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BT Group (NYSE:BT)

Q3 2014 Earnings Call

January 31, 2014 4:00 am ET

Executives

Damien Maltarp - Director of Investor Relations

Anthony Everard Ashiantha Chanmugam - Group Finance Director, Executive Director and Member of Operating Committee

Gavin E. Patterson - Chief Executive Officer, Executive Director and Member of Operating Committee

John Petter - Chief Executive Office of BT Consumer

Olivia Garfield - Chief Executive Officer of Openreach

Luis Alvarez - Chief Executive Officer of BT Global Services and Member of Operating Committee

Neil Taylor - Chief Financial Officer

Analysts

Nick Lyall - UBS Investment Bank, Research Division

Stephen Paul Malcolm - Arete Research Services LLP

Paul Sidney - Crédit Suisse AG, Research Division

Nick Delfas - Redburn Partners LLP, Research Division

Terence Tsui - Morgan Stanley, Research Division

Andrew Lee - Goldman Sachs Group Inc., Research Division

Carl Murdock-Smith - JP Morgan Chase & Co, Research Division

James Britton - Nomura Securities Co. Ltd., Research Division

Barry Zeitoune - Berenberg, Research Division

Simon Weeden - Citigroup Inc, Research Division

James Ratzer - New Street Research LLP

John Karidis - Oriel Securities Ltd., Research Division

Jeremy A. Dellis - Jefferies LLC, Research Division

Adam M. Rumley - HSBC, Research Division

Guy R. Peddy - Macquarie Research

Robert Grindle - Espirito Santo Investment Bank, Research Division

Mandeep Singh - Redburn Partners LLP, Research Division

Operator

Hello, ladies and gentlemen, and welcome to BT's results conference call for the third quarter ended 31st December 2013. My name is Vupendra, and I am your coordinator for today. [Operator Instructions] I would like to advise all parties this conference is being recorded today. I will now hand you over to the company.

Damien Maltarp

Thanks, and welcome, everyone. My name is Damien Maltarp, and I'm the IR Director for BT. On the call today, we have Gavin Patterson, Chief Executive; and Tony Chanmugam, Group Finance Director. Tony will go through the headline results and financials, and Gavin will go through the lines of business. In the room with us today, we also have the CEOs of our lines of business.

Before we start, I'd like to draw your attention to the usual caution on forward-looking statements. Please see the slide that accompanies today's call, and our latest Annual Report on Form 20-F, for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. That slide and the Annual Report can be found on our website.

I'll now hand over to Tony.

Anthony Everard Ashiantha Chanmugam

Thanks, Damien. Good morning, everyone. Thanks for joining the call for our quarter 3 results.

Overall, this is an encouraging set of numbers. Revenue and EBITDA are ahead of the market expectations, although cash was a bit below, and I'll explain this shortly. We grew our revenues as benefits to our investments offset regulatory pressures. Regulation remains the biggest headwind to our business. Our cost transformation's work has continued the pace during the quarter, and this has enabled us to raise our EBITDA outlook for the year.

I'll start with a brief overview of the group results on Slide 4. Our key measures of the group's revenue trend, underlying revenue, excluding transit, was up 2.4%. This was significantly better in quarter 3 last year, which was down 3.2%. EBITDA was flat, with the benefits of our cost transformation being offset by our investments in BT Sport and continued regulatory headwinds. Below EBITDA, we are seeing the benefits to our focus in recent years on more efficient capital expenditure and debt reduction. These also led to low depreciation and interest charges, which drove a 12% increase in our EPS.

Normalized free cash flow was GBP 253 million lower than last year. This principally reflected movements in working capital, which as I've said many times before, can bounce around from quarter to quarter. For the 9 months to the 31st of December, normalized free cash flow was GBP 105 million up from last year. We're still focused on reducing our net debt and it's now GBP 0.5 billion lower than a year ago.

Turning to Slide 5, which covers the performance across the lines of business. On the revenue line, Global Services had a strong quarter, largely due to the timing of the contract milestones which we've previously flagged to you at Q2. Retail's strong performance was driven by good growth in TV and broadband revenue in the Consumer business. These performances offset the impact of regulation on Openreach's revenue and lower managed services revenue in Wholesale and resulted in 2% underlying growth overall. Stripping out the benefit from the milestones in Global Services, the overall revenue growth was still slightly positive.

On EBITDA, the impact of retail's investment in BT Sport was offset by good growth in Global Services, driven in part by cost transformation, but also the contract milestones I mentioned earlier.

On cash flow, there were a number of impacts from the timing of working capital. Wholesale and Openreach were affected by a late payment from a large DP, which we received in early January rather than in December. Global Services working capital was negative, caused by the timing around contract receipts. While its contract milestones had a benefit on revenue, they had no cash benefit in the quarter. Lastly, Retail paid a GBP 60 million deposit on the UEFA rights, which we won in December.

Taking a closer look at costs on Slide 6. Operating costs were up by 2%. However, excluding the impact of the investment in BT Sport of around GBP 140 million, and the increase in the noncash pension operating charge, underlying operating costs, excluding transit, have reduced by 2%. This compares with 5% last quarter. However, the difference is mainly due to costs relating to the Global Services milestones and the better performance in revenue in the quarter.

Our cost transformation plan is going well. We continue to focus on removing the cost of failure, process reengineering, procurement efficiencies and generating savings from insourcing. We made good progress on these in the quarter. And turning to Slide 7, I'll give you a flavor on some of these activities.

Over the last 2 quarters, I've given you examples of the opportunities within our contact centers. By improving the efficiency of the management and support organizations and creating call centers of right size, we can deliver savings of around about GBP 50 million a year. The opportunity has grown over the year and it's much higher than the original GBP 20 million I had flagged to you. The savings will allow us to make the necessary investments to continue to improve our customer service.

Within Global Services, we're now using the U.K. methodology for cost transformation in a number of countries in both Europe and Latin America. This project uses the same forensic approach we undertake in the U.K. businesses by improving process efficiency, reducing the cost of failure, optimizing the network and improving our supplier value for money. Since this program started 12 months ago, we have delivered over GBP 70 million of benefit. Once fully implemented, we anticipate the total benefits from the program will be well over GBP 150 million per year. In terms of insourcing, we continue to bring back jobs into the company that have previously been undertaken by third parties. This quarter, we've insourced more than 800 jobs. For example, we brought back in circa 200 jobs within the contract management shared service center, resulting in the unit cost halving, while improving efficiency by 20% on an annualized basis.

Hopefully, that's given you a feel for the kind of opportunities we're finding in the business. There are still material savings to be made right across BT.

