BT’s Share Price Dives 7% As Higher Costs Batter Profits

Telecoms giant BT Group plans to accelerate cost-cutting plans following a painful drop in first-half profits.

BT’s share price slipped 7% in Thursday business to 119p per share.

Revenues at the FTSE 100 firm rose 1% during the six months to September, to £10.4 billion. Meanwhile pre-tax profit tumbled 18% to £831 million.

Sales at BT’s Consumer arm and Openreach infrastructure division grew 3% and 5% respectively between April and September. But this was partially offset “by legacy declines in large corporate customers in Enterprise, lower equipment sales in Global and the impact of the BT Sport disposal.”

BT transitioned its sports broadcast division into a 50-50 joint venture with Warner Bros Discovery back in the spring.

Cost Cuts To Protect Cash FlowFLOW2

Soaring inflation has prompted the company to step up its cost savings target from £2.5 billion to £3 billion by the end of financial 2025, it said.

BT chief executive Philip Jansen said that “given the current high inflationary environment, including significantly increased energy prices, we need to take additional action on our costs to maintain the cash flow needed to support our network investments.”

Jansen raised the spectre of more job reductions to help the firm meet its target. He commented that “inevitably it means some jobs will not exist in the future but that has been true of the last few years too.”

He added that “we will use natural attrition as much as we can,” though didn’t indicate how many jobs could be affected.

Free Cash Flow Falls

Elsewhere, normalised free cash flow at BT fell to £100 million in the first half due to higher capital expenditure. This was down from £400 million in the same 2021 period.

BT subsequently forecast that normalised free cash flow would likely come in at the lower end of its £1.3 billion to £1.5 billion guided range.

Net debt at the company, meanwhile, rose to £19 billion in the first half, an £801 million increase from the corresponding period last year.

Capital Expenditure Rising

The telecoms titan also today announced a rise in capital expenditure “due to higher fibre connections and inflation.”

It said that total capital expenditure in the current financial year would hit £5 billion, up £200 million from its prior target. Moreover, it advised that capex would be around £4.8 billion per year during the remainder of the peak fibre rollout.

Capital expenditure totalled £2.6bn in the first half, up 2% year on year.

BT’s fibre broadband rollout programme continued at pace and premises connections have now passed 8.8 million. Connections are ahead of plan with 331,000 of additions during the second quarter.

What The Analysts Said

Sophie Lund-Yates, analyst at Hargreaves Lansdown, said that “it’s never a good look to have to cull your cost base in the name of cash flow conservation. That takes sensible efficiency-planning into the realms of worry.”

Lund-Yates speculated that supply chain efficiencies and product improvements could be the source of cost savings. But she added that “how much excess juice there is to be squeezed from these areas remains to be seen… a £3 billion savings programme is a mammoth task, and frankly it’s one the market needs convincing that BT is up to.”