BT reported first-half underlying revenue of £10.4bn, a rise of 3%. Openreach was the standout, where higher prices and a growing fibre footprint helped deliver 8% growth.
Openreach added 860,000 locations to its full fibre build, expanding to 12m premises. First-half fibre orders were up 23%, but the overall broadband base was down as the shift away from copper lines continues.
Underlying cash profit (EBITDA) was up 6% to £4.1bn, as higher revenue and cost controls were able to more than offset cost inflation.
Full-year guidance looks for growth in revenue and cash profit, as well as underlying free cash flow now expected at the top end of £1.0-£1.2bn.
The shares 3.8% in early trading.
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Our view
Trading continued to benefit from price hikes earlier this year, and it was pleasing to see full-year guidance reiterated, pointing to growth in the top and bottom line on an underlying basis. Management hasn't put any figures on that, 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 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 over £700m in the first half. Add to that the debt and lease pile, which cost a combined £823m 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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