BT Group plc (LON:BT.A) said costs related to pensions, business rates and its investments dragged profits lower in the third quarter but left its full year guidance unchanged.
The telecoms giant also confirmed that it would appeal the High Court's decision to reject its bid to link pension payments to a lower measure of inflation in an effort to cut its deficit.
BT wants to switch the rate used to calculate its pension increases for 83,000 current and former workers from the retail price index (RPI) to the lower consumer price index (CPI).
In the meantime, the group said a triennial review of its pension scheme is ongoing and “constructive discussions” with trustees continue. It still expects to complete the valuation in the first half of the 2018 calendar year.
Earnings and revenues fall
The telecoms giant reported adjusted underlying earnings (EBITDA) of £1.83bn in the quarter ended December 31, down 2% on the same period a year ago and missing the consensus forecast of £1.84bn.
Revenue came to £5.9bn, a 3% decrease on a reported basis and a 1.5% fall on an underlying basis, mainly due to a weak performance in its enterprise business Global Services.
Shares fell 2.8% to 248p in morning trading.
Weak performance in Global Services and wholesale
Global Services revenue fell 9% to £1.3bn while business and public sector revenue dropped 5% to £1.1bn and wholesale and ventures declined 4% to £506mln.
Revenue in the BT Consumer unit was flat at £1.2bn, though revenue generating units per customer increased 3% to 2.02 and average revenue per user (APRU) grew 5% to £41.3.
The company's EE mobile business achieved a 4% increase in revenue to £1.4bn.
BT’s network division Openreach delivered flat revenue at £1.3bn.
"BT’s acquisition of EE has given it a real presence in the world of 'quadruple play' that is mobile, internet, TV and fixed line and, in addition, this offering invites customer loyalty," said Richard Hunter, head of markets at Interactive Investor.
"Even so, the performance in the wholesale and Global Services divisions remains stagnant, whilst the pension situation is a concern."
Fibre to the premises upgrade
Openreach on Thursday announced it would connect fibre broadband into three million premises by the end of 2020 as part of its plans to improve internet speeds across Britain.
READ: BT's Openreach to connect fibre broadband into 3mln premises by 2020
Order intake increased 12% to £3.5bn for the business and public sector unit but fell 38% to £1.3bn for wholesale and ventures and dropped 25% to £3.7bn for Global Services with BT blaming difficult market conditions.
Capital expenditure rose 3% to £878mln as the company invested in launching new smartphones, including the new iPhone 8 and iPhone X.
APRU from customers on monthly mobile contracts fell 2% to £26.2. BT added 235,000 net mobile post-paid customers in the quarter with a churn of 1.2%.
Average BT Sport viewing increased 23%, marking the company’s best quarterly performance since it launched the TV service.
BT joins forces with rival Sky
BT made a deal with Sky during the quarter to supply one another’s content to customers by 2019 after being long-time competitors to securing the broadcasting rights to Premier League and Champions League football.
Under the agreement, Sky’s streaming service Now TV will be available on BT’s set-top box for an extra cost. Likewise, Sky will also sell BT Sports channels to its satellite customers.
READ: BT shares gain on deal with rival Sky to supply each other's TV channels
"We are delivering against our strategy, capitalising on opportunities and responding to market challenges with a robust set of actions,” said chief executive Gavin Patterson.
“Looking ahead, we're confident in the steps we are taking to improve the performance of BT for all our stakeholders."
BT said its transformation programme and restructuring initiatives are track.