BT takes Covid-19 hit but claims strong first quarter
Despite Covid-19, BT claims to have delivered a strong operating performance in the first quarter of its financial year with what it called a “relatively resilient” set of financial results.
For the quarter ended 30 June 2020, BT Group posted revenue of £5.248bn, down 7% annually, primarily due to the impact of Covid-19, including reduced BT Sport revenue and a reduction in business activity in its enterprise units.
Reported profit before tax was £561m, down 13%, due to reduced EBITDA (earnings before interest, taxes, depreciation and amortisation), higher interest expense, and higher depreciation and amortisation charges partly offset by the gain on disposal of the firm’s Spanish telco operations.
Adjusted EBITDA for the quarter was £1.813bn, also down 13%, driven by the fall in revenue and continued investment in customer experience. This was said to be partly offset by Covid-19 mitigating actions and savings from BT’s transformation programme.
As it posted its yearly results for the 2019/2020 fiscal year in May, BT announced that it had completed the third phase of the £1.6bn plan a year ahead of schedule and warned that it was embarking on radical “modernisation and simplification” programme that would remove legacy products and services to deliver gross annualised savings of £2bn over the next five years.
Normalised free cashflow declined by £372m annually to an outflow of £49m driven by Covid-19 impacts on EBITDA and extended customer payment terms.
Drilling down to business lines, the enterprise division showed slower business activity, but with continued lower costs, said BT. Revenue was down mainly because of ongoing declines in legacy products and sharply reduced business activity across enterprise as a result of the pandemic.
BT recorded particular falls in its small and medium-sized enterprise (SME) segment, which it said saw lower call volumes, leading to fewer sales and upgrades across both fixed and mobile products. BT’s wholesale business was similarly affected.
Excluding the divestments of Fleet and Tikit in the previous year, BT enterprise revenue was down 6% compared with the same period in 2019 and EBITDA was down 12%. The decline in profit was mainly a result of the coronavirus, partly offset by lower costs from the transformation programme.
BT’s order intake in the quarter declined, partly driven by contract delays as a result of the pandemic. The company’s 12-month rolling wholesale order intake declined by 15% to £1.0bn. Retail order intake was up 14% at £3.4bn on a 12-month rolling basis following a strong fourth quarter.
Better news came from the Openreach division, which reported that its FTTP build programme was on track and that service levels had been maintained. Revenue growth year on year was driven by higher rental bases in fibre, up 19% annually, and Ethernet, up 10% year on year, partially offset by a decline in legacy products and price reductions, reflecting the impact of Openreach’s volume-related discounts.
EBITDA grew by 2% year on year, with revenue growth partially offset by higher operating costs. The quarter was affected by Covid-19 driving lower churn between providers in the market, which reduced provisioning and upgrade activity. Take-up of FTTP was also impacted during the early part of the lockdown. BT said this has now accelerated, with 10,000 orders received in a single week in June, mainly from BT’s consumer unit.
However, BT warned that it expected to see further impact from Covid-19 in future quarters as a result of business insolvency, slower decision-making by larger customers, and lower usage across its SME and wholesale businesses.
“Despite our strong operational performance in the first three months of the year, it is clear that Covid-19 will continue to impact our business as the full economic consequences unfold,” said BT chief executive Philip Jansen. “Beyond this year and based on current expectations, we expect to return the business to sustainable adjusted EBITDA growth, driven in part by the recovery from Covid-19.”