By reducing operating costs by £752m in the six months to the end of September, telecoms giant BT Group (BT. A) managed to cushion the impact of its underperforming global services division and a regulatory change over ladder pricing that squeezes wholesale revenue.
"Despite the recession and regulation, we have delivered on the bottom line," said chief executive Ian Livingston. Indeed, adjusted EPS in the second quarter rose 7 per cent on the first quarter. More pleasingly for shareholders, BT hiked up the half-year dividend by 15 per cent, a trend set to continue. "We're going to increase the annual dividend by 10-15 per cent over the next three years," added Mr Livingston.
BT Global Services, however, remains a big headache. Underlying revenue at the IT services division dropped 8 per cent in the first half, largely due to tough economic conditions in Europe and a beleaguered financial services sector. The division hasn't contributed much to lowering the group's cost base, either. "There's still a lot more to do at BT Global Services," acknowledged Mr Livingston, although he revealed no cost-saving targets for the troubled unit, which posted a £59m first-half loss on revenues of £3.49bn.
The group also had to contend with a recent Court of Appeal decision to scrap ladder pricing for terminating premium mobile calls, which will cost BT around £200m a year. With ladder pricing, BT and other fixed-line operators can increase their wholesale prices in line with retail prices. Without it, plus the difficulties at the global services division, BT does not expect an uplift in underlying revenue for the current financial year.
There was better news from the wholesale operation, which ended the second quarter with an order intake of around £300m, up from £120m at the same stage last year. As the UK's mobile network operators gear up for superfast mobile broadband - Everything Everywhere is already out of the '4G' blocks, and BT says it is working closely with the operator - BT Wholesale can expect increased demand for capacity. Moreover, once investment in high-speed fibre-optic access starts to fall in 18 months' time, BT's cash flow should also improve. The group's fibre-optic access network is expected to be available to two-thirds of UK premises by the spring of 2014.
Post results, JPMorgan Cazenove upped its full-year adjusted EPS forecast from 24.8p to 25.3p (from 23.7p in 2012).
BT (BT.A) | ||||
|---|---|---|---|---|
| ORD PRICE: | 226p | MARKET VALUE: | £17.8bn | |
| TOUCH: | 226-227p | 12-MONTH HIGH: | 240p | LOW: 174p |
| DIVIDEND YIELD: | 3.8% | PE RATIO: | 8 | |
| NET ASSET VALUE: | 72p* | NET DEBT: | £9bn | |
| Half-year to 30 Sep | Turnover (£bn) | Pre-tax profit (£bn) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2011 | 9.25 | 1.07 | 11.3 | 2.60 |
| 2012 | 8.87 | 1.19 | 13.0 | 3.00 |
| % change | -4 | +11 | +15 | +15 |
Ex-div: 24 Dec Payment: 14 Feb *Includes intangible assets of £2.97bn, or 36p a share | ||||
