For the first time in over three decades, BT has suspended its dividend scheme as the former state-owned teleco grapples with the fallout from the novel coronavirus pandemic, and the financial uncertainty that'll inevitably ensue.
The announcement came with the publication of its results for fiscal 2020 which ended on 31 March: Pre-tax profits fell 12 per cent to £2.35bn, with a significant chunk of that (£95m) attributed to "increased debtor provisions" as a result of the current pandemic. Revenue similarly dipped 2 per cent to £22.9bn.
BT has suspended the final dividend for the last financial year, in addition to the dividend for the financial year ending March 2021. BT plans to reinstate shareholder payments in the 2021/2022 financial year, although these will be half the previous figure.
The firm faces an uncertain future. Firstly, there's the planned merger of O2 and Virgin Media, which is expected to conclude mid-2021. If regulators approve the deal, BT will no longer be the sole converged provider of paid TV, fixed-line, and mobile services in the UK.
And as BT noted in its annual report [PDF], the COVID-19 pandemic presents its own unusual challenges. The Consumer side of the business pulls in almost as much money as the Enterprise and Global units combined. With a deep recession expected throughout this year, consumers will likely cut back on discretionary spending, and that could include some of BT's pricey TV packages and phone upgrades.
Specifically, BT is expecting to see lower revenue for BT Sport, as a result of the suspension of the sporting calendar, as well as the closure of pubs and clubs. And as consumers are unable to travel abroad as freely as before, roaming revenue is expected to take a hit.
On the enterprise side of things, BT also highlighted potential losses from businesses going bust, as well as overall lower sales volumes.
CEO Philip Jansen implied that by suspending its dividend, BT can maintain its investment in scaling its nationwide infrastructure upgrades, which are partly state-subsidised, without having to make any cutbacks. The EE subsidiary is actively rolling out 5G across the country, while its parent is withdrawing the old copper-based network in favour of fibre-to-the-premises.
He said in the market update: "In order to deal with the potential consequences of COVID-19, allow us to invest in FTTP and 5G, and to fund the major 5-year modernisation programme, we have also taken the difficult decision to suspend the dividend until 2022 and re-base thereafter."
BT estimates that its modernisation efforts will deliver savings of £2bn over the next five years as it retires legacy products and simplifies its tech stack. ®