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BT keeps dividend unchanged and ups fibre investment target

Annual revenue, profits, earnings and cash flow all declined, while debt ballooned
internet cable
BT aims to connect 4mln premises to ultrafast broadband by March 2021

BT Group PLC (LON:BT.A) has kept its annual dividend unchanged, resisting pressure from new chief executive Philip Jansen to cut the payout in order to provide headroom for increased investment.

In the end, the former telecoms monopoly aims to have its cake and eat it, proposing a final dividend of 10.78p per share to give an unchanged full-year payout of 15.4p, as well as increasing its target for investing in laying ultrafast ‘fibre to the premises’ broadband from 3mln to 4mln homes and businesses by March 2021.

READ: BT board divided over potential dividend cut

This came after a year to 31 March where revenue, profits, earnings and cash flow all declined and debt increased. Adjusted revenue was down 1% to £23.46bn and adjusted underlying earnings (EBITDA) fell 2% to £7.39bn as growth in the consumer business was offset by regulated price reductions in Openreach and declines in the enterprise businesses. Adjusted earnings per share fell 6% to 26.3p.

Normalised free cash flow tumbled 18% to £2.44bn, mainly due to pension deficit payments, capital expenditure up 13% to £3.96bn and the lower EBITDA. Net debt was up 15% to £11.04bn.

The results, in terms of revenue and earnings, were in line with management’s prior guidance, though EBITDA and EPS were very slightly short of analysts’ average forecasts.

For 2019/20, guidance is that adjusted EBITDA will fall to £7.2bn-£7.3bn as adjusted revenue falls by another 2% but with capital expenditure being maintained and £200m lower cash taxes leading to normalised free cash flow sliding to £1.9bn-£2.1bn.

Jansen, who joined BT three months ago, said BT was “really well positioned in a very challenging and competitive UK market” but has “a lot of work to do to ensure we remain successful and deliver long term sustainable value to our shareholders”. 

“We need to invest to improve our customer propositions and competitiveness. We need to invest to stay ahead in our fixed, mobile and core networks, and we need to invest to overhaul our business to ensure that we are using the latest systems and technology to improve our efficiency and become more agile.”

READ: Berenberg thinks new BT boss may cut telecoms giant’s dividend

On top of the extended FTTP built target, Jansen also announced a new “ambition” to reach at least 15mln premises by the mid-2020s, up from 10mln. But he also shifted part of the responsibility off the company’s shoulders by saying these aims will be possible “if the conditions are right, especially the regulatory and policy enablers”.

While there have been reports of a boardroom split, with Jansen desiring a dividend cut and chairman Jan du Plessis insisting the payout was maintained, the former Worldpay boss said for the year ahead the board expects to hold the dividend unchanged, given the current outlook for earnings and cash flow.

Analysts at UBS said Jansen's strategic update "maintains the existing strategy but with more aggressive execution", with higher upfront investment offset by lower cash taxes in order to maintain the dividend "for now".

"We think BT is taking the right course of action and there is likely to be initial relief that the dividend has been held. However, underlying operating trends remain mixed."

Russ Mould at AJ Bell said that many shareholders were fearing the worst for the dividend, so "will be pleasantly surprised" to see an unchanged full-year payout that equates to a 7% dividend yield and said it was "good news" that management were not appearing to skimp on capex.

He said the high yield "may provide some support for the share price, although investors still need to make sure that the payment can be sustained and that BT is not strangling itself so it can avoid a repeat of the dividend cuts of 2002 and 2010".

However, the expectation that normalised cash flow will fall by almost a fifth this year and that adjusted EBITDA will drop for the third year in a row "means investors are likely to remain on edge about the dividend, even if BT is already committing to a further, unchanged distribution".

BT shares were down 1% to 217.15p mid-morning on Thursday.

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Article
May 09 2019

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