BT Group PLC (LON.BT.A) has finally buckled and decided to cancel its dividend as it announced a five-year ‘simplification’ plan and a decline in full-year revenue and profit.
No final dividend will be paid for the past year to 31 March nor for the current year, with the telecoms group saying it expects to resume the payout in 2022 ‘rebased’ at an annual rate of 7.7p per share.
Investors had only been braced for a dividend cut rather than a cancellation, analysts said, with the consensus forecast pointing to a cut to around 10p from 15.4p last year.
Earnings for the past financial year would barely have covered the previous dividend, having fallen 20% to 17.5p per share as profit before tax fell to £2.4bn from £2.7bn last time, but with new IFRS 16 accounting rules making comparisons unfair.
BT took a £95mln charge as a result of coronavirus-related provisions for bad debts, saying the biggest financial impact from the pandemic will be lower revenue from BT Sport, reduced SME business activity and rising insolvencies, plus lower installations for Openreach.
Revenue was down 2% on a reported basis to £22.9bn and 3% lower on an underlying basis, with average revenue per customer down in both fixed and mobile telecoms, BT blaming the impact of regulation, declines in legacy products, strategic reductions in low margin business and divestments.
Net debt has swelled to £18bn from £11bn a year ago, which was attributed to the IFRS 16 implementation and net cash outflows.
Chief executive Philip Jansen said due to the Covid-19 pandemic the group was not providing guidance for the current year but he did say that he was aiming to make £2bn of savings over the coming five years from a “radical modernisation and simplification programme” in an initiative that will “re-engineer old and out of date processes, rationalise products, reduce re-work and switch off many legacy services”.
He said the dividend was cut “in order to deal with the potential consequences of Covid-19, allow us to invest in FTTP and 5G, and to fund the major five-year modernisation programme”.
BT shares fell 8% on Thursday morning to 104.79p, where they are down more than 46% since the start of the year.
“Another one bites the dust,” said Neil Wilson at Markets.com, with the company joining the massacre of FTSE dividends.
“Whether or not you agree that companies ought to be prioritising investment or survival over shareholder returns, the income investor is not going to find life easy for the next 18 months.”
Analysts at UBS said fourth-quarter results were generally in-line with forecasts but the dividend outcome “is worse than expected and will draw questions on the near-to-medium term outlook”.
The analysts added that they believe BT “is taking the right course of action for the longer term, but we think the shares are likely to be under pressure near term”, noting that the new 2025 cost savings plan will come with £1.3bn of upfront costs and "the net benefit longer-term is unclear".
Indeed, the question leading up to these numbers was not if, but by how much, BT would take a scalpel to its dividend, said Richard Hunter at Interactive Investor.
“Coupled with the aim of a major overhaul of its business, investors are now questioning whether the leap of faith required to stay with the shares is viable.”
He noted that even prior to the pandemic BT had been swimming against the financial currents of a large pension deficit, huge expenditure on both 5G and the fibre broadband networks, and stubbornly high debt.
“In suspending the dividend for this year and next, then planning to reintroduce payments at half the current level, additional cash will be made available for BT’s extremely ambitious transformation plan. The objective of gross savings of £2 billion per annum through a blend of modernisation, rationalising of products and abandoning some legacy services should result in a more efficient operation, although the journey will be fraught with challenges.”
. Q4 revenues were -3.8% to £5,632m (cons -3.2% to £5,665m after -2.2%/-3.4% in Q2/Q3), with EBITDA -0.9% to £2,007m (cons -1.0% to £2,006m after -4.5%/-4.1% in Q2/Q3).
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