Allison Kirkby is set to take the reins of Britain’s largest and most powerful telecommunications conglomerate when she succeeds Philip Jansen as chief executive of BT Group PLC (LSE:BT.A) this February.
Coming across from Swedish telecoms firm Telia, where she served in the top spot since early 2020, Kirkby will bring a wealth of telecoms experience to the role, but the challenges she faces are no small beer.
A cursory glance at BT’s share price shows that it has crumbled nearly 50% over the past five years, so what will shareholders be taking Kirkby to task on when she assumes the role in the coming weeks?
Pension deficit
BT Group's pension obligation for the BT Pension Scheme (BTPS) stood at a funding deficit of £3.7 billion as of November 2023.
This may sound like a lot, though it represents a significant reduction from the £8 billion deficit reported in 2020, bringing the funding level from 88% to 91% in the period.
However, the existing deficit is still an issue, particularly given that the combined defined benefit obligations across the FTSE 100 set are running at a £70 billion surplus.
The scheme aims to be fully funded by 2030, but this will require prudent de-risking and investment strategies going forward.
Full-fibre rollout
Chief among BT’s infrastructural demands is the rollout of its Openreach full-fibre broadband network.
Openreach is of national significance as the largest commercial fibre network in the UK.
The company is deploying a mix of fibre-to-the-cabinet (FTTC) and fibre-to-the-premises (FTTP) technologies, with the latter offering the highest current download speeds.
Luckily for Kirkby, the rollout appears to be on schedule: Last month, BT Openreach hit its halfway milestone of 25 million connected households by 2026.
BT has been criticised in the past for dragging its heels on full-fibre rollout in favour of sticking with outdated copper infrastructure, much to the detriment of the end consumer.
The group has since picked up the pace but the rollout is tremendously capital-intensive.
On the plus side, BT has stated that full-fibre capex peaked in 2022, and that material fibre operating expenses savings targets have been brought forward by two years to fiscal 2028.
This announcement led Goldman Sachs (NYSE:GS) to predict a 112% upside on BT shares.
Floundering business unit
BT’s highly cyclical business unit comprises a range of enterprise-level IT solutions including networking, security and cloud offerings to public and private institutions.
It is the second-largest, and worst-performing, segment across BT’s revenue lines, with revenues declining 3% in the last financial year (an improvement from the -7% in 2022 and -11% in 2021).
Underlying profits plummeted 11% in the last financial year, driven by lower public spending, sophisticated competition and tepid uptake of next-gen technologies.
Kirkby (and BT Business boss Bas Burger) faces pressure in turning this ship around, though one wonders if a dead-weight spinoff is also on the table.
The rising debt tide
BT had a net debt of £18.9 billion at last count.
Activist investors Kintbury Capital cited this as a reason for taking out a short position on BT stock last month.
He warned attendees at the Sohn conference in London that BT’s debt – and its dividend policy – come at a detriment to the company.
BT shot back, saying: “We are confident that we can support our progressive dividend and that we will see a material uplift in our cash flow once our peak full fibre build is completed in December 2026.”
Shareholders, too, are likely to support a manageable debt position over further dilutive equity fundraising rounds.
Other concerns
Altnet rivals in the broadband space have failed to make substantial inroads into BT’s market share.
However, Vodafone and CK Hutchinson-owned Three have ignited competition in the mobile sector with a planned merger this year.
When combined, the entity will have a larger customer base than BT’s EE network, as well as Virgin Media O2.
The deal is not 100% confirmed and is currently subject to a parliamentary debate on anti-competitive concerns.
Kirkby will also have to navigate the perennial issue of industrial relations and customer satisfaction when she takes the helm.