BT Group plc ADR BT CEO Hosts 2013 Annual General Meeting Transcript
Good morning, ladies and gentlemen. Welcome, and thank you very much for coming to our 2013 Annual General Meeting. Its a particular pleasure to be back here in Edinburgh today. We meet so that the board of BT can report to you on how the company has performed, and the story is a very positive one.
Our financial results have met or exceeded expectations. We have continued to reward you, our shareholders, and we have continued to provide services for a wide array of customers, including very noticeably, last summer, when we helped to deliver a successful Olympic and Paralympic Games. We were both sponsors of and infrastructure provider for this important event. It was BT who helped broadcast video and data to the world. We were able to deliver success here on many other fronts, thanks to the tremendous efforts of our people and the strength of a very talented and dedicated management team.
As many of you know, we announced last month an important change to that team. The change arises because the Chief Executive was asked by the Prime Minister to become the Minister of State for Trade and Investment. Ians view, which I share, is that it was an honor for him to be asked to serve the nation in this way. He will leave BT in September and commence work as Trade Minister in December after 11 very successful years with this company, the past 5 of them as our Chief Executive. The company has become distinctly stronger on Ians watch, as we saw in the full year financial results.
But I also want to turn to the appointment of Gavin Patterson as Ians successor taking over in September. The board was very clear that Gavin is the right person to lead BT in the years ahead. As Chief Executive of our Retail Division, Gavin has become a member of the BT board for the past 5 years. He has a detailed knowledge of all parts of our business. He was involved in creating the strategy, which has delivered BTs recent record of strong performance. He is committed to continuing to develop and implement that strategy, including through the launch of BT Sport, an initiative which he helped to conceive and where his involvement has been critical. As the leader of our Retail Division, Gavin has consistently delivered strong financial and operational results, and the board has every confidence the company will continue to move forward with the relentless execution of our strategy.
Let me now turn to the financial results for the year, which Ian will cover in detail. These showed a very healthy position with regard to cost control, profits and rewards for shareholders and compared very favorably to an industry, which across Europe, has seen profits and cash flows decline. Our financial performance has been such that we proposed a final dividend of 6.5p, taking the total dividend for the year to 9.5p, an increase of 14% on the previous year. That is towards the higher end of the 10% to 15% range, which we promised, reflecting our good performance in the year. And we continue to expect that well increase dividend payments by a further 10% to 15%, both this year and next year.
Just as we take seriously our obligation to deliver strong financial results, so we take very seriously all of our wider obligations to society and the communities in which we live, as we do through our people and through our technology. Im proud that we made time for BT people to spend more than the equivalent of 43,000 days volunteering to help with a huge array of charitable and community projects around the world. During the year, we worked with 856 charities across more than 2,000 projects. Many were small scale local initiative initiatives. Others were higher profile, for example, supporting Children in Need and Comic Relief. On Red Nose Day, hundreds of BT volunteers were the heart and operation, which dealt with more than 450,000 phone calls. Their effort helped Comic Relief raise GBP 75 million, the highest indiscernible total in the history of Red Nose Day. and around the world. And our commission free MyDonate platform for online giving continues to make progress, helping 3,600 charities to raise GBP 25 million over the year. All this is activity which we are very proud, but we never forget were able to do these things because we are running your company in a manner that delivers financial success.
So before I finish, I want to show you this. As this slide shows, over the past year, the average return on shares held in the company listed in the FTSE 100 gave a return of 16%. For European telecommunication companies, the average figure was negative and minus 3%. For BT, by contrast, the return was 55%, and our share price is now the highest it has been for 12 years. As you can see, it is also similar picture for 3 years where BT has achieved 124% return, far outpacing both the FTSE in comparable companies. I think those figures show that the strategy we have for this company continues to be the right one. Our aim remains to drive profitable revenue growth and to increase our profits and cash. We are making the returns we need to invest in your company and make it even stronger for the future. You can see that with our rollout of fiber optic cable for faster broadband, which is one of the fastest rollouts in the world. You can see that with our investment in BT Sports and Television. And you can see that as we continue to drive investment in high growth areas of the world. The management team continues to run the business in a manner which enables all of this and enables us to reduce our debt, support the pension fund and pay you, our shareholders, a progressive dividend. As a company, our vision continues to be one of better serving all those who have a stake in the success of BT.
And Im now going to hand over to Ian, who will go into greater detail about how we are making that vision a reality. Ian?
