Mixed results for BT Group - particularly in enterprise division - as company prepares for strikes

(Image sourced via BT)

BT Group delivered a mixed set of results this quarter, as the communications and networking giant faces challenging market conditions - particularly with its large corporate and public sector customers. The company is also facing a worker walkout this week, as engineers and call center staff voted in favor of industrial action after a £1,500 per year pay rise was rejected. 

The Communication Workers Union (CWU) said it will be the first national telecoms strike since 1987, warning the strike could impact the rollout of ultra-fast broadband and cause disruption for home workers. 

However, BT Group did deliver revenue growth this quarter and said that its fibre build and connection beat expectations, with a quarterly FTTP build of 763,000. The revenue numbers were also bolstered by price rises to “support investment in the network and offset cost inflation”. 

The key figures for the quarter are: 

• Revenue of £5.1 billion, up 1%

• Adjusted EBITDA of £1.9 billion, up 2%

• Reported profit before tax of £0.5 billion, down 10%

Commenting on the results, BT Group CEO Philip Jansen said: 

As you would expect, like many businesses, we are balancing inflationary and economic pressures. However, we are executing well against our strategy and delivered a strong performance in quarter one, returning to both revenue and EBITDA growth.

Revenue growth of 1% was supported by better trading in Consumer and Openreach, which was partially offset by the migration of an MVNO customer, continued legacy declines and challenging market conditions, impacting large corporates in Enterprise and Global.

Challenges ahead

Jansen said that BT’s consumer division is performing well against its growth ambitions, highlighting the record quarter for full fibre connections and “strong customer service”. He added that revenue and EBITDA improved in the quarter to levels seen to those just before the pandemic. 

Jansen added: 

Strong performance is also evidenced both by our churn, which has remained near record lows and by a significant improvement in our NPS, when compared to pre-pandemic levels. We continue to focus on and deliver great value for money. With our broadband customers paying an average of just over GBP1 a day which is broadly flat with pre-pandemic levels, despite our mix towards ultrafast products increasing.

However, the Enterprise and Global divisions were a different story. Jansen said that BT continues to face challenges with larger corporations in Enterprise and with multinational corporations in Global. Enterprise EBITDA margin declined 7 percentage points in Q1, year-over-year. However, Jansen said: 

Turning to orders, these were mixed in Enterprise. However, we are seeing traction increase in our global growth portfolio with the order book up year-on-year and growth products representing over half of this. We have a comprehensive plan to restore these businesses to growth by migrating customers to our next-generation solutions, while delivering our costs through digitalization, simplification and the retirement of legacy networks and systems.

Jansen said that BT is seeing encouraging signs in its SoHo division (small office/home office customers) and with SMEs. He said: 

We're back in growth and the customer base is stable and market shares are actually good. The market is softer than we would like, but that's the same in Consumer, right? But nevertheless, we're performing quite well there. And I think as you can imagine, as we invest heavily in the networks of the future, particularly mobile, for example, that's going to all go well. So I think that sector actually is okay.

But the real challenge for us is in the sort of large corporate and public sector area, where there's a whole host of factors at play, which as we said before, the transition from basically legacy voice to new IP-based services is slower than we like and more painful than we would like.

Rob Shuter, CEO of BT’s Enterprise division, said that BT is refreshing its strategy in this area, having put in place new management and investing £100 million over the next three years. Shuter said: 

That's all about solution selling into the large corporates, both public and private sector. There are some green shoots emerging. 

The story is there that we have a better way of running the business. Against that, we've got a bit of weakness in the macro demand. A final point I would make is efficiency, cost transformation, transformation of our IT estate, retiring of legacy applications and solutions is a big theme in the business. There is a lot we can do to be more efficient and to pull that cost control through.

Jansen said that broadly across the business, BT is ‘digitizing, automating and transforming’ its cost base to improve productivity. He said: 

In digital, we are laying the foundations for real business transformation, already evident in improved customer journeys, which have helped to drive NPS improvements across the group over the last year. In addition, we are in-sourcing a number of key activities and reducing our reliance on subcontracted labor, helping us deliver the final £1 billion of cost savings in our £2.5 billion modernization program by the end of fiscal year 2025.

My take 

Not the best set of results for BT and it’s clear that whilst its consumer business is forging ahead, it is struggling with larger customers on a number of fronts (both macro and in terms of execution/strategy). This may change under the new Enterprise leadership and with the planned investments, but time will tell.