BT Group lifts savings target to £3bn amid inflationary concerns

Posted on November 3, 2022Comments Off on BT Group lifts savings target to £3bn amid inflationary concerns

BT Group has hiked its cost savings goal by another £500million as the telecoms giant warned of heightened inflationary pressures, including higher energy costs.

Its chief executive Philip Jansen said the company now aims to save £3billion by the end of 2025, up from £2.5billion, in order to ensure cash flow is sufficient enough to fund its network investments.

The business had previously raised its savings objective – also by £500million – on the publication of its full-year results in May after achieving £1.5billion of savings in the prior 12 months.

Objective: BT plans to spend £15billion installing full-fibre broadband in 25 million UK homes and businesses by December 2026, with around a third of those premises in hard-to-reach rural localities

Objective: BT plans to spend £15billion installing full-fibre broadband in 25 million UK homes and businesses by December 2026, with around a third of those premises in hard-to-reach rural localities

BT did not specify how the extra savings would be made, but it has already lowered costs by cutting staff numbers, retiring legacy apps, digitising its operations and closing a number of offices.

The group also plans to decommission legacy fixed and mobile networks, and sell off unused exchange sites, while the move to an all-fibre network is set to save them considerable sums of capital expenditure spending.

In addition, it plans to spend £15billion installing full-fibre broadband in 25 million UK homes and businesses by December 2026, with around a third of those premises in hard-to-reach rural localities.

Jansen said: ‘Given the current high inflationary environment, including significantly increased energy prices, we need to take additional action on our costs to maintain the cash flow needed to support our network investments. 

In interim results released on Thursday, BT told investors it had expanded its fibre-to-the-premises broadband ISP network to 8.8 million properties, of which 2.8 million are in rural locations.

Yet the number of Openreach broadband customers declined by 89,000 in the second quarter following a slowdown in the broadband market and strike action involving 40,000 BT staff last month.

It still managed to marginally boost revenues to £10.4billion in the six months ending September as growth in its consumer and Openreach networks arm offset lower spending by large corporate customers and its BT Sport disposal.

The company’s reported profits also more than doubled to £893million, yet BT Group shares were 6.4 per cent lower at 119.55p in early trading on Thursday, making it the third-biggest faller on the FTSE 350 Index. In the past six months, their value has fallen by around 30 per cent.  

Sophie Lund-Yates, the Lead Equity Analyst at Hargreaves Lansdown, said: ‘It’s never a good look to have to cull your cost base in the name of cash flow conservation.

‘That takes sensible efficiency-planning into the realms of worry. The biggest question mark left by the announcement is precisely where the cuts are going to come from.

‘Supply chain efficiencies and improvements to the product offering are being pegged as primary sources of the savings, but how much excess juice there is to be squeezed from these areas remains to be seen.’

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