, really strong in the BT Group.
So I think about all those things, and then I look at the share price, and I go, "That's very disappointing." And, you know, I rather hope that... I always expected it to be difficult, you know, knowing that we were gonna have to invest heavily. I knew that when I came in. I always expected it to be challenging. I rather hope the share price. I would have had the question: "Philip, you've been here five years, you've achieved a lot, but the share price hasn't moved forward at all." Unfortunately, I can't even achieve that. So I just have to take that on the chin, which I do, because I believe in the end, the market will recognize a good, strong company that is more competitive, structured advantage, the market leader, and has bright prospects.
That's the bit that I think is absolutely self-evident in these results, and over the course of the last few results is, you know, BT is a stronger, better business, more competitive, structurally improving its advantages, and therefore, having brighter prospects. So I hope... The reason why the share price is down is because our cash flow is down. I mean, at the end of the day, you know, you can't have it both ways. We're investing at an all-time high in stuff that really matters, that I think no one's debating whether it's right or wrong. We're not doing blue sky stuff. So I hope it'll come back. There are not enough people willing to buy the shares today.
I hope as the structural cashflow step change becomes nearer and nearer, I hope there'll be more people who can see that and will be convinced of it. I don't think necessarily, by the way, that making Openreach more independent is the answer. I think what you've seen today, that the window to the future of Openreach has been opened, and I don't think anyone can doubt, hopefully, that the success of that proposition. And again, as that builds and becomes a bigger picture, I suspect and hope that more investors will join the bandwagon because it's gonna be a good return on a massive investment.
Okay. Very much appreciated. Thank you, Philip. Good luck.
Thanks, David. Appreciate it.
Our next question comes from Nick Delfas from Redburn. Nick, please go ahead.
... Can you hear me this time?
Can, Nick. We can hear you loud and clear.
Best of luck for the, for the future. I just had a question on what the regime is likely to look like in the UK for an Operator of Last Resort, as and when stressed competitors go out of business. There's obviously one can look at various people's quoted bonds or what's going on in the alternative fiber network. So what's your understanding of how Consumers will be protected and transitioned to a new more secure operator? Thanks very much.
Nick, thanks for the question, and look, thank you for your sentiments to me personally. I appreciate it. Look, I personally, I'd say, you know, you're pushing a subject which obviously is hugely challenging for lots of people. I mean, inevitably, you know, in this environment, when you've got inflation running at the level it is, and interest rates where they are, and you've got the dynamic in our industry, which obviously you're poking at, there are implications of that.
Therefore, I think certainly from what I understand, there's a lot of thinking going through about how the market plays out in the future, and how do we make sure that overall, the whole country gets digital infrastructure, and customers are not in any way put at risk for that but having access to what is a fundamentally important service, you know, people can't do without it. We know how people rate, you know, connectivity, both mobile and fixed. It's very, very high up on the list. So look, I know there's a lot of thought on that. Clearly, there are gonna be some changes in the industry over the next few years.
All I can say is, BT is perfectly positioned, and I mean, in every regard, you know, financially, build-wide, technology-wise, footprint-wise, to make sure that if any customers, you know, have a challenge in getting the connectivity they need, we'll be there for them.
But there isn't a formal booklet we could refer to on what happens when it's 100,000 or 3 million customers who suddenly need a new home?
No. Look, that's true. It's probably, you know, it's more a question for other people. But what I would just say to you is, you know, BT is a company. You know, we built 800,000 new homes, FTTP. We're gonna build more than 900,000 next quarter, and so on. We're connecting at a massive rate. So if there are a few hundred thousand customers, you know, that need to be moved at some stage, we can do that, and we can do more as well. So look, we're ready and waiting if ever required.
Okay. Thanks very much indeed.
The following question comes from James Ratzer from New Street. James, please go ahead.
Me? Hello, can you hear me?
Hello, James.
You're cutting up a bit.
Yes. Can you hear me okay?
Yeah.
