I didn’t expect to see BT Group (LSE: BT.A) shares fall 9% on Thursday morning. But that’s what happened after the firm revealed plans for big job cuts.
I shouldn’t have been surprised about that bit of news after Vodafone did the same this week with the loss of 11,000 jobs in the next three years.
Now BT looks set to slash 55,000 jobs by the end of the decade. Around a fifth of those will be in customer services, replaced by artificial intelligence.
What does it mean for shareholders?
For years, BT has been focusing on dividends, as has Vodafone. They were cut during the Covid years, but soon came back in 2022, though at a reduced level.
Debt and cash flow
That’s been through years of pressure on profits, and the build-up of huge debt. The cash handouts kept shareholders sweet. And to be fair, paying dividends didn’t cost a huge amount of money in the overall scale of things.
But it was just papering over the cracks. I’ve been saying for years that BT and Vodafone needed to get a grip of cash flow, and focus on their balance sheets.
To show how tough things have been, chief executive Philip Jansen said that “this year we’ve grown both pro forma revenue and EBITDA for the first time in six years“.
Tough times
The first growth for six years is not what I’d want to see from a lean and profitable company. And it’s on a pro forma basis, with reported revenue down a bit.
Jansen added: “By continuing to build and connect like fury, digitise the way we work and simplify our structure, by the end of the 2020s, BT Group will rely on a much smaller workforce and a significantly reduced cost base. New BT Group will be a leaner business with a brighter future.”
Now that change is finally happening, is this the start of a new era for telecoms shareholders?
Dividend maintained
On the dividend front, the cash was maintained at last year’s 7.7p level. That’s a 5.2% yield on Wednesday’s close. It’s not up to Vodafone’s level of unaffordable excess, but it still seems like a lot from a company struggling with costs.
Net debt rose by £850m to £18.9bn. That was mainly due to BT paying £1bn into its pension scheme. So it’s borrowing money to help cover its pension deficit, while paying big dividends.
The CEO didn’t say much about debt, or about the balance sheet. He was mostly talking about Opeanreach roll-out (at a time when a million people in the UK have cancelled their broadband due to the cost of living).
Buy BT shares?
So, is this a new start, and is it a good time to buy BT shares?
I think in a few years, investors might look back on this year as the start of a long-term rebuild and resurgence for BT. But for now, I’m going to wait until I see a concrete result on the bottom line.
Most of all, I’d love to see BT reduce its debt like fury.
