BT counts cost of Covid-19 in third quarter

Fibre and 5G roll-outs continue apace, but trading update reveals trying times for UK incumbent telco, with falling revenues and profits

The stark fundamental dynamics of the post-Covid world have been revealed in BT’s third-quarter results. For the nine-month period to 31 December 2020, the telco reported a 7% drop in revenue year on year to £16.058bn, mainly due to the impact of Covid-19 on its consumer and enterprise units, ongoing legacy product declines and divestments of domestic businesses in Spain, Latin America and France.

Revenue for BT’s enterprise division fell by 8% on an annual basis to £4.086bn. BT noted that enterprise revenue was down predominantly due to the continued impacts of Covid-19 and ongoing declines in legacy products. Excluding the divestments of Fleet and Tikit in the previous year, revenue fell by 6% year on year and EBITDA (earnings before interest, taxes, depreciation and amortization) was down by 11%.

BT’s overall adjusted EBITDA was £5.603bn, down 5%, driven by the fall in revenue, but partially offset by sports rights rebates in the first half of 2020, savings from the company’s modernisation programme and other cost initiatives, including Covid-19 mitigating actions.

The net result was that reported profit before tax was £1.591bn, tumbling 17% due to the reduced EBITDA. This, in addition to higher cash capital expenditure, saw normalised free cash flow downwards by 17% year on year to £830m. This was offset by a cash receipt from the monetisation of a non-strategic revenue stream generated from the company’s building infrastructure and timing of tax payments.

In a key index for the nine-month period, BT revealed that its capital expenditure had risen by 5% compared with the first nine months of 2019 to £3.030bn, primarily driven by increased fixed and mobile network investment, namely the acceleration of the rate of development of the EE 5G mobile network and the ramp-up of the Openreach full-fibre broadband infrastructure.

BT noted that Openreach’s fibre-to-the-premise (FTTP) network now reached 4.1 million premises, built at an average run rate of 42,000 premises passed per week in the third quarter. The company said it remained on track to achieve its target of passing 4.5 million premises by March 2021.

BT added that its FTTP commercial offers have been extended and all of Openreach’s major communications provider customers are now selling FTTP. Noting a strong increase in sales in the third quarter, Openreach achieved a record 17,000 FTTP orders per week.

Another highlight of the third quarter was Openreach’s first copper stop-sell going live in Salisbury, with customers in the Wiltshire cathedral city no longer able to buy a traditional copper landline or broadband product, instead only being able to order FTTP or full-fibre broadband technology. BT said it would extend copper stop-sell to 2.2 million UK premises by January 2022.

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In the realm of mobile, BT said the EE 5G network was now present in 125 locations and its 5G-ready customer base had grown to over 2.1 million. Also in the third quarter, EE took top spot in the RootMetrics national mobile network performance survey for the 15th consecutive time, claiming 5G in more places than any other network.

Yet despite its setbacks, BT was bullish about its performance, claiming to have delivered third-quarter results in line with expectations and that it remained on track to deliver its 2020/21 outlook despite even greater Covid-19 restrictions than previously forecast.

“During the current Covid-19 pandemic, BT has continued to deliver for our customers and invest in our networks, our modernisation programme, and our products and services in recognition of the ever-increasing need for improved and faster connectivity,” said BT chief executive Philip Jansen. “BT has shown again that it has the spirit and determination to step up and deliver for our customers, keeping them connected with a range of initiatives.

“With no material impact expected from the Brexit deal and our resilient results so far this year, I remain confident in our EBITDA expectation of at least £7.9bn for 2022/23. Looking further ahead, our new digital unit will enable us to accelerate our digital and business transformation programmes and to deliver digital platforms, further securing a brighter and more sustainable future for the group.”

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