BT suspends dividend to cut costs and increase investment in the UK’s full-fibre broadband network

In its statement on Thursday, BT Group (LON:BT.A) announced to have suspended its dividend that marks the company’s first in over a decade. The company also expressed plans of investing the saved money into building the next-generation full-fibre 5G broadband network across the United Kingdom.

According to BT, its pre-tax profit posted a 12% decline to £2.3 billion at the end of March. The company is currently facing a new challenge from O2 and Virgin Media as the two companies announced a £31 billion merger agreement on Thursday.

The company cited Coronavirus to have fuelled debtor provisions resulting in a £95 million charge for the decline in its pre-tax profit.

Dividend will be 50% lower when reintroduced in 2022

The British telecommunications company announced to have suspended its last year’s dividend of £1 billion as well as its dividend for the next fiscal year that is estimated at £1.5 billion. BT said that it will reintroduce dividend in 2022 at 50% of its previous annual amount which will result in an additional £750 million saving for the company.

The last time BT suspended its dividend was during the market crash of 2008-09. Following its announcement, BT was reported 8% down on Thursday. At 105 GBX per share, the company is currently a little under 50% down year to date in the stock market. Its performance in 2019, however, was not reported encouraging either with an annual decline of roughly 20%.

CEO Philip Jansen’s comments on BT’s new strategy

Originally, BT had pledged to bring the full-fibre broadband to at least 15 million households in the UK by late 2020. With this added investment, the company is now aiming at reaching 20 million households instead. As per CEO Philip Jansen:

“In order to deal with potential consequences of COVID-19, allow us to invest in FTTP and 5G, we have taken the difficult decision to suspend the dividend until 2022 and rebase thereafter.”

Jansen also disclosed a new 5-year modernisation plan for BT that will include layoffs and save around £2 billion for the company per year. BT currently has 100K employees globally.  

“BT needs to be leaner, simpler, and more agile. This initiative will re-engineer old and out-of-date processes, rationalise products, reduce re-work and switch off many legacy services. But in five years’ time will we end out with less people in BT, definitely.”

The telecommunications company has successfully completed its previous 3-year plan that laid off 13,000 workers, sold BT’s headquarters in London, and saved £1.6 billion.