SHARES in telecoms giant BT Group leapt by nearly nine per cent after it declared full-year profits would come in at the upper end of expectations.
Outgoing chief executive Gavin Patterson, who will be replaced by Worldpay boss Philip Jansen in February, cited strong sales of smartphone devices on its EE network and BT Plus, its converged fibre and 4G service, as reported a two per cent rise in underlying profits to £3.7 billion in the six months to September 30.
BT’s reported pre-tax profit rose by 24% to £1.34bn, which came amid stronger than expected results from Openreach, its telephone and broadband network. The performance of its Global Services division, which provides security, cloud and networking services to major international companies, also beat expectations.
Mr Patterson, who swung the axe on 13,000 jobs under a cost-cutting drive launched earlier this year, said the company expects underlying earnings for the full year to be in the “upper half” of its £7.3 billion to £7.4bn range.
The guidance would appear to have offset concerns investors may have held over a five per cent cut to the interim dividend, to 4.62p per share. The interim dividend equates to 30% of last year’s full-year dividend of 15.4p per share.
George Salmon, equity analyst at Hargreaves Lansdown, said: “A 2% increase in profits isn’t usually much to write home about, but given expectations were for a slight decline, these results means it looks like CEO Gavin Patterson will sign off on a positive note.
“The real positive for investors is that, after a few tough years, BT is starting to look more stable. The pension deficit is coming down and investment requirements should flatten out from here. That helps shore up cash flows, and diminishes the likelihood of any further amendments to the dividend plans.”
BT confirmed the departure of Mr Patterson, who has served as chief executive for five years, in June. After a tumultuous 2017, sparked by an accounting scandal in its Italian division, Mr Patterson unveiled a strategy update in May of this year, under which he set out a three-year plan to cut costs by £1.5 billion. That would see the company slash 13,000 jobs over the period, with most of the cuts focused on back office and middle management roles.
At the same time, BT has been dealing with the separation of Openreach from the parent group, having been ordered by Ofcom to set it up as a distinct company within the group. This followed concern raised by the regulator over competition in the broadband market.
Mr Patterson noted yesterday that BT completed the transfer of 31,000 employs into Openreach on October 1, “a key part of fulfilling our DCR (Digital Communications Review) commitments.”
After its share price fell to a six-year low in May, when the company reported that annual revenues had fallen by 1% to £23.7bn, the stock has gradually recovered, closing up 8.6% last night at 261.25p.
Commenting as he announced Mr Patterson’s exit, chairman Jan du Plessis said the board supported the strategy Mr Patterson and his team had put in place. However, he noted that the “broader reaction to our recent results announcement has though demonstrated to Gavin and me that there is a need for a change of leadership to deliver this strategy”.
John Moore, senior investment manager at Brewin Dolphin Scotland, noted that the BP share price remains well adrift of the near-500p peak it reached in 2015.
“Behind this has been a wave of concerns about Openreach and a competitive mobile environment, which the company entered into through its purchase of EE,” Mr Moore said. “Looking past some of the moving parts, today’s results show that the company remains financially strong and, therefore, potentially able to make its capital expenditure and dividend commitments, despite the well-aired concerns.”
Mr Patterson said: “Our strategy is delivering, with benefits evident from the steps we’ve been taking to simplify and strengthen the business and improve efficiency.
“Despite increasingly competitive fixed, mobile and networking markets and continued declines in legacy products there is no change in our overall outlook for the full year. Based on current trading, we expect EBITDA (earnings before interest, tax, depreciation and amortisation) to be in the upper half of our £7.3 - £7.4 billion range.”
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