Outgoing BT boss Gavin Patterson signed off today by beating revenue and profit expectations in the telecom giant’s third quarter.
Patterson will make way for ex-Worldpay chief executive Philip Jansen tomorrow, after BT suffered a sustained drop in its share price.
Analysts said Patterson was leaving on “an upbeat note” on the back of today’s trading update.
The broadband giant reported a three per cent year-on-year decline in core earnings to £1.88bn. Reported profit before tax of £2.09bn was up 20 per cent over the nine months to the end of 2018 compared to the same period the year before, while adjusted profit before tax dropped one per cent to £2.49bn.
Revenue dipped one per cent to £5.98bn for the three months to the end of December as it recorded a one-off £180m charge in regulated broadband price reductions at Openreach.
The drop-offs were partly offset as both revenue and earnings grew in BT’s consumer unit, with core profits up 15 per cent to £648m and revenue growing four per cent to £2.78bn.
The revenue boost came from higher prices and increased handset costs for customers.
However, BT’s other areas of enterprise, Openreach and global services all fell compared to the same period last year.
A steeper than expected decline in landline calls knocked enterprise revenue down six per cent, while global services fell five per cent as BT reduced its low margin businesses. Openreach profits plunged 19 per cent as a result of the regulatory charge.
Patterson signalled that despite the marginal declines, BT is on track to deliver underlying profit towards the top end of guidance for the current financial year of around £7.4bn.
He added: “We continue to expect regulation, market dynamics, cost inflation and legacy product declines to impact in the short term before being more than offset by improved trading and cost transformation by our 2020/21 financial year.
“I am handing over the business with good momentum behind its ongoing transformation programme and wish my colleagues all the best for the future.”
On a call with analysts, he added: “There have been some ups and downs no doubt but I think the business is more resilient better placed overall.”
Patterson also warned about potential disruption from a no-deal Brexit, saying: “A disorderly exit could damage consumer and business confidence although it’s too early to assess any potential impact.”
Shares fell around four per cent on the back of the update as analysts reeled off the list of pressures facing BT in 2019.
George Salmon, equity analyst at Hargreaves Lansdown, said: “Outgoing chief executive Gavin Patterson has had his critics in recent years, but these results mean he’s leaving on an upbeat note.
“BT’s drive to reduce costs is well underway, but there’s more to this positive performance than just cost cutting. The consumer business is again strong, and improvements in BT’s global operations are coming faster than expected.
“That’s not to say BT is out of the woods though. Competition is fierce in mobile and broadband, and falling profits at Openreach are a timely reminder that regulation has the potential to limit progress at any time.” With the combined pension and net debt position a rather daunting £16.1bn, it’s hard to see the new CEO raising the dividend in May’s full years.”
Lee Wild, head of equity strategy at Interactive Investor, added: “In the short term, expect BT to have its hands full dealing with increased regulation, fierce competition, rising costs and a drop off in contribution from legacy products. Add the threat of a no-deal Brexit to that list.
“For now, though, a pick-up in trading and heavy cost-cutting is offsetting headwinds, and restructuring put in place by Patterson continues to feed through.
“There’s a lot for BT to cope with both near and long-term, and questions about the dividend will not go away. Profit is steady over the past nine months at £5.55bn but huge investment in its fibre network reduced free cash flow by 11 per cent.”