BT suspends dividend and announces future cuts

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BT will not pay dividends for the first time since the start of the millennium and has warned shareholders to prepare for lower payments in the future as the UK telecommunications group focuses on improving its broadband network and saving his credit rating.

The former telephone monopoly said on Thursday that it was suspending its final dividend for the 12-month period ending in March and would not make any payments this fiscal year.

Payments should resume in the next financial year, but at only 7.7p per share, well below the last final dividend paid by BT of 15.4p. In response, the group’s shares fell 10% at the start of the session before rebounding slightly.

BT’s decision is more serious than analysts had expected and underscores how the coronavirus pandemic is forcing even perceived resilient companies to rethink their strategy.

Philip Jansen, CEO of BT, called it “difficult for shareholders although necessary”, saying that canceling the dividend would save the company £ 2.5 billion.

Jan du Plessis, President of BT, said that the company was “ready” to develop its complete fiber optic network to 20 million premises by the end of this year, but that the dividend reduction was necessary to navigate ” in the unprecedented uncertainty caused by Covid-19 without compromising our credit rating. “

“BT plays a key role in maintaining essential national infrastructure – amplified by the Covid-19 crisis – and many players trust and rely on the connectivity we provide,” he said.

The group is expected to face stiffer competition after Virgin Media and O2 agreed to merge this week. Jansen called the € 31 billion deal “a wise move.”

“Personally, I think this industry needs to be consolidated,” he said. “O2 and Virgin are important customers for us, so I think it will bring opportunities.”

BT is one of the largest dividend payers of the FTSE 100 and last paid in 2001-02. The group cut its dividend for the last time in 2008, when the financial crisis worsened its problems.

The telecommunications group has struggled to justify its large investment in sports rights over the past decade due to its large pension deficit as well as political and consumer demands to upgrade the old copper lines to fiber optic networks.

Competitors such as Vodafone, Deutsche Telekom and Orange have already cut their dividends and BT has indicated that it is willing to cut the payment to finance a network overhaul in line with the government’s ambitions to improve broadband speeds. Great Britain.

Jefferies analysts called the decision to temporarily cut the dividend “unexpected”, while their counterparts at Citi said it was a “tough but reasonable dividend decision” at £ 12 billion which the company had said it needed to develop the UK’s fiber optic network.

Jansen inherited a major restructuring plan at BT from his predecessor Gavin Patterson which included 13,000 job cuts but a commitment to hire more engineers.

BT announced the cut in payments as it released its annual results. Revenues for the year to March fell 2% to £ 22.9 billion, which is largely in line with expectations. Pre-tax profit fell to £ 2.4 billion from £ 2.6 billion, partly due to accounting changes, but also due to £ 95 million in provision charges “as a result of Covid-19 “.

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