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LONDON (Alliance News) - BT Group PLC Thursday said it is on track to achieve its outlook for the full year, as it posted a rise in pretax profit for its first quarter, although revenue fell just shy of analyst expectations.
Shares in BT were down 0.9% at 469.25 pence Thursday afternoon.
For the quarter to end-June, BT posted a pretax profit of GBP632 million, up from GBP546 million, as revenue came in flat at GBP4.36 billion, compared to GBP4.35 billion. On an adjusted basis, stripping out interest expenses on pensions and acquisition costs, amongst other items, pretax profit was GBP694 million, up from GBP638 million, on revenue of GBP4.28 billion. Revenue has been adjusted to strip out an exceptional gain of GBP82 million related to ladder pricing agreements.
According to broker expectations provided by the company, analysts expected BT to post a pretax profit of GBP683 million, on revenue of GBP4.29 billion.
At the time of its full-year results in May, BT had said it expects to achieve "modest" growth in adjusted earnings before interest, tax, depreciation and amortisation for the current year, despite anticipating some additional costs including the launch of its UEFA Champions League and UEFA Europa League football programming in the year.
BT's key measure, underlying revenue excluding transit, was flat compared to a 1.3% decline last quarter, it said.
In its Global Services arm revenue fell 6%, partly due to a GBP38 million hit from foreign exchange movements, and a decline in public sector revenue in the UK. BT business revenue fell 2%, as a rise in small and medium enterprise and corporate data and networking revenue was offset by a fall in business call and line volumes as customers migrate towards over the internet and data services.
In Consumer revenue rose 3%, as a 7% rise in broadband and television revenue offset a broadly flat revenue from calls and lines.
BT added 85,000 retail broadband customers during the quarter. Last Wednesday, competitor TalkTalk Telecom Group PLC highlighted a softer broadband market in its most recent quarter due to higher promotional activity, and whilst BT Chief Executive Gavin Patterson told journalists that the market is competitive, BT hasn't seen "dramatic change" in the market.
The company re-entered the consumer mobile market in March, and said it had added 100,000 customers on BT Mobile in its first three months. Patterson told journalists this was a "strong start" as the product has had limited marketing.
BT is in the process of acquiring mobile operator EE Ltd, and this takeover is currently amid a phase 2 probe by the UK Competition and Markets Authority. It continues to expect this merger to be approved by March 2016.
In BT's Wholesale segment revenue was flat, improved from a 5% decline in the previous quarter, although this was attributed to a GBP30 million gain related to ladder pricing following agreements reached with UK mobile operators after a Supreme Court ruling last year. Last July the UK Supreme Court ruled in favour of BT on a long running dispute over extra payments for calls to non-geographic numbers - this meant that UK mobile operators needed to pay BT backdated charges on these calls.
In the company's infrastructure division Openreach revenue was flat, as 42% growth in fibre broadband revenue was offset by regulatory price changes, which had a hit of around GBP40 million.
Earlier this month UK telecoms regulator Ofcom put the potential separation of BT's infrastructure division Openreach on the table as part of its strategic review of digital communications. The division was formed following Ofcom's last strategic review, concluded in late 2005, as Ofcom made BT form Openreach as part of measures to allow rival operators to access BT's network.
Competitors have called for the division to be separated from BT in the past over concerns surrounding the fairness of BT both running services and controlling the infrastructure over which the services are run.
Patterson told journalists that he didn't think the risk profile on BT had increased in light of Ofcom's review, and that it would have been a surprise if Ofcom had not considered this as an option, considering it is undertaking a comprehensive review of the whole market. However, Patterson reiterated BT's belief that the current model, where Openreach is "functionally separated", is the right thing for BT and the market as a whole.
The company said it was continuing to engage with Ofcom over the strategic review, but also highlighted that the review was toughing on the pay-TV market. Ofcom said after the completion of the first phase of the review that it was also looking into "bundled" telecoms services, as telecoms services are increasingly sold in bundles with other services, including broadcasting content.
Patterson told journalists that "despite many attempts" the regulator has not really been able to make inroads to making a competitive market in pay television. Patterson highlighted the contrast between the broadband market where he said there are four strong service providers and a number of smaller operators and as a result strong competition and low prices, compared to pay television where there is "one player" with a 64% market share, and prices remain "stubbornly high."
BT signed a deal with US TV network AMC in the quarter, which has popular US shows including 'Breaking Bad' and 'Mad Men'. AMC will launch a channel in the UK which will be exclusively available to BT TV customers from August. When queried as to whether or not BT would look to make more similar deals, Patterson told journalists that BT looks at "lots of opportunities" to strengthen content for its customers, and said he wouldn't rule out other investments in the future at this stage.
Nomura noted that whilst BT's headline revenue and Ebitda were in line with consensus, adjusted Ebitda growth of 1% was only achieving owing to the final positive benefit from ladder pricing, which no longer continues. Nomura analyst James Britton expected BT's first quarter to be the best quarter of the year, and anticipates a decline in consumer Ebitda next quarter. The analyst says BT did not state anything to change that view.
"We do not expect material revisions to consensus estimates, but the prospects for positive earnings momentum ahead of EE consolidation now look somewhat muted," Britton said.
By Hana Stewart-Smith; hanassmith@alliancenews.com; @HanaSSAllNews
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