LONDON (ShareCast) - (Sharecast News) - Cutting 2,000 jobs as part of its massive restructuring programme enabled BT Group to ring up better first-half profits in the face of increasing competition in fixed, mobile and networking markets.
While the telecoms titan's consumer-facing business grew revenue and profit as mobile sales under the EE banner benefited from new smartphone launches and more customers signed up to BT Plus, the group's first 'converged' product offering 4G mobile and broadband internet. In October, EE demonstrated its 5G capabilities in London, ahead of a wider network switch some time in 2019.

Revenues declined in the business & public sector, wholesale, the overseas focused Global Services divisions, while Openreach was just below flat due to regulated price reductions.

In his last set of interim results before he leaves at the end of January, chief executive Gavin Patterson said the enterprise businesses declines were due to "legacy products" and otherwise they had "maintained momentum".

Patterson also oversaw the completion of the transfer of 31,000 workers, including fibre broadband engineers, into the increasingly independent Openreach infrastructure division under orders from the regulator's Digital Communications Review.

He said average broadband speeds should increase across the UK after Openreach signed up the majority of its major and a number of its smaller customers to new volume-related discounts.

Group revenue of £11.6bn in the six months to 31 September was down 1% on the same period last year but most of the component parts were better than City analysts had expected.

Adjusted operating profits were up 2% to £3.7bn, however, thank to 8% growth from consumer, 2% from business & public sector and 35% from global services. Adjusted earnings per share rose 4% to 13.3p. Reported profit before tax jumped 24% to £1.3bn and EPS by 29% to 10.6p.

Free cash flow declined 22% to £974, while a dividend of 4.62p per share was declared, down 5% on a year ago.

Net debt had risen £2.3bn since the start of the year to £11.9bn, as £754m of net cash inflow from operations was offset by a £2bn pension deficit payment and £1bn dividend payment.

"Our strategy is delivering, with benefits evident from the steps we've been taking to simplify and strengthen the business and improve efficiency," said Patterson.

"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 to be in the upper half of our £7.3-7.4bn range."

Shares in BT continued their recent recovery from the summer's six-year low, rising more than 9% on Thursday to a nine-month highs above 263p.



Analyst George Salmon at Hargreaves Lansdown said: "A 2% increase in profit isn't usually much to write home about, but given expectations were for a slight decline, these results mean it looks like CEO Gavin Patterson will sign off on a positive note."

He said after a tough few years, BT was "starting to look more stable", with the pension deficit coming down and investment requirements expected to flatten out, though challenges around the business-to-business divisions and tighter controls on Openreach "mean it's hard to see group revenue growing significantly in the next few years", with any profit growth needing to come from aggressive cost saving plans.

RBC Capital Markets said the revenue was 2.1% better than the consensus forecast and EBITDA was a 6% beat, driven by consumer's high end smartphone rebates, better volumes at Openreach and Global Services enjoying good trading and some one-offs.

RBC noted that customer churn on broadband jumped from 1.2% to 1.6% as BT faced "pressure on front book (likely from Vodafone)".

Russ Mould, investment director at AJ Bell, said a 5% cut to the interim dividend might normally be seen as bad news at BT, especially as it comes after an accounting scandal, profit warning and the departure of the chief executive.

"But we may have reached the point where things have got so bad that they can get no worse - and if they can get no worse, then they can only get better, or so the argument goes, especially as the company has lined up a new boss, reached a settlement regarding its pension deficit, embarked upon a cost-cutting programme and sanctioned only a minor cut to the interim dividend."

Given BT's history of dividend cuts when things have got tough, Mould said it would be a "huge step forward" if the company is able to only reduce its full year dividend modestly.

"That could provide some support to the shares, especially as they trade on barely nine times forward earnings - at 260p the shares are no higher now than they were in November 1996."

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