BT lifts dividend payout as broadband business grows

BT Group has lifted its dividend on the back of rising profits and an increase in broadband customers attracted by its growing roster of exclusive sports TV rights.

The British telecoms group signed up a further 203,000 fibre broadband customers in the second quarter, taking premium-paying high speed internet customers to more than 2.5m in total.

About 38,000 more customers were added to its TV platform, now watched by a little more than 1m viewers, although BT does not say how many have signed up just to sports TV channels that have been expensively assembled in order to win back customers from rival services such as broadband from Sky. 

BT has spent about £2bn on acquiring the rights to show sports including some Premier League football games and Champions League football games from next season.

The gamble on sports TV appears to be paying off, with BT posting a 7 per cent growth in revenues for its consumer arm to a little more than £1bn, which managed to offset most of the declines in revenues shown in all other parts of the business. Group revenues were down 2 per cent overall to £4.4bn in the second quarter.

Pre-tax profits rose 13 per cent to about £563m in the second quarter, which gave BT the confidence to increase the interim dividend by 15 per cent to 3.9p, at the top end of its guidance. Earnings before interest, tax, depreciation and amortisation rose 1 per cent to £1.4bn, with capital expenditure down 10 per cent to £533m.

Gavin Patterson, chief executive, said that the "solid quarter" was "slightly ahead of market expectations as we reduced costs and grew ebitda".

"Our consumer business continues to perform well thanks to the impact of BT Sport where Premier League audiences are up about 45 per cent on average. Fibre is also driving growth with one in three of our retail broadband customers enjoying superfast speeds," he said.

Shares in BT were 2.6 per cent lower in early London trading at 365.6p. They have been flat over the past year after an initial surge of enthusiasm for the company's strategy to become as much a technology and media group as a traditional telecoms provider eased ahead of the next stages of the company's development.

Analysts are still worried about the impact on free cash flow in future if BT is forced to spend more in the next auction for Premier League rights. Morgan Stanley last week downgraded BT to "underweight" from "equal weight", saying that BT could pay up to £1bn a year for future Premier League rights for its BT Sports TV channel, compared with about £246m a season at present.

The next Premier League TV auction is expected to start early next year. Mr Patterson has said that BT was already considering its strategy in the forthcoming auction, although he has insisted that there is no pressure on the group.

Analysts such as Morgan Stanley are also worried about increased competition for broadband customers. While second-quarter average revenue per customer grew 7 per cent year-on-year, consumer line losses were 85,000 and BT's share of new broadband customers was lower than in recent quarters "due to strong promotional activity in the market".  

There are also analyst worries about growing pension liabilities. The net pension deficit as measured under the IAS 19 accounting standard was not as bad as some had feared, at £5.9bn, or £7.3bn gross - only a small increase from £5.8bn at the first quarter. Analysts at JPMorgan had been expecting a £1bn increase in the second quarter, "but BT's nominal discount rate did not decrease by as much as we had anticipated", they said.

BT hopes to announce an agreement with the trustees of its pension scheme by the end of the financial year about the level of deficit, which will determine how much new money it needs to inject. JPMorgan expects a March 2015 deficit payment of £655m owing to the pension deficit deteriorating over the past three years.

The comoany said that its outlook for the year was unchanged, with underlying revenue broadly level before growth next year. It expects to grow the dividend by 10-15 per cent in the next two years and to maintain a share buyback of about £300m in each year.

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