30
October
2014
|
08:00
Europe/Amsterdam

Results for the second quarter and half year to 30 September 2014

Summary

BT Group plc (BT.L) today announced its results for the second quarter and half year to 30 September 2014.

BT Group plc (BT.L) today announced its results for the second quarter and half year to 30 September 2014.

Q2-14 Results
Gavin Patterson, Chief Executive, commenting on the results, said:
“This was a solid quarter, with results slightly ahead of market expectations as we reduced costs and grew EBITDA. Profit before tax was up 13 per cent.

“Our Consumer business continues to perform well thanks to the impact of BT Sport where Premier League audiences are up around 45 per cent on average. Fibre is also driving growth with one in three of our retail broadband customers enjoying super-fast speeds.

“Our fibre footprint has increased to more than 21 million premises and will continue to grow. We continue to see strong demand across the market for the faster speeds that fibre offers.

“Further improving customer service remains a priority and Openreach is recruiting an additional 500 engineers to help us better serve our customers. We have also launched a range of new cloud-based products and services aimed at the business market.

“We are delivering on our strategy and our outlook remains unchanged. Our confidence enables us to raise our interim dividend by 15 per cent to 3.9p.”

Key points for the second quarter:

  • Underlying revenue2 excluding transit up 0.2%
  • Underlying operating costs4 excluding transit down 1%
  • EBITDA1 up 1% and earnings per share1 up 15%
  • 344,000 Openreach fibre broadband net connections, up 9%
  • Interim dividend up 15% to 3.9p
  • Outlook reaffirmed

1 Before specific items. Specific items are defined on page 3
2 Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals
3 Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments
4 Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals, and is before depreciation and amortisation

GROUP RESULTS FOR THE SECOND QUARTER AND
HALF YEAR TO 30 SEPTEMBER 2014

Q2-14 Group results

Line of business results1

Line of business results
1 Before specific items
2 Before purchases of telecommunications licences
3 Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments
4 Certain results have been restated. See Note 1 to the condensed consolidated financial statements
n/m = not meaningful
Notes:

1. The commentary focuses on the trading results on an adjusted basis, which is a non-GAAP measure, being before specific items. Unless otherwise stated, revenue, operating costs, earnings before interest, tax, depreciation and amortisation (EBITDA), operating profit, profit before tax, net finance expense, earnings per share (EPS) and normalised free cash flow are measured before specific items. This is consistent with the way that financial performance is measured by management and reported to the Board and the Operating Committee and assists in providing a meaningful analysis of the trading results of the group. The directors believe that presentation of the group’s results in this way is relevant to the understanding of the group’s financial performance as specific items are those that in management’s judgement need to be disclosed by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Specific items may not be comparable with similarly titled measures used by other companies. Reported revenue, reported operating costs, reported EBITDA, reported operating profit, reported profit before tax, reported net finance expense, reported EPS and reported free cash flow are the equivalent unadjusted or statutory measures.

2. Trends in underlying revenue, trends in underlying operating costs, and underlying EBITDA are non-GAAP measures which seek to reflect the underlying performance of the group that will contribute to long-term profitable growth and as such exclude the impact of acquisitions and disposals, foreign exchange movements and any specific items. We focus on the trends in underlying revenue and underlying operating costs excluding transit as transit traffic is low-margin and is significantly affected by reductions in mobile termination rates.

BT Group plc
GROUP RESULTS FOR THE SECOND QUARTER TO
30 SEPTEMBER 2014

Overview
Our key measure of the group’s revenue trend, underlying revenue excluding transit, increased 0.2% in the second quarter. A 7% revenue increase in BT Consumer, primarily driven by growth in broadband and TV revenue, was offset by reductions elsewhere, mainly in BT Wholesale and Openreach.

