BT Group plc (LON:BT.A) has confirmed that its chief executive and outgoing finance director will not receive a bonus this year as profits fell due to costs associated with an accounting scandal at the telecoms company’s Italian operations.
Shares fell 1.47% to 307.30p in early trading.
The company’s remuneration committee said following a review of its full year performance, it has decided against a bonus for chief executive, Gavin Patterson, and finance director, Tony Chanmugam. Chanmugam is stepping down to take up a new role overseeing the integration of mobile phone giant EE into BT. He will be replaced by former BG Group finance director Simon Lowth in July.
WATCH: 'Not a huge amount to cheer' in BT results, says ETX Capital's Neil Wilson
Chanmugam and Patterson have previously indicated they would forfeit their bonus should one have been recommended by the committee after accounting irregularities in the Italian business wiped £7bn from the telecoms giant’s market capitalisation in one day.
Patterson will be paid £1.34mln for the year to the end of March, including an annual salary of £993,000, a 74% reduction on the £5.28mln he received for 2015/16.
In March BT was also forced to pay a £42mln fine and £300mln in compensation to corporate customers after regulator Ofcom found that the company’s infrastructure arm Openreach let down rivals such as Sky and TalkTalk with delays in installing high-speed phone and internet lines in 2013 and 2014.
The fine came as BT agreed a deal to legally separate Openreach from the rest of the group following two years of fraught negotiations with Ofcom.
Remuneration committee chairman Tony Ball said the past year has been “challenging”.
“Although good progress has been made in a number of areas, unfortunately our performance has been significantly affected by the accounting irregularities in our Italian business, the issues that arose in Openreach around Deemed Consent and the significant challenges we faced in the UK public sector and international corporate markets. The committee has made a number of difficult decisions this year in light of these circumstances and exercised its discretion accordingly.”
Patterson said: “We take these issues extremely seriously and are putting in place new measures, controls and people to prevent them happening again. Learning from the challenges of this year will make BT a stronger company for the future.”
BT to cut 4,000 jobs as full year pre-tax profits fall
To help offset "market and regulatory pressures", BT will cut 4,000 jobs from its 102,000 global workforce to save it £300mln over two years.
In the company’s full year results, it said adjustments relating to the investigation of its Italian business amount to £268mln for errors in previous years. The group incurred a specific item charge of £245mln in the current year for changes in accounting estimates and £15mln in investigation costs in the fourth quarter.
Including specific items of £1.2bn, profit before tax dropped 19% to £2.3bn in the year to 31 March. Adjusted pre-tax profit, excluding specific items, rose 5% to £3.5mln.
Underlying earnings (EBITDA) increased 18% to £7.7bn while reported EBITDA climbed 8% to £6.8bn.
Normalised free cash flow fell £316mln to £2.7bn due to earlier-than-expected customer collections that will reverse next year when free cash flow is expected to reach £2.7bn to £2.9bn.
Revenue increased 27% to £24.0bn as the company integrated EE and delivered a strong performance in its consumer, small and medium enterprises and corporate businesses.
The group has raised its final dividend 10% to 10.55p, bringing the total for the year to 15.40p, a 10% increase on the prior year.
BT wins rights to top-flight European football
BT has secured the rights to the UEFA Champions League and UEFA Europa League until 2021, which Patterson said puts the group in a “strong position”.
The group is also working to scale back its costs, particularly in technology, service and operations.
“This will help offset market and regulatory pressures and create the capacity for future investment,” Patterson said.
BT sees drop in full year earnings, scraps dividend target...
BT expects flat underlying revenue and EBITDA to decrease to £7.5bn-£7.6bn in the 2017/18 financial year as it undergoes a restructuring. The group also warned that while its dividend policy "remains progressive",growth in current fiscal year would be lower than the 10% previously anticipated.
The company has decided to conduct a two-year overhaul of its Global Services operations following a strategic review. The turnaround will be overseen by Bas Burger, who will begin as the division's CEO in June following the departure of Luis Alvarez.
Neil Wilson, senior market analyst at ETX Capital, said: “It’s been a pretty torrid time for BT management and shareholders of late and there is not a lot of good news in today’s full-year earnings report."
He added: "A run of bad news means BT is still cautious and it expects little improvement to earnings and free cash in the coming year. Not much of a surprise - the Italian accounting fiasco had been expected to eat up around £500m in free cash in 2016/2017 and a further £500m in 2017/18. An Ofcom fine of £42m and having to repay £300m to rivals doesn’t help matters."
Distinct lack of guidance beyond coming year, says Hargreaves...
George Salmon, equity analyst at Hargreaves Lansdown, said the various scandals and regulatory fines at BT in recent months have come back to bite its executives.
He said while the results were broadly in line with expectations, the company's comments with the numbers "hardly inspires much confidence".
"The dividend policy, to pay increases of at least 10%, has been scrapped, and there is a distinct lack of guidance beyond the coming year," Salmon said.
"BT has got several millstones hanging around its neck at the moment, not least the huge debts taken on to acquire EE and its sizable pension deficit, which is due for a funding review in June. In addition, compensation relating to malpractice at Openreach is set to drain another £300mln from the coffers this year, so one has to wonder how ‘progressive’ the new dividend policy can be.”
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