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BT tightens its belt to the tune of £500 million

BT has announced an additional half a billion pounds worth of cost savings to its target for the next couple of years due to inflation and a growing capex burden associated with network rollout.

The UK incumbent shared the news alongside a reasonable set of first-half financials that showed small increases in revenue and earnings, and growth in its fibre network footprint.

But the headline was chief executive Philip Jansen’s revelation that he plans to extend his cost-cutting goal, a goal he set as recently as May, by the end of the financial year to March 2025.

“Given the current high inflationary environment, including significantly increased energy prices, we need to take additional action on our costs to maintain the cash flow needed to support our network investments,” Jansen said. “As a result, we are increasing our cost savings target from £2.5 billion to £3.0 billion by the end of FY25.”

That £2.5 billion figure was itself an extension to the telco’s existing plan to save £2 billion by end-FY24. That’s quite an increase in a short space of time.

But it’s understandable. The operator was already working hard to streamline its office locations, simplify its HR and billing systems, and so forth under a pretty extensive modernisation programme. Inflation and the cost-of-energy crisis were always going to make themselves felt. Over the past few years BT has spent around £1 billion per annum on property and energy costs, split roughly equally between the first and second halves. In the six months to the end of September, the figure rose by 22 percent year-on-year to £630 million. And there is little indication of that growth trajectory changing for the better.

Further, BT has networks to build and those do not come cheap.

The telco revealed that its fibre-to-the-premises (FTTP) infrastructure now passes 8.76 million premises – that’s an increase of 1.57 million in six months and over 800,000 in Q2 alone – including 2.8 million locations in rural areas. It notes that its weekly build rate came in at 62,000 in Q2.

It upped its capital spending outlook to around £5 billion for the full year, up from a previous prediction of £4.8 billion, due to a growing number of fibre connections, as well, of course to inflation. However, it noted that it was able to do so as a result of a £200 million tax refund in October. Capex for the remainder of the peak fibre network build will come in at £4.8 billion per year, it said, just as it outlined six months ago.

The operator’s take-up rate for fibre comes in at 27 percent, with Q2 net adds reaching 331,000, which is “ahead of plan.”

However, Openreach’s broadband base fell by 89,000 in Q2, versus net adds of 29,000 in the year-ago quarter, due to reduced market growth and the high-profile strike action the telco faced; industrial action cost the company 40,000 customers last quarter. However, it insists competitor churn is in line with expectations…which is probably just as well, given the competition it is facing from a growing number of UK fibre builders.

Keeping pace with the competition is no small element of BT’s ongoing drive to build fibre and the related investments that entails. But costs at the telco are already coming down. BT said it has delivered gross annualised cost savings of £1.7 billion since April 2020, an achievement that cost it £900 million.

Meanwhile its financial highlights include a group revenue increase of 1 percent for the half year to £10.1 billion, while adjusted EBITDA grew by 3 percent. Capex for the half year was up by 26 percent to £2.6 billion though, and net debt grew by £801 million to over £19 billion.

A mixed bag, but broadly in line with expectations.

The next set of numbers will doubtless reflect how well BT manages to switch off unnecessary lights and turn down the thermostat.

 

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