BT Raises Interim Dividend, Cash Flow Falls

BT Group (LON: BT.A) today reported first-half revenue up 1% to £8,753m and raised its interim dividend 2% to 2.50p. Adjusted EBITDA, a measure of core operating earnings, rose 1% to £4,097m in the six months to 30 September. The figures cover continuing operations, with International now treated as discontinued after June’s agreement with Verizon (NYSE: VZ).

Handset sales in Consumer lifted revenue, while adjusted service revenue, which excludes such sales, slipped 1% to £7,685m. Lower staff costs and cost transformation more than offset the decline in voice revenue. Reported profit before tax rose 12% to £1,071m, helped by lower restructuring costs, and basic earnings per share reached 8.5p from 7.5p.

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Chief Executive Allison Kirkby said:

BT delivered a strong first half, with further strategic momentum in a competitive market, resulting in growth in revenue, EBITDA and customer satisfaction.

Allison Kirkby, Chief Executive, BT Group

The EBITDA growth came from the network arm. Openreach, which runs the UK’s broadband infrastructure, lifted adjusted EBITDA 4% to £2,238m, with more than 1.1m net full-fibre additions. Consumer EBITDA fell 1% to £1,255m and Business dropped 7% to £601m.

Cash was weaker. Normalised free cash flow, the cash left after investment and routine obligations, fell 59% to £236m from £569m on higher working capital outflows. Net debt rose to £21.0bn from £20.0bn at the end of March, on scheduled pension payments and the full-year dividend.

A triennial pension agreement put the BT pension scheme deficit at £2.7bn at June, with scheduled contributions largely replaced by zero-coupon bonds.

BT reconfirmed its outlook for the year to March, including adjusted EBITDA within £8.1bn to £8.2bn and normalised free cash flow of about £2.0bn, so most of that cash target falls in the second half. The outlook excludes TalkTalk, which BT acquired out of administration on the 5th of October, protecting service for 2.5m UK customers, subject to a regulatory review.

The interim dividend of 2.50p compares with 2.45p a year earlier. It goes ex-dividend on the 24th of December, with a record date of the 29th of December and payment on the 10th of February.