We are pleased with the performance of BT Sport which has contributed to top and bottom-line growth in BT Consumer. Ofcom’s Narrowband Market Review and the migration of services off a previously terminated contract continued to affect BT Wholesale. Together, these accounted for around two-thirds of the decline in BT Wholesale’s underlying revenue excluding transit. In Openreach, regulatory price changes more than offset 38% growth in fibre broadband revenue. BT Global Services continues to be impacted by lower revenue in the UK public sector but delivered a strong revenue performance in the high-growth regions of the world. BT Business revenue declined, reflecting lower call and line volumes, but by less than in the first quarter.

Our cost transformation programmes have generated a 1% increase in EBITDA. Excluding foreign exchange movements, underlying EBITDA was up 2%.

Order intake on a rolling twelve-month basis was down 14% in BT Global Services and 30% in BT Wholesale, reflecting some large contract wins and renewals a year earlier, whilst BT Business order intake was up 5%.

In the quarter we launched a number of new and innovative solutions for our customers, including BT Assure Threat Defence in BT Global Services and a new BT Business IP service, BT Cloud Voice. In BT Consumer we launched the BT8500 phone, which is our most advanced nuisance call blocking phone to date. BT Wholesale launched Wholesale Hosted Centrex, our white-label unified communications service, which is hosted in the cloud and offers all the benefits of accessing IP services from any device and location.

We have passed more than 21m premises with our fibre broadband network. Openreach achieved 344,000 fibre broadband net connections, 9% more than last year, and around 3.4m homes and businesses are now connected, 16% of those passed. We have more than 2.5m retail fibre broadband customers, having added 203,000 this quarter. The UK broadband market1 grew by 182,000, of which our share was 88,000 or 48%.

Income statement
Adjusted revenue of £4,383m was down 2% reflecting a £77m negative impact from foreign exchange movements, a £36m reduction in transit revenue and a £2m impact from disposals. Underlying revenue excluding transit was up 0.2%. Reported revenue, which includes specific items, was down 1%.

Operating costs2 decreased 4% to £2,933m. Underlying operating costs3 excluding transit were down 1% with our cost transformation activities more than offsetting higher cost of sales.

Net labour costs decreased 5%, or 4% excluding foreign exchange movements due to the savings achieved by our group-wide restructuring programme. Payments to telecommunications operators were down 14% primarily reflecting lower transit volumes in BT Wholesale and lower call volumes. Property and energy, network operating and IT, and other costs decreased 1% reflecting higher contract and equipment costs offset by favourable foreign exchange movements. BT Sport programme rights charges were £83m (Q2 2013/14: £50m).

Adjusted EBITDA of £1,450m was up 1%. Depreciation and amortisation of £618m was down 9%, mainly reflecting the more efficient delivery of our capital expenditure programmes over the last few years and some of our assets becoming fully depreciated. Adjusted net finance expense was £143m, down £5m.

Adjusted profit before tax was £690m, up 13% reflecting the decline in depreciation and amortisation. Reported profit before tax (which includes specific items) was £563m, also up 13%. The effective tax rate on the profit before specific items was 19.9% (Q2 2013/14: 22.3%).

Adjusted EPS of 6.9p was up 15%. Reported EPS was 5.6p, down 28% reflecting the impact of specific items. Our EPS measures are based on a weighted average number of shares in issue of 8,027m (Q2 2013/14: 7,864m).

1 DSL and fibre
2 Before depreciation and amortisation
3 Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals, and is before depreciation and amortisation

Specific items
Specific items resulted in a net charge after tax of £107m (Q2 2013/14: credit of £140m). Net interest expense on pensions was £73m (Q2 2013/14: £58m). Restructuring charges of £60m (Q2 2013/14: £52m) were incurred as part of our group-wide restructuring programme and relate primarily to leavers and property and network rationalisation. Regulatory items (see below) have resulted in a net credit to specific items of £5m (Q2 2013/14: £nil) and we recognised a £1m profit (Q2 2013/14: £nil) on the disposal of a subsidiary. The tax credit on specific items was £20m (Q2 2013/14: £19m). Specific items last year benefited from a £231m deferred tax credit.