Turning to a few other areas on Slide 8. The IAS 19 pension deficit was GBP 5.8 billion, net of tax, up from GBP 5.4 billion at Q2. The increase in the deficit was due to a higher present value of the liabilities, mainly reflecting an increase in the market's future inflation expectations. As you've learned about at our recent pension teach-in, and probably in more detail than most of you would have liked, the IAS 19 number is volatile and it doesn't always move in the same direction as the actuarial valuation. Using BT's median valuation, we estimate the BT Pension Scheme remained in surplus, at a similar level to last quarter.

We continued with our share buyback program in the quarter in order to help the -- offset the dilutive impacts of employee share plans, and bought back 20 million shares for GBP 76 million.

A couple of things to note on regulation going forward. Ofcom issued a new consultation on fixed access markets in December, adjusting its proposed WLR and LLU charge controls. It also includes a proposal for additional service commitments to be imposed on Openreach. We expect the final statement in early September, but we believe that the additional service commitments could cost Openreach somewhere in the region of an extra GBP 20 million next year, and we believe these costs should be reflected in the charge control. In addition, Ofcom's Wholesale Narrowband Market Review came into effect in Q4, which will result in the fixed termination charges to other CPs coming down.

Finally, moving to Slide 9. For the year as a whole, we continue to expect an improved trend in underlying revenue, excluding transit, when compared with 2012, '13. As I said earlier, excluding the timing of contract milestones, growth in underlying revenue, excluding transit, was slightly positive in Q3, with Global Services delivering a particularly good performance. In terms of Q4 trends, there are a couple of things to bear in mind. The impact of the narrowband market review will reduce wholesale's revenue. And in quarter 4 last year, we delivered a strong revenue performance across the group. So that will give us a tough comparator in terms of the year-on-year performance.

As a result of the momentum we have on our cost transformation programs, we now expect adjusted EBITDA for the full year to be at the upper end of the GBP 6 billion to GBP 6.1 billion range we gave previously. We now also expect capital expenditure to be below the 2012, '13 levels. We still expect normalized free cash flow to be around GBP 2.3 billion for the year, as the better EBITDA and CapEx will be offset by the GBP 60 million deposit we paid for the UEFA rights.

One last thing. We announced earlier in the year that we're separating BT Retail into BT Consumer and BT Business. We're making good progress on this, and therefore, we will now be reporting on this new basis for Q4, earlier than we previously expected. But don't worry, we'll be giving you the split of these numbers and the historics in plenty of time, but I'm sure you'll be delighted to have yet another opportunity to rework your models.

And with that, I'll now hand over to Gavin.

Gavin E. Patterson

Thanks, Tony, and good morning, everyone.

I'm going to take you through the performance of each line of business, but before that, if you turn to Slide 11, I'll give you a quick overview of the quarter as a whole.

So there are clear signs that our investments are delivering. We've delivered another record quarter on fiber net adds, driving the top line and increasing customer loyalty. We're pleased with the progress on BT Sport, and you can see this coming through in the Consumer financials. Global Services is performing well. We delivered good growth outside of the U.K., in our high-growth regions. And I think these all contributed to what I'd describe as a decent revenue performance for the group and delivered further progress, I think, towards our goal of delivering sustainable, profitable revenue growth.

We've got good momentum on transforming our cost base and we'll continue to focus on this going forward. And it's worth noting that cost transformation, for us, is fundamentally about reducing the amount of failure through the business, so it goes hand-in-hand with our plans and our focus on improving customer service. And this is something I feel particularly strongly about. So net-net, encouraging set of results, with good financial and operational progress across the business.

Now taking a more detailed look at the lines of business, we'll start with Global Services on Slide 12.

This is a good performance in the quarter. Underlying revenue, excluding transit, is up 4%, which reflected some of the benefits from the timing of contract milestones, which is something we mentioned to you last quarter. The high-growth regions, Asia Pac, Lat Am, Middle East, this was another quarter of double-digit growth, revenue growth, in these regions, which is good news. We recently announced further investments in these areas, hiring over 400 people and launching new capabilities and solutions. And our global customers are expanding into these areas, and we're helping them to do so. In Europe, although it's still tough, it feels slightly less bad than it did previously, I would say. And in the U.K., we were up 2%, albeit helped by the milestone payments I mentioned earlier, which has offset declines in our government revenues. We -- of note, we expect a further reduction in local government revenues going forward, as we're focused only on doing business that generates real economic value.

EBITDA, up 22%, helped by the contract milestones, but also by cost transformation, which is running broadly at a similar sort of pace that we achieved in Q2. On cash flow, it was down slightly year-on-year, mainly due to the timing of contract-related receipts, but as you can see in the chart on the right-hand side here, we're making good progress on a 12-month rolling basis.

Turning to Slide 13. Order intake was down 24%, but this can move around a bit between quarters. And more importantly, if you look at the 12-month rolling basis, it's up 4%.

On Investor Day, we took you through the key products we have in the GS portfolio, and you can see some examples on this slide about how we're using them to win contracts with good companies. The first example here is HeidelbergCement. This covers 1,100 locations in 37 countries across Europe and Africa. And it's an example of where we're using BT Connect, which is our core product, and it underpins a lot of the other services. Alsea in Latin America is another good example of great contract win. This is a restaurant operator, if you weren't aware of it, which is an example of our investments in high-growth regions really working. This is for contact centers and consultancy services, and it allows them to centralize all their incoming calls into a single contact center. And then finally, an example from close to the home is Tesco, with a new contract for BT One, which is our collaboration services portfolio, and this allows their workforce to communicate seamlessly with each other wherever they are around the world.

So I think you'd agree, some really good names there. We're delivering real value to these customers with the breadth of our offering, both the scope and capability. And it's something our competitors are finding hard to match.

Turning to Retail on Slide 14 now. This is an encouraging performance, I think. Revenue, up 4%; on an underlying basis, ex transit, up 3%, that's the best performance for 5 years. EBITDA, down 8%, which is an improvement on Q2, where we were down 13%. BT Sport's costs in the quarter were about GBP 140 million, which was similar to our Q2 number. Excluding this, Retail costs were down 3%. And I think that demonstrates the progress, the ongoing progress, around cost transformation that we have, even in a division that's been on the journey for a long time.

Operational progress was solid. Retail broadband net adds of 150,000, that's up 23% year-on-year, giving us a 60% market share within the quarter. And also, on fiber, this was our best-ever quarter in terms of net adds, 208 -- 228,000 adds in the quarter, which took our base to 1.9 million fiber customers. Or to put it another way, that's 1/4 of our total Retail broadband base.

Finally, just to mention on WiFi. We upgraded the BT Wi-fi app in December. This now allows BT broadband customers to automatically connect at -- when in range to any one of our 5.4 million BT Wi-fi hotspots. And as a result, 28% more broadband customers were using the service at the end of the quarter than those that were using it at the start.