Yeah, yeah. Good morning, Philip. Yes, and just to echo the sentiments from, from others as well, very best of luck for everything in the future. So it's maybe kind of a bit banal when we have to only ask one question, to bring it down to just one simple question, please, but just on your energy costs, that's obviously been a headwind that you have been having to face over the past few years. You know, a couple of years ago, that was running at around just over GBP 1 billion a year. The current run rate, it's near GBP 1.3 billion a year. That's your property and energy cost line in aggregate.
How can you, what guidance can you give us on what tailwind, if any, you might get over the next 6-24 months on that cost line and the potential magnitude of the savings you could get? Thank you.
Yeah, James, I'll let Simon... Thanks for your kind comments. Appreciate it. Simon, do you want to sort of give James the energy situation?
Sure. I mean, the, obviously we, we have seen, you know, a big spike in, in, energy prices, which we hedged against, last year. We are also, I think, about now 95% hedged for this year. And clearly, you know, we had to hedge in at prices, in some cases that, that were, on average, higher than the price from last year because of the pace of the hedging. And we've also hedged, at this point, according to our policy, we're about 50%, you know, sorry, 70%, about 70% for FY 2025, and we've also got, hedging in place for FY 2026. So I certainly think we've sort of, you know, at, at the point from a pure commodity cost standpoint, I think we're well protected, and probably at sort of peak energy commodity cost.
But do bear in mind, the non-commodity costs continue with pressure as we move to a lower carbon economy. So the real pressure for ... The real focus for us, actually, in management of our energy cost is energy consumption. And we've made good progress in driving down energy consumption just through really tight management of it across, the estate and the network. The big prize for us is obviously closing down legacy networks, both the PSTN, but also FTTC, and so forth.
On that, Simon, could I just sort of just push you a bit more-
Sure.
if possible, to be a bit more quantitative on that? I mean, given you have hedged 70% for FY 2025, and you presumably know roughly how your energy consumption is gonna play out, you know, for FY 2025, how should that energy cost then develop against the current GBP 1.3 billion run rate?
I mean, I think it's gonna depend upon the you know, what the energy price does on the unhedged component, which I'm not gonna speculate on at this point, but certainly given our hedging, you know, I don't think it's gonna be a continued headwind for us. The key issue for us is improving consumption.
But if energy spot is flat, the GBP 1.3 billion would come down to roughly what for next year, please?
I'm not gonna give you point estimates on our energy costs for next year.
Okay. All right. Thank you.
The following question comes from Nick Lyall from Société Générale. Nick, please go ahead.
Be loud and clear, Nick.
Ah, great. All the best from me, too, Philip.
Thanks.
Just to come back to the Consumer ARPU, please. I mean, broadband was a little bit weak, just sequentially this quarter, so you saw that attenuation effect. But postpaid mobile stayed pretty strong at about 11% growth. So could you just tell us a bit. A bit surprised that broadband was the weaker one of the two. Could you tell us why that is? Are you seeing quite a lot of spin down in Consumer broadband? You're having to work hard to keep the churn down, and why is it-
Yeah. Yeah, Nick, it's a good question. I'll get Simon to give you the answer on Consumer ARPU, mobile versus fixed. There is some specific things I want to say about that, but I should just step back. Where I'm actually - I think Mark and the Consumer group have done a fab job here, right? So we, we've obviously put some pricing through and obviously a headline level that's quite high. We all know, who understand the industry, how it plays out over the year. So we also, you know what that, does that drop through to EBITDA? Somewhere between 30%-50%. We think the lower end this year because the price was higher.
But what they have done so well in the Consumer team is, despite these big price increases, we've kept churn very low, and satisfaction, you know, exactly where it needed to be. So the NPS is strong still. So I'm really pleased about that, but it's not. One size does not fit all. So we speak to our customers and understand the segmentation really, really carefully. So there's a customer segmentation, and there's a financial segmentation. So what's happening in the fixed line, Simon will explain about some of those people who haven't got price increases. So I'll let Simon explain what's happened in the mobile and fixed, because you are right, they are different. But the overall picture is exactly what we sort of expected, and we're really happy with it.
