BT Group Results: Adj. Revenues Down 2%, Adj. EBITDA Up 6% To 5.58bn, Ahead Of Expectations

13th May '10 by Stockopedia News

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Telecoms giant BT Group (LON:BT.A) said it has delivered full year results ahead of its outlook. For the year to end-March, adjusted revenue was down 2% at £20.9bn, ahead of expectations, largely due to the early delivery of around £100m of revenue, primarily due to significant contract milestones in BT Global Services, without which revenue was down 3%. Excluding favourable foreign exchange movements of £297m and acquisitions of £31m, underlying revenue decreased by 4%. Adjusted EBITDA increased by 6% to £5.78bn.

Excluding BT Global Services, adjusted EBITDA for the rest of the group increased by 4%, reflecting continued progress in the delivery of cost savings. Foreign exchange movements and acquisitions had a net £20m negative impact on EBITDA. All 2008/09 adjusted and underlying earnings measures are stated before BT Global Services contract and financial review charges of £1.639bn. Total underlying operating costs and capital expenditure were reduced by £1.752bn, a reduction of 9%, ahead of the outlook of at least £1.5bn.

Capital expenditure reduced by £555m to £2.533bn, in line with the outlook of around £2.5bn, reflecting the steps taken during the year to improve procurement and efficiency and management of capital projects, while investing significantly in fibre and other programmes.

Adjusted EPS increased by 16% to 18.6p due to the improved operating profit, partially offset by the higher net finance expense. Reported EPS was 13.3p (FY 2008/09: loss per share of 2.5p).

Free cash flow more than doubled to an inflow of £1.93bn, compared with £737m last year, reflecting improved profitability and working capital and lower capital expenditure. Net cash outflow for the purchase of property, plant and equipment and software was £2.48bn. Net debt was £9.283bn at end-March (2009: £10.36bn), a reduction of £1.078bn.

The proposed final dividend of 4.6p gives a full year dividend of 6.9p, an increase of 6% compared with an outlook of around 5%. The Board is committed to paying progressive dividends over the next three years to 2012/13.

Ian Livingston, CEO, said:

'We have made good progress this year and have now set clear objectives for the next three years. 'We have improved customer service, are transforming the cost base and have more than doubled free cash flow, but there is still a lot more to do.

'We are investing in the future of our business,…

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Pensions

The IAS 19 net pension position at 31 March 2010 was a deficit of £5.7bn net of tax (£7.9bn gross of tax), compared with a deficit of £2.9bn at 31 March 2009 (£4.0bn gross of tax). The market value of the BT Pension Scheme assets has increased by £6.0bn since 31 March 2009 to £35.3bn at 31 March 2010. However, the discounted value of the liabilities increased by £9.9bn as the discount rate in real terms more than halved in the year to 1.83% (31 March 2009: 3.84%). The liability calculation is based on the AA bond yield of 5.50% (31 March 2009: 6.85%) and future inflation expectations of 3.60% (31 March 2009: 2.90%).

marben100

13th May '10

The problem with BT is this:

Pensions

The IAS 19 net pension position at 31 March 2010 was a deficit of £5.7bn net of tax (£7.9bn gross of tax), compared with a deficit of £2.9bn at 31 March 2009 (£4.0bn gross of tax). The market value of the BT Pension Scheme assets has increased by £6.0bn since 31 March 2009 to £35.3bn at 31 March 2010. However, the discounted value of the liabilities increased by £9.9bn as the discount rate in real terms more than halved in the year to 1.83% (31 March 2009: 3.84%). The liability calculation is based on the AA bond yield of 5.50% (31 March 2009: 6.85%) and future inflation expectations of 3.60% (31 March 2009: 2.90%).

So, with a £7.9bn gross deficit and £35.3bn of assets, that makes the gross liability £43.2bn: one heck of a millstone around a balance sheet that shows a net DEFICIT of £2.6bn (allowing for the £7.9bn of pension deficit, or net assets of £5.2bn if you ignore it). In effect, the performance of the company is massively geared to the performance of its pension scheme.

Until BT find a solution to their pension problem, I shall be steering clear.

Cheers,

Mark

snaj

Hi Mark

BT's pension problem is more to do with uncertainty arising from the fact that it is the difference between two large numbers - one is a current market value of assets that says little about the income that is generated; and the other is a discounted value of liabilities which is sensitive to an actuary's opinion of the future.

In fact the deficit may not be a problem in reality - solvency is far more important: the ability to meet the liabilities as they fall due. My big gripe with BT is that they have a deficit (for whatever it's worth), they have other net debt and yet they are still paying out a chunky dividend from free cash flow - surely shareholders should be demanding that the company become de-risked first, by either improving the solvency position or the debt position or both?

In my opinion, that would make it a far more attractive long term investment rather than a short term cash cow. But what do I know?

Regards
Sanjeev

Hi sanjeev,

"is more to do with uncertainty arising from the fact that it is the difference between two large numbers"

That's precisely the point! Highly analogous to the situation the banks were in before before the credit crunch. It could turn out to be harmless... or it could turn out to be a nightmare, with the co effectively ending up in the hands of the scheme trustees, if liabilities continue to rise faster than assets. Not really a safe, value investment.

Strongly agree with your point abut the rising divvy. The pension scheme trustees ought to be shouting about that whilst there's a large apparent deficit.

Best,

BT Group results: adj. revenues down 2%, adj. EBITDA up 6% to 5.58bn, ahead of expectations

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