So looking at a bit more detail around our Consumer business on page -- on Slide 15. Revenue was up 6%, and again, this is the best for over 10 years, driven by broadband and TV, up 22%. And that reflects the benefit of the investment in BT Sport. The calls and lines business was down just 1%. A year ago, for perspective, we were down 9%.

We've now got over 2.5 million direct BT Sport retail customers. We've obviously got the wholesale customer base on top of that. And that base, incidentally, has continued to grow through January, which is very encouraging. The viewing figures are going well as well. The average audience in December was almost double that of August. And we had some really good matches over the festive period, and some of these attracted over 1.5 million average viewers, even before we count the online and app viewers. And as we've mentioned, it does seem a long time ago, but it is worth just reminding you, this is the quarter we won the UEFA rights on an exclusive basis, which start in the '15, '16 season, and that will further strengthen our proposition. But before that, we've got plenty of new content. Basketball fans will have noticed that we've started showing the NBA from December last year. We've got the World Rally Championship on the channel now. And of course, Moto GP kicks off in March.

Worth mentioning, line losses were 70,000 in the quarter, which is broadly in line with Q2 and 60% better than last year. And if you look at active customer line losses, these were only 40,000, and again, these were around 1/3 the levels we were at a year ago.

And then finally, on TV. A good quarter of TV adds, 53,000, which is more than double what we achieved this time last year. And it's worth noting that these customers pay at least an additional GBP 5 a month for TV, with many, many of the customers also taking on new multicast channels on top of that, so these are customers that are helping to drive our ARPU growth. So we'll continue to improve this, our TV proposition, over the next few quarters, and we'll see this uptake, I think, continue to increase.

Turning to our BTB divisions on Slide 16. I think the message here is steady progress across the board. Business was flat year-on-year, in line with the last few quarters, but a big improvement on the previous year. This was driven by solid growth in IT services, offset by a 1% decline in calls and lines, which again is an improvement on Q2, but this is a number that can move around a bit. Excluding the acquisition of Tikit, Enterprises is flat, a bit better than our Q2 number, which was down 1 percentage point. And we've seen good growth from external customers in our Fleet division within Enterprises.

Within Conferencing, it's a small decline, but this was something we were expected -- expecting as we refocused away from low-margin hardware sales. And it's something we flagged to you in the Q2 presentation. And on Ireland, which in this number incidentally, still includes the Consumer business in Northern Ireland, up 3%, with both Northern Ireland and the Republic of Ireland growing.

Moving on to BT Wholesale on Slide 17. I think it's fair to say this was a mixed quarter, a difficult quarter in some ways. Revenue, excluding transit, was down 5%. For context, we were up 1% in the first half. This was expected because we knew there'd be a decline in our managed solutions business, which was down 4%. And we knew this was coming because this was the final stage of the migration of services off the Post Office contract. And it also was due to a lower level of network build for 1 or 2 of our customers.

On the positive side, we've seen -- continue to see strong growth in IP services, with revenue up 38% and exchange minutes reaching a new high of 3 billion in the quarter, which is up 77% year-on-year. And a fairly good performance on costs, down 5%, but this was not enough to offset the revenue decline, which meant EBITDA was down 5% in the quarter. The order intake was encouraging, up 12%, continuing our recent strong performance, as you can see in the chart. Good mix of orders and particularly strong quarter on Ethernet, which was at an all-time -- well, sorry, a 6-year high, which was good news. And of note, just to reiterate something that Tony mentioned, from Q4, there will be a further headwind from lower wholesale termination rates following Ofcom's narrowband market review.

And looking at Openreach on Slide 18. Revenue, down 1%, in line with Q2. It reflects a GBP 70 million regulatory impact, which is the equivalent of about 5 percentage points of headwind. On fiber, revenue up again, it grew strongly, up over 70% year-on-year. But also, Ethernet revenue grew on the back of the higher volumes that I've already mentioned. Operating costs, down 2%, with cost efficiencies offsetting the additional engineers that we're using to support fiber and the additional customer visits driven by stronger demand in both copper and fiber.

Across the country, we've now passed 18 million premises with fiber and we're well on track to deliver the 2/3 coverage of the U.K. that is the goal we've set for spring 2014. And in the rural areas, we've won 46 fiber contracts. We're already building out on 36 of these. And in the quarter, Q3, we passed over 170,000 new premises. In terms of connections, this was our best-ever quarter. We connected 339,000 customers to fiber through Openreach in the quarter. That's up 30% year-on-year. And we've now got, if you look at it in totality, over 2.4 million premises connected, or to put it another way, 13% of total premises passed.

We recently announced that we'll be investing a further GBP 50 million in our commercial fiber program, that was about 10 days ago, I think, making fiber broadband available to another 400,000 premises across over 30 cities. And I think the final point here, just to note, is around our physical line base. That continued to grow well. We added 72,000 new lines. And on a 12-month basis, this is up over 160,000. So you can see on the chart, this is the highest level since we started reporting this in over 5 years ago.

So in finishing, on Slide 19, I want to just to touch on how this quarter's progress fits with our strategic investments. On fiber, we're making really good progress and making real inroads into the rural areas. And I'd like to take this moment to thank Liv, who's on the call today for the last time, before she goes to take on her new CEO role at Severn Trent. Liv has been a key architect in the fiber rollout, initially as the strategy lead and program director, then laterally over the last 3 years, fighting the good fight within the deployment. And I'd like to thank her for her fantastic contribution to both Openreach and the group over the last 12 years. She will be missed, but we have a great replacement in Joe Garner. And Joe will be on the call for our Q4 results.

On TV and Sport, the Sport base grew very well, and you can see the benefits coming through across the base business as well. On IT services, solid growth in BT Business as we continue to focus on IT services closely linked to our network. On mobility, we clearly have a very interesting opportunity here, particularly around a data-focused proposition. We'll launch first in the Business market, that's something I've said already, and we can see a real demand for bundled services there, and expect to hear more from us on this later in the year.

And on high-growth regions, we're seeing double-digit growth from the investments we've already made and we've been making, and we'll be making further targeted investments in this area. So I think you can see there's good progress across the business. We'll continue to focus on delivering our -- on the investments we've made. We'll continue to focus on driving cost transformation and we'll focus on improving customer service as well.

So with that, I'll hand you back to Vupendra to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Nick Lyall from UBS.

Nick Lyall - UBS Investment Bank, Research Division

It's Nick, UBS. Could I maybe ask a couple of questions, Gavin? On the -- firstly, on the subs, where the fiber looks very strong, so does broadband. But why is TV still not getting a big boost from BT Sport? 53,000 didn't look huge compared to previous quarters in the numbers. And then secondly, could you -- would you mind clarifying the wholesale comment this morning versus Sky? We got a couple of different comments popping up on the screen. So would it be possible to clarify where you stand on wholesale and UEFA rights? And where do you stand on general wholesale and any issues with striking a deal with Sky?