Thank you, Michael, and thank you for coming today. A nice sunny day in Edinburgh is normally like this, I know. Also, I would like to thank all of you, our shareholders. Some of you have come to many of our AGMs, and Id like to thank you over the years for your help and support. It is very much appreciated.
What I want to do is talk to you today about a little bit about how we did last year, a bit about the markets in which we operate, but really concentrate on BT strategy, what is it and how we are doing with it.
First of all, in terms of last years results. In terms of revenue, our key measure is what we call underlying revenue, which was down 3%. Now we still dont want to see our revenue decline, and were absolutely investing for growth. But that number represented certainly a number that was compared well to our European competitors, and also by the last quarter of the year, weve managed to stabilize the business with no declines. And that decline really reflected price reduction, particularly due to regulation, but also niche of our business, prices often go down in many parts of our business. However, despite the decline in revenue, we actually saw an improvement in earnings per share, up 12%, the key measure of profitability.
Our free cash flow was flat, really maintaining a much higher level. 3 year 4 years ago, we were achieving around GBP 700 million odds in free cash flow. Today, GBP 2.3 billion despite substantial investment in a number of areas that will drive our future growth.
Net debt will continue to come down. We reduced our net debt by over GBP 1 billion. And it is very important to us as a management team, Im sure to you as shareholders, that we actually focus on bringing down net debt, make our company very strong and stable. And its something that has improved over many, many years, and its something we are committed to do, a strong company that invests in the future.
Turning a little bit to the markets in which we operate. isnt doing so well. Its not true in telecom. Its not true at all. and how were doing. And you can see these in these charts. These are charts by Ofcom, not from BT. Thats from Ofcom. But telecom is and significantly so. And that actually reflects competition. And its not just true in traditional fixed lines. Its not just true in the second chart of broadband, but also superfast broadband, so fiber. prices are. in a good position.
And you see that good position isnt just about price. being slow, and we know there are some places were rolling out fiber as fast as we can in some places that doesnt have it. But again, an independent study, not something commissioned by BT, were now a 2 in the G8 group Of companies for fastest broadband speeds. Were behind Japan, although the topology of Japan, obviously with more people living in apartment blocks, makes it easier in some ways, but were ahead of our major industrial competitors. And that position is improving all the time with our fast rollout program.
So we do well on cost, well in speed, and also, on overall usage of Internet. actually uses Internet a lot. And were actually ranked, this is a survey by Boston Consulting Group, they are one of the major consulting groups, 1 in the world for the index of Internet strength, so how much people use it, the Internet, and how much it contributes to the economy. But actually, we start from a pretty enviable position. Were building it, recognize our weaknesses, try to build up. But I think particularly with BT and the investment that your company has made, actually its something to be proud of.
And that really brings us to strategy. Our strategy, and Ill explain it, if you start at the bottom left, starts with customer service delivery. And it starts for 2 reasons there. One for the obvious reason that we know we need to improve our customer service delivery because people rely on our services more and more and more. The second reason also is when something goes wrong, its also an expensive thing not just for the customers but for us as a company. And therefore, its one of the major sources of cost in our business. If you can remove failure, well reduce our cost base. And that is why customer service delivery leads on to cost transformation. Take the failures of the business, you create better business. And as we create a better business with lower costs, we free up resources to invest in our future, invest in areas such as fiber, in TV, in the fast growing economies to create a growing, strong business with sustainable, strong and growing cash flows and profits. And that is what all we want to do.
And what I want to do is just to talk you through each of the elements and tell you honestly about how were doing. Mostly good, and sometimes, we got to do better, and we recognize that as a management team. And probably no area more so than customer service delivery. I could look over the last 4 years and say weve made improvements and we have. Its true. Our consumer complaints are almost down by 2/5. And actually, if you look to our business complaints, theyre down by around about 4/5, so a huge improvement. But still too many. But last year, it wasnt so good. We measure something called right first time, and thats a key measure of how weve done things right first time. And it went backwards last year.
And the reason it went backwards after many, many years of improvements, the last 4 or 5 years of improvements, theres a number of reasons. England had its wettest in record. Scotland was we also had a bad winter but not a bad winter and summer, but not quite as bad as England did. And that meant we had a lot more repairs. Water levels rose up, affected electricals. We have got a lot more resource into repair. As we had to put it into repair, we had to take resource off, provisioning new lines, and that meant things took longer than we would have wanted. It meant we have more calls to our call centers, and it really did impact the customer service. And we know that, and that showed up in the numbers.
