BT has announced the appointment of Allison Kirkby as CEO. She will take over from Philip Jansen around the end of January 2024 at the latest.
Allison has been a Non-Executive Director at BT Group since 2019, as well as President and CEO of a market-leading digital communication and telecoms business in Sweden since 2020.
The shares were broadly flat in early trading.
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Our view
With the CEO hunt now out of the way, we can turn our attention firmly back to operating performance. First-quarter trading benefited from recent price hikes, and it was pleasing to see full-year guidance was reiterated, pointing to growth in the top and bottom lines. Management hasn't put any figures on that, but consensus is looking for a little over 1% on both, so nothing to shoot the lights out.
Cost cuts were in focus back at full-year results, led by the news that the workforce is planned to drop by up to 42% by 2030. Job cuts are hardly surprising, but the plans' scale surprised markets and pointed to many of the issues BT's been facing.
Costs have been a bugbear, and the £2.1bn in savings already delivered has undoubtedly helped. But once the fibre and 5G infrastructure is built and adopted, a much leaner operation is needed to generate long-term growth.
The wider strategy involves significantly modernising and simplifying operations and product line. This includes digitising customer journeys and moving customers onto the new 5G and fibre broadband networks, which have lower running costs than legacy infrastructure.
The real workhorse for this is the group's infrastructure arm, Openreach, which is responsible for maintaining and building out the new fibre networks. It hopes to reach 25m premises by 2026 and spending's set to ramp up even further as BT looks to take advantage of government tax breaks. This technical-heavy business is unique and higher margin, and an asset to the business.
However, substantial improvements aren't free. Constant investment is one of the realities of the telecoms business, as infrastructure needs to be maintained and upgraded. We worry that despite the progress and the goal of reducing spend once infrastructure's in place, BT will have to keep shelling out to keep itself on the cutting edge. It doesn't help that telecoms is an inherently difficult sector to try and deliver attractive margins. Both regulators and customers will always want more for less.
Another drain on cash is BT's large pension deficit. The current payment plan cost just shy of £1bn last year, and we're expecting details on the latest review shortly. There's the potential for a write-down on the some of the assets, increasing the deficit. That won't necessarily mean higher payments, but at the very least it'll extend their duration. Add to that the debt pile, especially in the current higher-interest rate, and the demands on cash are considerable.
BT has its attractions. Its mobile networks are broad and generally high quality, while Openreach is unique and higher margin. But it needs to leverage all of its advantages if it's to satisfy the never-ending investment demands and return to sustained dividend growth.
BT key facts
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