Gavin E. Patterson

Well, let me answer the second one first, Nick, to clear up any misunderstanding. We are open to wholesale arrangements with Sky. We have an ongoing dialogue. They're a big customer of ours. We'd like to be a bigger customer of theirs. Within the quarter, we did a deal on Sky Movies to distribute Sky Movies over our TV platform. So I think that demonstrates that there is the potential to do more business together. On the Sport front, there's no deal imminent at the moment, but we're -- there is no reason why we couldn't at some point in the future. It's just about finding the right compromise, I guess, somewhere between us. And at the moment, there's a gap. So philosophically, and I think you can see this in some of our other arrangements, we're not against wholesaling. That's why we're able to wholesale, I think, and come to an agreement with Virgin Media for BT Sport. It's just that we're not in that position with Sky at the moment. So I think that's true about the current BT Sport proposition. And when we add Champions League and UEFA, Europa Cup from '15, '16 onwards, in that respect, it's -- philosophically, it doesn't change anything. It will be still part of -- it will be part of the BT Sport proposition. And if there is a way of coming to a negotiated agreement with Sky, then it will be part of the negotiation that we have. In terms of TV, well, TV adds are up year-on-year, and 53,000 is a decent number. We've said all along, the Sport investment is fundamentally about driving broadband for us. It's about changing the dynamics in the broadband market. Some of that will have a halo effect on TV, but we'll only look to acquire TV customers that are going to be profitable over the long term to our Consumer business. So it's a good number. And you'll see it, I think, continue to grow going forward, because we've got some very exciting plans to strengthen the proposition over the next few quarters. And I was particularly encouraged within the quarter to see the number of customers taking our suite of IP channels continuing to increase. So well over 100,000 customers took the IP channels that we offer as part of our TV proposition. So what we're focused on is not the number per se, but making sure that they're all accretive to the overall economics of our Consumer business.

Nick Lyall - UBS Investment Bank, Research Division

And just to be clear, the -- with the UEFA rights that you have would be included in any negotiations. There's no -- you're not trying to set a partition in your existing [indiscernible] rights [ph] from UEFA.

Gavin E. Patterson

I mean, it's -- let's be clear, it's 18 months away, so we shouldn't try and get too ahead of ourselves, but on a philosophical basis, it would be something we'd be prepared to discuss, yes.

Operator

Next question, from the line of Steve Malcolm from Arete Research.

Stephen Paul Malcolm - Arete Research Services LLP

First of all, a big thank you to Tony for the restatements. That's the icing on the cake as an analyst, really looking forward to that. A couple of questions, one on -- one sort of generally on your sort of competitive position against Cable, maybe one for John. I guess we tend to sort of look at the whole Sport investment as a sort of mortal battle against Sky, but it strikes to the proposition, sort of stacks up almost more squarely with Cable. And I know in the past, you've had problems sort of teasing [ph] Virgin customers out. Can you maybe just sort of give us some insights as to how the Sport and fiber offering is helping you there? And how does the competitive position sort of gross adds and churn is maybe changing around your competitive position against Virgin? And secondly, just on BT Sport, sort of 5 months in, I wonder if you could give us some thoughts on how happy you are with the slots you've gotten and the games you've got, whether it's sort of [indiscernible] launch time is something that you're -- has worked as well as you thought it would, whether you might sort of change that going forward, that would be helpful.

Gavin E. Patterson

Okay, should I just say a few words about BT Sport, and maybe, John, do you want to pick up the competitiveness of the proposition versus Cable? I mean, overall in Sport, we're pleased with the progress we're making. It's -- as I said, we've got over 2.5 million direct customers. You can add another 2 million through Cable, so over 4.5 million in totality. And I made the reference within the presentation, Steve, that has continued to grow through January. And I think what we're seeing is that the particularly strong set of games we had across the November-January period has really helped drive overall adoption. And we've seen it reflected in the viewing figures as well. So we're now getting well over 1.5 million viewers for some of the games that we were getting in December, Man City-Liverpool, for example, Man United-Spurs. We also got over 1.3 million viewers for the FA Cup round that we showed in early January as well. So it demonstrates that not just the Premier League games are drawing in audiences, but also the FA Cup games as well. Elsewhere, rugby is doing very well for us on the channel. That's performing extremely well. And we've got further sport to come. For example, Moto GP, as I mentioned, comes in the next couple of months. So the net-net is the Sport investment is performing well. It's performing well as a channel. It's performing well in terms of the revenue streams it's bringing in, both directly in terms of stand-alone subs and commercial revenues, but also the halo effect that we've seen on the business. And to reiterate, we've said judge us on whether the Consumer revenues and profits grow in the medium term and you can see, having grown Consumer revenues, I think, 4% in Q2, we're up 6% in Q3. Profits are down 8%, but that's better than we achieved in Q2. So we're halfway there and we've just got to get the profits moving now. But I'm very confident that we will do that in the next few quarters. So John, do you want to just talk about competitive proposition versus -- competitiveness of our proposition versus Cable?

John Petter

Sure, yes I will do. First, I think it's true that Cable remains a good opportunity for us, actually. And the Cable base, in some senses, is a little bit vulnerable because their typical pricing is relatively high for the marketplace. In terms of the sort of triple play deals that we both currently offer, for a triple play deal involving fiber and TV and basic channels, and of course, BT Sport, the best Virgin price is currently about GBP 28. For us, it's about GBP 22. So I think that gives us quite a sharp edge to the proposition. The one thing I would say that's currently kind of working in, in favor of Cable is the switching regime. Currently, it gives a save right to Cable, actually, and that's not true for us. But -- and there was a strategy paper from DCMS in July that talked around changing that switching process, so to get a switching process that's truly flat across the market overall. And I think, if that change happens, as seems likely, then that's going to give further assistance to our proposition.

Stephen Paul Malcolm - Arete Research Services LLP

Okay. So sort of small benefits at the moment, but looking for a bigger prize if the switching regime is flattened across the market. Is that fair?

John Petter

Yes, I think that's probably true.

Anthony Everard Ashiantha Chanmugam

Yes.

Gavin E. Patterson

Okay. Who's next?

Operator

The next question is from the line of Paul Sidney, Crédit Suisse.

Paul Sidney - Crédit Suisse AG, Research Division

Two questions also, please. Firstly, on fiber, the wholesale fiber adds remain relatively modest versus the performance of BT Retail. I was just wondering, is there anything you could do to further stimulate the takeup of wholesale fiber adds, perhaps even considering reducing the wholesale fiber rate that you charge? And secondly, on cost cutting, maybe a question for Tony. I think in the past you've said that there's potentially another GBP 1 billion to shave off the cost base to sort of take you into that top quartile. I was just wondering, with the momentum on cost cutting and the reduction in CapEx guidance today, is there potential for you to achieve that GBP 1 billion perhaps sooner than you thought 12 months ago?