Capital expenditure Capital expenditure1 of £533m was down 10% reflecting the phasing of expenditure within the year and was net of £94m grant funding (Q2 2013/14: £15m) relating to our activity on the Broadband Delivery UK (BDUK) programme.

Free cash flow
Normalised free cash flow2 was an inflow of £533m, a decrease of 13% compared with the prior year, but 19% higher at £655m for the six months to 30 September 2014. The decline in the quarter mainly reflects movements in working capital and higher tax payments, partly offset by lower capital expenditure.

The net cash cost of specific items was £75m (Q2 2013/14: £72m) mainly comprising restructuring costs of £54m (Q2 2013/14: £50m) and property rationalisation costs of £7m (Q2 2013/14: £18m). After specific items and a £19m (Q2 2013/14: £19m) cash tax benefit from pension deficit payments, reported free cash flow was an inflow of £477m (Q2 2013/14: £557m).

Net debt and liquidity Net debt was £7,063m at 30 September 2014, a decrease of £16m since 30 June 2014 and £1,011m lower than at 30 September 2013. In the quarter, reported free cash flow of £477m and proceeds of £188m from the exercise of employee share options were offset by payments of £603m on dividends and £56m on our share buyback programme. This quarter we acquired 12m shares and so far this year we have spent £197m on our share buyback programme. We continue to expect to spend around £300m for the year as a whole.

Debt of £0.5bn matured in July and a further £0.2bn is repayable during the remainder of 2014/15. At 30 September 2014 the group had cash and current investment balances of £1.8bn and a £1.5bn credit facility, providing us with a strong liquidity and funding position. We renegotiated our credit facility which now runs to September 2019, with the option in the next two years to request an extension up to September 2021.

Pensions The IAS 19 net pension position at 30 September 2014 was a deficit of £5.9bn net of tax (£7.3bn gross of tax) compared with £5.8bn (£7.2bn gross of tax) at 30 June 2014. The higher deficit primarily reflects a fall in the real discount rate to 0.82%, its lowest ever quarter-end level. The IAS 19 accounting position and key assumptions are provided in Note 10.

In the quarter the BT Pension Scheme (‘the Scheme’) entered into arrangements with an insurance company wholly owned by the Scheme to hedge over 25% of the Scheme’s exposure to potential increases in longevity. The risk has in turn been reinsured with an independent third-party. These arrangements required no additional cash contributions from BT and had no impact on our results for the quarter or half year.

On 16 July 2014 the Court of Appeal handed down its judgment on the scope and extent of the Crown Guarantee, which was granted by the Government on BT’s privatisation. We are continuing to consider the judgment and its consequences in detail. The Crown Guarantee is not taken into account for the purposes of the actuarial valuation of the Scheme and is an entirely separate matter, only being relevant in the highly unlikely event that BT became insolvent.

We are continuing work on the triennial actuarial valuation of the Scheme which will be calculated as at 30 June 2014.

1 Before purchases of telecommunications licences
2 Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments 

Regulation
In July 2014 the Supreme Court overturned a Court of Appeal judgment, made in July 2012, which had disallowed our ladder pricing policy. Following the Court of Appeal’s judgment, in Q2 2012/13 we recognised specific item charges of £85m and £58m against revenue and EBITDA respectively. Having reviewed the Supreme Court judgment, we consider the position sufficiently certain to reinstate some of the previously reversed revenues, and have recognised a specific item credit of £58m this quarter. On receipt of the Supreme Court Order we will start the process to recover the money that was refunded to the mobile operators as a result of the Court of Appeal ruling. We also intend to pursue claims for other historical termination charges. Any ongoing benefit for the period after the Supreme Court’s judgment will depend on whether the mobile operators alter their pricing which would impact the termination rates we charge them.

We have not recognised any benefit from ladder pricing in our trading results for the quarter. All ladder pricing will cease from the end of June 2015 when new pricing arrangements for Non-Geographic Call Services in the UK come into effect.

