TIDMBT.A
RNS Number : 2477D
BT Group PLC
18 October 2022
BT Group provides historical pro forma to reflect formation of
Sports Joint Venture between BT Sport and Eurosport UK
-- Historical unaudited pro forma financial and operational key
performance indicators (KPIs) provided for FY21, FY22 and Q1
FY23
-- Pro forma information estimates the effect of the
reorganisation of BT Sport following the formation of the Sports
Joint Venture between BT Sport and Eurosport UK
-- Forming the JV reduces reported BT Group revenue for FY23 by
c.GBP300m-350m. On a pro forma basis, we continue to expect
sustainable revenue growth for FY23 and beyond. All other outlook
items unchanged
-- BT's historical reported Group financials are unchanged
18 October 2022
On 1 September 2022 BT Group and Warner Bros. Discovery
announced completion of their transaction to form a 50:50 joint
venture (JV) that combines the assets of BT Sport and Eurosport
UK.
By bringing together the sports content offering of both BT
Sport and Eurosport UK, the JV will have one of the most extensive
portfolios of premium sports. This is an attractive agreement for
BT, realising cost efficiencies between BT Sport and Warner Bros.
Discovery, and introducing further broadcast rights and expertise
from Warner Bros. Discovery, while creating more choice and an even
stronger sport and entertainment proposition for our customers.
Through the transaction, and with the support and strong
partnership of Warner Bros. Discovery, BT Group's risk exposure to
sport has also been significantly reduced while ensuring that BT
Group will benefit from the synergies created by the JV. BT plc
will receive GBP93m from Warner Bros. Discovery and up to
approximately GBP540m by way of an earn-out from the JV, subject to
certain conditions being met.
BT plc's interest in the JV will be classified as a JV under
IFRS 11, and equity accounted for under IAS 28.
BT Group has today published unaudited historical pro forma
financial and operational KPIs to estimate the impact on the group
had the JV been in place historically.
Overview of key changes
From 1 September 2022:
-- Revenue from wholesale contracts, advertising and commercial
premises, previously reported in 'Other' Consumer revenue, has been
transferred to the JV. In addition, BT now acts as an agent of the
JV for non-bundled Sport products, for example monthly pass, BT's
app only proposition, and will only recognise its net margin as
revenue within Consumer fixed revenue. FY21 and FY22 Group revenue
reduced by GBP0.4bn and GBP0.5bn respectively on a pro forma basis
to reflect both of these revenue allocation changes. Similarly, we
continue to expect revenue from this point on to be GBP0.5bn -
GBP0.6bn per annum lower on a pro forma basis.
-- Bundled revenue from customers who access BT Sport through BT
directly, for example purchased as part of package with broadband
or BT TV, will continue to be reported gross within BT Group
consolidated financials, with no pro forma adjustments needed.
-- Production and operational assets of BT Sport have been
transferred to Warner Bros. Discovery. As a consequence of the
operational assets moving to Warner Bros. Discovery there is a
master service agreement whereby the JV is buying all production
services from Warner Bros. Discovery. Separately, BT Sport's sports
rights transferred to the JV. As a result, costs associated with
sports rights, production and SG&A are no longer reported
within BT consolidated financials.
-- BT Group (through its wholly owned subsidiary British
Telecommunications plc ("BT plc")) and Warner Bros. Discovery have
entered into distribution agreements with the JV under which they
now distribute the combined sports content to new and existing
customers on their respective platforms and apps. BT plc's
distribution agreement with the JV extends beyond 2030, and for the
first four years, includes a minimum revenue guarantee of c.
GBP500m per annum, after which payments to the JV will vary
depending on customer base. BT plc will receive GBP93m from Warner
Bros. Discovery and up to approximately GBP540m by way of an
earn-out from the JV, subject to certain conditions being met.
BT's obligation under the minimum revenue guarantee of GBP2bn
over the next four years is higher than the fair value of the
related revenue streams, and therefore the delta between our
committed expenditure and the value that we currently expect to
generate represents a financial liability that will be recorded as
a provision on the balance sheet. This liability will unwind over
the next 4 years as the GBP2bn minimum revenue guarantee reduces.
The liability will be remeasured at each reporting period in
accordance with IFRS 9, with any changes in estimates accounted for
prospectively. The liability is included within the profit and loss
on disposal calculation which will be booked as a specific item in
the Q2 FY23 results.
In constructing the unaudited historical pro forma information,
to present this information on a like-for-like basis with the
future contractual arrangements under the JV, we have estimated a
historical distribution agreement and minimum revenue guarantee as
though our arrangements with the JV have always been in place. This
charge from the JV is included within 'TV programme rights charges'
in our costs breakdown. This is an estimate only and may have
materially differed from actual contractual arrangements had they
been negotiated at that time.