Gavin E. Patterson

Okay, just I'll ask Liv to comment on the fiber number, and then Tony on cost transformation. But let's be clear, the fiber adds across the business are up 70% year-on-year. So I think that's a pretty good performance. But Liv, do you want to?

Olivia Garfield

Yes, I think I was also quite pleased with the fiber adds, 20% up. The key thing I would say that happened recently is the fact that we've launched the self-install product and that's the thing that, I guess, why the industry has said would be one of the things that would make them look to do maybe a little bit more fiber. So self-install went live, and with the tail end of the quarter just gone, there'll be more volumes over the next couple of quarters on self-install. So I think that is the key kind of last plank of the things that we've often been asked for. So that's probably the thing you're looking for as to whether there is some piece [ph] there. But actually, if you look also year-on-year, the percentage of Retail on the adds is much lower than the externals as well, so I think if you track it back, it's a pleasing trend, I would say. Tony?

Anthony Everard Ashiantha Chanmugam

Yes, just to help on that, the non-Retail adds 12 months ago was 20%. The non-Retail adds now is 33%, so there has been a 60% uptake in that in percentage terms. On the position relating to cost transformation, I hope I highlighted the fact that we've continually got examples and opportunities of what we can do. The GBP 1 billion, that outline target, remains unchanged. The example I gave on the contact centers was the opportunities I thought we had 6 months ago in management and support were GBP 20 million. Now I think the opportunity is GBP 50 million a year. That is just a prime example of the opportunities that we have as we continue.

Operator

Next question is from the line of Nick Delfas from Redburn.

Nick Delfas - Redburn Partners LLP, Research Division

Just a question on Sport again, I'm afraid. You're spending around GBP 350 million annually on content and production, and that should rise, I guess, with the Champions League. And you have wholesale from Virgin and obviously, pubs and clubs, and then some paying customers. But if one looks at the broadband performance, and I suppose, the Consumer net adds or net losses, would you say their performance was around the 50,000 per quarter level, in which case, that's getting you just around only GBP 100 million? And do you expect that therefore to accelerate in order to cover your costs? I mean, how do you look at the Consumer line loss, I guess, is the question, and how much better do you think it can get?

Gavin E. Patterson

Well, I mean, I'll ask Tony to give a bit of perspective on the -- some of the moving parts in a second. But let's be very clear, we've said all along the way to judge this is Consumer revenues and profits growing in the medium term. And you can see the revenues growing over the last couple of quarters, up 6% this quarter, up 4% last quarter, and the EBITDA loss reducing quarter-on-quarter. In terms of the investment in Champions League, we made it very clear when we made that investment that we expected that to deliver an incremental effect, both in terms of direct revenues, but also reduction in -- a further reduction in losses over our base case. So -- and we remain confident that the plan will achieve that. So in terms of some of the moving parts, Tony, do you, I don't know whether you want to give any comments on that.

Anthony Everard Ashiantha Chanmugam

Yes, yes, sure. It's just worth reemphasizing that there's 5 ways we amortize [ph]. One is wholesale revenues with, obviously with Virgin. One is direct subscribers. One is with pubs and clubs. One is advertising. And the last piece, which is quite significant, is churn. We'll only get the full impact of the annualized churn when we're 12 months in, so judging it based in terms of the churn impact of -- in the first 2 quarters is not relevant, really. I think you've just got to look and see and judge it based on where we get to in 12 months' time.

Nick Delfas - Redburn Partners LLP, Research Division

But you'd expect overall your net adds to continue to increase as a percentage of the market as a result of that?

Anthony Everard Ashiantha Chanmugam

Well, what I'd say is that we've got -- we're at 90-plus last quarter. We're at 60 this quarter. The run rate prior to that in the previous 3 quarters or 4 quarters was actually around about the 50 point mark. So you're seeing the uptick now. It's not going to be a smooth, linear line, but you'll -- you've seen already in 2 quarters the uptake that we've got.

Gavin E. Patterson

And then of course, it drives both broadband, but it also drives fiber as well. And so it helps us ensure that we strengthen the overall adoption of fiber across the U.K.

Anthony Everard Ashiantha Chanmugam

Yes. And effectively, the ARPU impact should be contained within that number as well, as we move people up the bundles and move up the value chain.

Operator

The next question from the line of Terence Tsui from Morgan Stanley.

Terence Tsui - Morgan Stanley, Research Division

I've got a couple of questions, please. Just on Global Services, the underlying performance was obviously very good, EBITDA up 22%. So I was just wondering what you're thinking about the outlook and whether you're much more confident on actually seeing a near-term inflection point in the business, and perhaps whether you could be more confident in sharing what could be the longer-term cash generation potential there. And just secondly, on TV, I'm just wondering if you can give us an update on TV on Plusnet, especially in the context of Sky, and I'm talking of the potential of Sky lines?

Gavin E. Patterson

Okay, I mean I'll just add a comment on the Global Services numbers, and then I'll ask Luis perhaps to add a bit more detail. What you're seeing, I think, in the way we're managing Global Services is we're not getting too carried away with ourselves. Hopefully, you've seen that the -- there's much better predictability, consistent delivery now in the numbers. We want them to be consistently boring, in some ways, and I think that's the sign of success. So we're not -- you're not going to hear us come out with any hyperbole about how it's all about to change and that we're getting extremely excited about the future. We'll continue to focus on delivery. Cost transformation is fundamental to our thinking in Global Services. And there are many headwinds in -- that we face going forward. So we're pleased with the results. Don't take it that there's any lack of confidence going forward, but we just want to be measured in terms of how we think about the business. So Luis, do you want to add a wee bit more color to that?

Luis Alvarez

Yes, I think that, in the quarter, as we said, there have been significant contract milestones that has helped to improve the position, both on revenue and EBITDA. But it's true that, as Gavin said before, in some of the main markets in which we support our customers, we have seen that the situation is less bad before, although it's still difficult, especially in Europe. So I think that we think that there's an improved trend in terms of the underlying performance, and we will continue to do that in the future.

Gavin E. Patterson

And then on Plusnet in TV, John, do you want to talk about that?

John Petter

Yes, a couple of thoughts on Plusnet. Incidentally, Plusnet is a small but important part of our overall proposition. The role of Plusnet has been to compete versus Talk Talk. And that's why the current Plusnet pricing is GBP 2.50 for, for broadband. That competes very favorably versus Talk Talk. It's important, under the overall pricing for our proposition, it should make sense commercially, if you put the 2 brands together, the BT brand and the Plusnet brand, and that's why Plusnet is actually selling BT Sport today for GBP 6 and not giving it away free. You will see us doing more stuff on the video side on Plusnet, but I'm not really in a position to announce more plans on that today.

Gavin E. Patterson

Okay?

Operator

The next question is from the line of Andrew Lee, Goldman Sachs.

