BT second-quarter results beat analysts’ expectations

Performance unaffected by rivals’ calls for network division to be hived off

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BT’s second-quarter results released on Thursday beat analysts’ expectations, as calls by rivals for a carve-up of the telecoms group’s business did not disrupt its operating performance.

BT has been locked in talks with regulator Ofcom to agree a new structure for its Openreach division, which connects homes and businesses to broadband lines on behalf of all telecoms companies.

The bitter debate about Openreach — Sky, TalkTalk and Vodafone want the division split off from the rest of BT — and the quality of British internet access has put the UK’s former telecoms monopoly under renewed scrutiny, but it has not slowed its growth.

BT added 63,000 television customers in the group’s second quarter, and its consumer arm took 65 per cent of the new broadband subscribers added by Openreach during the three months to September 30.

BT said that revenue, adjusted for the acquisition of mobile operator EE, edged 1.1 per cent higher to £6bn in the quarter, while pre-tax profit rose 24 per cent to £873m.

The company proposed increasing its dividend by 10 per cent to 4.85p a share, on the same day that Spanish rival Telefónica was forced to slash its own payout to cut debt.

BT said it booked a £145m non-cash charge in the second quarter related to its Italian division due to “inappropriate management behaviour” that had triggered “historic accounting errors”.

The company conducted a short investigation into the situation in Italy after a whistleblower contacted senior management in London about accounting issues. BT has suspended the chief executive and chief operating officer of its Italian unit, which is part of its Global Services division, pending a more formal investigation by an external agency.

Analysts at Exane BNP said BT’s results were ahead of expectations but pointed to signals of increased investment in customer service and marketing in the second half of the company’s financial year.

They noted that the strength of BT’s consumer arm shone through, but that the outperformance was driven by strong numbers from the company’s global services division, which provides telecoms services to companies and has been a source of problems in the past.

The fly in the ointment for BT was its large pension scheme, where the deficit widened to £9.5bn at September 30, from £6.2bn at the end of June. The company is still a year away from its triennial valuation of the scheme that is used during negotiations with the trustees to determine a funding arrangement to close the deficit.

Gavin Patterson, chief executive of BT, said that the widening pension deficit strengthened his resolve to keep Openreach within the group, as splitting it off would raise alarm bells with the trustees of the pension. Most of the company’s 330,000 pension scheme members were engineers and splitting up the BT and Openreach operations could put the existing payback plan at risk. “If the covenant is weakened, understandably they will want to repair the deficit faster. It’s just maths,” he said.

BT’s rivals have dismissed that argument and said that the pension fund could easily be transferred to a newly incorporated Openreach.

Mr Patterson also railed against the notion that Britain has poor broadband connections and said that many people who assume they have terrible speeds have simply not upgraded to a faster service, with 91 per cent of the country now covered by superfast connections. “One of the frustrating things is that when the people that are complaining are gently reminded they have fibre in their area, they become sheepish,” he said.

BT shares, which have taken a knock since the Brexit vote and on fears it will be broken up, lost 2.5 per cent to close at 378p, with the drop attributed to pension jitters.

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