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BT’s £3 Billion Cost-Saving Initiatives

BT has recently announced the launch of new cost-saving initiatives worth £3 billion, a move that comes after significant investments in its UK full-fibre broadband network. These investments have also led to an increase in dividends for the company.

The company’s revenue experienced a slight uptick, reaching £20.8 billion, marking a 1% increase from the previous year. This growth was driven by higher broadband prices, strong sales of fibre products by Openreach, and expansion in its consumer division.

Despite the rise in revenue, BT’s profitability took a hit, with pre-tax profits dropping by 31% to £1.18 billion. However, adjusted EBITDA saw a modest increase of 2% to £8.1 billion.

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Investment in Infrastructure and Network Expansion

Capital expenditure decreased by 3% to £4.9 billion, primarily as a result of reduced network spending. However, Openreach’s rollout of FTTP accelerated significantly, connecting 78,000 homes per week in the recent quarter. Currently, there are approximately 14.8 million FTTP broadband connections, with a take-up rate nearing 34%.

Additionally, BT achieved its £3 billion cost savings target for 2025 earlier than expected, largely thanks to its ongoing job reduction program. This initiative aims to eliminate 55,000 jobs by the end of the decade.

Allison Kirkby, who was appointed as chief executive earlier this year, stated that BT has reached a strategic ‘inflection point.’ Under her leadership, the company aims to implement another £3 billion in cost reductions by 2029. This announcement coincides with a significant decline in the company’s share price, which has plummeted 45% from 208p in May 2019 to just 105p this year.

New Financial Goals and Workforce Strategy

Having exceeded its cost-saving goals ahead of schedule, BT has set a new target of achieving £3 billion in gross annualized cost savings by 2029. This plan involves a continued rigorous reduction of its workforce, with the aim of reducing employee count from 130,000 to a range of 75,000 to 90,000 by 2030. The incorporation of artificial intelligence is also planned to replace approximately 10,000 jobs.

Kirkby is optimistic about the company’s latest financial strategies, projecting a substantial increase in short-term cash flow and a potential doubling of normalised free cash flow in the next five years.

With these bold moves, BT’s share price surged by 8% in early trading to just over 122p. The new CEO also shared positive news regarding the shareholder dividend, which rose by 3.9% to 8p per share.

Financial Challenges and Investor Scepticism

Despite the strategic changes, BT faces the challenge of rapidly expanding its FTTP network while further cutting costs to manage its £20 million debt pile. This delicate financial balancing act has led investors to bet against BT shares, with a £300m short position taken this week, the largest in 12 years. This has positioned BT as the sixth most shorted stock in the FTSE 100.

Major investment players like BlackRock, Canada Pension Plan Investment Board, and hedge funds such as AKO Capital and Kintbury Capital have all taken short positions in 2.79% of BT’s shares, reflecting investor wariness about the company’s financial direction.

Despite investor skepticism, Kirkby remains confident in her strategy, stating, “I always love to squeeze the shorts and prove them wrong.” This bold statement indicates her determination to steer BT in the right direction despite external doubts.

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Tags: mobile, network, telecoms, UK