On 1 August 2014 the Competition Appeal Tribunal (CAT) handed down judgment on various appeals brought against a December 2012 Ofcom determination on the pricing of certain Ethernet products. We disagree with the CAT’s judgment and have applied for permission to appeal to the Court of Appeal. Ofcom had determined that BT had overcharged for certain services between 1 April 2006 and 31 March 2011, and required BT to make repayments. The CAT judged that BT should also pay interest on these amounts. Together with a review of our regulatory risk position in relation to other historical matters, we have recognised a specific item charge of £53m this quarter.

In October 2014 Ofcom found no grounds for action in its final decision on a complaint which alleged that BT had abused its dominant position, by squeezing the margin between the prices BT Consumer charged for some of its fibre broadband products and the wholesale price charged by Openreach.

Dividends
In line with our full year outlook for 10 - 15% growth in dividends per share, the Board has declared an interim dividend of 3.9p per share, up 15%, and totalling £316m (Q2 2013/14: £268m). It will be paid on 9 February 2015 to shareholders on the register on 30 December 2014. The ex-dividend date is 29 December 2014. The election date for participation in BT’s Dividend Investment Plan in respect of this dividend is also 29 December 2014. The final dividend for the year to 31 March 2014 of 7.5p, amounting to £609m, was approved at the Annual General Meeting on 16 July 2014.

Outlook
Our outlook is unchanged. We continue to expect underlying revenue excluding transit in 2014/15 to be broadly level with 2013/14 with growth in 2015/16. We expect adjusted EBITDA of £6.2bn - £6.3bn in 2014/15 with further growth in 2015/16. Normalised free cash flow is expected to be above £2.6bn in 2014/15 and to grow in 2015/16.

We intend to continue our policy of reducing net debt and are targeting a BBB+/Baa1 credit rating over the medium term. We expect to grow our dividend by 10% - 15% in both 2014/15 and 2015/16. We also intend to maintain our share buyback of around £300m in each of these years, to help counteract the dilutive effect of all-employee share option plans maturing over this period.  

GROUP RESULTS FOR THE HALF YEAR TO
30 SEPTEMBER 2014

Income statement
Our key measure of the group’s revenue trend, underlying revenue excluding transit, was up 0.3% in the first half reflecting growth in BT Consumer, which was partly offset by revenue declines elsewhere, including the impact of regulatory price reductions. Adjusted revenue of £8,737m was down 2% with a £148m negative impact from foreign exchange movements, an £82m reduction in transit revenue and a £2m impact from disposals.

Operating costs1 were down 4%. Underlying operating costs2 excluding transit were flat.

Net labour costs decreased 5%, or 3% excluding foreign exchange movements. Payments to telecommunications operators were down 16% due to lower transit volumes in BT Wholesale and lower call volumes. Property and energy, network operating and IT, and other costs decreased 1%. Programme rights charges increased to £161m (HY 2013/14: £50m) reflecting the launch of BT Sport in August last year.

Adjusted EBITDA was flat at £2,885m. Excluding foreign exchange movements, underlying EBITDA was up 1%.

Depreciation and amortisation of £1,270m was down 8% mainly reflecting the more efficient delivery of our capital expenditure programmes over the last few years and some of our assets becoming fully depreciated. Adjusted net finance expense was £288m, down 2%.

Adjusted profit before tax of £1,328m was up 10% reflecting the decline in depreciation and amortisation. Reported profit before tax (which includes specific items) was £1,109m, up 17%.

The effective tax rate on the profit before specific items was 19.9% (HY 2013/14: 22.5%).

Adjusted EPS was 13.4p, up 13%, and reported EPS (which includes specific items) was 11.2p, down 8%. These are based on a weighted average number of shares in issue of 7,942m (HY 2013/14: 7,852m).

