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BT Group is making some radical changes but the bottom line still looks wobbly

The telecoms giant reported a 1% fall in full-year underlying revenue to £23.7bn, below City expectations, while underlying earnings (EBITDA) were at the bottom of the group’s guidance range at £7.5bn, down 2% on last year
BT boss Gavin Patterson
BT Group's new strategy could be the latest throw of the dice from CEO Gavin Patterson

BT Group plc (LON:PLC) may be making some radical changes but the bottom line for the telecoms giant still looks wobbly, with the firm missing quarterly revenue targets and giving a disappointing outlook for no growth in profit or dividends for a couple of years

The FTSE 100-listed telecoms giant reported a 1% fall in full-year underlying revenue to £23.7bn, below City expectations, while underlying earnings (EBITDA) were at the bottom of the group’s guidance range at £7.5bn, down 2% on last year.

READ: BT Group shares drop as it slashes 13,000 jobs and revenues fall, but dividend maintained

Investors could have been placated by a final dividend payment of 10.55p which kept the full year pay-out at 15.4p, unchanged from the previous year, allaying fears that the payout could have been cut.

But the firm - which last year took over the UK’s biggest mobile operator EE - said it intends to hold the dividend flat for the next 2 years, and up to these results, BT’s payout policy had been ‘progressive’.

The group also agreed a new pension funding plan, announced a wide-ranging strategy review, which targets £1.5bn of annual cost savings, thousands of job reduction, and a move from its central London headquarters.

The group has been based at the BT Centre, near St Paul’s Cathedral in the City of London since it was privatised in 1984 but will now move to smaller premises in the capital.

Digging out of a hole

George Salmon, equity analyst at Hargreaves Lansdown commented: “13,000 job cuts and a move out of central London are drastic actions, and should help deliver £1.5bn in cost savings.

“But they still aren’t going to be enough to dig BT out the hole it’s in.”

He added: “The dividend, which was rising 10% a year not so long ago, is set to freeze for the foreseeable future, and next year’s profits look likely to fall again.”

The analyst said: “There are silver linings here and there, for example EE and the consumer businesses continue to grow.

“However, these improvements are being more than offset by challenging conditions elsewhere. Openreach terms are getting tougher, and the business-to-business and global divisions are having a torrid time. Gavin Patterson will have his work cut out if he’s to steady the ship.”

The job cuts, the highest number by the former state-owned monopoly since 2008, will save £1.5bn in costs in three years, although restructuring will cost £800mln to implement.

Last throw of the dice?

The new strategy could be the latest throw of the dice from CEO Patterson who won early plaudits from investors when he moved BT into sports TV and mobile.

That goodwill came to an end when the group delivered a major profit warning in January 2017 due to problems at its multi-national Global Services division and the discovery of the Italian scandal.

BT has faced growing competition from nimble young rivals including Sky PLC (LON:SKY) which has expanded from being a pay TV company to offer a range of broadband services.

In late afternoon trading, BT shares topped the FTSE 100 faller board, down 8% at 219.45p.

Russ Mould, investment director at AJ Bell said: “There is a lot to pick through in BT’s latest update, some positive, some negative. The market is the ultimate arbiter though and the substantial restructuring plan is not meeting with its approval given that the shares have fallen sharply following the news.”

He concluded: "With the share price now down 36% since his appointment in September 2013, chief executive Gavin Patterson will be under serious pressure to get this turnaround effort right.”

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