Ill talk shortly about how were trying to deal with that because weve got to recognize most of our hope not to have the worst weather on record every year. We are recognizing the weather is going to get more variable. Also, we recognized we have to recover from these situations more quickly. And we have started to see a stronger recovery, and we have seen the first quarter of the year, this year, much faster provision, repair times, and thats improved a lot. But were also planning significant improvement, and I wont cover all of the areas but just to give you a feel of some of the things were trying to do in making significant further investments in service.
First of this, this starts really when you make a call. I know people hate, and I include myself, the press 1, press 2, press 3. A little bit, its necessary because weve got to get the right sort of agent with the right sort of skills to handle it. But it takes too long, and theres too many buttons to press. And the more complex our business get, it doesnt get better. Well, one of the things weve done, and its a really important thing, is we recently introduced actually voice recognition. So if you say, I want to talk about my bill, it will recognize it, recognize over 9 times out of 10 what you want. And about half our customers are using that now, taking away huge amount of button pressing. Otherwise, were trying to reduce the number of options, number of menus. Were trying to multiscale our people so we dont have to be so specific about it. And weve taken about a 20% of the time outside the pressing buttons. But theres still work to do, and we know that, but we are working on it.
Were also investing in servicing a number of areas. Weve recruited, for instance, 1,600 engineers to help with fiber rollout but also to help with the repair situation, to make sure we can manage spikes in our repair, looking working with more flexibility so we can bring on more people when we really need it. But also, weve invested in contact centers so we can handle our calls. And over the last few years last year, 18 months, weve opened contact centers in South Tyneside, in Belfast, in Accrington, in Sandwell, which is in the Midlands. in doing that. Also, these people have multiple skills. So again, that helps. And the terms and conditions are more flexible. It allows us to provide service when you need it. And thats something we want to continue. We are still looking to see how we continue that. And thats something that I know Gavin and the team will be working on over the course of the next year.
But also, its about diagnostics because people often say to me, Okay, send an engineer. Now sending an engineer when an engineer isnt the right answer is as bad, frankly, as not sending an engineer when an engineer is the right answer. And its really important to have better diagnostics to help you and your home so you know when maybe youve got to call us or something, maybe you can sort it yourself because you need to just you can identify what the issue is, maybe sign with the internal wiring, but also identify for us whether it may be in the exchange, whether some of the installed copper lines, and we put a lot of investment into trying to stop that happening, or whether its somewhere else in the network.
Weve also given our engineers better tools. So youll see a number of engineers. So theyre actually carrying iPhones. Its not because they choose to carry iPhones for personal use. Because we can give them a wealth of information. And actually, its one of the largest installations of iPhones in business anywhere in Europe. And its really helping our engineers do things more quickly, reduce the task time and give them better information. So theres a number of things we are doing. But we know, and we absolutely know, there is more to do. And were really focusing on making sure this year is significantly better than last year, and frankly, the year after, better still.
Now turning away from customer service to cost transformation. This has been a big success in making our business more efficient, and its vitally important. Its a quicker business. Its one that has less failures in it. And weve reduced our cost by GBP 4.7 billion over the last 5 years about the last 4 years. And that represents over 20% of our cost base. So really, really significant reduction. And this is a more competitive business. Its vital. If we dont have a competitive cost base, if were not agile, were not quick, we just wont win business. So its been really, really important. And that has released investment funds, not just cash but also peoples tying systems, focus, to allow us to build new streams of business, which Im going to talk about in a second.
But one of things were very conscious of, as you become more efficient, you need less people. What we try to do is protect the jobs of our permanent people where we can. And we cant always do it, but weve retrained and redeployed tens of thousands of people over the last 5 years. In the last year alone, weve in sourced 4,000 roles. And thats really important. I think one of the jobs of, as the board, is try and protect as much as we can our full time employees, our permanent employees. And we see a substantial reduction in number of agency staff and temporary workers working for us and actually managed to maintain the jobs far better of BT people, permanent BT people, and Im delighted about that.
So we think weve got more to do. Were still not as efficient a business as we want to be, but well carry on doing that. Well carry on being more efficient. Well carry on being a quicker business, and well carry on finding ways in which we can protect and enhance the job for our people and hopefully recruit more as well.
So that turns me to investments for the future because all of these release of funds allows us to invest in the future. And theres a number of areas were doing it, the areas such as fiber, TV and sport, IT services and the area of mobility. And Ill talk about each of these through the slides.
