Performance at BT a game of two halves
THURSDAY saw BT deliver its results for the first half of the year. The numbers were broadly as expected, with flat revenues and higher costs sending profits down 3 per cent to £3.6billion.
While the group plans to increase the dividend in the future, the half-year payment was held flat at 4.85p per share.
There is something of a split appearing within BT. The consumer-facing parts we all recognise are performing well, but the group’s other divisions are struggling. Let’s run through the good news first. In the consumer business, bundling together broadband and phone services with a TV package that includes top-level football, rugby and cricket has proven a masterstroke. As a result, customer numbers have grown. Mobile network EE, acquired last year in a £12.5billion deal, has also delivered growth. Profits in the half rose 17 per cent to £661million.
Going forward, these two businesses are to be brought closer together. To us, this seems a sensible, and potentially lucrative, move. If BT can effectively cross-sell between the divisions, revenues and customer loyalty should grow.
However, the bits of BT behind the consumer-facing curtain aren’t going so well. The part of the group servicing other businesses and the public sector has endured a slowdown, and BT’s global arm is becoming weaker. Fines, charges and compensation payments haven’t helped.
In 2017 alone, exceptional costs have topped £1billion. Examples include £530million to cover an accounting scandal in Italy, and £342million for misdemeanours at Openreach. In addition to these one-off costs, BT has other demands on its cash. Maintaining and upgrading its infrastructure requires investment, and servicing the £7.7billion pension deficit and £9.5billion debt pile is hardly optional.
So it was no surprise the group revised its dividend policy earlier this year. BT previously targeted paying increases of at least 10 per cent a year, but it now has a less definitive ‘progressive’ policy.
The 6 per cent dividend yield provides a clear attraction in the here and now. However, we feel BT will have to get its house in order before any meaningful dividend increases are possible.
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