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(Alliance News) - BT Group PLC on Thursday suspended its dividend until financial 2022 - resuming payments then at a lower rate - and said profit declined in its most recent year, partly as a result of regulation and partly from legacy product decline.
Shares in BT were down 7.6% at 105.60 pence in London in morning trading.
The telecommunications giant reported a GBP2.35 billion pretax profit for its year ended March 31, down 12% from GBP2.67 billion the prior year as revenue fell 2.2% to GBP22.91 billion from GBP23.43 billion.
BT said its revenue drop predominantly reflected "the impact of regulation, declines in legacy products, strategic reductions in low margin business and divestments".
Having completed the cost transformation plan announced back in May 2018, BT is now embarking on a new phase aimed at simplifying its product portfolio, as well as simplifying and automating "customer journeys". BT will move "to a modern, modular IT architecture" and move customers from its legacy networks onto modern fibre to the premises and 5G networks.
These new measures are expected to produce annualised gross cost savings amounting to GBP1 billion per annum by March 2023 end, which will be "realised in broadly equal annual increments". This amount should increase to USD2 billion a year by the end of March 2021.
"The savings will comprise reductions in both our total labour costs and spend with external suppliers. We expect around 80% of the savings will be realised in operating costs and the remainder in capital expenditure," BT explained.
BT expects to pay around GBP1.3 billion as a one-off cost to produce these savings over the five-year programme period. Of this, GBP900 million will be invested within the first three years, including approximately GBP400 million in BT's financial 2021 year.
In the fourth quarter, BT announced it was selling Tikit, its global legal, accounting and professional services software business. It also has struck an agreement to sell selected domestic telecoms operations and infrastructure in Latin America in calendar year 2020.
BT also has entered exclusive negotiations to sell its French domestic telecommunication operations, also in calendar 2020.
The company has suspended its final financial 2020 dividend and all dividends for financial 2021 "to create capacity for value-enhancing investments and managing confidently through the Covid-19 crisis". It will resume payments in financial 2022 at a 7.7 pence per share annual rate. For the 2019 financial year, BT paid out 15.40p per share.
Chair Jan du Plesis commented on the dividend decision, stating: "Recognising the importance of dividends to our shareholders, the board's decision in relation to the dividend has been exceptionally difficult. BT plays a key role in sustaining critical national infrastructure - as magnified by the Covid-19 crisis - and many stakeholders trust and rely on the connectivity we provide. BT also stands ready to make the biggest communications infrastructure investment in the UK in a generation - that includes building our full fibre network to 20 million premises by the mid- to late-2020s.
"To maintain such trust, whilst creating capacity for value-enhancing investment and navigating the unprecedented uncertainties caused by Covid-19 without compromising our credit rating, the board concluded that the prudent and proper decision was to suspend the 2019/20 final dividend and all dividends for 2020-21, and re-base future dividends to a more sustainable level. The board believes that this decision is in the best long-term interests of shareholders.
"We expect to resume dividend payments in 2021/22, rebased to 7.7p per share. The board expects to continue with a progressive dividend policy from this re-based level for future years."
No outlook was provided for financial 2021. Chief Executive Philip Jansen explained: "Of course, Covid-19 is affecting our business, but the full impact will only become clearer as the economic consequences unfold over the next 12 months. Due to Covid-19, BT is not providing guidance for 2020/21, at this time."
Jansen also commented on the modernisation and simplification programme, saying: "BT is delivering, but is also changing. BT needs to be leaner, simpler and more agile. Today we are announcing a radical modernisation and simplification programme that will use technology to create a better BT for the future. This 5-year initiative will re-engineer old and out of date processes, rationalise products, reduce re-work and switch off many legacy services. This next stage in the modernisation of BT will deliver gross annualised savings of GBP2 billion over the next 5 years."
By Anna Farley; annafarley@alliancenews.com
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