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BT deepens cost savings to tackle energy and inflation

BT Group announced another extension of a long-term cost-cutting program as CEO Philip Jansen aims to grow profits.

BT Group Plc announced another extension of a long-term cost-cutting program as Chief Executive Officer Philip Jansen aims to grow profits amid higher energy costs and a challenging economic outlook.

The London-based telecommunications group set a new target of £3 billion by the end of 2025, compared to its cost base for 2020, an increase of £2.5 billion.

That came with results for the second quarter that were broadly in line with expectations. Adjusted earnings before interest, taxes, depreciation and amortization were £1.97 billion, the company said Thursday, versus the average of £1.95 billion from analyst estimates compiled by Bloomberg. Adjusted sales were £5.24 billion, compared to £5.26 billion estimated by analysts.

BT shares fell 7.2% to 118.5 pence at 8:41 am in London on Thursday.

Key insights

BT reported a hit of about 40,000 to its Openreach customer connections as a result of industrial action – essentially delaying new transfers from other networks, which may or may not happen later. The carrier is in an ongoing wage dispute with the Communication Workers Union. Last month, workers, including emergency services, called handlers.

“Given the current high inflation environment, including significantly increased energy prices, we need to take additional steps to reduce our costs to maintain the cash flow needed to support our network investments,” Jansen said in the statement of results. “We remain laser-focused on modernizing and simplifying BT Group.”

The company raised its annual capital expenditure forecast from £4.8 billion to £5 billion, citing inflation. It said previous guidelines for normalized free cash flow would come in at the bottom of a previously outlined range of £1.3 billion to £1.5 billion.

Jansen previously said the £7.9bn Ebitda forecast was achievable “in every conceivable scenario”.

Speaking to reporters, Jansen said supply chain efficiency and reducing internal duplication are areas of focus for his cost-cutting goal.

BT has absorbed an annual increase in energy costs of £200m this year, Chief Financial Officer Simon Lowth said on the call. The company is about 50% hedged “at good prices” for next year, with the remainder looking to enter into market or power purchase agreements.

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