BT's underlying revenue rose 3% in the third quarter, reaching £5.3bn. The strongest growth came from Openreach, while Consumer also rose. This offset declines in the Business division.
Underlying cash profits (EBITDA) rose 3% to £6.1bn, taking all three quarters into account. Profits are being partially held back by higher costs, and legacy declines in Business.
BT said it's on track to meet full-year expectations, including growth in revenue and cash profit, as well as underlying free cash flow at the top end of £1.0-£1.2bn.
The shares rose 2.3% following the announcement.
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Our view
BT delivered another quarter of revenue and profit growth, largely driven by Openreach which is benefitting from price hikes. That's led to full-year guidance being reiterated, with growth expected on the top and bottom line. Management hasn't put any exact figures on just how much these are expected to grow, but we're not expecting anything to shoot the lights out.
Cost cuts remain in focus, led by the news that the workforce is planned to drop by up to 42% by 2030. Some positive developments on the build cost side for fibre infrastructure means cash flow's expected at the top end of the guided range this year. 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 lines. 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 25mn 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 over £700mn in the first half. Add to that the debt and lease pile, which cost a combined £823mn to service over the half, and the drags on cash are hefty.
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 growth.
BT key facts
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