These outlined changes to revenue and cost would have translated
to an estimated uplift to BT Group adjusted EBITDA of c.GBP200m in
each of FY21 and FY22 on a pro forma basis. For FY23, BT Sport on a
standalone basis was expected to benefit from increased revenue
from commercial premises and lower sports rights costs. As a
result, although creation of the JV would have increased BT Group
EBITDA by GBP42m in Q1 FY23, this benefit reduces materially after
Q1 FY23. Our share of post-tax earnings from associates and JVs is
recognised below net finance expense in the group income statement
and will increase commensurate with the 50:50 JV structure. We have
not been able to meaningfully estimate our share of post-tax
earnings from associates and JVs over the pro forma period and
therefore this is not included in the pro forma information.
On a Group basis, pro forma normalised free cash flow is
estimated as being unchanged from reported normalised free cash
flow in FY21 and FY22.
Outlook
The completion of the Sports JV with Warner Bros. Discovery on 1
September 2022 will reduce reported BT Group revenue for FY23 by
GBP300m to GBP350m as a result of the seven months of FY23 revenue
transferring to the JV. However, we continue to expect underlying
year on year Group revenue growth in FY23 on a pro forma basis.
We do not expect a material impact on our adjusted EBITDA(2)
outlook in FY23 of at least GBP7.9bn. On a pro forma basis, we
continue to expect sustainable revenue and EBITDA growth beyond
FY23.
We continue to expect group normalised free cash flow to be in
the range of GBP1.3bn - GBP1.5bn.
The table below outlines the outlook items most impacted by the
JV.
FY 23 outlook post JV FY23 outlook
on a reported basis pre JV on a
reported basis
--------------------- ---------------------------------- ------------------
Change in adjusted(1) JV reduces reported revenue Growth
revenue by c.GBP300-350m; revenue growth
on a pro forma basis
Adjusted EBITDA(2) At least GBP7.9bn At least GBP7.9bn
Normalised free GBP1.3bn-GBP1.5bn GBP1.3bn-GBP1.5bn
cash flow(3)
--------------------- ---------------------------------- ------------------
(1) Before specific items.
(2) EBITDA before specific items, share of post tax
profits/losses of associates and joint ventures and net
non-interest related finance expense.
(3) Free cash flow (net cash inflow from operating activities
after net capital expenditure) after net interest paid and payment
of lease liabilities, before pension deficit payments (including
cash tax benefit), payments relating to spectrum, and specific
items. For non-tax related items the adjustments are made on a
pre-tax basis. It excludes cash flows that are determined at a
corporate level independently of ongoing trading operations such as
dividends, share buybacks, acquisitions and disposals, and
repayment and raising of debt.
Accompanying documents
To make it easier to understand these changes, BT has also
published two additional documents:
-- Document A: Pro forma KPIs for BT Group reflecting the impact
of the changes made from the formation of the JV
o Changes from the previously reported KPIs which are explained
in the accompanying 'Document B: Pro forma KPIs supporting
information' have been highlighted in purple.
o Changes from the previously reported KPIs which are not
explained in the accompanying 'Document B: Pro forma KPIs
supporting information' have been highlighted in pink.
-- Document B: Pro forma KPIs supporting information - a
document that provides a bridge for the financial KPIs from BT's
previously reported KPIs to Document A
Pro forma KPIs are unaudited and provide an estimated indicative
history of the company's performance. As noted above in
constructing the historical proforma information, to present this
information on a like-for-like basis with the future contractual
arrangements under the JV, we have estimated a historical
distribution agreement and minimum revenue guarantee as though our
arrangements with the JV had always been in place. This is an
estimate only and may have materially differed from actual
contractual arrangements had they been negotiated at that time.
The information is presented as an indication of trend only. The
financial statements do not constitute statutory accounts within
the meaning of Section 434 of the Companies Act 2006 and have not
been audited by BT's independent auditors. BT does not warrant the
accuracy, completeness or validity of the information, figures or
calculations in this document and shall not be liable in any way
for any loss or damage arising out of the use of this information,
or any errors or omissions in its content.
The full disclosures are provided on BT's website .
ENDS
Enquiries
Press office:
Tom Engel Tel: 07947 711959
Investor relations:
Mark Lidiard Tel: 0800 389 4909
About BT Group
BT Group is the UK's leading provider of fixed and mobile
telecommunications and related secure digital products, solutions
and services. We also provide managed telecommunications, security
and network and IT infrastructure services to customers across 180
countries.
BT Group consists of four customer-facing units: Consumer serves
individuals and families in the UK; Enterprise and Global are our
UK and international business-focused units respectively; Openreach
is an independently governed, wholly owned subsidiary, which
wholesales fixed access infrastructure services to its customers -
over 650 communication providers across the UK.
British Telecommunications plc is a wholly-owned subsidiary of
BT Group plc and encompasses virtually all businesses and assets of
the BT Group. BT Group plc is listed on the London Stock
Exchange.
For more information, visit www.bt.com/about
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END
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