Yeah, although the mobile number is very different, and you could argue much more positive. You look at it in the round, it's really good. So, Simon, do you want to explain that?
Yeah. I mean, I think both, in, in terms of both the broadband base and the mobile base, we've obviously put through the CPI plus 3.9% price increase. You know, that has, I think, landed as well as we could have hoped, and churn remains low. The mobile business has benefited from some enhancement year on year, associated with higher levels of roaming and roaming activity. We've also had, you know, reasonably strong revenues on some interconnect messaging business as well. So that's amplified, you know, the, the ARPU expansion on, on mobile. On broadband, obviously, we haven't benefited from, from those two aspects.
The other thing to bear in mind, of course, is that there's a portion of our customer base that don't benefit from the CPI plus, and about 3 million and a fair chunk of those are actually in the broadband side, things like our Home Essentials product, where we're a share leader in providing essentially subsidized product to you know customers in certain categories. So that's obviously had a bearing on the broadband price. So hope that gives you the drivers. Roaming interconnect, enhancing mobile you know customers protected from the CPI plus having a slight damper on broadband. Okay?
That's great.
Thank you both. Cheers.
Yeah.
Our next question comes from Maurice Patrick, from Barclays. Maurice, please go ahead.
Maurice, we can hear you.
Great. I'm always, always, always checking when on a telecom conference call.
Yeah.
Yeah, first of all, yeah, good luck for the future, Philip. I'm sure we're all looking forward to the invite to your, to your leaving do.
Yeah.
Maybe if I could ask just a kind of simple question, really, on pricing for next year. You've got the CPI plus 3.9% in Consumer, most Openreach products linked to CPI. You've talked about pressure on household spending generally during the call. Maybe it's in your gift as CEO to put pricing up for next year. Maybe it's Allison's job, but just to get your thoughts in terms of if you think it's right to be jamming through a 10% price increase again through next year, given where we are with the financial stresses where they are. Thank you.
Yeah, look, I... Because it's an important question. You know, in terms of, it's split into two parts, there's Openreach, and then there's, you know, retail. So Openreach pricing, you know, will go up with CPI, as agreed in the WFTMR. And by the way, that's so important to fund the new build program, right? So that's something which is, I think, a straight line correlation, if you like, or connection, is those price increases. And, you know, if we didn't have CPI, we wouldn't be able to afford to build the network in the way that we have. So that's a long-standing agreement that lasts, you know, over multiple years at the regulatory level.
I think it's important to encourage, allow everyone to build, and be encouraged to build because the financials are attractive enough. There's that part of it. On the Consumer side, I, again, it's from a total BT point of view, we're investing so heavily. It's the same sort of story, which is, you know, we do need to fund our investment, but also we need to get a return for our shareholders, right? Our cash flow is way down. Let's not forget that. You know, the cash flow has been impacted by this investment program, which is fine, but also our customers get extraordinary value for money. I repeat, you can buy a 100 megabits per second service and pay less than GBP 1 a day.
So think of all those people who are at home, you know, families who are getting fantastic connectivity and all the things they want to do, on their computers, on their mobile phones, and that is our new network. That is our network providing that service. So the value for money, it's, you know, less than GBP 0.50 a day, sometimes on mobile and a GBP 1 a day for fixed, is exceptional. And the data usage continues to go up by 40%. And by the way, you know that's not gonna slow down anytime soon. You know, all this talk of AI and the new technologies, they are gonna, it's all about data. But these new devices and all these new technologies are gonna consume even more data.
So thank goodness, we've built these new networks that can be able to deal with it relatively easily and not have incremental costs associated with it. So when you put it in the round, that's why our price increases are gonna continue to go through, both at retail and at the wholesale level, because we've got the balance right, right now, and the value for money for our customers is exceptional. The good news is inflation is definitely coming down, and we all hope, really hope, that we get to that 2% target as quickly as possible, and then that pricing will no longer be an issue for any of us.
Thank you.
