Can telecoms giant BT keep improving returns to its army of small shareholders?

By Roger Baird


BT chief executive Ian Livingston cheered his army of long-suffering shareholders by hiking the full-year dividend by 12 per cent and posting a solid set of results.

One million small investors in the firm will be keeping their fingers crossed he continues to turn around the problems that have beset the UK’s biggest fixed-line phone company.

Livingston said he was happy with the firm’s annual results in the year  to March and added there was more to come.

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‘While we will be impacted by economic and regulatory headwinds, we expect to continue to grow profits over the next two years,’ he insisted.

The business made a 42 per cent jump in adjusted pre-tax profit, to £2.4bn on the back of an ongoing programme of cost cuts and lower restructuring charges.

It cemented BT’s status as the largest broadband provider in the UK,  winning almost 590,000 domestic broadband customers last year – a rise of 10 per cent to 6.3m.

BT also hiked its full-year dividend to 8.3p from 7.4p 12 months ago.


This will be of intense interest to its shareholder base, which includes around a million small shareholders, who rely on dividends as a steady source of income.

However, the business did see its annual sales fall 4 per cent to £19.3bn.

Analysts blamed this on the weak economic environment in Europe, and recent regulatory changes that mean telecoms firms have to cut the amount they charge customers to connect to rival networks.

But BT has performed well in  a global market that has seen  telecoms firms’ sales suffer from a slowdown in spending by their large multinational corporate clients.

Germany's Deutsche  Telekom posted flat first-quarter earnings this week, while earlier this month Dutch rival KPN saw its shares slump to a seven-year low.

BT has come a long way from the troubled firm Livingston inherited in June 2008.

Global Services, its multinational corporate division, had over- estimated the size of the contracts it expected to win and led the  company to a £134m loss, only its second as a private company.

Livingston’s response was to axe the majority of the unit’s senior executives and reorganise the way the business, which accounts for roughly a third of group sales, is run. This year Global Services saw sales slip 3pc to £7.8bn, though its operating cash flow grew 54 per cent to £183m.

By contrast, BT Retail, which handles sales to households, racked up £7.4bn of sales which contributed £1.4bn of operating cashflow to the group.

Livingston pointed out that a few years ago Global Services had  lost £800m in a year for the group, and so had ‘turned the corner.’

But he admitted there was still more work to do.

One analyst said: ‘Global  Services had two problems: Bad management and a poor economic environment.

‘The first problem is  gone, but they are left with the second and that is out of their hands. Sales at this unit will take time to grow.’

As a group, BT generated £2.5bn of free cashflow, which was 13 per cent up on last year.

Livingston said he intended to spend this cash investing in a range of projects such as the rollout of fibre optic cable in the UK to boost broadband speeds which, the firm announced, was now available to ten million homes and businesses.

BT said it is on course to  complete its £2.5bn programme  to link around two-thirds of  the country by 2014.

At a consumer level, the firm’s BT Vision digital TV service has failed to make serious ground on rival Sky, which has 10.6m customers.

BT Vision added 28,000 new  subscribers during the year to total 700,000.

But most industry watchers say Sky’s mix of live sport and Hollywood glamour is still the most compelling on the market.

Livingston has also tackled the firm’s pension black hole, which at one stage reached £9bn.

BT agreed in March to pay £2bn into its pension, which cut its  deficit in half. The firm has agreed with its trustees to plug the remainder through a series of annual payments over the next nine years.

This large payment of its pension liabilities led many observers to think BT would hike its dividend by more, causing shares to fall 5.7p to 211.5p.

Although over the last six months, shares have risen 11 per cent.

The dividend is far below the 15.8p it paid out in 2008.

But as one analyst said those heady days are over: ‘That  dividend was a product of the boom years that were about to end. Telecoms firms spent freely then. This new management is more prudent.’

The boom years may be over but Livingston will have to tread the rocky path between exploiting the undoubted appeal for communication services, without overstretching as the firm has been guilty of in the past.


Here's what other readers have said. Why not add your thoughts, or debate this issue live on our message boards.

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When my BT bill went from £12 a month to £25 I jumped ship. I'm now paying £8 with a different supplier. Aint market forces great. I'm about to do the same with my o2 mobile contact too.

Click to rate     Rating   2

I'm really impressed with Ian Livingston's work since he took over as Chief Exec. He has sorted out the Global Services debacle, made huge cost savings within the company and steered a huge company out of choppy waters. Without his leadership i don't think BT would be in as good a position as it is today.

Click to rate     Rating   1

"BT has come a long way from the troubled firm Livingston inherited in June 2008." Livingston was the BT Finance Director since 2002. He therefore has a high level of responsibility for the mess and share price collapse which occurred in 2008. Not on my watch guv - of course it was. And how many of the same executives who bore responsibility for the companies drift down to 72.5p in March 2009 are now sharing in massive £90m bonuses as a reward for share price appreciation. They took it down to 70p level and are now being rewarded for its partial recovery. The shareholders who held stock prior to 2008 are still not back at these levels in terms of price or dividend - sp was over 300p in 2006-2007. Bonuses for what exactly?

Click to rate     Rating   21

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