BT Group PLC (LON:BT.A) said profits fell in the past three months and warned that the government's new guidance on the use of Huawei equipment in its rollout of 5G mobile will have a £500mln impact.
Despite opposition from his defence secretary, local and US security authorities, Prime Minister Boris Johnson yesterday gave the green light for equipment from China's Huawei to be used to build the UK 5G network, but capped at 35% of total market share from 2023.
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BT's share price fell 4% to 168.34p on Thursday morning, not far from the eight-year lows reached last summer.
The Group revenue for the nine months to 31 December of £17.3bn are down 2% year-on-year, having been down 1% in the first half.
Parts of BT’s consumer arm struggled amid fierce competition in the third quarter, with average revenue per customer (ARPC) falling 4% in fixed-line compared to a flat performance in the first half. Mobile ARPC was down 5% in mobile after nine months, compared to a 5.5% half-year decline.
Group reported profit before tax fell 3% to £1.9bn and underlying profits (EBITDA) also by 3% to £5.9bn, reflecting the fall in revenue, higher costs for mobile spectrum, investment in the “customer experience” and higher operating costs in the Openreach network infrastructure arm.
Openreach's rollout of high-speed fibre broadband and 5G mobile has led to £2.9bn being been spent on capital expenditure projects in the three quarters of the financial year.
Free cash flow plunged 42% year on year to £1bn, because of the increased capital expenditure and the timing of an initial deposit to secure Champions League and other UEFA club football broadcast rights.
Net debt ballooned to more than £18.2bn – up £7.2bn since last March's year end.
Below expectations
Overall, chief executive Philip Jansen kept the full year outlook steady, though free cash flow will be in the lower half of the expected £1.9-2.1bn full year range.
“BT delivered results slightly below our expectations for the third quarter of the year,” he said.
Giving initial guidance for a £500mln cost from the Huawei decision over the next five years, he added that management was reviewing the guidance in detail to determine the full impact of changing over its .
“The security of our network is paramount for BT. We therefore welcome and are supportive of the clarity provided by government around the use of certain vendors in networks across the UK and agree that the priority should be the security of the UK's communications infrastructure.”
Analyst Will Ryder at Hargreaves Lansdown said: “The government’s decision on Huawei’s role in the UK’s 5G network was always going to leave someone worse off.
“BT thinks it’s going to cost them an extra £500m. It’s likely the regulator will try to limit the amount that gets passed onto the consumer, so BT may end up taking a lot of it on the chin.
He felt the trading results were “disappointing, but not overly so”.
Neil Wilson at Markets.com said: “The spectre of nationalisation may have melted away with Labour’s red wall, but the problems for BT remain as constant as ever.”