BT announces profits jump in its quarterly results

BT has announced a 3% rise in adjusted profits to £816m in its first-quarter of 2018 with BT’s consumer division posting a 2% rise in adjusted revenues.

However, underlying revenue fell 2% while there was also a sales decline in Openreach and BT’s wholesale and business operations.

Net debt rose £2.4bn to £11.2bn, thanks to a £2bn bond issue, which has been handed to the pension scheme to plug the deficit.

BT states that its independent actuaries, Willis Towers Watson, got the accounting deficit wrong in March, they under-estimated its size by £500m.

Analysis: Laith Khalaf, Senior Analyst, Hargreaves Lansdown

BT’s consumer business is keeping the whole ship moving forward at the moment. Regulatory pressures are hitting Openreach, and BT’s revenues from business and the public sector are in decline. Overall profits are up this quarter, but times are still tough for the UK telecoms provider.

The pension scheme is taking up significant cash, with £2bn gobbled up in this quarter and a further £1.25bn to come in the next year, to go towards plugging the pension black hole. On that front BT says its independent actuaries miscalculated the pension scheme liabilities in March, under-stating the accounting deficit by £500m. The accounting deficit tells us more about bond yields than it does pension obligations, and has no effect on cash flows, but clearly this slip doesn’t exactly help to inspire confidence.

BT is banging up against the side of the fish tank when it comes to its broadband penetration, so further revenue expansion will be led by pushing through price increases, and getting its customers to sign up to more services. Telecoms providers are moving towards quad-play packages that bundle up fixed line, broadband, mobile and TV, which increases sales and makes for stickier customers.

CEO Gavin Patterson is on the way out, which makes BT somewhat rudderless at a time when it is undergoing a major restructuring. New chief execs like to stamp their authority on a business too, so there is little visibility on the future of BT right now.

BT shares recently slipped to a six year low and expectations of 10% annual dividend increases have been banished. Indeed the stock yields almost 7%, which suggests the market has some doubts the dividend can be maintained. Investment in BT right now is a long term recovery play, and as ever with this sort of strategy, things can get worse before they get better.