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BT's fiscal H1 promises better times ahead (maybe)

A stronger-than-expected operational fiscal H1 performance, along with the happy prospect of reinstating the dividend during the next fiscal year, saw BT's share price initially leap by as much as 9% in early morning FTSE 100 trading.

True, much of the gain had been wiped off by mid-afternoon – partly because of a broader FTSE 100 slide – but there is arguably a sense that the UK incumbent is at least moving in the right direction, despite the tough trading conditions.

A new modernization program instigated by CEO Philip Jansen to cut costs, which involves a fair amount of job cuts, has given BT some leeway to up profit guidance.

Sunnier outlook

BT raised the lower end of its adjusted EBITDA outlook for the full fiscal year by £100 million (US$129 million), to £7.3 billion ($9.4 billion). The high end of the range, £7.5 billion ($9.7 billion), remains the same. The UK incumbent expects EDITDA during fiscal 2022-23 to be "at least £7.9 billion [$10.2 billion]."

Jerry Dellis, an analyst with Jefferies – as cited by the Financial Times (paywall applies) – thought the £7.9 billion figure was significantly higher than the £7.6 billion ($9.8 billion) analyst consensus. He described the company's tone as "notably more confident."


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BT added that growth in EBITDA will "underpin the planned reinstatement of our revised dividend" in the next fiscal year. Much to the chagrin of shareholders, BT scrapped its dividend in May to help fund a £12 billion ($15.5 billion) program to roll out full-fiber infrastructure to 20 million UK premises by the mid-2020s.

Full-fiber ahead

Fiber-to-the-premises (FTTP) rollout by Openreach, BT's infrastructure arm, is picking up speed. Q2 saw a weekly run-rate of 40,000 connected premises, up from around 34,000 the previous quarter. By September 30, BT had passed 3.5 million homes and businesses with FTTP, up from around 3 million at the end of June.

All four major UK communications providers on Openreach's network are now selling FTTP, said BT, and orders grew 100% compared to Q2 last year. Weekly orders have grown from an average of 7,000 pre-lockdown to 13,000 in September 2020.

The "5G-ready" customer base of BT-owned EE stood at 1.2 million, as of September 30.

Turnover down (and still paying for Huawei kit)

Domestic fiber inroads and 5G were not enough to prevent a slide in H1 Group revenue, which fell 8%, year-on-year, to £10.6 billion ($13.7 billion).

BT blamed pandemic-related causes – reduced BT Sport revenue, for example, and a reduction in business activity – as well as a decline in legacy products.

Adjusted EBITDA, at £3.7 billion ($4.8 billion), was down 5% over the same period. The fall would have been steeper, said BT, were it not for sports rights rebates and savings from the modernization program. The drop was nonetheless a main contributory factor in the 20% slump in pre-tax profit, to £1.1 billion ($1.4 billion).

Normalized cash-flow outlook for the full fiscal year remains unchanged at £1.2 billion ($1.5 billion) to £1.5 billion ($1.9 billion). This is due to expected increases in stock levels to manage through the end of the Brexit transition period, and, perhaps surprisingly, a "final purchase of necessary Huawei equipment," including spares, before the UK 5G ban on the Chinese supplier comes into effect on December 31.

— Ken Wieland, contributing editor, special to Light Reading

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