Broadband boom pays off for BT

By This Is Money
Updated: 06:42 EDT, 12 May 2011

Success in signing up new broadband customers and stringent cost-cutting helped BT to boost its annual earnings by 71%.

Wired up: BT added 225,000 broadband customers in the first quarter of 2011

The telecoms giant racked up a £1.7bn pre-tax profit in the year to March 31, although revenues fell 4% to £20.1bn.

Stripping out one-off charges from last year, adjusted profits were 20% higher at £2.1bn.

Shares in BT edged up 0.1p to 202p in morning trading.

The company said some 252,000 broadband customers were added in the first quarter of this year, of which 64% were signed with BT and the rest with other firms using its network.

Meanwhile, it slashed operating costs by £1.1bn over the year, beating an expected £900m of savings.

BT added that its pension scheme was in better health, with the valuation deficit down from £9bn to an estimated £3.2bn.

But it has so far been unsuccessful in persuading the pensions regulator to provide an updated assessment on the fund after it raised 'substantial concerns' 15 months ago about an agreement with trustees to plug the deficit.

A deal with the regulator is seen as key in paving the way for a rise in the company's dividend payments to shareholders. Today, the company announced a 7% rise in its annual dividend to 7.4p a share.

Chief executive Ian Livingston said: 'We expect to continue to grow our profits and free cash flow whilst investing to return BT to growth. These results show we are making progress, but we are well aware there remains a lot more to do.'

BT's retail division added 1.1m homes to its network over the course of the year, which equates to a new connection every 30 seconds. BT said it has connected seven new homes for every one connected through Virgin Media's cable service.

It has added 144,000 customers to its super-fast broadband service after its launch about a year ago. Mr Livingston claimed its roll-out is among the fastest in the world and by the end of this month it will be capable of providing the service for 5m premises.

Some 30,000 new customers were added to its Vision broadband TV service, which offers Sky Sports 1 and 2, in its final quarter, bringing the total to nearly 600,000.

BT's Global Services division, which caters to businesses and governments, saw its orders rise 10% to £7.3bn and it also turned cash-flow positive a year ahead of plan.

Mr Livingston described Global Services as a UK success story as the company works on a number of contracts across the world, including supporting the Brazilian lottery and post office and Colombia's largest company.

View from the City

Nick Raynor, investment adviser at online broker The Share Centre, said: 'BT's continued strong performance in broadband has seen it achieve the highest quarterly share of DSL broadband net additions for eight years, and has consolidated its position as the UK's leading provider.

'Investors will be pleased with the 7% increase in full year dividend and the plans to continue to grow profits and invest in the business for growth.

'Vodafone remains our preferred play in the sector due to offering a higher yield and its exposure to emerging markets. Although we continue to list BT as a "hold" for now, we may sway towards a more positive recommendation should its performance continue.'

Analysts at investment bank Espirito Santo said the pension environment has improved for BT, with a smaller deficit under the IAS 19 measure of costs.

'BT is now actually claiming a surplus under the less stringent median definition. The regulator is proving himself to be a toothless watchdog (or has he been called off by the Government?), with no ruling now expected until well into 2012.'