Specific items
Specific items resulted in a net charge after tax of £177m (HY 2013/14: credit of £26m). Specific items include net interest expense on pensions of £146m (HY 2013/14: £117m) and group-wide restructuring charges of £104m (HY 2013/14: £136m). Regulatory items have resulted in a net credit to specific items of £5m (HY 2013/14: £nil) (see Regulation above). We recognised a £25m profit (HY 2013/14: £3m loss) on the disposal of an interest in an associate and a £1m profit (HY 2013/14: £nil) on the disposal of a subsidiary. The tax credit on specific items was £42m (HY 2013/14: £51m). Specific items last year benefited from a £231m deferred tax credit.

Capital expenditure
Capital expenditure3 of £1,049m was down 12% reflecting the phasing of expenditure within the year.

Free cash flow Normalised free cash flow4 was an inflow of £655m, an increase of £105m compared with the prior year reflecting lower capital expenditure and movements in working capital, partly offset by higher tax payments.

The net cash cost of specific items was £155m (HY 2013/14: £206m) and mainly comprised restructuring costs of £117m (HY 2013/14: £156m) and property rationalisation costs of £16m (HY 2013/14: £30m).

After specific items and a £38m (HY 2013/14: £39m) cash tax benefit from pension deficit payments, reported free cash flow was an inflow of £538m (HY 2013/14: £383m).

Principal risks and uncertainties A summary of the group’s principal risks and uncertainties is provided in Note 14.

1 Before depreciation and amortisation
2 Excludes specific items, foreign exchange movements and the effect of acquisitions and disposals, and is before depreciation and amortisation
3 Before purchases of telecommunications licences
4 Before specific items, purchases of telecommunications licences, pension deficit payments and the cash tax benefit of pension deficit payments

OPERATING REVIEW

BT Global Services

BT Global Services results

Revenue declined 5% mainly reflecting a £71m negative impact from foreign exchange movements. Transit revenue decreased £5m. Underlying revenue excluding transit decreased 1%, an improved performance compared with the first quarter.

As expected, public sector revenue in the UK declined due to lower levels of expenditure in the sector and our focus on only pursuing business that generates economic value. The decline was partially offset by an increase in underlying revenue in the high-growth regions of Asia Pacific, Latin America, Turkey and the Middle East and Africa.

Total order intake was £1.3bn. This was down 14% reflecting a large contract renewal with Unilever in the prior year. Order intake was £6.1bn on a rolling twelve-month basis, also down 14%.

We signed contracts across all of our key geographies including with: Deutsche Post DHL, for managed communications services connecting 1,100 sites in 28 countries across Asia Pacific; Interserve, for a broad range of communications solutions in the UK, including 4G mobile services; Société Générale, for voice and data communications services across 30 countries; and Legrand, to provide and maintain its network, security and telephony infrastructure in 50 countries.

During the quarter, we extended our range of services and further expanded the reach of our global network. We introduced BT Assure Threat Defence to help our customers better identify and react to advanced and sophisticated cyber security threats. We announced BT Compute Storage which provides cloud-based file management services suitable for large enterprises, and we added interconnected cloud-enabled data centres in Argentina, Japan and South Africa. We are investing further and will be: adding 11 new BT Points of Presence in nine countries; making our Ethernet Connect service available in 15 new countries, bringing the total served to 65; and increasing the reach of BT Internet Connect Global to more than 50 countries.

Operating costs declined 6%. Underlying operating costs excluding transit declined 2% as we continued to focus on cost transformation.

EBITDA increased 2%. Excluding foreign exchange movements, underlying EBITDA increased 5%. Depreciation and amortisation reduced 18% mainly due to lower capital expenditure in recent years and some of our assets becoming fully depreciated.

Capital expenditure declined 7%. Operating cash flow was an inflow of £35m. This was £56m below last year due to the timing of contract-related receipts and the delay in some debtor receipts. 