Andrew Lee - Goldman Sachs Group Inc., Research Division

A couple of questions. Firstly, just on cost cutting. Does improving customer service just go hand-in-hand with cost cutting? Or does it actually offset some of the cost-cutting opportunity? And maybe more specifically, if we include improving customer service, do you still see a few hundred of millions of underlying cost reduction in the coming years? And then just on the wholesale negotiations with Sky, or potential for negotiation, can you just give us a bit more color on what you see as the pros and cons on a wholesale deal with Sky? I mean, why should it not just be mutually beneficial to share Sport's content and lower the content cost inflation?

Gavin E. Patterson

Well, Tony, do you want to answer the cost transformation versus customer service conundrum?

Anthony Everard Ashiantha Chanmugam

Yes, sure. These go hand-in-hand. So if you reduce the cost of failure, you automatically improve customer service and you also improve your cost base. And therefore, the 2 things have got to be linked. Will we make some investments as a result of the savings we make? Yes, we will. Does that still mean that we can make material reductions in our overall cost base? Yes, absolutely.

Gavin E. Patterson

And then on that, the wholesaling question, I guess it's -- if we look at the business case, we have -- clearly, we've worked out what the sort of retail play would be worth to us, and that acts as a benchmark for any wholesale deal. We were able to come to an accommodation with Virgin Media. I think that demonstrates that we have the -- we're open-minded to wholesaling in the right situation. We use the same basis for any discussions with any other service provider, including Sky. And at the moment, I think their estimate of what it's worth to them is less than what we think it is worth to us. So we'll continue to be available to talk about it. In the meantime, we're very focused on delivering the business plan that we've got, which was always the base plan, and I think you can see in the quarter that it's having an effect on the business and it's on track.

Andrew Lee - Goldman Sachs Group Inc., Research Division

Can I just ask a very brief follow-up question? Just on the Premier League rights auction, do you think that's going to come before the end of the year now?

Gavin E. Patterson

Well, I don't control the timing, of course, so maybe that's a question for the -- which is geared more to the Premier League. From what I've read in the paper, like you, it could start towards the end of this year or early calendar 2015. And if that was the case, that would be reverting to the normal timetable that the Premier League follows. It's not bringing it forward, as been suggested in some places, so...

Operator

Next question is from the line of Carl Murdock-Smith from JPMorgan.

Carl Murdock-Smith - JP Morgan Chase & Co, Research Division

I'm going to be controversial and actually not ask a question about Sport or TV. So firstly, in Wholesale, in managed solutions in Wholesale, you've pointed to the Post Office contract as the reason for managed solutions being down 4% year-on-year, or absolute, that's GBP 9 million. I was just wondering if you could add more color on kind of on the sequential decline from Q2, which was GBP 33 million. And I guess, the other driver in that which is the lower network build revenues, is that something you're expecting to now remain at this lower level? And then secondly, just looking at the -- almost following up from the insourcing cost transformation example that Tony gave in the presentation, leaver costs have been coming down in recent years, but were actually 0 this quarter. Is that something we might expect to continue now, given the natural attrition in your workforce, given the age profile and also given your preference for insourcing of work?

Gavin E. Patterson

Okay, I'll let Tony answer the question on leavers. And then I'm going to ask Neil Taylor just to comment, Neil is standing in for Nigel today, on some of the trends within BT Wholesale.

Anthony Everard Ashiantha Chanmugam

Carl, the leaver costs are incorporated within the restructuring costs for this quarter because they're all relevant to the restructuring. There will still be a need to offer people terms to leave when we cannot find roles for them to insource within the company, and I think that's going to be a continuing trend.

Neil Taylor

Carl, yes, and I think there's 3 factors, really. One, as you've already identified, is the PO [ph] revenues declining from Q2 to Q3.

Gavin E. Patterson

That's Post Office.

Neil Taylor

Post Office, yes. Secondly, that's -- the nature of managed service business is sometimes a little bit lumpy. We had more change control in Q2 than we did in Q3. The question on the network build-out, I think that is a temporary thing. We just found a few of our customers getting their own network plans in their own end sorted out. And we've actually subsequently seen some orders coming through for Q4.

Gavin E. Patterson

Great.

Operator

Next question, from the line of James Britton from Nomura.

James Britton - Nomura Securities Co. Ltd., Research Division

Firstly, I'm not sure if I missed it, but can you just clarify what areas have you revised down your expectations on CapEx as a change of guidance? And is this ongoing for next year as well? And then secondly, a sort of general question around the TV proposition, which you sort of hinted will further be developed in the coming quarters. Is this mostly about new programming? Or out of the other things that really matter, can you perhaps sort of highlight any material evolution of the YouView proposition for you this year, or set top box development plans that you have in place?

Gavin E. Patterson

Tony, do you want to answer the CapEx question? And John, give a bit of color on how the TV proposition is changing.

Anthony Everard Ashiantha Chanmugam

Yes. In terms of the CapEx, it's not a significant reduction. All we've said is from being around last year's level to being below this -- last year's level. And it's driven not by reducing the actual volume of activities, but 40% of our costs -- roughly speaking, 40% of our capital costs are labor costs undertaken by BT staff. As we make the BT staff more efficient, by default, the capital spend goes down. We'll give our guidance in relation to next year in the quarter 4 results.

John Petter

And on the television side, there were quite a few improvements in quarter 3 that Gavin mentioned, the addition of Sky Movies, and there was a Kids pack, including a further 9 channels added onto the package. There was Curzon Home Cinema. These are films in the movie window. So for example -- and The Selfish Giant was quite a big film for us in quarter 3. In quarter 4 so far, we've just launched the download-to-own proposition. So these are brand-new movies, pretty much at the same time or shortly after they appear in the cinema. So Captain Phillips, for example, is going to be on the service on the 10th of February. Going forward, and there are further plans, so for example, in quarter 4 again, we're just about to launch the G4 set top box. This is the smaller and cheaper set top box. It's smaller than the Sky box and smaller than the Virgin box. It doesn't have a fan inside. It consumes less power. It's got a faster, more modern chipset. And there'll be more evolution on the box in the course of the year ahead, and further enhancements to the service, such as the launch of the second-room service, because it's a key insight that customers today typically have several televisions in their households. So there are good opportunities for us to further sharpen and improve the TV proposition in the year ahead.

Gavin E. Patterson

Okay?

James Britton - Nomura Securities Co. Ltd., Research Division

Anything on YouView evolving this year to further enhance the proposition?

John Petter

In terms to the YouView's, I'm going to keep adding content. So there are several big content providers, and third-party content providers, going to bring their content to the platform. This is going to increase its appeal, I think it's fair to say. And there'll be more things that we'll do on the user interface and give customers enhanced service on their iPhones and iPads, so -- and there's plenty still to come on YouView as well, yes.

