BT Group's (BT.A) fiscal 2011 results demonstrate that the firm's recovery continues. While revenue dropped 4% from the previous year, a touch worse than we expected, the firm did a nice job of cutting costs, boosting margins more than we'd forecast. In addition, the pension deficit continues to decline as asset values recover.
In the global services division, which has been the problem child for the past few years, revenue declined an additional 5%, but cost-cutting here was the most effective. The firm generated a 30% improvement in EBITDA year over year to £593 million ($965 million). Importantly, the division increased its order book to £7.3 billion for the year, a 10% improvement over the prior year. We think a higher order book is the first sign the division can return to sales growth. However, it is important that BT doesn't return to growth at the expense of profitability, which is what caused the division to get in trouble in the first place.
In the retail division, revenue also declined 5% from the previous year as line losses continued and call volume fell. However, line losses were the lowest in four years. The firm also had its best showing ever in broadband subscriber acquisition share, claiming 64% of new subscribers during the period (162,000 customers). About half of its new broadband customers in areas where BT has upgraded its network to allow faster service are signing up for premium tiers. Higher broadband penetration has enabled the division to slightly increase average revenue per user to £326 per year.
The openreach division, which actually owns BT's network, is now talking of increasing available broadband speeds from 40 MB/second to 80 MB/second, which would make it more competitive with the 50-100 MB/second speeds currently offered by cable competitor Virgin Media (VMED). We have been concerned that BT could get left behind, but this gives us hope that the firm has plans to continue to improve its network. It is also interesting to note that for the first time since openreach was created in 2006, it added net copper lines for the year, with a gain of 26,000. We have anecdotally heard that some people are moving back to the fixed-line network from wireless-only access to improve broadband quality, and this is a trend we will be watching.
Finally, BT has been more successful at holding on to the benefits of cost-cutting than we anticipated. This allowed the EBITDA margin to reach 29.3%, ahead of our 28.7% projection and up from 27.1% last year. The margin is much improved from the 17% reported in fiscal 2009. We expect BT's margins to continue to improve. The firm's stated pension deficit has also declined to £1.8 billion thanks to continued strong returns on the assets in the portfolio. However, with interest rates likely to go higher, we think there is a risk that asset values decline from here.