BT Business

BT Business results
Revenue and underlying revenue excluding transit were down 1%. This was an improvement compared with the first quarter, reflecting better performances in IT services and in data and networking revenue.

SME & Corporate voice revenue decreased 4%. The decline in call and line volumes has continued, with the number of business lines down 8%, partly reflecting the migration of customers to VoIP services. SME & Corporate data and networking revenue increased 2% helped by growth in fibre broadband. Business fibre broadband net additions were up 49% year on year.

IT services revenue increased 1%. Foreign exchange movements had a £6m negative impact on BT Ireland revenue. Its underlying revenue excluding transit increased 1% reflecting growth in wholesale customer revenue in the Republic of Ireland and fibre broadband in Northern Ireland.

Order intake for the quarter declined 2% to £463m but was up 5% to £2,101m on a rolling twelve-month basis.

In the quarter we launched BT One Phone, a new service that brings together all of a company’s office phone system and mobile needs into a single service delivered on a mobile phone. We also launched a range of flexible new 4G mobile plans. To meet the changing needs of office-based small and medium-sized businesses, we introduced a new business-grade IP voice service, BT Cloud Voice. This provides all the call features and quality of a traditional office phone system, delivered over a BT internet connection, providing a more flexible and future-proofed service.

Operating costs were down 4%. Underlying operating costs excluding transit were down 3%, mainly reflecting the impact of our cost transformation programmes, including a 9% reduction in total labour resource. The lower costs offset the decline in revenue resulting in EBITDA growing 4%. Excluding foreign exchange movements, underlying EBITDA increased 5%.

Depreciation and amortisation was down 10% due to lower capital expenditure in recent years. This contributed to operating profit growing 8%.

Capital expenditure increased 10% due to phasing. Operating cash flow increased 6%, mainly driven by the increase in EBITDA, and was up 29% year to date. 

BT Consumer

BT Consumer results
Revenue was up 7%, with 17% higher broadband and TV revenue reflecting the growth in our broadband and BT Sport customer bases. Calls and lines revenue grew 1%.

Fibre continued to grow with 203,000 BT retail fibre broadband net additions, taking our customer base to over 2.5m. 34% of our retail broadband customers are on fibre.

Overall Consumer ARPU continued to increase, growing 7% year on year to £404. Our Consumer line losses were 85,000 and BT added 88,000 retail broadband customers, 48% of the DSL and fibre broadband market net additions. Our share was lower than in recent quarters due to strong promotional activity in the market.

We added 38,000 TV customers in the quarter. We continue to focus on strengthening our TV proposition and are excited to announce we have entered into a partnership with Netflix that will allow our customers to sign up for Netflix alongside our other products and services, with the added convenience of paying on one bill directly through BT.

BT Wi-fi usage grew strongly, more than doubling year on year to 14.9bn minutes.

In the quarter we launched the BT8500 Advanced Call Blocker phone, which is our most sophisticated nuisance call blocking phone to date.

BT Sport has had a successful start to our second season of showing the Barclays Premier League with audience growth of around 45% on average, including a peak audience of 1.25m for the opening league fixture between Manchester United and Swansea City.

In the quarter we launched our new red button service, BT Sport Extra, which provides viewers with additional content alongside the line-up on BT Sport 1, BT Sport 2 and ESPN. We further enhanced our European football schedule by securing the rights to broadcast the DFB Cup, Germany’s top domestic football cup competition, which will complement our existing Bundesliga coverage.

Operating costs were broadly flat as higher costs related to increased revenue and the recognition of a full quarter of BT Sport programme rights charges were offset by our cost transformation programmes.

EBITDA was up 42%, with a strong performance across voice and broadband and reflecting the additional revenue from BT Sport following its launch last year. Depreciation and amortisation increased 2% and operating profit was up 63%.

Capital expenditure reduced 13% reflecting our investment in BT Sport last year. Operating cash flow increased £94m driven by the growth in EBITDA and working capital movements.