Gavin E. Patterson

Okay. [Operator Instructions] So who's up next?

Operator

We've got Barry Zeitoune from Berenberg.

Barry Zeitoune - Berenberg, Research Division

I'll limit myself to a question on mobile, then. I thought the app upgrade that you mentioned on WiFi was quite interesting. And I was just wondering how you're thinking you might be able to build that into a mobile proposition in terms of offloading some of the MVNO costs. And whether you can give me any update on how -- whether you've made plans in terms of small cell investments yet, and how you're thinking about femtocells for -- in terms of the proposition as well.

Gavin E. Patterson

That sounded like 3 questions to me. Look, clearly, this is going to be a big year for us in terms of mobility, in terms of talking about what we're going to do next. And as I've said, we will be telling you more about that later in the year. Our mobility strategy will have -- will build on the strength of our WiFi proposition, inside and outside premises. It'll build on the 4G spectrum that we bought this time last year, which lends itself particularly well to a in-premise data delivery. And of course, it will build in the new MVNO deal that we have with EE. You put all that together, I think we can do some quite interesting things in the mobile space. So I'm not going to really dwell on it today, but as soon as we're ready to talk about it, you will hear from us, and that will be later in the year.

Barry Zeitoune - Berenberg, Research Division

Do you have any infrastructure in place today that's able to use the 4G spectrum yet, or no?

Gavin E. Patterson

I'm not going to go into it today, full stop. Okay?

Operator

Next question is from the line of Simon Weeden from Citigroup.

Simon Weeden - Citigroup Inc, Research Division

Jumping back to CapEx, I wondered if you could talk about the profile of CapEx as you go post the initial main build-out of the fiber platform, and also, how you're thinking about timing of the move to all-IP, if indeed you are, and how that might affect upfront investment balanced off against future operating cost savings or other cost savings.

Anthony Everard Ashiantha Chanmugam

I mean, on CapEx, there are -- there's a -- there is some scope to bring this down, but you've got to bear in mind, we've got the BDUK investments to really roll through still. So that gives you just some sense that there is some potential, but don't get too carried away with how it could come down going forward. In terms of all-IP, it is something we are certainly looking at. And it's creating a vision where we pull together all our network opportunities and our network proposition behind a single IP infrastructure and a single IP platform. It's a very exciting vision and something we are looking very carefully at, at the moment.

Operator

Next question is from the line of James Ratzer from New Street Research.

James Ratzer - New Street Research LLP

I had one question, please. I was just trying to get a better handle on how, in the residential business, your quarter telephony and broadband ARPUs are developing. And obviously, the Consumer business is putting up very good trends at the moment, boosted by Sport. I was just trying to get a handle on how you saw underlying pricing for the basic broadband and telephony product developing. But it looks like it might be broadly stable, to even ARPU slightly down, I mean, does that make sense, am I misreading the underlying trends?

Gavin E. Patterson

Well, the -- our focus for a number of years has been to drive ARPU within our customer -- our Consumer business. And that's been by adding or getting -- or driving additional services to our customers on top of the basic core line. It's -- and that continues going forward. And I think Sport is just another example of that. And the ARPU is up 6.7% within the quarter, which is encouraging. I think, in terms of pricing, I think the value for money, cost of living debate is live across the U.K. at the moment. I think our sector has a very strong story. There was a -- I think, a good piece that Ofcom published that was picked up by a number of the newspapers this week that demonstrated actually how costs in, for example, broadband had come down dramatically over the last 10 years and there'd only been modest increases within the voice market as well. And I think we need to be very cognizant of that going forward, because this is clearly going to be a very topical issue going into the election as well. So for me, a really healthy business is one that is providing more and more value to customers, able to grow its overall customer base and its RGU base, and it uses that as a fundamental driver of profitable revenue growth. And that's our core focus, I think.

Operator

Next question is from the line of John Karidis from Oriel Securities.

John Karidis - Oriel Securities Ltd., Research Division

Okay, so just the one question on the phasing benefits, please, of the cost transformation plan. So I think you are targeting GBP 200 million. How much of that is likely to come through this year versus next year? I think you said, next year, you'll see pretty much the full benefit, but how does the split compare, please, between this year and next?

Gavin E. Patterson

Tony?

Anthony Everard Ashiantha Chanmugam

Yes. John, I presume you're referring to the examples, as opposed to the overall plan?

John Karidis - Oriel Securities Ltd., Research Division

The -- well, the overall plan, because I think you said GBP 200 million, the current phase.

Anthony Everard Ashiantha Chanmugam

Yes, yes, in the previous presentations, yes. I mean, what I'll say to you is that there will be a flow-through effect. Just to give you a feel, the annualized elements, what you'll get through in the last quarter, will obviously have a full-year impact next year. The piece I'm very confident of, and I'm very confident about this, is that we're on track at the moment to hit the exit run rate, which means op cost transformation savings, which means that we're going to start the year in the right position to deliver what we said we would do for next year in relation to our EBITDA guidance. So I have no real concerns in cost transformation. I may have market concerns, but certainly not cost transformation concerns.

Operator

Next question is from the line of Jerry Dellis from Jefferies.

Jeremy A. Dellis - Jefferies LLC, Research Division

A very -- just a question on Global Services, please, and particularly on the margins, 12.5% EBITDA margin sort of year-to-date, I think, feels like a pretty good number for a business like this. It strikes me, and please correct me if I'm wrong, that there've been a number of kind of positives year-to-date as you've been bringing down the switched voice revenue. Now I think, sub 5% of revenues, I imagine that, that's been trending down, that's been coming down with quite a high marginal margin. Sort of getting it down to a low number has been good. There's been sterling weakness. There have been milestone receipts. And I suppose, into next year, as you move from sort of delivery, more into service, perhaps public sector comes under a bit of pressure. How should we think about sort of 12.5% EBITDA margins in GS, whether that's really sustainable?

Gavin E. Patterson

Well, I mean, within GS, the point I wanted to really emphasize is we've been focusing on delivery. We've been focusing on getting to the right cost base through consistent cost transformation. And I think, over the last few quarters, you've seen the benefit of some of the techniques and approaches that we've used on the rest of BT being applied into the Global Services division. So there is a different point in the cycle, we're at a different point in the cycle in Global Services than we are compared with some other parts of BT. So I think there's more cost transformation to go. I think you're also right to point out that there are headwinds at -- in the GS market. So some of the big contracts that I think we've had in the government sector, for example, the signs are that those might not be procured in the same way going forward and that we might need to compete for smaller contracts. I feel very confident that we'll have a compelling proposition for government, but that's something we need to be wary of, for example. And there are clearly some evidence within the local government sector that, that is already happening. So Tony, do you want to add anything? Luis, any other points?