The following question comes from Adam Fox-Rumley from HSBC. Adam, please go ahead.
Adam.
Hello. Thank you for giving me the second chance. Good luck with what's next, Philip. Thank you.
Thank you.
Over the years. I wanted to kind of ask about CapEx and the investment case, tying a couple of the other questions together, really. I think you've seen the share price reaction today, CapEx down, free cash flow up. I know the fiber build and the CapEx that's associated with that is locked in, but I wanted to ask you if you think there are opportunities for optimizing the rest of the CapEx budget, given its scale and the fact that fiber CapEx is plainly gonna remain high for the next three years. Thank you.
Yeah, look, I'll let Simon give his perspective on that. I would just say one thing before Simon gives his view on it. So if I step back a little bit, you know, of course, we understand. You're absolutely right. Of course, we get that. My main view is, BT needs to be as strong as possible, as competitive as possible, as strategic advantage as possible, and I think if we hadn't built as fast on fiber, it could be a very, very different story. So I think that although it's painful for the reasons that we know, and it is all about the cash flow, this is the decisions we took as a board, as a company, and that Simon and I proposed, are the right things for this group in the future.
So, we need to continue to keep that momentum, which is why we said today that we're gonna increase the build in quarter three and target increase again in quarter four on build. And the connection rate is also gonna tick up a little bit. So, you know, that has implications from a CapEx point of view, notwithstanding the huge progress we're making on the build costs that we announced today, where you can see we just lowered our CapEx outlook a little bit for this year. So it's trying to get that balance right, but always making sure that every pound we spend is the right pound, is a program of work here that Simon leads. So I'll let Simon give his perspective on optimizing the rest of the CapEx budget.
Yeah, I mean, look, thanks for the question. I mean, clearly, BT is investing, you know, at a very high level, you know, we remain very confident that as we bring down, get past, you know, peak FTTP build, CapEx will drop by at least GBP 1 billion. The components of that capital program, of course, FTTP is the largest single component, but don't forget, we're also investing in our 5G rollout, and we've got the broadest, you know, coverage. You know, we got 9 million customers or so on Consumer onto the 5G network, and that incidentally, is underpinning some of that ARPU strength that you saw. We're also investing in a converged core, and that's gonna become increasingly powerful for us with New EE. We're also investing in IT.
I talked earlier about the further opportunity to drive NPS, which drives the better churn. You know, we're in the midst of a major program to upgrade our IT systems. And in addition to that, we obviously capitalize customer connect- some customer kit, particularly in the Consumer space, as we move people on to, you know, better product, new routes and so forth, there's a capital charge. So there's a-- it's an extensive capital program. We are very confident that it is driving quality returns for our shareholders, albeit a chunk of it in network, longer dated return. Now, we clearly challenge every year that level of capital investment in two respects.
Firstly, it needs to be demonstrated that we're implementing the capital projects at ever lower unit cost, and I think we're making, you know, good strides on that across the board. Secondly, of course, we test and pressure each element of the capital program to ensure it provides a return. That underpins the strategy. We've guided to 5-5.1 peak CapEx. We reconfirm that. We've guided to it, it'll come down by at least GBP 1 billion. We're absolutely clear that will happen. If there are opportunities to deliver the same returns with lower CapEx in the interim, we'll... You know, the market will be the first to hear if we arrive at that.
Yeah, that's right, Adam. You know, just, I mean, obviously, you know, you're pushing, obviously, a very important topic, cash flow, and then we've suffered through the years of spending so much and therefore having a depressed cash flow for a number of years before we get that GBP 1 billion that Simon referred to. Of course, you know, mathematically, you can reduce the build a little bit, and then we'll get another share price leap. The good news here is we've had a cash flow, sort of, minor change upwards, and we've built more, connected more, and we've lowered our cost to build. I mean, that's a fantastic outcome. So, hopefully more of that in the future.
Thanks very much.
Thanks, Adam.
Our final question comes from Andrew Beale from Arete Research. Andrew, you may proceed.