BT Wholesale

BT Wholesale results

Revenue decreased 15% compared with an 18% decline in the first quarter. Transit revenue reduced by £34m.

Underlying revenue excluding transit decreased 11%, an improvement compared with the first quarter decline of 14%. The decline this quarter was primarily due to a 28% reduction in our traditional calls, lines and circuits revenue, including the impact of lower fixed termination rates following Ofcom’s Narrowband Market Review.

Managed solutions revenue declined 16% reflecting the ongoing impact of the Post Office contract termination. Broadband revenue declined 20% as lines continue to migrate to LLU.

We continue to see strong growth in IP services, with revenue up 61%. Within IP services we have further expanded the range of products in our Hosted Communications Services portfolio. For example, we launched Wholesale Hosted Centrex, our white-label unified communications service, which uses a cloud-based Private Branch Exchange to offer all the benefits of accessing IP services from any device and location. We also announced an agreement with Avaya to deliver their unified communications and contact centre applications as a cloud service.

Order intake of £249m was down 39% mainly due to a large managed solutions deal last year. On a rolling twelve-month basis, order intake was £1,505m, down 30% due to the timing of re-signs on some of our major managed solutions deals.

Operating costs decreased 13%. Underlying operating costs excluding transit reduced 7%, including an 11% decline in selling and general administration costs. Our cost transformation activities have driven a 13% reduction in total labour costs.

EBITDA decreased 21% reflecting the lower revenue. Depreciation and amortisation decreased 11% and operating profit decreased 28%.

Capital expenditure declined 16% driven by lower spend on the Wholesale Broadband Connect rollout programme. Operating cash flow decreased £94m mainly because last year benefited from lower VAT payments.

Openreach

Openreach results

Revenue was down 2% with regulatory price changes having a negative impact of around £45m, the equivalent of 4%. The regulatory impact was higher than in the first quarter due to price regulation effective from 1 July on Caller ID and certain service products. The impact of regulation in the quarter was partly offset by 38% growth in fibre broadband revenue.

The UK broadband market1 increased by 182,000 connections in the quarter. The physical line base grew by 15,000, and has increased by 106,000 over the past twelve months.

We have passed more than 21m premises with our fibre broadband network. We achieved 344,000 fibre broadband net connections, an increase of 9%, bringing the number of homes and businesses connected to around 3.4m, 16% of those passed. Our external Communications Provider customers generated more than 40% of the net connections in the quarter. We are making progress with extending the reach of fibre beyond our commercial footprint. We passed around 570,000 premises in all 44 of our original BDUK areas, a run-rate of more than 25% above the first quarter.

We have run new field trials of ‘ultrafast’ Fibre To The Distribution Point (FTTdp) ‘G.FAST’ technology, where fibre is rolled out to telephone poles or junction boxes located close to premises. During the G.FAST trials, downstream speeds of around 800Mbps and upstream speeds of more than 200Mbps were achieved over a 19 metre length of copper. Speeds of around 700Mbps down and 200Mbps up were also achieved over longer lines of 66 metres, a distance that encompasses around 80% of premises.

Operating costs decreased 2% driven by cost efficiencies. EBITDA decreased 2% which was below the first quarter performance partly reflecting a smaller benefit from the sale of redundant copper and the impact of the additional regulatory price reductions. With depreciation and amortisation down 6%, operating profit was up 2%.

Capital expenditure decreased 8%. We received grant funding of £94m (Q2 2013/14: £15m) relating to the BDUK programme. Operating cash flow increased 9%.

1 DSL and fibre

The second quarter and half year 2014/15 results presentation for analysts and investors will be held in London at 9.00am today and a simultaneous webcast will be available atwww.bt.com/results

Full results release
Group income statement
Group statement of comprehensive income
Group statement of changes in equity
Group cash flow statement
Group balance sheet
Notes to the condensed consolidated financial statements
Statement of directors' responsibilities
Independent review report to BT Group plc
Forward-looking statements – caution advised