Anthony Everard Ashiantha Chanmugam

Yes. Yes, I mean, what I'd say is that the key measure for Global Services is not the EBITDA margin, it's the cash position. Our cash position in '12, '13 was a couple of hundred million cash flow. There's plenty of opportunity for improvement in Global Services. We're on the track. And the results in the quarter 3 are reasonably positive. But in reality, the opportunity within Global Services, I think you -- I think we all agree and I hope you'd all agree that GBP 200 million cash, which is what we generated last year, is insufficient for a business of this size.

Gavin E. Patterson

Luis wants to add a point.

Luis Alvarez

Yes. Well, I just want to say that, if you look at, as we mentioned, the 9 months' performance, I think it's where you can see the real underlying improvement is that 14% EBITDA year-on-year. I think it gives you the clear signal of what is now the underlying improvement that is made. Because we keep growing in the market, like GBP 1.5 billion [ph] of ICB [ph]. The revenue last year was going down 8%. So I think that is -- it's in a much better position. So I think that it's quite a solid improvement, but there are still many more things to come.

Gavin E. Patterson

Okay. Next up?

Operator

Next question, from the line of Adam Rumley from HSBC.

Adam M. Rumley - HSBC, Research Division

I saw that a couple of days ago, the prices for fiber to the premises on demand were increased. And the explanation was that it reflects the higher cost than you previously anticipated. I wondered if you could just say a bit more about where those differences -- or where you found those differences to be, and how any initial installs have gone.

Gavin E. Patterson

I mean, let's be clear, this is for the fiber to the premise on demand product, which is a relatively small product for us, but has the potential, we think, to be something that small businesses in particular might be interested in. But Liv, do you want to just give a bit of color on it?

Olivia Garfield

Yes. So we've really done a small number, but I guess in doing that small number, we've taken the core [ph], but what we want to keep really bold is the rental. So we've deliberately made sure that we cover ourselves with the connection costs upfront. And the rental, as you know, for the [indiscernible] remains linked to the [indiscernible] rental. So it's the actual connection costs that we've been changing. So I guess that's the bit, I think, you're referring to.

Adam M. Rumley - HSBC, Research Division

I mean is it a process thing, is it the actual act of connecting the -- to the premises is more expensive, or you're just making sure that you're costs are actually covered?

Olivia Garfield

So I think what we're trying to make sure is that it's more volumes. When you're anything not of scale, unfortunately, it's a bit expensive. That's the unfortunate reality. So we've kind of taken a bit more market demand as to what we all want. "It's not going to be a scaled product," is what our customers are telling us. It's like handcrafted furniture. Unfortunately, it requires a little bit more carpentry. So we've just basically looked to that and said, even if it's going to be a small-scale product, we want to make it a good-quality customer experience, let's get it priced right to be able to do that, rather than fall over during the course of the process. So there's no one thing that's necessarily changed, it's just the reality of the fact it's small volumes and that means that it comes with a slightly higher price tag. It is, however, beautiful when you receive it, like handcrafted furniture, and the customers that are now on it think it's amazing, but unfortunately, you do have to take a slightly bigger delta size if you want to venture forth. Does that answer the question?

Adam M. Rumley - HSBC, Research Division

Yes, that does, perfectly.

Gavin E. Patterson

Very good.

Operator

Next one, Guy Peddy from Macquarie.

Guy R. Peddy - Macquarie Research

Listen, I just wanted to understand a little bit of what's going on outside of CapEx and EBITDA, because obviously, back in November when you got the Champions League rights, you sort of kept your guidance and said you'd absorb the GBP 60 million Champions League payment. Since then, obviously, you've increased EBITDA, slightly lowering CapEx, which is probably adding a couple of percentage points to cash flow. Is there anything else that we should be aware of that is causing a drag? And is that something we should be worrying about a little bit more in the mid-term, please?

Gavin E. Patterson

Tony?

Anthony Everard Ashiantha Chanmugam

Well, there's absolutely nothing else in terms of drag on our working capital. What we've got is effectively an upgrade in our ratings because we're swallowing the Champions League. And that is coming about as a result of improving our EBITDA and reducing our capital.

Gavin E. Patterson

And just to reinforce, there was a one-off within the quarter, where one customer paid a couple of days late. We got the money on the 2nd of January rather than the 31st of December.

Anthony Everard Ashiantha Chanmugam

And just to reiterate, no concerns about hitting our cash flow guidance for the year.

Gavin E. Patterson

Okay? Next up?

Operator

Next question, Robert Grindle from Espirito Santo.

Robert Grindle - Espirito Santo Investment Bank, Research Division

Just a quick one for Tony, then, given the restatement. Your capitalized labor costs ticked up a bit, sort of GBP 15 million to GBP 20 million higher than the sort of last 2 years' quarterly run rates. Just is there any color behind that? Is there sort of network build thing going on? Or is it going to stay at that level, or is it going to come back down to the more normal level?

Anthony Everard Ashiantha Chanmugam

Yes, the numbers are going to bounce around a little bit based on the type of capital investment we're putting in. I wouldn't see anything in great significance in there. What we will do is we'll look at -- it's about 25% more connections from BDUK, and that will cost us something in relation to that, labor costs. But really, that labor cost number is really a consequence of increased activity and more efficiency.

Gavin E. Patterson

Okay?

Robert Grindle - Espirito Santo Investment Bank, Research Division

Yes, okay.

Gavin E. Patterson

And our last question?

Operator

Is from the line of Mandeep Singh, Redburn.

Mandeep Singh - Redburn Partners LLP, Research Division

Okay. So look, I'm just looking at the sort of cash cost of specific items. I mean, if I look at the last few years, excluding this year, you've been at about GBP 1 billion of cash-specific items over the last 4 years. They look quite recurring to me. This year, consensus is close to GBP 400 million. And then quite dramatically, that drops off in the next 3 years to almost flat. I mean, with core margins, ex global, sort of around a 50% rate, is it realistic to expect, and obviously, you're promising more cost cutting ahead, is it realistic to think of cash restructuring costs tailing off that significantly? Or should we just think of these as a recurring cost to the business?

Gavin E. Patterson

Tony, do you want to comment?

Anthony Everard Ashiantha Chanmugam

Yes, sure. I mean we said last year that we are going to spend roundabout GBP 400 million in terms of our restructuring cost. We said that this is the benefits -- that it will give benefits in relation to our cost-saving programs. And we said we'll spend the majority of it in this year. There will be some impact next year. If we've got further programs that we put in, in terms of cash specifics, then there will be an ongoing benefit. Right now, we haven't got any plans next year over and above what we've got this year. So what I'm saying is, based on our current plans, our current guidance, there's nothing in there. If we do say we will do something more, then obviously, it will have an incremental impact on our guidance and our EBITDA moving forward.

Gavin E. Patterson

Mandeep, okay, I think that's us done.

Operator

Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.

Gavin E. Patterson

Thank you.

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