Sorry to ask another CapEx question, but this time on the fiber unit efficiencies. But can you give us some sense of how much of the benefit in unit costs comes from pre-building the spine and WIP? How much is exceptional COVID supply chain inflation starting to unwind? And how much is new techniques, and what are those new techniques? I guess what I'm really asking is if the upside risk to fiber CapEx from inflation is something that we need to worry about much less going forward as you accelerate the build pace because you've got permanent unit cost reductions, or is it more about a temporary benefit from pre-build?
Very good question. You're gonna get a bit more detail on this in December on the new technologies that Clive and the Openreach team have developed. And we will share them at a headline level, but, you know, this is an example of the expertise that sits in BT and within Openreach, specifically in this case. So we will give you a sense of some of the new techniques and some of the activities we've put in place that have delivered the results you've seen. You'll understand we can't share loads of detail because, by definition, it's part of our competitive advantage to an earlier question. But you are right to probe that. The truth of it is, it's a mixture of all the things you talked about.
And Clive is working really hard to sort of embed those, if you like, into the way of doing things at the higher build rate and hopefully a continuing growth in connection rate. So it's a combination of all those things, and the environment is, you're right, a bit better. The labor market is less problematic for us than it was, obviously, and I think you might see that continuing, maybe, you know, because many people think unemployment is gonna rise. And maybe it does, in which case, that trend will continue. And yes, you're right, the supply chain challenges that we did experience, and the combination of those two are very significant, are no longer there. Now, of course, no complacency. You never know what's around the corner.
We're living in a very, very difficult situation in terms of a geopolitical, you know, without even talking, it's just, just terrible situation from a war point of view, that has unknown implications for all of us. So I think we're just very cautious, super careful, but we're making great progress. And I have to say, I'm absolutely delighted with what's happening in my company, but specifically in Openreach. You know, these are really, really strong KPIs in Openreach that, as I keep repeating, gives you a, hopefully, a window, a picture of what the future holds. And I think it's firming up very nicely. Simon, do you want to add anything on the mix of-
No, I think-
- costs? I mean...
No, I think, I think that you've captured it. I mean, the obvious drawdown of WIP, supply chain capacity, you know, new techniques. You know, it's a formidable engineering team in Openreach, and they're continued looking at how they can build and provision better, how they can work more effectively with contractors and... So I think there's a whole set of innovations that drive, obviously, mix. They've all played a role.
Yes.
I don't think there's any one overarching factor. I think the key point to make is that despite traveling through a very inflationary period, we have maintained our build cost at the GBP 250-GBP 350 range. And, you know, we're actually operated at the first half at the lower end of that. We have a very high degree of confidence. You know, we can stay within that range. And I think given, you know, and that's a range we set three years ago, I think, you know, that should give everyone real confidence the CapEx in Openreach is completely under control.
Absolutely. Andrew, one little thing for you. When you're in the briefing with Clive, you know, the topic of the day is AI, obviously. We'll be able to use AI. We are using AI, network planning, fiber build, fiber provisioning, and many other areas. Openreach is ripe for taking advantage of some of the new technologies in AI, and as we've been doing for a little while, robotics, you know. So all this money we're investing is making sure we're delivering for our customers and at the leading edge, and increasingly, we're delivering more on that front. So he'll give you a flavor of that, but I'll make sure he doesn't give you too much detail. We don't want other people stealing that.
Okay. Thanks a lot.
So, I think that's—I think we are done. Yeah. Look, thank you, everybody. I think we've got all the questions that people wanted to ask. I'm just checking on the screen. Looks like it. Can I thank you all very much for today, but more importantly, thank you for all the interactions we've had over the last five years? Genuinely, I really have enjoyed the... Not always every single part of it, of course, but the scrutiny, the challenge, the questions, the debate. I know all of you care deeply about what's happening at BT and certainly understand a lot of the detailed moving parts within the BT Group. So it's a pleasure talking to people who know what they're doing. Thank you very much. Really appreciate our interaction.
I wish you all the best in your future careers. All the best. Thanks very much. Bye.