BT has suspended its annual dividend for the first time since its privatisation in 1984 and warned shareholders to brace for lower payouts in the future as the group focuses on upgrading its broadband network while safeguarding its credit rating.
The company said on Thursday that it would suspend its final dividend for the year to March and that there would be no investor payout in the current financial year. The move will save BT about £2.5bn.
It will be the first time that the former phone monopoly has not paid any annual dividend since its privatisation. It cut it in 2008 and cancelled its final dividend in 2001 but has never ceased payments for a full year.
The telecoms company still has about 800,000 retail shareholders and is one of the biggest dividend payers in the FTSE 100. Payouts are expected to resume in the next financial year but at just 7.7p a share, far below the last final dividend BT paid of 15.4p.
The company’s shares fell almost 10 per cent as a result.
The move by BT is more severe than analysts had expected and underlines the extent to which coronavirus is forcing even those companies perceived as more resilient to rethink their strategy.
Philip Jansen, BT’s chief executive, called it “hard for shareholders although necessary” and justified the need to cut the dividend against its plan to invest in its full-fibre network.
The group said it intended to connect 20m homes and premises to the faster broadband technology within a decade. This is more than the former 15m target but will cost £12bn, forcing the dividend cut.
“BT plays a key role in sustaining critical national infrastructure — as magnified by the Covid-19 crisis — and many stakeholders trust and rely on the connectivity we provide,” said chairman Jan du Plessis.
The group is set to face more intense competition after Virgin Media and O2 agreed to merge this week, but Mr Jansen called the £31bn deal a “sensible move”.
“Personally, I think this industry needs consolidation,” he said. “Both O2 and Virgin are important customers for us, so I think it will bring opportunity.” He told the Financial Times that BT would “put its foot on the accelerator” in promoting its own combined fixed-mobile products as a result of the merger.
The telecoms group has struggled to justify its large investment in sports rights made during the past decade due to its hefty pension deficit as well as political and consumer demands to upgrade old copper lines to full-fibre networks.
Rivals including Vodafone, Deutsche Telekom and Orange have cut dividends and BT had hinted that it was willing to reduce the payment to fund an overhaul of its network in line with government ambitions to improve Britain’s broadband speeds.
Analysts at Jefferies called the decision to temporarily remove the dividend “unexpected”, while counterparts at Citi said it was a “tough but sensible” decision.
Mr Jansen inherited a sweeping restructuring plan at BT from his predecessor Gavin Patterson that includes 13,000 job cuts alongside a commitment to hire more engineers and make £2bn more in savings over the next five years. He said on Thursday there would be some further job losses, without specifying numbers, as products are reduced and technology is better used for customer service but that the company is still hiring more engineers.
BT announced its payout move as it reported full-year results. Revenues for the year to March fell 2 per cent to £22.9bn, largely in line with expectations. Pre-tax profit slipped to £2.4bn from £2.6bn, partly due to accounting changes but also because of £95m worth of charges related to provisions “as a result of Covid-19”.
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